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If you like Bill Gates's story, you might also like:
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Bill Gates's recommended reading: A Separate Peace

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Bill Gates
Bill Gates
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Bill Gates Interview

Co-Founder and Chairman, Microsoft Corporation

March 17, 2010
Seattle, Washington

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  Bill Gates

You dropped out of Harvard in your junior year to start Microsoft with your friend Paul Allen. What was your original business plan?

Bill Gates: Microsoft was the first software company where we wrote software for personal computers. And we believed that we could hire the best engineers. There was an unbelievable amount of software to be written, and we could do it well and we could do it on a global basis. The original customer base was the hardware manufacturers. We sold to literally hundreds and hundreds, you know, over 100 companies in Japan, over 100 companies doing word processors and industrial control type things. We knew in the long run we wanted to sell software directly to users, but we actually didn't get around to that until 1980, when we had our first sort of games and productivity software that people would go to a computer store and actually buy the software package.

When did you first have the vision of a computer on every desk at work and in every home?

Bill Gates: Paul Allen and I had used that phrase even before we wrote the BASIC for Microsoft.

We actually talked about it in an article in -- I think 1977 was the first time it appears in print -- where we say, "a computer on every desk and in every home..." and actually we said, "...running Microsoft software." If we were just talking about the vision, we'd leave those last three words out. If we were talking an internal company discussion, we'd put those words in. It's very hard to recall how crazy and wild that was, you know, "on every desk and in every home." At the time, you have people who are very smart saying, "Why would somebody need a computer?" Even Ken Olsen, who had run this company Digital Equipment, who made the computer I grew up with, and that we admired both him and his company immensely, was saying that this seemed kind of a silly idea that people would want to have a computer.

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When Microsoft was starting out, you guys made a deal with Apple Computer for a flat fee of $21,000 or something. What did you learn from that experience?

Bill Gates Interview Photo
Bill Gates: Microsoft did the software for all the personal computers that came out. There was the Apple II that we did a BASIC for, which was called Apple Soft BASIC. There was a Commodore PET that we did a BASIC for. There was a Radio Shack TRS 80 that we did a BASIC for. Even Atari, who initially had their own mini-BASIC, ended up using our BASIC. So our BASIC was running on every single machine, including that Apple machine. We later did a BASIC for the Macintosh. We didn't mind doing low priced contracts at the time, because we always knew that there would be new versions and more software that we would do. So it worked out well. As part of that Apple deal, I got to know Steve Wozniak, who is actually the engineer and did software programming, and Steve Jobs, who later I would do a lot of work with, because he was deeply involved in the Macintosh work.

Apple sold a lot of those computers -- the Apple II. Wouldn't you have made a lot more money at that time if you had royalties?

Bill Gates: Well, we had plenty of ways to do new versions and add-ons and things. So no, the whole structure of the way we licensed things was that we knew we could write software more efficiently than if they hired the engineers themselves. So we always were able to say, "Hey, you would have spent a half a million developing that yourself. We'll license it to you for an inexpensive price." We probably could have had higher prices, but we were doing fine. In fact, that 6502 BASIC that Mark Chamberlain and I wrote, we licensed to about 12 different people. So our profitability was huge, even though it was a great deal for Apple. Per machine they paid almost nothing.

You came out very early against illegal copying of software. You wrote a piece for Computer Notes, warning that piracy could create serious obstacles for your industry.

Bill Gates Interview Photo
Bill Gates: Yeah. The MITS Altair people agreed to pay us a royalty for each copy that was sold. So if people paid MITS we got a royalty, and if they just copied the program -- which was at the time on paper tape -- we didn't get paid. There was a lot of this going on, and the amount of piracy was going to determine whether Microsoft could hire more people or not. So I wrote -- it wasn't mean -- what was called "An Open Letter to Hobbyists," that said, "By the way, this is copyrighted material, and the more we sell, the more software we'll be able to write." And that started a debate that rages to this day, it will rage for decades to come. Should creative people who do music or books or software be able to get a royalty for their stuff, or should people pirate it? There's a lot of complicated issues in intellectual property, but it started early in the computer industry. A lot of people did actually respond to the letter by coming back and paying the license fee, which was very low. I mean, everything was very, very cheap.

When IBM first came to you for an operating system, you sent them to another company, Digital Research, first. Why did you do that?

Bill Gates:I had been talking about our BASIC, and running that on a computer. There's two ways you could run BASIC. You can run it where the BASIC is right on the hardware and the only thing you're running is BASIC, or you can put another layer of software in between, called an operating system, and it can take over some of the work, like managing the printers and things, and you can have many programs, BASIC or a spreadsheet or a word processor, running on top of that. And as we got disks on these computers, it made more sense to have that flexibility. The early computers don't have disks; they have cassette tapes and paper tapes and things like that. But by 1979, '80, we're starting to get these big, expensive -- actually, initially eight-inch -- floppy disks, then five-and-a-quarter inch, finally three-and-a-half inch. Now, when's the last time you saw a floppy disk? But they were very important. We still have a hard disk, the disk built into the computer. So you needed an operating system.

When IBM saw that we had written the software for all the personal computers, they came to us, sought our advice on the design, but we said, "You should put a disk in," and since they wanted to ship very quickly, another company called Digital Research had done that work for the 8-bit machines, and they were starting to do a version for these new 16-bit machines. We convinced IBM to do a 16-bit machine using this 8086, 8088 processor. Well, Digital Research really hadn't finished the work, and then IBM was getting frustrated because Digital Research wouldn't sign even the non-disclosure agreement, and then some of us, particularly Paul and a key person named Kazi Konishi, who was from Japan and worked with us, said, "No, no, no, we should just do that ourselves." And because of the quick timing, we ended up licensing the original code from another company and turned that into MS-DOS. So then subsequently, MS-DOS competed with this Digital Research CPM. After about two or three years, MS-DOS became far, far more popular than CPM, and then eventually we would take and add graphics capability on top of MS-DOS, and then integrate the two together. And so today when we talk about Windows, it actually includes all those MS-DOS things in it, that's the full operating system. Although mostly you think of the graphics and the windows and stuff, there's a lot of more classic operating system capability that's built in there.

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