In 1975, Gates and Allen co-founded Microsoft Corporation to market their version of BASIC, called Microsoft BASIC. It was the primary interpreted computer language of the MS-DOS operating system, and was key to Microsoft’s early commercial success.
In February 1976, Gates wrote the Open Letter to Hobbyists, which shocked the computer hobbyist community by asserting that a commercial market existed for computer software. Gates stated in the letter that software should not be copied without the publisher’s permission, which he equated to piracy. While legally correct, Gates’s proposal was unprecedented in a community that was influenced by its ham radio legacy and hacker ethic, in which innovations and knowledge were freely shared in the community. Nevertheless, Gates was right about the market prospects and his efforts paid off: Microsoft Corporation became one of the world’s most successful commercial enterprises, and a key player in the creation of a retail software industry.
Microsoft’s key moment came when in the late 1970s, IBM was planning to enter the personal computer market with its IBM Personal Computer (PC), which was released in 1981. Gates licensed MS-DOS, which it had acquired from a local computer manufacturer, to IBM. The story of how Microsoft acquired the original system (QDOS) has inspired much folklore, which often portrays Gates pouncing on a trivial mistake by Digital Research and stealing that company’s lead in microcomputer operating systems. It is frequently cited by those who accuse Gates of unethical business practices. In reality, IBM did approach Digital Research for a version of CP/M for its upcoming IBM PC, and spoke to Gary Kildall’s wife Dorothy. IBM representatives wanted Dorothy to sign their standard non-disclosure agreement, which Dorothy considered overly burdensome. IBM then returned to talk to Microsoft. Gates obtained rights to a cloned design of CP/M, QDOS, from Tim Paterson of Seattle Computer products, licensed it to IBM, and MSDOS/IBMDOS was born. Later, IBM discovered that Gates’ operating system could have infringement problems with CP/M, contacted Kildall, and in exchange for a promise not to sue, made an agreement that CP/M would be sold along with IBMDOS when the IBM PC was released. The price set by IBM for CP/M was $250 and for MSDOS/IBMDOS it was $40. Obviously, MSDOS/IBMDOS outsold CP/M many times over, eventually becoming the standard. By marketing MS-DOS aggressively to manufacturers of IBM-PC clones, Microsoft gained unprecedented visibility in the microcomputer industry, even rivalling IBM.
During the following years, Gates used his company’s growing resources to displace competitors such as WordPerfect, and Lotus 1-2-3, among many others. It is alleged (although never explained in detail) that Gates instructed Microsoft programmers to include special code in one of the MS-DOS versions to make Lotus 1-2-3 produce errors, making it appear to the users as if Lotus’s software was the problem but it clearly wasn’t.
In the mid-1980s Gates became excited about the possibilities of compact disc for storage, and sponsored the publication of the book CD-ROM: The New Papyrus that promoted the idea of CD-ROM.
In the late 1980s, Microsoft and IBM partnered in the development of a more advanced operating system, OS/2. The operating system was marketed in connection with a new hardware design, the PS/2, that was proprietary and secret to IBM. As the project progressed, Gates oversaw continuing friction with IBM over the system’s design, hardware support, and user interface. Ultimately he came to believe that IBM wanted to marginalize Microsoft from having any input in OS/2’s development. On May 16, 1991 Gates announced to Microsoft employees that the OS/2 partnership was over and Microsoft would henceforth focus its platform efforts on Windows and the NT kernel. In the ensuing years OS/2 fell to the side and Windows became the favored PC platform.
Some years later, Microsoft’s Internet Explorer web browser displaced Netscape’s Navigator, in a turn of events that many attributed to Microsoft’s inclusion of Internet Explorer in Windows at no extra charge. An opposing view is that the inclusion in Windows was less important in Internet Explorer’s adoption than Microsoft’s improvement of the browser’s features to a level comparable with Navigator.
As the architect of Microsoft’s product strategy, Gates has aggressively broadened the company’s range of products and, once it has obtained a leading position in a category, has vigorously defended that position. His and other Microsoft executives’ strategic decisions have more than once drawn the concern of competition regulators, and in some cases have been ruled illegal.
In 2000, Gates promoted long-time friend and Microsoft executive Steve Ballmer to the role of Chief Executive Officer and took on the role of “Chief Software Architect”.