Innovation & Wealth › The information age › Microchips and the personal computer
IBM PC and the MS-DOS deal
August 1981· Innovation· Innovations & industries
Well documentedSolid records, texts or physical evidence.
IBM's 1981 Personal Computer, built from outside parts with Microsoft's operating system, set the standard for business PCs.
See it on the Innovation & Wealth map →What happened
Racing to catch Apple, a small IBM team in Boca Raton, Florida, built the model 5150 in about a year, using Intel's 8088 chip and outside suppliers. It started at $1,565. Microsoft bought an operating system called QDOS from Seattle Computer Products for about $75,000 in total, adapted it as MS-DOS and licensed it to IBM without exclusive rights. When Compaq and others built 'clones' that ran the same software, Microsoft sold them DOS too.
Impact on society and the economy
IBM's open design and non-exclusive deal moved the industry's profits from the box maker to its suppliers, Microsoft and Intel.
Think of it like
Like an owner who builds the tower but lets the property manager sign the same contract with every competing tower in town.
How we know
IBM's August 12, 1981 announcement and price lists, contracts aired in Seattle Computer Products' later lawsuit, and participants' memoirs and histories.
Still debated
Whether IBM failed to foresee clones or chose speed over control is debated, as is the tale that rival Gary Kildall lost the deal by going flying.
Connections (2)
▸IBM under Thomas J. Watson grew into the company that launched IBM PC and the MS-DOS dealWell documented
The connection
Watson and his son built IBM into the dominant maker of business machines and then mainframe computers, with a strong sales culture and leasing. By 1980 that giant feared missing the small-computer market, so it let a small Florida team skip its slow in-house methods and use outside parts and software to build the PC.
When and how
Armonk, New York, and Boca Raton, Florida, 1980–81; CEO Frank Cary approved the project and Don Estridge led it, a decade after the Watsons' era ended in 1971.
How we know
IBM records and company histories document the PC project's approval in 1980 and its unusually independent structure.
Debates
Whether IBM's mainframe culture doomed it to lose control of the PC market, or a few contract choices did, is debated.
▸Bill Gates and Microsoft licensed MS-DOS for IBM PC and the MS-DOS dealWell documented
The connection
When IBM needed an operating system in 1980, Gates bought one cheaply, adapted it as MS-DOS, and licensed it to IBM while keeping the right to sell it to other computer makers. As PC clones spread, MS-DOS became the standard, making Microsoft rich and Gates a billionaire by 1987, at 31.
When and how
Seattle and Boca Raton, 1980–81; Gates, Paul Allen and Steve Ballmer negotiated with IBM; Tim Paterson had written the original QDOS.
How we know
Contracts and testimony from Seattle Computer Products' 1986 lawsuit against Microsoft, settled for $925,000, and many participants' accounts.
Debates
Whether keeping non-exclusive rights was Gates's shrewd plan or simply IBM's indifference is told both ways.