Tech Nostalgia: Bill Gates, Jack Tramiel, and BASIC (Premium)

Most readers are probably familiar with the near-mythical story of Bill Gates' improbable rise to riches, infamy, and industry dominance. Which goes something like this. IBM originally met with Microsoft co-founder Bill Gates to license BASIC and some of the company's other computer programming languages for its first PC, codenamed Chess, and the team asked whether Microsoft also had an operating system they might use. He did not, but he recommended that they speak with Digital Research founder Gary Kildall to license his operating system, CP/M.

Here, the story varies depending on who's telling it, but IBM wasn't able to reach an agreement with Kildall and the team returned to Gates for advice. And sensing an even bigger opportunity, he told IBM that Microsoft could provide an OS. Of course, Microsoft didn't have an OS, and so it purchased a CP/M clone called QDOS from a small Seattle-area company for next to nothing and parlayed it into what became Microsoft's most successful business, first with MS-DOS/PC-DOS and then with Windows. Industry dominance achieved.

That story is a lot more nuanced than what I described, but it's also not the story I want to tell. Instead, I want to explain exactly why Gates' decision to license BASIC and other programming languages, and then an operating system, to IBM was so cagey. And the key word there is license: Microsoft's market dominance and the future it and Gates amassed was due entirely to software licensing, as opposed to one-time sales. Indeed, Gates and Paul Allen co-founded Microsoft specifically to license their first product, a BASIC interpreter for the MITS Altair, an early personal computer.

The key to Microsoft's licensing strategy was that it was non-exclusive. When IBM came to Microsoft for BASIC and other programming languages, it did so specifically because that software had proven so popular on earlier personal and home computers sold by Apple, Atari, Commodore, Tandy, and others, and Microsoft would receive a license fee for each computer sold. But BASIC was particularly important, and not just for the obvious reasons that it was easy to understand and popular. The earliest personal computers didn't have operating systems as we now know them. Instead, Microsoft's BASIC would be built into ROM and would be immediately available when these computers booted up. In many ways, BASIC was the operating system.

CP/M (and then MS-DOS in an even bigger way) would eventually solve that problem and help to make later computers more sophisticated and easier to use. But the most popular computers of 1982, when IBM was racing to create its PC, were 8-bit and booted into Microsoft BASIC, not CP/M.

Bill Gates is rightfully credited for Microsoft's licensing strategy, and as more and more computer makers adopted Microsoft BASIC, the company became richer and richer. But less well-known is that there were very few exceptions to the Microsoft licensing strategy. Among them is a company th...