Walter Tersch

CMN 220: Public Speaking

April 23, 2002

 

How a Maker of Mediocre Software Monopolized the Computer Industry

Through Three Key Maneuvers

 

I.               Introduction

A.             Microsoft is the world’s largest software company.

B.              It was started by Bill Gates and his high school friend Paul Allen in Albuquerque, New Mexico, in July 1975.

C.             Their first project was creating the BASIC programming language for the early Altair 8800 computer.

D.             They also licensed BASIC to Apple Computer and other computer manufacturers.

1.     BASIC was preinstalled on every system

2.     Early Microsoft earned a royalty on every computer sold.

 

II.              In 1980, Microsoft landed a contract with IBM to develop an operating system for the new IBM-PC.

A.             The deadline was tight, and the project was huge. Microsoft couldn’t develop a system itself, but told IBM it could.

B.              Microsoft seized the opportunity by buying a suitable operating system from Tim Patterson’s Seattle Computer Company.

1.     Microsoft bought Patterson’s OS, which stood for Quick and Dirty Operating System, for just $50,000.

2.     Interestingly, Microsoft said DOS stood for Disk Operating System.

C.             Microsoft collected licensing royalties on every computer IBM sold.

1.     Annual licensing revenues from IBM alone were $10 million in 1982 and $448 million in 1998.

D.             Since operating systems are MS’s most profitable business, it probably would be an ordinary software company were it not for the lucky partnership with IBM.

1.     Without IBM’s blessing, Microsoft could never make it in the operating system business, since each computer company used its own OS.

2.     DOS was technically inferior, but became a standard through its association with the hallowed IBM name.

E.              Microsoft would base its operating systems on DOS for the next two decades.

1.     Despite the fact that DOS was primitive even when it was introduced in 1981.

 

III.            Microsoft soon cut IBM out of the business and kept it from coming back.

A.             Starting in 1983, dozens of other computer companies started selling copies of IBM’s PC.

1.     The companies, such as Compaq, figured out how to make “clones,” computers that worked just like IBM’s PC, only were cheaper.

B.              Microsoft ensured that DOS would run on all the new clones, not just the IBM-PC.

1.     The combination of the popular DOS system and cheap hardware took off in popularity, crushing other operating systems and cutting into IBM’s profitable business.

2.     This step was critical to Microsoft since it gradually weakened IBM while hugely expanding the number of DOS licensees.

a.      Instead of one company selling DOS, there were soon dozens.

C.             IBM attempted a comeback with OS/2, though it flopped.

1.     IBM saw how much money MS was making by licensing its operating systems, and decided it could succeed by licensing an OS better than any of Microsoft’s.

2.     IBM paid Microsoft to develop a superior OS that would bring IBM back into the OS business.

3.     However, this was a poor choice since Microsoft had no interest in helping IBM become a leader in operating systems.

4.     Microsoft was meanwhile developing its own Windows, which, though just a poor copy of Apple’s revolutionary 1984 Macintosh system, caught on because it ran existing DOS software.

a.      Windows also succeeded because it ran on the multitude of cheap clone hardware and cost less than half as much as OS/2.

5.     It had no incentive to help IBM, and eventually left OS/2 development to IBM.

D.             Windows helped MS reduce IBM to the status of just another clone maker.

1.     Microsoft had positioned itself so that computer makers had to include its operating systems on their computers to avoid rejection by the market.

2.     Though Windows, like DOS, was mediocre, its compatibility with standard software and low cost helped it crush OS/2 and dominate the industry.

 

IV.            Since Microsoft’s operating systems were considered standard, it used its OS dominance to control other companies and crush any competition.

A.             For example, Microsoft can manipulate computer manufacturers by charging different companies different licensing fees.

1.     Microsoft is said to have threatened to raise OS licensing fees for companies that would have sold computers that had both Windows and OS/2 installed.

2.     Another competitor to Microsoft’s Windows is the Linux OS. Microsoft has threatened to put hardware makers that include Linux out of business by raising licensing fees or revoking licenses.

3.     Microsoft used to charge companies for every computer they sold, regardless of whether a MS OS was running it! (Discouraged inclusion of rival systems.)

B.              By the mid-1990s, Microsoft was realizing that the internet revolution could erode their monopoly, since web sites look the same regardless of what OS is used.

1.     Seeking to make the web more dependent on Windows, MS bought out the SpyGlass web browser from Mosaic technologies.

2.     They spent millions developing it, then gave away the product for free, thereby killing Netscape and basically gaining control of the internet.

C.             It uses Windows as leverage in bargaining agreements with other companies.

1.     For example, the reason America Online software contains MS Internet Explorer is that MS made a deal with AOL, agreeing to include AOL with Windows in exchange for AOL’s use of Internet Explorer.

D.             Because it develops the operating system, its application development teams have the advantage when it comes to developing products tightly integrated with the system.

1.     That’s why IE is integrated into Windows and “can’t be removed.”

E.              The company has nearly limitless cash to buy out competitors and dominate any market.

 

V.             Conclusion

A.             Microsoft grew from just a few nerds to become the world-dominating monopoly it is today through three key steps:

1.     Obtaining DOS in 1980 and partnering with IBM to establish it as the standard operating system for personal computers

2.     Partnering with clone makers in the 1980’s and making sure IBM’s OS/2 failed

3.     Using its OS dominance to discourage competition and move control new markets, from games to web browsers.

 

Works Cited

 

 

Anonymous author. “History of Microsoft.”  PageWise 2001. April 23, 2002. <http://www.allsands.com/History/Objects/historymicrosof_sax_gn.htm>

 

Dearlove, Des. (1999.) Business the Bill Gates Way: 10 Secrets of the World’s Richest Business Leader. New York: American Management Association.

 

Erickson, Jim, & Wallace, James. (1992.) Hard Drive: Bill Gates and the Making of the Microsoft Empire. New York: John Wiley & Sons, Inc.

 

Goldman-Rohm, Wendy. (1998.) The Microsoft File: The Secret Case Against Bill Gates. New York: Random House.

 

Ichbiah, Daniel, & Knepper, Susan. (1991.) The Making of Microsoft: How Bill Gates and His Team Created the World’s Most Successful Software Company. Rocklin, California: Prima Publishing.

 

Pirates of Silicon Valley. Dir. Martyn Burke. With Noah Wyle and Anthony Michael Hall, 1999.

 

Stone, Mitch. “The Six Serendipities of Microsoft.” July 13, 1997. April 23, 2002. <http://www.vcnet.com/bms/features/serendipities.html>

 

Wallace, James. (1997.) Overdrive: Bill Gates and the Race to Control Cyberspace. New York: John Wiley & Sons, Inc.