Microsoft and the Clones

Tim Paterson (b. 1956), Bill Gates (b. 1955)

When IBM released its PC in 1981, the machine came with BASIC in ROM and
an optional floppy disk drive with the PC Disk Operating System (PC­DOS). But
IBM didn’t write BASIC or PC-DOS—both came from a scrappy little company
in Redmond, Washington, called Microsoft, whose major product until that
point had been versions of the BASIC computer language running on different
kinds of microcomputers.
In the spring of 1980, IBM looked around and saw that the dominant operating
system for microcomputers was an 8-bit operating system by Digital Research
Inc. (DRI) called CP/M (Control Program/Monitor). IBM was building a 16-bit
micro, so the company needed a 16-bit version of CP/M. Unable to ink a deal
with DRI, IBM instead signed a contract with Microsoft in July 1980 to make a
16-bit operating system for the PC that would be functionally similar. The goal
was to make it easy for software developers to port their programs from CP/M
to the new IBM micro.
There was not enough time for Microsoft to write its own operating system, so
Microsoft bought a license from Seattle Computer Products (SCP), one of
Microsoft’s BASIC customers. SCP had also tried and failed to license a 16-bit
version of CP/M, which wasn’t ready at the time, so Tim Paterson, one of SCP’s
programmers, had written his own operating system called QDOS (Quick and
Dirty Operating System) for the company’s computer. SCP later renamed QDOS
as 86-DOS. Microsoft licensed 86-DOS for $25,000, and then bought all the
rights for another $75,000 just before the PC’s release.
Microsoft’s deal with IBM allowed Microsoft to license DOS to others— and it
did. Within a year, Microsoft had licensed DOS to 70 other companies under
the name MS-DOS. Suddenly there were dozens of computers on the market
that could run the exact same software as the IBM PC—and that cost a fraction
of the price. Soon companies making and selling PC-compatible computers
were popping up all over the planet.
Because IBM did not own the licensing rights to MS-DOS, it took only a few
years before the countless PC clones using MS-DOS flooded the market,
hurting IBM’s position as the dominant player in the very PC market it had
created. In December 2004, IBM finally announced that it was exiting the PC
market—and its stock rose by 1.6 percent after the news.
SEE ALSO IBM PC (1981), Microsoft Word (1983)
Bill Gates, cofounder of Microsoft.