The story of how Microsoft came to acquire the operating system that propelled its meteoric rise is shrouded in some mystery but reveals Bill Gates’ business acumen. Here’s a look at the fateful deal that changed the course of tech history.
In 1980 IBM was developing a personal computer and needed an operating system. The dominant OS at the time was Gary Kildall’s CP/M but talks between IBM and Kildall’s company Digital Research faltered. IBM turned to Microsoft for languages, and Gates recommended they speak to Kildall about an OS. But with no deal struck with DRI, IBM came back to Microsoft.
Sensing an opportunity, Gates licensed an existing OS called 86-DOS (aka QDOS) from Tim Paterson of Seattle Computer Products for a mere $50,000. This became the basis for Microsoft Disk Operating System, MS-DOS. Microsoft retained rights to license MS-DOS to other hardware makers, a prescient move by Gates. When cloned “PC compatibles” running MS-DOS emerged, Microsoft was positioned to dominate business computing.
The Deal That Shaped An Industry
Microsoft’s purchase of 86-DOS for five figures and subsequent licensing to IBM was a landmark deal, the ripples of which shaped the whole computer industry. Gates showed business savvy by securing the rights to sell the OS to other companies even as IBM’s influence waned. This decision paved the way for Microsoft’s rise.
But how much did Microsoft really pay for the OS that changed its fortunes? Details are murky due to conflicting accounts. The purchase price was estimated at $50,000-$75,000, considered paltry even then. Yet this shrewd acquisition catalyzed Microsoft’s growth into a behemoth.
Kildall and the CP/M – IBM Deal That Never Happened
Gary Kildall’s CP/M was the leading OS when IBM launched its PC project. IBM approached Kildall about licensing CP/M, but for unclear reasons, talks collapsed. Kildall claimed IBM demanded he sign a one-sided NDA, which he refused. Others suggest Kildall missed meetings with IBM reps.
With no deal on the OS, IBM turned to Microsoft for languages and Gates pointed them to Kildall. But DRI and IBM failed to agree on licensing terms. This failure to capitalize on CP/M for the PC remains a Lost Opportunity for Kildall.
Seattle Computer Products and the Origins of QDOS
With CP/M a dead end, IBM had to look elsewhere. Enter Tim Paterson of Seattle Computer Products. Earlier Paterson had developed a prototype 8086 computer and coded an OS for it he called QDOS, for “Quick and Dirty Operating System.”
When IBM came back to Microsoft desperate for an OS, Gates acquired QDOS from Paterson for that paltry sum, possibly as low as $50,000. This became MS-DOS, the OS that came with every IBM PC.
The Deal of The Century…for Microsoft
Gates fully capitalized on the opportunity. Under the IBM deal, Microsoft retained rights to license MS-DOS to other companies. When PC clones emerged, Microsoft was positioned to supply them the OS, locking in its dominance.
This breathtakingly forward-thinking contract with IBM was arguably Gates’ smartest early move. For a tiny outlay, Microsoft gained the OS that made its fortune. The $50,000 or so Gates paid for QDOS may be the most brilliant deal in tech history in terms of return on investment. It catapulted Microsoft’s rise to the top.
Kildall’s Questions Over Copyright
In later years, Kildall accused IBM and Microsoft of copyright infringement, claiming QDOS lifted code from CP/M. Paterson denied this, stating he only used CP/M manuals for compatibility.
Kildall threatened legal action but none materialized. The complexity of proving infringement claims made lawsuits problematic. But Kildall held firm in assertions that QDOS mimicked CP/M’s functions.
DOS Established Microsoft’s Dominance
MS-DOS being bundled with IBM PCs – and crucially, licensed to other manufacturers – firmly entrenched Microsoft in the market. As IBM PC clones running MS-DOS proliferated, Microsoft prospered from licensing revenues.
Once again, Gates displayed business acumen by retaining MS-DOS licensing rights, despite creating DOS for the IBM PC. This transforming deal enabled Microsoft’s rise as the preeminent software company.
Lasting Impact
The purchase of QDOS for peanuts and subsequent licensing to Big Blue was a watershed moment in computing history. Gates’ shrewd maneuvering with DOS checkmated competitors and positioned Microsoft to dominate PCs for years. Prescient decisions like this propelled the company’s rapid growth and enduring success.
Did Bill Gates Invent DOS?
FAQ
How much did Bill Gates pay for MS-DOS?
A company called Seattle Computer Products was given $50,000 by Bill Gates to sell 86-DOS, a copy of CP/M. Gates paid that company for the exclusive rights to QDOS. He then renamed it as MS-DOS. He then licensed MS-DOS to IBM for them to use in their soon to be released personal computer.
How much was DOS purchased for?
Microsoft purchased 86-DOS, allegedly for US$50,000. This became Microsoft Disk Operating System, MS-DOS, introduced in 1981. In just one year, Microsoft sold licenses for MS-DOS to more than 70 other companies. These companies used it as the operating system for their own hardware, sometimes under their own names.
How much did IBM pay for DOS?
The clause was Microsoft would provide IBM an operating system, named PC DOS. Gates agreed to sell IBM the Operating System for a lot less than $50,000 USD, but it wasn’t an exclusive deal for royalties. This meant Microsoft could sell the OS to anybody they wanted.
How did Bill Gates acquire DOS?
However, Gates did something different. He paid $75,000 for a program from a small company called the Quick and Dirty Operating System (or Q-DOS). Q-DOS was, in fact, a ripoff of Gary’s CPM program. He then changed its name to MS-DOS (Microsoft DOS) and licensed it to IBM.
Why did Bill Gates give IBM a license?
Problem: IBM wanted to pay a one-time fee of $200,000 to get a license that would never charge them any royalties. Kildall wanted more. Bill Gates came up with a similar operating system. Giving DOS to IBM for $50,000 was a smart move because he thought he could make a lot of money by selling licenses to other computer companies. Kildall was bitter.
Why did Bill Gates buy 86-DOS?
IBM approached a young Bill Gates for help. Gates shared plenty of ideas with IBM and even told them he’d write an operating system for them. Instead of writing one, Gates reached out to Paterson and purchased 86-DOS from him, allegedly for $50,000.
Did Gates sell Qdos to IBM?
Allen got in touch with Rod Brock, the owner of Seattle Computer Products, and agreed to sell QDOS for $10,000 plus a $15,000 fee for each company that bought the software. It is written in Big Blues: The Unmaking of IBM that Sams said Gates told him about QDOS and offered it to IBM. Sams asked, “Do you want to buy it or do you want me to buy it?”
Did Bill Gates fly on a business trip?
According to Fire in the Valley: The Making of the Personal Computer by Paul Freiberger and Michael Swain, Gates said that day, “Gary was out flying.” Kildall always denied this, telling the authors of Hard Drive: Bill Gates and the Making of the Microsoft Empire that he had actually flown to the Bay Area for business.
How much did IBM Pay Microsoft?
Allen says that IBM agreed to pay Microsoft a total of $430,000 in November of that year. This included $45,000 for what would become DOS, $310,000 for the different 16-bit languages, and $75,000 for “adaptions, testing, and consultation.” “.
Why did IBM buy 86-DOS?
When IBM wanted a 16-bit OS to run on its first PCs, it called Microsoft and asked them to make one. This purchase is important to history. It looks like Microsoft decided it would be smarter to buy a solution than to make its own. At first, it licensed what was then called 86-DOS, or QDOS, from Seattle Computer Systems without being the only company that could use it.
