Idea Man

by Paul Allen

  We bundled the SoftCard with diskettes for CP/M and our BASIC interpreter, and priced it at $349. It started shipping that fall to strong demand. As we thought it might, VisiCalc helped to drive Apple’s sales through the roof; Jobs had nearly a year’s head start before the spreadsheet was developed for other microprocessors, and he exploited his lead well. The Apple II went from 35,000 units in 1979 to 210,000 in 1981, lagging only the Atari 400/800 and the TRS-80. It became a hit on college campuses and made a notable dent in the small business market.

  My invention allowed Microsoft to share in that success. We sold approximately 25,000 SoftCards in 1981 alone, worth about $8 million in sales, and continued our strong run into 1983 before imitators cut into our margins. For Apple II owners who’d been limited to a thin catalog of native applications, the SoftCard gave them two computers in one. Suddenly they had access to tens of thousands of CP/M-compatible programs written in BASIC, FORTRAN, or COBOL. On the flip side, the SoftCard represented a huge windfall for Peachtree Software, creator of the popular Peachtree Accounting, which with no development costs had a new market handed to it. And of course, our new product was a boon to Gary Kildall and Digital Research. More copies of CP/M would be sold for use in the Apple II, a hitherto incompatible machine, than for any other computer.

  For Microsoft, the SoftCard provided a point of entry into the Apple environment. It gave us a new and substantial customer base for our Disk BASIC and other languages. Moreover, the SoftCard turned computer-pricing strategy on its head. In the old world, everyone from IBM to MITS had bundled software as a throw-in with the machine. Now we were bundling a cheaply made piece of hardware to help us sell BASIC and our expensive suite of software. The SoftCard was the razor; our languages were the blades.

  The SoftCard lent Microsoft a needed revenue boost in an awful recession year. Perhaps most important, it gave us comfort in abandoning the 8-bit development world and turning our energies to software for the 8086 chip, a shift that would prove critical in landing our big contract with IBM less than a year later. As Bill noted in a 1993 interview for the Smithsonian:

  [The] question was, “Should we spread those products over to other 8-bit chips, like the 6502 that runs in [the Apple II]? Or, should we immediately move up and do 16-bit software?” And I said, “No, we are going to do 16-bit software.” Everybody was a little bit disappointed because it meant that we wouldn’t be able to sell onto these machines. That is when Paul invented the idea of the SoftCard, so that we could actually take our Intel software and run it on this machine, and, at the same time, go ahead and devote our resources to being way ahead of everybody else in developing software for the 8086.

  I had already been instituting the move to 16-bit software, but Bill wasn’t wrong about the SoftCard’s importance. Under the circumstances, I felt that our 64–36 partnership split was out of whack. Bill had set a precedent by claiming extra equity for his work on Altair BASIC, another exceptional contribution. Now it was time, I thought, to augment my share. A modest adjustment in the ratio seemed only right.

  But when I made my case, Bill would have none of it. “I don’t ever want to talk about this again,” he said. “Do not bring it up.”

  In that moment, something died for me. I’d thought that our partnership was based on fairness, but now I saw that Bill’s self-interest overrode all other considerations. My partner was out to grab as much of the pie as possible and hold on to it, and that was something I could not accept. I didn’t have it out with Bill at the time. I sucked it up and thought, OK … but one day I’m out of here.

  MICROSOFT NOW COMMANDED the CP/M 8-bit market in programming language software, and the SoftCard gave us a secure beachhead with Apple. But as we grew, our need for more help became glaring. Neither Bill nor I had a lot of experience as managers, and both of us had other areas of responsibility—Bill in sales, I in software development. Steve Wood had filled in admirably as general manager, but he, too, was a programmer by background. Bill came to see that we needed someone to help him run the business side of things, just as I ran technology. He chose Steve Ballmer, a Harvard classmate who’d worked in marketing at Procter & Gamble and was now studying at Stanford’s business school. Bill sold him hard to me: “Steve’s a supersmart guy, and he’s got loads of energy. He’ll help us build the business, and I really trust him.”

  I’d run into Steve a few times at Harvard, where he and Bill were close. The first time we met face-to-face, I thought, This guy looks like an operative for the NKVD. He had piercing blue eyes and a genuine toughness. (Though as I got to know him better, I found a gentler side as well.) Steve was someone who wouldn’t back down easily, a necessity for working well with Bill. In April 1980, shortly before leaving town on a business trip, I agreed that we should offer him up to 5 percent of the company, because Bill felt certain that Steve wouldn’t leave Stanford unless he got equity.

  A few days later, after returning from my trip, I got a copy of Bill’s letter to Steve. (Someone apparently found it in the office’s Datapoint word processing system, and it had made the rounds.) Programmers like Gordon Letwin were furious that Bill was giving a piece of the company to a person without a technical background. I was angry for another reason: Bill had offered Steve 8.75 percent of the company, considerably more than what I’d agreed to.

  It was bad enough that Bill had chosen to disregard me on a partnership issue we’d specifically discussed. It was worse that he waited till I was away to send the letter. I wrote him to set out what I had learned, and concluded: “As a result of discovering these facts I am no longer interested in employing Mr. Ballmer, and I consider the above points a major breach of faith on your part.”

  Bill knew that he’d been caught and couldn’t bluster his way out of it. Unable to meet my eyes, he said, “Look, we’ve got to have Steve. I’ll make up the extra points from my share.” I said OK, and that’s what he did.

  CHAPTER 10

  PROJECT CHESS

  By 1980, having sold more than half a million copies, our BASIC drew the attention of the largest computer maker in the world. After ignoring personal computers for years, IBM had awoken to their emergence as a platform for business. Big Blue knew that its four-year development cycle for mainframes wouldn’t fly in the fast-changing world of microcomputers. In a sharp departure from company tradition, it moved to outsource to companies that could help get a new product to market faster.

  Microsoft was about to make the big time.

  That August, a three-piece-suited contingent led by Jack Sams approached us about Project Chess, the code name for what would become IBM’s PC. After we talked them out of an 8-bit machine and won them over to the Intel 8086 (or as it turned out, the cheaper but virtually identical 8088), they wanted everything in our 16-bit cupboard, including FORTRAN, COBOL, and Pascal. Aside from BASIC, none of these products were even close to being ready for the 8086 platform. It would take a wild scramble to get them all done on IBM’s tight timetable.

  Then, in late September, Sams asked us if we could provide a 16-bit operating system. We referred him to Digital Research, which we’d heard was far along in building one. Bill called Gary Kildall and said, “I’m sending some people over to you, and I want you to be good to them, because you and I are both going to make a lot of money on this deal.” He didn’t mention IBM by name because the company insisted on maximum discretion and secrecy. We’d had to sign a nondisclosure agreement before they’d even sit down with us.

  As Kildall himself later acknowledged, he was off flying on business when the Project Chess group arrived. His wife, who was also his business partner, refused to sign the nondisclosure and offered a Digital Research document instead. That was something you did not do with IBM. Sams came back to us and said, “I don’t think we can work with those guys—it would take our legal department six months to clear the paperwork. Do you have any other ideas? Could you handle this on your own?”

  After the fact, there would be endless rumo
rs about Microsoft’s dealings with Digital Research. Kildall theorized that IBM chose to work with us because we were willing to license an operating system for a flat fee, while Kildall insisted on a per-copy royalty. But I had a front-row seat, and this is what happened: We tried to do Digital Research a favor, and they blew it. They dropped the ball. I vividly remember how furious Bill was at what had transpired. He couldn’t believe that Kildall had blown this golden chance and placed the whole project in jeopardy.

  Bill called an emergency meeting with me and Kay Nishi. What could we do to resuscitate the deal? There was silence for a moment, and then I said, “There’s another operating system that might work. I don’t know how good it is, but I think I can get it for a reasonable price.” I told them the story of Tim Patterson and Seattle Computer Products, which began shipping its 8086 machine earlier that year but had found sparse commercial interest. The missing link was an operating system. Kildall had promised a CP/M-86 by the first of the year, but he hadn’t delivered; his company lacked the typical start-up’s urgency. No one knew when his 16-bit software would make it to market.

  Tim Patterson had gotten frustrated waiting. Our BASIC-86 was fine for writing programs, but his customers couldn’t run a word processor or other applications on top of it. So Tim had cobbled together a provisional 16-bit operating system to help his company sell a few computers until Kildall came through. (As Tim later said, “We would have been perfectly happy having somebody else do the operating system. If [Digital Research] had delivered in December of ’79, there wouldn’t be anything but CP/M in this world today.”) He called the program QDOS, for Quick and Dirty Operating System, which he’d managed to cram into 6K of code. Once it was mostly done, he changed the name to 86-DOS.

  Tim had made strong strides with his software, and I felt confident in telling Bill and Kay that it would probably work. Though we’d still need to finish and adapt it for the IBM PC, 86-DOS would give us a running start. At least we’d have a shot.

  After I finished, Kay cut in. “We’ve got to do it!” he kept shouting. Selling our BASIC in Japan, he’d seen firsthand the enormous interest in CP/M-80 from computer hardware firms. If Microsoft was to govern its future, we had to have our own operating system.

  I agreed. Ever since Altair BASIC, our objective had been to establish standards and then to license our programs throughout the industry. Now, thanks to a fluke, we’d been handed the opportunity to create the pivotal product of the era. With IBM’s unmatched power and reach, we might even be able to unify the microcomputer software market. As a bonus, as Kay pointed out, a 16-bit Microsoft operating system would dovetail neatly with our language development business.

  Bill was less enthusiastic. He didn’t know Tim Patterson, and we’d be betting our deal with IBM—the most critical one we’d ever have—on an unknown quantity once called Quick and Dirty. But Bill realized that we might lose the whole contract unless we came up with something, and he went along.

  I called Rod Brock, who owned Seattle Computer Products, to work out a licensing agreement. We settled on $10,000, plus a royalty of $15,000 for every company that licensed the software—a total of $25,000 for now, as we had only one customer. The next day, a Microsoft delegation (Bill, Steve, and Bob O’Rear) met with IBM in Boca Raton and proposed that Microsoft coordinate the overall software development process for the PC. Five weeks later, the contract was signed. IBM would pay us a total of $430,000: $75,000 for “adaptations, testing, and consultation”; $45,000 for the disk operating system (DOS); and $310,000 for an array of 16-bit language interpreters and compilers.

  Bill and I were willing to forgo per-copy royalties if we could freely license the DOS software to other manufacturers, our old strategy for Altair BASIC. Already enmeshed in antitrust litigation, IBM readily bought this nonexclusive arrangement. They’d later be slammed for giving away the store, but few people at the time discerned how quickly the industry was changing. And no one, including us, foresaw that the IBM deal would ultimately make Microsoft the largest tech company of its day, or that Bill and I would become wealthy beyond our imagining.

  AS I LOOK back at my life, I’d propose that my successes were the product of preparation and hard work. Yes, I was lucky to get early programming opportunities in high school and at C-Cubed; to have a father with the keys to a major library system; to find a partner in Bill who could take my ideas and magnify them; to cross paths with Ed Roberts, who needed to buy what we were able to build, just at the right time.

  But it was no accident that I was positioned to take advantage of those breaks. IBM came to Microsoft in the first place because we had pushed the frontier for microcomputer languages with more prescience and boldness than anyone else. I had ties to Tim Patterson because I’d hustled to develop an 8086 BASIC and later hired Tim to take a first pass at the SoftCard. I was drawn by nature to people who, like me, were eager to see what might come next and wanted to try to make it happen. From my youth, I’d never stopped thinking in the future tense.

  One part of my job description had not changed: I was still the research arm of our organization. I kept up with Electronic News and Computer Design and their ilk, and regularly dropped by UW’s computer science library to check on anything I might have missed. I’d long been fascinated by the work of Douglas Engelbart, who had invented the pointing device he called a mouse in 1963. His work influenced technologists at the Xerox Palo Alto Research Center, or Xerox PARC, the lab that would anticipate nearly every major trend in personal computing by a decade or more. (PARC’s breakthroughs were mostly ignored by its mother company, which had no idea what to do with them and squandered an opportunity to define the personal computer market.)

  Xerox PARC was an ivory tower with a moat around it; you knew amazing things were going on there, but it was hard to get a handle on them. By the late 1970s, however, a few journal articles divulged some of PARC’s innovations. Even before we moved back to Seattle, I was putting a bug in Bill’s ear about the graphical user interface (known as GUI, pronounced “gooey”), a computer experience that went beyond conventional typing and character-based displays to new modes of interactivity. Linked to a mouse, a GUI would allow ordinary people to use computers intuitively; its potential impact on our market couldn’t be overestimated. Microsoft was preoccupied with Project Chess, but I knew that we’d need a GUI—and GUI applications—in our arsenal before long.

  Whenever I showed Bill material like “Alto: A Personal Computer,” a technical report published by Xerox in 1979, he responded as he had to my pre-Altair excitement over the 8080 chip. “It looks intriguing,” he said, “but who’s going to build the hardware and sell it at a price that works?” The Alto was a research prototype that addressed a bold question: What could you create if you trusted Moore’s law and reimagined the state of the art with no cost constraints? But the machine was far too pricey for the home market. For a pragmatist like Bill, the whole idea must have seemed premature.

  His view began to change in September 1980, when Charles Simonyi, one of PARC’s lead programmers, came in for a job interview. Bill was tied up when he arrived, and Steve Ballmer sent him to me. A soft-spoken man with a mild Hungarian accent, Charles had grown restless with pure research and wanted to move into product development. He knew us as “the language company” and brought some ideas in that area. But I was more interested in the work he’d been doing at PARC. I paged through his portfolio, and it blew me away.

  Two months earlier, in a strategy memo for Microsoft R & D, I’d pushed for development of “a word processor which stands above the rest in terms of features, ease of use, and adaptability.” Now I was holding that very thing, or at least a fair description of it, in my hands. Charles had led the development team for Bravo, the first WYSIWYG (what you see is what you get) word processing software to feature proportional fonts. Unlike predecessors like WordStar, Bravo presented text on the screen exactly as it would appear on the printed page. While I didn’t grasp all of the techn
ical details at first, it was plain that I was looking at the future of word processing software, and at the person who could guide us there.

  Charles came back a second time after meeting with top Xerox executives who wanted very much to keep him. We must have said something right, because he decided to throw in with us instead. “The contrast couldn’t have been sharper,” he’d say later. Xerox was “an old company in an old industry going downhill, walking in the dark. It’s not that they didn’t know the answers. That’s normal. But they didn’t know the questions.” Charles’s decision shocked his PARC colleagues, who couldn’t believe he was moving to such an obscure software operation. (Six years later, the two companies’ market values would cross. As of late 2010, Xerox was worth $15 billion, or about 7 percent as much as Microsoft.)

  Later that fall, before his deal with us was finalized, Charles invited me to his lab in Palo Alto for a demonstration. As he sat before an Alto and put it through its paces, I was amazed. It was one thing to read about a true breakthrough, something else to see it in action. Now I knew how people must have felt at Engelbart’s Mother of All Demos in 1968: as though beamed by transporter into the future.

  The Alto wasn’t technically a microcomputer because it didn’t use a microprocessor. But it was compact for its time, with the cabinet holding the CPU and hard drive was the size of a dorm room refrigerator. The desktop unit consisted of a keyboard and an integrated monitor proportioned like a sheet of standard copy paper, taller than it was wide. Where commercial computers of the day offered low-resolution displays of white or green or amber characters on a black screen, the Alto had been rethought from the ground up. As Charles typed on the black-on-white, bitmapped display, I saw for the first time everything we take for granted in today’s word processors: bold and italic and underlined fonts of different sizes, curved lines and justified text. I watched transfixed as Charles “cut” and “pasted” sections of his document. Xerox PARC had not oversold the Alto. It did indeed replicate the flexibility of pen and ink, but with digital ease and speed.