January 1975, Albuquerque, New Mexico.
The cover of Popular Electronics magazine featured a computer called the Altair 8800. This was the first personal computer for hobbyists.
Two young men saw this magazine.
“We need to write a BASIC interpreter for this machine,” one said.
“But we don’t have this machine,” the other said.
“Then we’ll simulate it on paper.”
They spent 8 weeks writing a BASIC interpreter. Then they flew to Albuquerque and demonstrated it on the Altair.
The program ran successfully.
These two young men were Bill Gates and Paul Allen. They had just founded a company called Microsoft.
The Value of Software #
At the time, computer hobbyists had a consensus: Software should be free.
Members of the Homebrew Computer Club shared software with each other; no one thought about selling software. Computer companies sold hardware; software was just an add-on.
Gates thought differently.
He wrote an open letter published in a hobbyist newsletter:
“Who can do professional work without pay? Hobbyists should realize that using someone else’s software without paying is stealing.”
This letter caused huge controversy. Hobbyists angrily responded: Software should be free!
But history sided with Gates. The software industry was about to be born.
The Deal with IBM #
In 1980, IBM decided to enter the personal computer market. They needed an operating system.
IBM approached Gates, asking if Microsoft could provide one. Gates said: We don’t do operating systems; you should talk to Gary Kildall, who has the CP/M operating system.
IBM went to Kildall, but Kildall wasn’t there, and his wife refused to sign IBM’s non-disclosure agreement. IBM left empty-handed.
IBM approached Gates again. Gates realized this was an opportunity. He spent $50,000 to buy an operating system called QDOS from another company, made minor modifications, and renamed it MS-DOS.
Then, he made a smart deal: Microsoft retained ownership of MS-DOS, only licensing it to IBM.
This meant: other companies could make IBM-compatible computers, and Microsoft could license MS-DOS to them.
IBM agreed. They thought the operating system was just supporting software; the real value was in hardware.
They were wrong.
The Explosion of IBM Compatibles #
In 1981, the IBM PC was released, running MS-DOS.
The IBM PC used an open architecture: technical specifications were public, and other companies could make compatible machines. Compaq, Dell, HP, and other companies began producing IBM compatibles.
These compatibles all used MS-DOS—Microsoft collected a licensing fee for every machine.
IBM sold hardware with increasingly thin profits. Microsoft sold software, making money while lying down.
By 1990, MS-DOS was installed on over 100 million computers. Microsoft became the hegemon of the software industry.
The Birth of Windows #
MS-DOS was a command-line interface; users had to type commands to operate. For ordinary people, this was too difficult.
Apple’s Macintosh used a graphical interface with mouse operation—intuitive and easy to use. Gates realized: Microsoft needed a graphical interface too.
In 1985, Microsoft released Windows 1.0.
It was a graphical interface running on top of MS-DOS. Users could click icons with a mouse, open windows, and run programs.
But Windows 1.0 was crude, with limited functionality and a lukewarm reception.
The real breakthrough was Windows 3.0 in 1990. It supported better graphics, more memory, and more applications. Windows 3.0 sold 10 million copies in two years.
In 1995, Windows 95 was released. It was a complete operating system, no longer dependent on MS-DOS. It had a Start menu, taskbar, and plug-and-play. Windows 95 sold 40 million copies in its first year.
Windows became the world’s most widely used operating system.
The Browser Wars #
In the mid-1990s, the Internet began rising. Netscape’s Navigator browser held 90% of the market.
Gates realized the importance of the Internet. Microsoft developed Internet Explorer, bundled with Windows.
Users buying Windows got IE for free. Why pay for Navigator?
Netscape sued Microsoft for monopoly. The U.S. Department of Justice also filed an antitrust lawsuit against Microsoft.
In 2000, the court ruled that Microsoft violated antitrust law and should be split up. Microsoft appealed and eventually settled.
But Netscape had already lost. The browser wars ended with Microsoft’s victory.
Microsoft’s Empire #
By 2000, Microsoft had become a software empire:
- Windows: Occupied 90% of the desktop operating system market
- Office: Word, Excel, PowerPoint dominated the office software market
- IE: Dominated the browser market
- Server software: Windows Server, SQL Server held significant positions in the enterprise market
Bill Gates became the world’s richest man, with a net worth exceeding $100 billion.
Microsoft was called the “Evil Empire.” Silicon Valley entrepreneurs feared Microsoft: if your product was too successful, Microsoft would enter your market and crush you with free offerings.
Gates’s Transformation #
In 2000, Gates stepped down as CEO, handing daily management to Steve Ballmer. He began focusing his energy on philanthropy.
Gates and his wife Melinda founded the Bill & Melinda Gates Foundation, focusing on global health and education.
The foundation invested billions of dollars in:
- Eradicating polio
- Fighting AIDS, malaria, and tuberculosis
- Improving sanitation in developing countries
- Supporting education reform in the United States
Gates said: “I was very lucky to be in the right industry at the right time. Now I can use this wealth to give back to society.”
In 2008, Gates officially left Microsoft’s daily operations to work full-time on philanthropy.
Microsoft’s Dilemma #
After Gates left, Microsoft struggled.
Mobile market: Windows Phone lost to iOS and Android, with almost zero market share.
Search market: Bing couldn’t shake Google’s position.
Cloud market: Azure started late, lagging behind Amazon AWS.
Microsoft looked like an outdated giant that had missed the mobile internet era.
Nadella’s Transformation #
In 2014, Satya Nadella took over as CEO.
Nadella realized: Microsoft couldn’t be obsessed with Windows anymore. Cloud computing was the future.
He made bold changes:
- Moved Office to the cloud, launching Office 365
- Heavily developed Azure cloud services
- Acquired LinkedIn and GitHub
- Open-sourced the .NET framework
- Launched iOS and Android versions of Office
These measures worked. Azure became the second-largest cloud provider, Office 365 had over 300 million users. Microsoft’s stock quadrupled, once again becoming one of the world’s most valuable companies.
Microsoft transformed from a “Windows company” to a “cloud and AI company.”
Software Changed the World #
Looking back at Microsoft’s history, we can see the power of software:
Software defines computer functionality. The same hardware with different software has completely different functions.
Software creates enormous value. A CD costs a few cents, but the software on it is worth hundreds of dollars.
Software changed how we work. Word changed writing, Excel changed calculation, PowerPoint changed presentations.
Software connected the world. Windows let ordinary people use computers; IE let ordinary people access the internet.
Bill Gates said: “Software is invisible, but it’s everywhere.”
Next Step: The World Wide Web #
While Microsoft dominated desktop software, another person in Europe invented something that would change the world.
He was Tim Berners-Lee. He invented the World Wide Web—a system that let ordinary people easily use the Internet.
He didn’t apply for a patent, didn’t start a company, but gave it free to the whole world.
Tomorrow, we’ll discuss the birth of the World Wide Web.
Today’s Key Concepts #
Operating System Licensing Microsoft licensed MS-DOS to IBM but retained ownership. This allowed Microsoft to license the operating system to other computer manufacturers. This business model made Microsoft the hegemon of the software industry.
Graphical User Interface (GUI) Operating computers using graphics, icons, windows, and menus instead of typing commands. Windows brought GUI to the masses, letting ordinary people use computers.
Bundling Packaging multiple products together for sale. Microsoft bundled IE with Windows, providing the browser for free, crushing Netscape. This sparked antitrust lawsuits.
Discussion Questions #
- Gates said “software should be paid for”; hobbyists said “software should be free.” Who do you agree with?
- Microsoft missed the mobile internet era, but Nadella led a successful transformation. What do you think was the key to the transformation?
Tomorrow’s Preview: The Birth of the World Wide Web—how did Tim Berners-Lee bring the Internet to ordinary people?