Chapter 6 Microsoft in the 1970' s
6.1... Gates/Allen Early Years
William Henry Gates was born on the 28th. of
October 1955 in Seattle, Washington. He was the only son
and the second of three children by William and Mary
Gates. The father was a prominent Seattle lawyer and the
Bill's parents enrolled him in Seattle's exclusive
Lakeside School in 1567. This was a progressive private
all male school with a disciplined approach to
education. During the 1967/63 school year, the teaching
staff recommended acquisition of computer facilities to
expose the students to the technology. The school could
not afford to purchase a computer. However the Lakeside
Mothers Club agreed to finance the use of a time sharing
service. In 1968 the school obtained an ASR-33 Teletype
terminal and used a local access line to dial into a
General Electric Mark II time sharing system. In his
19 68/69 school year at the age of thirteen. Bill Gates
Another student interested in programming was Paul
G. Allen, who was born in 1953. From their mutual
enthusiasm for programming computers a friendship
developed which continued through high-school and
university. It is this association that eventually led
to their founding of Microsoft.
6/2 Paitn 1970's-TheAltair/Apple .
Figure 6.1: Paul Rllen and Bill Gates (standing) at thi
Lakeside School computeir room teletype terminal, cl968
Photograph is courtesy of Microsoft Corporation.
The students' enthusiasm for programming quickly
strained the schools' time sharing budget. Fortunately
the parent of another student had become one of the
founders of Computer Center Corporation (CCC) . This
corporation had installed a Digital Equipment
Corporation PDP-10 computer to offer time sharing
service in the Seattle area. The corporation had a
shakedown agreement, whereby DEC did not require payment
for the computer until the equipment and software
operated to the customers' satisfaction. The company
suggested to the school that the students help test the
computer system for bugs. In return they would receive
free computer time. This became an intensive period of
programming and acquisition of computer technology
knowledge for both Bill Gates and Paul Allen. Not only
did they de-bug the DEC PDP-10 system, but they invaded
the intricacies of the computer accounting files to
access the passwords. This resulted in a temporary
Microsoft in the 1970's 6/3
disciplinary period of exclusion from the system.
However after a short period of assisting the company
programmers, Computer Center Corporation encountered
financial difficulties and went into receivership in
the University of Washington where Paul Rllen's father
was the associate director of the libraries. The
university had a Xerox Data Systems (XDS) Sigma V time
sharing computer and a Control Data Corporation (CDC)
Cyber 6400 computer. Gates and Rllen used both computers
for a period of time .
Lakeside now managed to obtain on loan a DEC PDP-
3/L computer. Gates obtained the source code for a
version of BASIC from DECUS, a DEC user's group. He
then started working on his own first version of a BASIC
interpreter. However before he had completed the
software. Lakeside returned the DEC PDP-8/L. Lakeside
then received a Data General Nova computer. However the
school returned the computer before Gates could adapt
his BftSIC interpreter to the new machine architecture.
Then in the fall of 1970, Lakeside arranged with
Information Sciences, Inc., (ISI), a time sharing
company in Portland, Oregon for use of their DEC PDP-10.
By this time Gates, Allen and two other friends Richard
Meiland and Kent Evans from Lakeside had formed an
organization called the Lakeside Programmers Group. The
group managed to obtain a contract from ISI to develop a
payroll program in COBOL. Once again this contract
provided computer time in exchange for the work required
to develop the payroll software. It also provided
a commercial program.
During 1970/71 a Lakeside teacher and former
Boeing engineer had the task assigned of creating a
program for class scheduling. Unfortunately a flying
accident killed the teacher. Gates and his friend Kent
in FORTRAN. However another tragic accident killed Evans
in a mountaineering class. Paul Allen had enrolled at
the Washington State University in the fall of 1971. He
6/4 Paitn 1970's-TheAltair/Apple era
when Gates enlisted his help to comple"
; summei: of 1972, by
:he ISI computer ran
During 1971 Gates and Allei
T contracted to do an
analysis program and input data fo
r car traffic counting
boxes. These activities resulted
in the creation of
Gates and Allen's first company c
■ailed Traf-O-Oata. In
the fall of 1972 Rllen convinced
Gates that they could
use the Intel 8008 microprocess
;or in a machine to
facilitate the analysis of the
traffic tapes. They
obtained the services of Paul
Gilbert who was an
electrical engineering student c
It the University of
Washington to construct this spec
nllen then started developing a si
mulator program on the
university computer that would er
nulate the Intel 800B
Gates started sending applii
-ations for enrollment
to different universities at the e
nd of 1972. Then Gates
and Rllen got offers from TRW to w
ork on the development
of PDP-10 system software. TRW w.
as developing a real-
time operating and dispatch syst<
?m for the Bonneville
Power Administration in Vancouver
, Washington. TRW was
in desperate need of experienced DEC PDP-10 programmers.
They both accepted jobs, nllen left university and Gates
got permission to finish his fina
1 high-school year in
an internship with TRW. Access to
the DEC PDP-10 allowed
Allen to complete his Intel 8008 s
imulator program. This
also allowed Gates to complete the programming for the
In the fall of 1973 Allen returned to University
and Gates entered Harvard University. During his first
year. Gates met and became a friend of Steven (Steve) A.
Ballmer, who would later become the president of
Microsoft. Hot completely happy with university life,
both Allen and Gates considered taking a year off and
applied for jobs at different companies. They were both
offered jobs at Honeywell in Massachusetts. Allen
accepted a position and moved to Boston. Gates declined
the job offer. Paul Allen and Bill Gates would now meet
on weekends and some weekday evenings to discuss
computers, Traf-O-Data and other possible projects.
Microsoft iu the 1970's 6/5
In the summeir of 1974, Gates obtained
computerize a class enirollment project at the U
of Washington. Then in the fall of 1974, Gates
of the Rltair 8800.
6.2 ... AUair/BASIC
[n mid-December of 1974, t
lies was on the
■e article entit]
;ented — <
.t for ut
ider S400." The
Roberts and Wil]
of MITS II
n read the artic
ized this i
they needed. Tf
e new Int
el 8080 micropro.
ited to d
evelop a BASIC
machine, Allen's simulation program and a modified DEC
BASIC interpreter that Gates had written were going to
be significant factors. Gates and Allen decided to
develop a BASIC interpreter for the Altair 8800
computer. The interpreter with some modification would
also be capable of running on other microcomputers using
the Intel 8080 microprocessor. The Altair 8800 computer
6/6 Paitn 1970's-TheAltair/Apple era
Gates contacted HITS and advised Roberts that they
had a BASIC interpreter. The timing was right. Roberts
was just as anxious to have a BASIC interpreter as Gates
and Allen were to develop and sell one. In the initial
contacts between Roberts and Gates/Allen there were two
problems. The first problem was that Gates and Allen had
not developed the BASIC interpreter for the Intel 8080
memory boards at that time capable of storing the BASIC
interpreter software. Gates agreed to Roberts suggestion
of going to MITS Inc., in a month to demonstrate the
The next four weeks were intensive. Allen started
converting the Intel 8 00 8 simulator software to emulate
the Intel 8080 microprocessor. He also adapted assembler
and debugger programs for the Intel 8080. Gates started
working on the specifications for the BASIC interpreter.
To a certain extent some programming languages develop
based on earlier experience with similar languages.
Gate's BASIC interpreter evolved from DEC'S BASIC-Plus.
The 4K memory limitation limited the number of features.
This memory limitation had to accommodate not just the
interpreter but also the user program data.
When the interpreter specification was complete,
program. Gates and Allen used the DEC PDP-10 computer at
Harvard to create all the programs. Program development
consumed any time left after Gates Harvard classes and
Allen's job at Honeywell, Gates and Allen also obtained,
the assistance of Harvard student Monte Davidoff, to
develop the mathematical routines for the interpreter.
The interpreter had now grown to require 6K instead of
the 4K of memory initially targeted.
Paul Allen demonstrated the BASIC interpreter at
MITS Inc., in Albuquerque, New Mexico in late February.
8800 microcomputer or the Intel 8080 microprocessor.
However it was a success. Allen's simulator and Gates
an incredible achievement.
Roberts wanted to market the BASIC program as
Microsoft iu the 1970's 6/7
Paul Rllen left Honeywell and joined MITS Inc., to
develop software foe the ftltair 8800 in March. Shortly
after joining MITS, Allen became the Director of
Software. In Rpril, the headline "Altair BASIC Up and
Running" was on the first issue of the Altair users
MITS began a promotion campaign featuring a mobile
1575 . It traveled all over the country and included a
demonstration of a preliminary Version 1.1 of Gates and
Allen's BASIC interpreter program. During its stop in
California a member of the Homebrew Computer Club
appropriated a copy of the paper tape with the BASIC
interpreter encoded on it. The club members reproduced
the tape and distributed copies to other members.
Gates and Allen signed a contract with MITS in
July, just prior to the founding of Micro-Soft. The
wording of this contract would be crucial in later
developments. It required Gates and Allen to provide
BASIC interpreter programs on an exclusive license basis
to MITS Inc. MITS agreed to promote and commercialize
the program to other companies on a "best efforts"
basis. This allowed MITS to sell copies of the BASIC
interpreter and pay Gates and Allen a royalty on each
sale. Gates and Allen still retained ownership of the
software. The agreement specified three versions of the
software with varying memory requirements of 4K, 8K and
12K bytes. The compensation to Gates and Allen varied
depending on the version. Another arrangement prevailed
if the software was sub-licensed to other companies.
They also specified that a secrecy agreement be signed
by all MITS customers who purchased the software. Gates
Version 2.0 of both the 4K and 8K BASIC
interpreter programs had started shipping in July 1975.
The software received strong favorable responses in the
market. Gates secured the services of Monte Davidoff
from Harvard and Chris Larson from Lakeside School to
6/8 Pait n 1970's - The Altair/Apple era
6.3 ... The Albuquerque Years
In Rugust 1975 Bill Gates and Paul Rllen founded a
partnership called Micro-Soft in Rlbuquerque, New
Mexico. The company name was an abbreviation of
Microcomputer-Software. The company deleted the hyphen
in 1976 and capitalized the "S" to form Microsoft for a
period of time . The partnership agreement gave Gates a
sixty percent interest and Rllen the remaining forty
percent. Gates felt he had made a larger contribution.
Gates now started working on refinements for
version 3 and an Extended BRSIC requiring 12K bytes of
memory. However Gates had also received requests to
develop a disk version of their program. Gates was
having to spend additional time to satisfy these demands
and a desire to expand the company.
In the September 1975 issue of the Rltair Computer
Notes newsletter, the editor David Bunnell wrote an
article condemning the piracy of the BRSIC interpreter.
The October issue included an additional article on
piracy by Ed Roberts of MIT3 . Then the February 1976
issue of the newsletter included an open letter by Gates
to the hobbyists complaining of the piracy. The subject
also received discussion at the first World Alt air
Computer Convention in March. Then Bill Gates prepared a
final letter and appeal that appeared in the April issue
by all producers of software for the personal computer
In September 1975, Gates enlisted the help of
Richard Weiland from the Lakeside Programmers Group.
Weiland developed a BASIC interpreter for the new Altair
630B computer that used a Motorola M6800 microprocessor.
Allen rewrote the 8080 simulator for the Motorola
by January 1976.
Allen and Gates licensed the 6800 BASIC
interpreter to MITS for a flat fee. This assured
Microsoft of a definite revenue and MITS could charge
Microsoft iu the 1970's 6/9
Copying concerns with the 6800 BASIC interpreter had
In early 1976, MITS was shipping approximately
1,000 computers a month. However Microsoft was only
getting a royalty for its software, at a rate of less
than 200 copies per month. Illegal copies were affecting
Microsoft revenue .
In February 1976, while still at Harvard, Gates
started writing the software for a version of BASIC
suitable for a system utilizing disk drive technology.
Gates had the software created and operating within a
period of two to three weeks. It became known as DISK
In April 1976, the company hired its first
permanent employee, Marc McDonald. He began work on what
became known as Stand-alone Disk BASIC for the National
Cash Register (NCR) company. Richard Weiland became the
second employee in May with the position of general
manager. In mid summer Gates started developing APL (A
Programming Language) software. Then Microsoft hired
development of FORTRAN software. Work also started on
the Focal language. DEC initially developed Focal to
control scientific instruments. However sales of
Microsoft Focal were a failure, that resulted in it
being discontinued. Microsoft now started to obtain
corporate customers for its BASIC interpreters. Then it
opened its first office in Albuquerque in 1976.
Microsoft also started working on a 6502 BASIC
interpreter for the MOS Technology microprocessor. Marc
McDonald adapted the 6800 simulator to the 6502 and
Richard Weiland developed the 6502 BASIC interpreter.
The interpreter included a built-in editor for making
program changes. The Apple II and other computers used
the 6502 microprocessor. In October 1976 Commodore
bought MOS Technology and selected the Microsoft 6502
BASIC interpreter for its new PET computer. Commodore
placed the BASIC program in ROM that resulted in every
Pet computer having Microsoft BASIC.
Microsoft, also offered its simulator, debugger
and assembly development software called Develop-80,
Develop- 68 and Develop- 65 for sale without success.
6/10 Pai-t II 1970's - The Altair/Apple era
General Electric purchased the Microsoft 8080 BASIC
interpreter in late 1976. Then in Hovember 1976 Paul
nllen left MIT3 and joined Microsoft full time. Revenue
for the company's first year was over 5100,000.
In December 19 76, Pertec Computer Corporation
signed a letter of intent to purchase MITS Inc.
Microsoft had a number of potential customers for sub
licensing through MITS during early 1977. However MITS
was not promoting the business or using its "best
Microsoft. Microsoft advised MITS in April that it was
terminating its license agreement with them. In May MITS
filed a restraining order that prohibited Microsoft from
marketing 8080 BASIC and requested settlement of the
contract by arbitration. Then MITS finalized the sale of
their company to Pertec in late May. In late 1977 the
arbitrator decided in favor of Microsoft. Although
Pertec could still sell the BASIC interpreters, they no
longer had an exclusive license. Microsoft could now
retain the full sales revenue.
Gates left Harvard in January 1977 and was now
full time at Microsoft. Then in February, Gates and
Allen formalized their partnership agreement. Gates
would have a sixty-four percent share and Allen thirty-
Microsoft had decided to expand its software
market from BASIC interpreters to other programming
languages such as COBOL, FORTRAN and Pascal. The company
also decided to write the software for use with the
Digital Research CP/M operating system. The first
language to be released was a FORTRAN-80 compiler with a
price of S500 in July 1977.
Apple Computer purchased a license for the 6502
BASIC interpreter in August . Previously Apple had used
Integer BASIC written by Stephen Wozniak. Apple released
the interpreter with modifications by Randy Wigginton of
Apple as Applesoft BASIC. Microsoft had also started
development of a new version of BASIC for Texas
Instruments (TI) that had to be in compliance with a new
ANSI BASIC standard. Paul Allen once again created a
Microsoft in the 1970's 6/11
simulatoi: for the TI TMS9900 microprocessoir and Gates
hired Bob Greenberg to develop the BASIC software.
Another important contract from NCR required
development of a disk version of BASIC for their 8200
terminal. The company assigned Marc McDonald to the
project who developed a new disk formatting concept that
used a File Allocation Table (FAT) . The FAT controlled
the sequence of data stored on a disk and improved the
performance of disk operations. The company used the
concept of a file allocation table in Microsoft Stand-
alone Disk BASIC. Also in a Microsoft operating system
project called MIDAS and later in QDOS by Tim Paterson
of Seattle Computer Products .
Microsoft appointed Steve Mood as general manager
to replace Richard Weiland who had left the company in
September 1977. With the arbitrator's settlement of the
MITS/Microsoft dispute in September, Microsoft now
closed a number of contracts that had been pending with
other companies. Microsoft was starting to dominate the
BASIC language market by the end of 1977. The new major
manufacturers of microcomputers such as Apple Computer
and Commodore had licensed BASIC interpreters from
Microsoft. A large contract was with Radio Shack.
Microsoft hired Bob O'Rear in 1977 who then started
adapting Microsoft BASIC to the Radio Shack TRS-80 . The
interpreter would be an alternative to the limited one
developed internally by Radio Shack.
By early 1978 the market place had changed. The
MITS Altair computer had lost its dominant role.
longer significant. Microsoft required additional space
and started to question Albuquerque as a location for
expansion. In March 1978 Microsoft decided to relocate
from Albuquerque to Bellevue, a city just east of
Seattle in the state of Washington. The move was to take
A number of chip makers such as Intel and National
Richard Weiland had returned to Microsoft in January. He
worked on the development of COBOL that Microsoft
announced as COBOL-80 for the CP/M operating system at a
price of S750 in April 1978. The Heath Company also
6/12 Pai-t II 1970's - The Altair/Apple era
purchased Microsoft BRSIC and FORTRAN software in 1978.
Then the Heath Company software developer, Gordon Letwin
joined Microsoft in late 1978.
In mid 1978 Vern Rataurn of GRT (Great Records and
Tapes) convinced Gates to supply software to the company
for distribution to the retail market. Microsoft
released versions of BASIC interpreters for the
Processor Technology Sol and Southwest Technical
Products computers. Microsoft also released the enhanced
Level II BftSIC that had been under development for the
Radio Shack: TRS-80 computer.
In June 1978, Gates negotiated an agreement with
Japanese entrepreneur Kazuhiko |Kay) Nishi and his ASCII
Corporation. Nishi would be the exclusive agent for
Microsoft products in East Asia and receive a lucrative
30 percent commission on all sales. This resulted in the
establishment of Microsoft's first international sales
office in November, ASCII Microsoft.
Microsoft started developing a simulator program
and a BASIC interpreter for the new Intel 8086
microprocessor in 1978. Microsoft hired Jim Lane to
develop the simulator software. Bob O'Rear also worked
on the simulator software and the 8085 BASIC for the new
microprocessor. With Motorola announcing the 68000 and
Zilog the Z-8000, 16-bit microprocessors were going to
be the future technology
1978, Gates and Allen had a staff of twelve employees.
Microsoft had also finished its first million-dollar
Microsoft in the 1970's 6/13
Figure 6.2: Albuquerque staff prior to move in 1978. Top
row, left to right: Steve Wood, Bob Wallace, Jim Lane.
Middle row, left to right: Bob O'Rear, Bob Greenberg,
Marc McDonald, Gordon Letwin . Bottom row, left to right:
Bill Gates, Andrea Lewis, Maria Wood, Paul Allen.
Photograph is courtesy of Microsoft Corporation.
6.4... Relocation to Seattle
facilities in Bellevu*
company also otatainei
L Rltauquerque to new offics
igton in January 1979. Ths
iNfn DEC 2020 minicomputei
Microsoft had close to 100 OEM customers for
BASIC, FORTRAN-80 and COBOL-80 in March 1979. They also
had hired Steve Smith as director of marketing . Work had
started on the development of a BASIC compiler and a
Pascal programming language.
In the Far East, agent Kay Nishi was generating
additional lucrative revenue for Microsoft. Two large
Japanese companies, NEC (Wippon Electric Company) and
6/14 Part II 1970's - The Altair/Apple
the Ricoh Company signed c
Vern Rataurn of GRT was out of a job due to
financial difficulties at the company in 1979. In June
the Consumec Products Division. This division would be
responsible for selling products directly to the retail
market. Also released in 1979 were software products
such as TR3-80 Level III BASIC, Typing Tutor and a game
adapted by Gordon Letwin for microcomputers called
interest in developing other software products for the
Apple II computers. Apple II computer sales, and more
important to Microsoft, software sales for the Apple II,
were increasing significantly. This resulted in the
concept by Paul Allen to create an interface card for
the Apple computer that would allow the CP/M versions of
FORTRAN and COBOL to operate on the machine. Microsoft
hired Tim Paterson of Seattle Computer Products as a
consultant to develop the Apple II card. Microsoft also
hired Neil Konzen, sn Apple computer programming
enthusiast to develop the software. The function of the
card evolved from an interface for Microsoft FORTRAN-80
and COBOL-80, to a general interface for the Digital
Research CP/M operating system. The card used a Z-80
microprocessor and Microsoft named it the Z-80 SoftCard.
Microsoft had to pay Gary Kildall of Digital Research
$50,000 for a license to use the CP/M operating system.
Subsequently Microsoft hired Don Burtis to improve the
Microsoft completed the 8086 BASIC interpreter
developed by Bob O'Rear and introduced it in June 1979.
Tim Paterson of Seattle Computer Products had completed
a card system for the S-100 bus using the new Intel 8086
system and Microsoft tested the new BASIC interpreter
using a Cromemco computer. Then Microsoft demonstrated
the new BASIC interpreter for the 8086 at the June 1979
National Computer Conference in New York City.
In August 1979 Gates visited EDS (Electronic Data
Systems) in Dallas. EDS was a computer service company
Microsoft in the 1970's 6/15
for mainframes owned by H. Ross Perot . Rs a result of
these discussions, EDS made an offer to purchase
Microsoft. However Microsoft rejected the offer due to
Microsoft released in 1979, a Macro Assembler
language for the Intel 8080 and Zilog Z-80
microprocessors in Rugust, a BASIC Compiler with a price
of 5395 and the Edit-80 text editor with a price of
Microsoft's revenue had reached 52-4 million with
a staff of 2 a employees by the end of its 1979 fiscal
year. The revenue and number of employees had doubled
approximately, during the past year.
6/l« Pai-tll 1970's-TlieAltaii/Apple