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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 

United Way. 

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 
started programming. 

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 
March 1970. 

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 

ialized microcomputer. 

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 
Traf-0-Data project. 

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 









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6.2 ... AUair/BASIC 

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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- 
six percent. 

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 

Microsoft reloc. 
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 

software . 

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 
card design. 

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 
financial differences. 

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