The Microsoft Deal That Changed The Future of Computing
In 1980, IBM was twice as large as every other computer company in the world combined.
At this time, Microsoft was a young startup company with 40 employees. Bill Gates and Paul Allen had started Microsoft 3 years earlier and had sold more than half a million copies of its Basic software program.
IBM had traditionally made and developed new products in-house. In 1980, they were late to the PC market and wanted to move as fast as possible. This meant IBM had to outsource key projects to deliver their PC to market. One of the things they needed was software to enable their programs for their first PC.
IBM reached out to Microsoft and other software makers for the top-secret “Project Chess” and required each to sign a nondisclosure agreement before they even sat down with IBM.
On Nov 6, 1980, a contract agreement was made between IBM and Microsoft. This deal would change the future of computing. IBM would pay Microsoft $430,000 for MS-DOS (Microsoft Operating System). In the agreement, there was a key provision that allowed Microsoft to license the operating system to other computer manufacturers besides IBM.
This was a nonexclusive arrangement IBM agreed on because it was so caught up in decades of antitrust investigations and litigation. To avoid the hassle of dealing with their lawyers, they let that part slide because they didn’t want to add more issues to what they had already going on with other cases.
This legal caution from IBM would be the key to Microsoft's rise in the industry. This small provision allowed Microsoft to dominate and become the tech company of the industry. Microsoft was the company that bridged software and hardware with its operating system. It’s revenues skyrocketed from $16 million in 1981 to $140 million in 1985 as other computer makers partnered with them.
A small provision in the contract changed the future of computing forever. Imagine if IBM wasn’t so cautious in the contract and removed that in the contract. Would Microsoft be where it is today? It’s crazy to think that one provision changed the fortunes of Microsoft to become a titan in the industry.