How They Started (40 page)

One of the world’s richest people, Bill Gates
hardly needs an introduction. Software made by the company he co-founded runs almost all personal computers (PCs) in the world today. Microsoft is one of the world’s largest corporations, making over $23 billion in profit on revenue of almost $70 billion in 2011.

Yet, this company began in the same way as many others in this book, with two ambitious young people who had a dream. Back then, in 1975, there were no PCs on desks or in homes, and the few people who knew what a “computer” was knew them as substantial machines that took up a large room and needed specialists to operate them. Even so, Bill, a college student, and his co-founder, Paul Allen, a recent graduate, believed that software and computers were going to grow dramatically as a business, and they were determined to be part of it. Even with their foresight, they could not have dreamed back then of quite how far their vision would go.

Bill was born in Seattle in 1955 to an affluent family, with his father a prominent lawyer. He was gifted at math but was otherwise unremarkable. In 1968, his first year at private school, the school got its first computer—in fact, just a terminal linked into a PDP-10 computer made by Digital Equipment Corporation. The computer was owned by General Electric Corporation, which leased it by the hour to Bill’s school. It was a very long way from today’s computers, which meant it was popular with just a handful of boys who wrote programs on it using a programming language called BASIC (Beginner’s All-purpose Symbolic Instruction Code). Bill’s first programs were games: first tic-tac-toe, then
Lunar Lander
, a game about landing a space shuttle safely on the moon before it ran out of fuel.

Bill would spend hours in his school’s computer lab using this machine, and it was here that he met Paul, a fellow school pupil two years older than Bill. They continued to develop their interest in computers at school, running up enormous bills way beyond anything the school had originally imagined. The school understandably set limits on the amount of time they could spend on the computer.

Bill and Paul literally breathed computers day and night, and when Bill was only 13 years old, they were tasked with their first “IT project” for the Computer Center Corporation (“C-Cubed”). The company, recently established in Seattle, owned a mainframe computer that Bill’s school hooked up to using its terminal. A company director was impressed with Bill and the other students’ skills and tasked them with finding software bugs in return for unlimited time on the computer after normal working hours; the boys were often there until midnight!

“It was when we got free time at C-Cubed that we really got into computers,” Bill remembers. “I mean, then I became hard core. It was day and night.” Through this the boys were able to ask the C-Cubed staff all sorts of questions, vastly expanding their computing knowledge. Bill and Paul stood out from their school friends because of their enthusiasm for computers.

Over the next few years, word spread about Bill’s and Paul’s abilities, and they were asked to develop a payroll system for a local company in return for receiving more computer time and some royalties on any sales of the system. After that, they came up with a program that could count city traffic which they sold to the city of Seattle, but they reportedly never made much profit from it.

In 1973, Bill enrolled at Harvard University, where he proved himself one of the most gifted students at math. Also at Harvard, he met fellow student Steve Ballmer, who was studying math and science and who would later play a significant role in Microsoft’s history. Much like in high school, however, Bill found himself missing classes on a regular basis to indulge his passion for computers. He even considered quitting college to look for a job and had several interviews. While Bill was undecided about what the future would hold, the US economy, too, was looking unstable. By 1973, the US officially entered a period of economic recession.

Over the next two years, while the recession deepened, Bill continued to study at Harvard, but he also kept in close touch with Paul, who was now working for computing company Honeywell, based in Boston. The young men were convinced that there would be an enormous computing boom and were determined to be part of it. After their earlier forays into the business world, they knew they wanted to set up their own business and were on the lookout for the right time and opportunity to do so.

In January 1975, on his way to visit Bill at college, Paul came across a trade magazine for the computer industry,
Popular Electronics
, featuring a new computer called the Altair 8080 on the cover. This machine was manufactured by Model Instrumentation and Telemetry System (MITS), a company based in Albuquerque, New Mexico, which claimed it would offer the world’s first affordable computer for the general public. Thousands of people had already placed orders for one, eager to get their hands on what was then a revolutionary piece of technology. The Altair bore little resemblance to the computers we use today, lacking both keyboard and mouse. These computers had to be assembled from a kit and then programmed in binary code using switches on the front panel. Unsurprisingly, this limited their appeal to electronics enthusiasts.

Bill and Paul felt sure that this was the opportunity for which they had been waiting. They thought that they could write a version of BASIC for the Altair, which would be much easier to use than the binary code. MITS would be sure to sell lots of copies of it, earning good money for Bill and Paul.

Just a few days after the magazine had come out announcing the Altair, they phoned Ed Roberts, the head of MITS, to offer him a BASIC program for the Altair. This move demonstrated the pair’s ambition and drive, for in reality, although they had talked about writing a version of BASIC, they had not actually developed anything yet; they wanted to gauge the company’s reaction first. Roberts explained that he had received many such calls, and that the first people to deliver a program that worked would get the deal. “We realized that the revolution might happen without us,” Bill said. “After we saw that article, there was no question of where our life would focus.”

The pair faced two serious challenges, however: neither of them had access to an Altair computer (or had even seen one with his own eyes—in fact the only one in the world was still at MITS at this stage), and they hadn’t even begun to write the software. MITS asked Paul and Bill to fly out the following month to demonstrate their program, unknowingly giving them the time they needed to write it. Sensing their first real opportunity to start a computer business, Bill and Paul set about writing the software. Using Harvard University’s computers, Paul worked on a program to imitate the Altair’s system as closely as possible, working at night after his day job, while Bill worked both day and night writing reams upon reams of code for the BASIC language itself. Although BASIC had already been invented, nobody had ever made a version for a minicomputer, let alone something as small as the new Altair, and many experts declared that it could not be done.

As their deadline drew closer, Paul and Bill roped in fellow Harvard students to help complete the code. Eight weeks after the phone call to Ed Roberts, Paul flew out to Albuquerque to meet with MITS. None of the MITS executives believed that the program would work, and indeed just one bug could have stopped it. But against all the odds, Paul used BASIC to get the Altair to add 2 + 2, and the machine gave the crowd watching the answer: 4. The program worked!

Bill negotiated a deal whereby MITS agreed to buy the rights to the program, even though there were still quite a few bugs that needed to be fixed. The two young men celebrated what would turn out to be their new company’s first deal by going out for ice cream and soft drinks.

Things moved quickly from there. In June 1975, both Paul and Bill moved to Albuquerque, with Paul working officially as director of software at Altair (having left Honeywell) while Bill took a leave of absence from Harvard and worked on perfecting the software code. They both signed a 10-year contract giving MITS exclusive rights to the Altair version of BASIC and the right to license it out to third parties. For their part, Bill and Paul received a royalty of between $30 and $60 for every copy sold, and MITS agreed to promote and market their software. When BASIC was sold together with an Altair it would typically cost around $50, whereas when sold separately, the price could be as much as 10 times more.

The two young men celebrated what would turn out to be their new company’s first deal by going out for ice cream and soft drinks.

Paul and Bill also formalized their partnership at this point, with Bill initially owning 60 percent and Paul 40 percent, as Bill argued that he had done more of the initial programming. They later changed this split so that Bill ended up with 64 percent and Paul 36 percent. Despite being independently wealthy from a trust fund he had inherited, Bill was determined not to use that money for his business, so he and Paul kept their costs to a bare minimum, sharing a room in a dingy Albuquerque hotel to start.

They quickly hired two of their friends from the computer club at their school in Seattle to help them work on debugging BASIC and other programs for the Altair. The four shared an apartment and shared an obsessive work ethic, with all of them utterly committed to developing software as fast as they could, building up enormous team spirit between them. They worked at a small office next to MITS and would often fall asleep at work. One time a MITS executive was giving someone a tour of the office and came across Bill asleep on the floor.

Orders for Altairs flooded in and MITS could barely keep up with the demand. Strangely enough, though, sales of the software remained in the low hundreds, and Bill soon figured out why: his version of BASIC had been pirated and was being distributed freely among Altair users. While these users were happy to pay for the hardware and associated computer accessories, it became clear that they saw software as something to be shared freely.

It was not a view that Bill subscribed to, however. He already believed that software, more than anything else, would be the single most important force for the future of personal computing, and for this to happen, it had to be paid for. He was so passionate about this that he wrote a letter to a trade magazine, bemoaning the fact that people expected software to be free. If this were the case, how would developers be paid? Such was Bill’s passion that his letter gained considerable support from business partners and led to paid-for, copyrighted software becoming the industry standard.

It was not only the letter that was significant, but the way Bill signed it: “Bill Gates, general partner, Micro-Soft.” They had come up with this name during the summer by combining microcomputer with software. Bill and Paul soon dropped the hyphen.

While Paul worked at MITS, both he and Bill also developed their software company. They were enormously excited by the potential of the burgeoning PC market and were desperate to take advantage of it. MITS launched a floppy disk drive for the Altair and asked Paul and Bill to adapt their BASIC program to work with it.

The following year, in 1976, Paul quit MITS to concentrate on Microsoft full-time, and the business hired new programmers and moved into its first offices, on the eighth floor of a bank building in Albuquerque. In November of that year, they registered the name Microsoft as a trademark. Bill formally dropped out of Harvard at the end of 1976 to concentrate full-time on the business. His parents were not happy with his decision and tried to talk him out of it, but he was absolutely convinced that computers would eventually enable people and businesses to save time and money, thus creating an enormous business opportunity, and he was determined to be part of this impending growth.

MITS may have been the company that launched Bill and Paul toward fame, but less than two years later, it was holding back Microsoft’s growth potential. MITS was still struggling to keep up with demand for Altairs and was facing some serious reliability issues with some key components. Meanwhile, dozens of new competitors wanted to license a version of Microsoft’s BASIC. Bill negotiated deal after deal with these companies, but under the terms of Microsoft’s agreement with MITS, MITS had to approve these deals. MITS felt the deals were too competitive and withheld its approval, enraging Bill, who felt deprived of enormous income.