by Paul Allen
THE JAPANESE MARKET was exploding, thanks in large part to Kazuhiko (Kay) Nishi, our flamboyant agent in East Asia. Kay published a chain of glossy computer magazines that worked hand in glove with his nonstop salesmanship for Microsoft. In August 1979, after he snagged a big contract with NEC, Bill and I went to Japan to help drum up more business. It was my first trip outside North America and everything was new to me, from our futon mats with wooden headrests to the multicolored plates of sushi and boiling pots of shabu-shabu.
We traveled first to Kobe, where Kay’s parents owned a girls’ school with an outdoor swimming pool. There were two diving platforms, one three meters high (plenty for me) and another at ten meters. A bunch of the girls watched between classes as Bill climbed to the top of the high dive. He jumped, feet first, and they screamed. He must have hit the water at a slight angle—when he pulled himself out, the whole front of his body was bright red. It must have stung, but it didn’t stop him. Bill kept jumping, and the girls screamed each time.
We took a bullet train to Tokyo, where we noted a development that had yet to catch on in the United States: the computer “superstore.” After checking in at the Hotel Okura, I ordered a hamburger with mustard from room service. I took a large bite, and instantly my sinuses began to burn. As I gasped, I saw Bill laughing at me. Even the mustard was different here.
As we headed out for our first meeting, the elevator stopped and a couple squeezed in: a long-haired guy with Coke-bottle eyeglasses and a Japanese woman with curly black hair. Could it be John Lennon and Yoko Ono? I leaned against the side of the elevator, trying to look casual, and inadvertently pressed an intermediate floor button. We stopped, the door opened, and the guy with the glasses said, “Nobody ’ome.” Now I knew it was John Lennon. I desperately wanted to say something but my brain froze. After we reached the lobby and the couple walked off, I said to Bill, “Did you see that? That was John Lennon and Yoko Ono.”
“Really?”
“Yes, look, there they go!”
And Bill said, “Oh, yeah, you might be right.” He wasn’t a Rolling Stone reader like me. He knew bits and pieces of popular culture, but he was thinking about the software business first, second, and third.
Kay Nishi was an unusually Westernized and entrepreneurial Japanese, a high-octane maverick who flew his own helicopter to business meetings. He was a big spender, piling up huge debt. (On a later trip, Bill was not amused after Kay excitedly took him by a Tokyo train station to show him “the dinosaur”: a $1 million, life-size, concrete brontosaurus built to promote a new joint PC format, with Microsoft on the hook for part of the bill.) Kay worked against the grain of Japan’s conservative business culture but opened many doors for us, including Matsushita Electric, now Panasonic. A junior technical person met us in reception to escort us to the top floor, where the chief technology officer awaited. As our elevator ascended, our guide looked more and more uncomfortable. I said, “Have you ever been to the top floor before?”
“Oh, no, never,” he said.
“Have you ever met with Mr. —— before?”
“Oh, no, never.” The poor man was sweating bullets.
The meeting room contained two large tables facing each other about six feet apart. There were a dozen people on Matsushita’s side; the chief took the middle chair, while the others flanked him in descending order of status. They smoked like chimneys and drank rocket-fuel coffee. Bill and I sat at the other table with Kay, who would fill us in later about any byplay among the Japanese.
“So, Mr. Gates,” the chief said, “how do we know that you’ll deliver on time?” They grilled us for four hours, standard procedure in Japan; they wanted to be sure that we could make good on our promises. Bill was confident and assertive. He’d go into his rocking mode and say, “Well, we’ve done this with Apple and this with Tandy. …” No one seemed to care that he was twenty-three years old. The more technical or speculative questions came to me: “So tell us, Mr. Allen, how do you see the future of the personal computer industry?” (After we got to know each other better, I’d become Allen-san.)
We toured the plant until five o’clock, at which point the air conditioning shut down and the company song was piped in over a sound system. Kay motioned for us to stand along with our hosts, who sang together, full out. When it was over, I asked Kay if they were going home now. “Oh, no,” he said. “They’ll work until eight o’clock and then go out to eat with their buddies, and then they’ll start again really early tomorrow.” I was thinking: These guys are working a lot harder than the average American. How in hell can we keep up? And for the most part, we couldn’t. The migration of consumer electronics manufacturing out of the United States was already well under way.
Each night we’d get taken out by Japanese executives on expense accounts. They chose European restaurants, a big treat for them, until we finally pleaded for some Japanese food. Toward the end of our stay, one executive said, “That was a great meeting. I’d like to invite you to something special, a geisha house or a really great dinner. You choose.” Bill looked at me and I knew without asking that he’d vote for the geishas. “A nice dinner sounds great,” I said. The man reserved a private room at one of the top spots for the four of us. There were endless courses of spectacular sashimi and cooked dishes, and the service was outstanding. As our host took the check, Kay got really quiet and began shaking his head. I sensed that something extraordinary had just taken place. As we left the restaurant, I said, “Kay, how much did that dinner cost?”
He thought for a second and said, “Six thousand dollars.”
“Six thousand for four people? How is that possible?”
“Best fish,” Kay said. “Big room.” Someone had gone to the immense Tokyo fish market and selected the top specimens. Quality and privacy came at a premium in Tokyo.
Before returning home, we took in Alien at a downtown movie theater. I’d seen it in Seattle, where I gasped like everyone else when the alien popped out of John Hurt’s chest. But in Tokyo, no one made a sound except Bill and me. Afterward I asked Kay if the audience had liked it. “Such a monster,” he said, shaking his head. “Such a terrible monster.” Kay looked nauseated—he’d been immersed in the film like everyone else, but they did not react. They held it all in.
In Japan we saw firsthand that our ambition to become the software language company had real potential. With China still closed and Korea not yet a player, to dominate Japan was to rule Asia. Back in Bellevue, the bullpen table grew cluttered with more 8-bit Japanese hardware. It was a preview of where personal computer design was headed—how a company like NEC, for example, was implementing color graphics that went miles beyond the Commodore PET’s.
The Japanese market was fiercely competitive. Late one night, we surprised a bespectacled engineer who’d sneaked into our office to snap Polaroid pictures of the competition. Another time, some Ricoh reps came by to ask what we had available. We ran down our list of every language on our shelf and one or two that weren’t ready yet. The reps kept nodding, and at the end they said, “We’ll take them all.” When their prototype machine malfunctioned and we failed to meet our delivery date, the head rep was distraught. “Mr. Allen, I promised to deliver,” he said, almost sobbing. He camped out at our office for days to help me get the software running. His honor was on the line.
Many of the Japanese machines were unconventional, with strange key placements, and a thought began to gnaw at me. Coming off my experience at MITS, I believed that we could build an 8-bit system superior to anyone else’s, including Apple’s, and customize it to run our software. Kay was pushing us to join forces with a Japanese company that would manufacture under the Microsoft name. He wanted to approach Sony, which was known for televisions and audio speakers but had no track record in computers. As Kay saw it, a Microsoft/Sony computer would be completely new and different, a true multimedia machine with state-of-the-art audio and video, the sort of thing I’d been talking about for years. Vern Raburn, the preside
nt of our consumer products division, was in favor. But Bill was adamant about staying out of hardware. “We’d be in conflict with our customers,” he told Kay. More than fifty companies were licensing our 8080 BASIC alone by that point, and the last thing Bill wanted was to turn those clients into competitors.
Our growing confidence made it easier to reject a mid-seven-figure purchase offer that summer from H. Ross Perot, the Dallas billionaire. It just felt way too soon for us to cash out. “Our conclusion is that at present we wish to remain independent,” Bill wrote to Mort Meyerson, Perot’s number two. “We see the potential to double the size of our organization and earn over $2 million per year before taxes.” Bill was on the mark: Microsoft’s year-end revenues would total $2.4 million in 1979, and our staff would more than double, to twenty-eight.
IN JUNE 1979, we made our first trip to New York City for the National Computer Conference. We took a two-bedroom suite at the top of the Plaza Hotel, the perfect spot for launching bottle rockets over Central Park. Kay Nishi came up with a request: He had friends in from Japan with no place to stay. Could they bunk in with us? Sure, we said—we didn’t want to be rude. A few minutes later, Kay showed up with half a dozen businessmen, all very polite, from Fujitsu, Toshiba, and NEC. I called the front desk and said, “How many rollaway beds do you have available?”
“I think we have six, sir.”
“OK, bring them all up.”
Soon there came a knock on the door. Six chuckling bellhops lined the corridor with six rollaways, a less than typical request for a high-priced suite. The beds filled the living room until you could hardly inch past them. The next morning, I had to fight my way through a forest of socks hanging in the bathroom, which the Japanese had left out to dry. But our hospitality paid off. One of our guests snapped open his briefcase, filled to the brim with U.S. currency. He was so eager to buy our BASIC interpreter that he’d brought cash for a down payment on the license, over ten thousand dollars. Bill wrote out a receipt on his business card.
The annual event was where suits from firms like IBM and DEC pitched their latest mainframes and minicomputers. Microcomputer companies were the new kids on the block, shunted to a small annex in a hotel by the main arena. Eddie Currie, Ed Roberts’s old number two at MITS, had moved to Lifeboat Associates, a software distribution company in New York, and he invited us to share his ten-foot-square exhibition space. We’d brought Tim Patterson along to help us debut our BASIC-86 on Tim’s prototype machine. No one else had a 16-bit BASIC, and ours would shortly be in the market. I was feeling pretty good until I stopped by the booth of a Massachusetts outfit called Personal Software. They had an Apple II running something I’d never seen before, on any class of computer: an interactive accounting spreadsheet. They called it VisiCalc.
Though the booth wasn’t drawing much of a crowd, it did grab the attention of an electronics analyst who later became the venture capitalist behind Compaq Computer. Ben Rosen understood that he was looking at the first “killer app,” an application that would dominate and redefine its category. As Rosen wrote the following month in the Morgan Stanley Electronics Letter:
Today, virtually the only user of personal computers who is satisfied with the state of the software art is the hobbyist. And he does all of his programming himself. But for the professional, the home computer user, the small businessman, and the educator, there is precious little software available that is practical, useful, universal, and reliable.
Enter VisiCalc … a new concept in software. … Though hard to describe in words, VisiCalc comes alive visually. In minutes, people who have never used a computer are writing and using programs. Although you are operating in plain English, the program is being executed in machine language. But as far as you’re concerned, the entire procedure is software transparent. You simply write on this so-called electronic blackboard what you would like it to do—and it does it.
Rosen described a dividend discount valuation model that had taken him twenty hours to program in BASIC; he created a more flexible version of the same thing with VisiCalc in fifteen minutes. “Who knows?” he concluded. “VisiCalc could some day become the software tail that wags (and sells) the personal computer dog.”
That was our philosophy, too; we believed that software was more valuable than hardware. But we hadn’t counted on someone outflanking us with a whole new approach. To that point, business programs had been written almost exclusively for higher-end microcomputers like Tandy’s TRS-80 Model II, machines marketed to small businesses that did their own data processing. Apple computers were viewed as toys for educational programs and games. But once VisiCalc enabled nonprogrammers to do financial modeling on the Apple II, all that was about to change.
At Microsoft we’d had good excuses for putting off a move into applications software. The field was competitive and highly fragmented, and Bill and I had decided that we wouldn’t enter a market unless we knew we could be number one. And with our programmers straining to fulfill our language contracts, it was hard to see how we could plunge into a whole new sector. Still, I’d had pangs as I watched WordMaster evolve into WordStar, the first widely accepted application of its kind. I knew in my gut that word processing would become a major revenue source. Were we missing the boat?
VisiCalc was another wake-up call. We’d licensed Applesoft BASIC on a fixed-fee basis, so we had nothing to gain from a spike in Apple II sales. Worse yet, our other languages ran exclusively on CP/M, which was incompatible with the microprocessor used by the Apple II: the MOS Technology 6502, Intel’s cut-rate competitor. With VisiCalc boosting its sales geometrically, Apple would be positioned to carve out a big slice of a growing market, one Microsoft couldn’t penetrate. And we didn’t need to read Ben Rosen to realize that people could use the new spreadsheet program without our software.
From the start, we’d built Microsoft around the premise that our products would be universal. Wherever the general-purpose microcomputer market went, we’d be there. But as personal computing matured from an enthusiast subculture into a mass medium, I came to see that languages would soon be outweighed by applications. Our mission could be at risk unless we built our own spreadsheet, and our own word processor and database, as well. The Altair had taught us how quickly fortunes in the tech world could rise and fall.
As Microsoft’s technical leader, I faced a more immediate bind: How could we get our existing products onto the Apple II platform? In theory, we could develop new compilers for the Apple in FORTRAN, COBOL, Pascal, and the rest. But the job would require years of coding by several programmers. It would leave us understaffed in our core business of porting BASIC to new 8080 machines, not to mention the 8086 computers just around the corner. Morever, the Apple work would saddle us with a new catalog of assembly code to debug and enhance, a costly, labor-intensive proposition. All told, the expense and distraction of full-scale development could cripple our still-small company. It was a dilemma that begged for an original solution.
A few months after seeing VisiCalc, heading to lunch in the back of Steve Wood’s pickup truck, I got one of those ideas that fortuitously flash into my head, a mix of inference and extrapolation. Instead of rewriting our entire software catalog, why not turn the Apple II into a compatible system? If we designed an 8080 circuit board to plug into the Apple, the machine could run CP/M from a floppy disk and all our languages on top of it. By importing a CP/M-friendly CPU, we’d avoid a massive recoding project and get into the Apple II market at least six months sooner.
In effect, I’d turned a software problem into a hardware problem—an elegant shortcut, a sort of Hail Mary pass. At first Bill wondered if it might be a distraction. But he came to agree that this was one Microsoft hardware effort that might be worth the trouble.
There are two phases to any invention. The first is the moment of inspiration. The second is the execution, which is less exciting but more than challenging in its own right. I had no idea whether my idea was actually doable. I called Tim Patter
son and said, “Can you design this thing?”
And Tim said, “I think it’s possible.” A few weeks later, he came back with a circuit board containing a Z-80 chip, a cheaper equivalent to Intel’s 8080. It was simple enough to undo the plastic snaps and pop the lid off an Apple II, then slide the card into an expansion slot wired to the CPU. The native MOS Technology 6502 still ran the Apple’s peripherals (display, keyboard, printer) but otherwise went into a state of suspended animation. The Z-80 SoftCard, as we called it, took over most of the actual processing. We’d turned the Apple II into something that Steve Jobs wouldn’t have imagined: a CP/M computer.
Tim understood the Z-80 well, and the card’s general design was more than adequate, but getting two processors to coexist was a nightmare. The thing would work fine for a while, but then the native CPU would crash and take our SoftCard with it. In March 1980, we rolled out the prototype at the West Coast Computer Faire in San Francisco, fretting that it would go down at an inopportune moment. I can recall Steve Jobs passing by with a scowl. He had to be irritated that we’d barged into his Apple II walled garden and thrown the gate open to the whole CP/M software community.
To eradicate the SoftCard’s gremlins, I brought in an Apple-savvy engineer named Don Burtis and paid him $8,000 for a ground-up redesign. He quickly found the defect in the hardware’s architecture. On April 2, 1980, we issued a press release entitled “Cornucopia for Apple Computer Owners”:
A product that will allow the more than 75,000 Apple computer owners to use a vast array of new software, including business packages, was announced today by Microsoft Consumer Products. …
“Most of the existing 8080/Z80 programs require a five thousand dollar or more computer,” says Paul Allen, Microsoft Vice President and Z-80 SoftCard creator. “After hearing about the Z-80 SoftCard, several business people have told us they plan to bring home their word processing, accounting or statistical programs to run on their home Apple computers at night. That makes Apple computers tax deductible.”