The Six Serendipities of Microsoft

by Mitch Stone

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I

t has become a matter of conventional wisdom to place the credit for Microsoft's success squarely on the shoulders of Bill Gates, by leaps and bounds the most brilliant, innovative competitor in an industry packed with talented operators. But on what basis has Gates and his company earned the right to be placed on such a lofty pedestal?

As the old saying goes, "age and treachery beats youth and skill every time." Likewise, nothing makes a better substitute for good planning than plain, old-fashioned luck, something of which Microsoft has had more than its share. In fact, an examination of the company's product line from MS-DOS through the present versions of Windows leads to the discovery that the Microsoft franchise is built principally on a foundation of lucky breaks. Save the occurrence of six, distinct propitious events in the company's history, Microsoft would probably exist only in Bill Gates' imagination. We can call these the Six Serendipities of Microsoft.

Serendipity No. 1: The DOS Fluke

In 1980 IBM's top management finally recognized an inescapable reality: they needed to introduce a personal computer, and they needed to do it quickly -- too quickly in fact for the glacial design and production process at IBM to cope with the development schedule. In a major break with IBM tradition, the company was prepared to outsource virtually the entire project, including the operating system, in order to meet the time-frame dictated by the anticipated release of the first IBM-PC in 1981. By the very act of subcontracting out its operating system software, IBM was, among other things, candidly admitting its inability to author an operating system of its own.

The IBM design team knew immediately which operating system it wanted for the new computer, then code-named "Acorn." They wanted CP/M, a product of Gary Kildall's Digital Research, of Pacific Grove, California. But when IBM first approached Digital Research, the company's founder Gary Kildall was out of the office for the day. In his absence, Kildall's wife and business associates were reluctant to sign the stringent IBM nondisclosure agreement. The IBM representatives left the Digital Research offices without even divulging the purpose of their visit.

The IBM team then looked up Microsoft, which they presumed owned a broad license from Digital Research to sell CP/M. Microsoft didn't have such a license, but this was something they didn't tell IBM. In fact, neither Microsoft nor Digital Research had an operating system ready to run on the new 16-bit Intel microprocessors IBM was to use in the PC, though Digital was working on one -- nobody except for Tim Paterson at the tiny Seattle Computer Company.

Paterson had written an operating system called "QDOS," an acronym for "quick an dirty operating system." QDOS was in every important respect a clone of CP/M rewritten for 16-bit processors. This was the software that Microsoft purchased from Paterson for $50,000, and renamed MS-DOS. Without stumbling over Paterson and his work on QDOS, it would have been virtually impossible for Microsoft to meet IBM's demanding schedule for delivery of the PC operating system.

So it happened that Microsoft was the clear second choice to supply an operating system for IBM's PC project. If Gary Kildall had been in his office that fateful day when the IBM representatives came calling, or if Microsoft had not purchased the work of Tim Paterson, Bill Gates would probably be running Microsoft out of a shoe box today.

Serendipity No. 2: The Clone Accident

Whatever its paternity, Microsoft's wide dissemination of the retrograde DOS command-line interface technology throughout the 1980s was powered by a flood of inexpensive PC clones, whose manufacturers were compelled to pay Microsoft a royalty for each box they sold. This second fortuitous event in the history of Microsoft was based on the ability of the PC clone-makers to legally reverse-engineer the IBM's ROM BIOS, the chip that controls the lowest-level functions of the PC. This was the only portion of the IBM-PC on which IBM actually held a copyright -- the balance of the PC architecture was constructed of generic, off-the-shelf hardware. Once the BIOS was cracked, anyone could manufacture an IBM-PC work-alike. Suffice to say, this course of events was entirely unanticipated by IBM or anyone else.

Without this bit of good fortune, the PC clone industry can't exist. Or at the very least, IBM controls the licensing of the PC, not Microsoft. What happens then is anybody's guess, but the results would certainly have been very different -- and much less favorable to Microsoft.

Serendipity No. 3: Nobody Ever Gets Fired for Buying IBM

Anyone who was on the computing scene at the time will recall that during the critical period of the mid-1980s, trying to sneak a non-IBM-PC past the Information Services Department at any given corporation or governmental office was like trying to thread a needle with a chain. As far as most corporations were concerned, only a desk-top computer bearing the IBM name (the only "real" computer company -- or so went the prevailing wisdom of the day), was a safe choice.

So great was the pin-striper's confidence in IBM that they were prepared to buy into MS-DOS, even though this awkward and archaic method of running a computer was clearly inspired more by the past than by any vision for the future. Many people actually resorted to bringing their own computers into the office, rather than be forced to use the DOS monstrosity. These employees were rarely rewarded for their dedication and ingenuity.

But it was because the IBM name was associated with the PC that it became the default choice of computer buyers, and it was the huge sales of that found object, MS-DOS, that catapulted Microsoft into the financial stratosphere.

Serendipity No. 4: A Total Commitment to a Standard

Corporate users proved reluctant to deviate from a hardware path once it was established, carving a deep trench through which flowed Microsoft's seemingly endless supply of revenue. Despite the fact that DOS, and its follow-ups, Windows 1.0 and 2.0, were genuinely inept and insulting products, even by the standards of the day, Microsoft was always granted another chance to get it right.

By this time, the Microsoft OS running on a PC clone was ordained to be "standard" and sacrosanct, so much so that it hardly mattered what sort of grief people were forced to put up with to use it, how long a product was delivered after it was promised, or whether it even worked as advertised when it arrived on the market. Microsoft may wish to take credit for instituting an OS standard, but history suggests that this occurred despite their best efforts, not because of them.

Serendipity No. 5: Our Lawyers are Better than Your Lawyers

Microsoft's fifth lucky break was the court's ruling in favor of the defendant in the protracted Apple v. Microsoft lawsuit. The courts determined that Microsoft's appropriation of several Macintosh operating system interface elements for Windows 3.0 did not constitute a violation of Apple's copyrights.

This landmark "look and feel" case was complicated by Apple's 1985 license of some user interface elements to Microsoft for incorporation into Windows 1.0 -- a license reputedly granted only after Bill Gates threatened to discontinue development of Macintosh applications. Even so, many industry-watchers believed that Apple's complaint was justified, and predicted a big victory for the plaintiffs. Microsoft dodged this bullet, but just barely.

Serendipity No. 6: No Justice

The sixth major stroke of luck for Microsoft was the hands-off attitude espoused by the U.S. Justice Department during the 1980s, allowing Microsoft to exercise transparent contempt for honest and open competition, and by so doing, deliberately lock competitors out of the marketplace.

The company's most classically anti-competitive gambit required all PC clone manufacturers to pay Microsoft a royalty on every computer they shipped, even when no Microsoft product was loaded on the machine -- the so-called "CPU tax." In effect, this scheme required the clone makers to charge customers twice for a pre-loading a competitor's product, and so they rarely did. This technique has been traced to the demise of DR-DOS, an alternative to MS-DOS.

The United States Justice Department barred Microsoft from engaging in this sort of extortion in 1994, but without assessing a penalty against the company, and far too late in the game to reverse the damage already done. In the end, this settlement did little to protect the consuming public.

Smart Doesn't Count for Much

If Microsoft can be thought of as a "smart competitor" in the present climate, it is on account of its determination to use its massive financial clout, size and supremacy (which, as we've seen, was won mainly by a string of lucky breaks) to forestall any and all serious competition. Microsoft today is much less the paragon of the brilliant, innovative competitor then it is the model of an inordinately lucky company that is furiously attempting to protect its providential acquisitions.

As Paul Saffo of the Institute of the Future suggests, this explains why Microsoft is "a company that is desperately resisting change." According to Saffo, Microsoft is attempting to "hang onto what it's got: making the operating system important even though we're moving into a world where the OS becomes steadily less important.... [e]verything it's doing is going into that. It is a classic case of a change-hating company; it is desperately trying to retard change."

Microsoft's defensive posture looks for all the world like an expression of a company lacking self-confidence in its future. This attitude is apparently a function of its past, which was built more on the blind good fortune of picking six winning lottery numbers then on any innate cleverness. Microsoft is apprehensive about change, and is doing everything in its considerable power to resist it, because they fear that their remarkable run of luck may have finally ended.