Today, Microsoft looks like an inevitable success that serves millions of people all over the world. Recent statistics show that the company has a market cap flirting around $2 trillion with more than $118 billion in sales annually. Arguably its closest competitor, Oracle, has a market cap of around $190 billion. Oracle would need to increase its size 10X to overtake Microsoft.
Despite Microsoft’s colossal size, it started as a minnow in a large ocean with IBM as the whale. It didn’t always have a ton of money, and it didn’t always make the right choices. It did, however, have an idea that would make it the world’s largest software company and turn co-founder Bill Gates into one of the world’s wealthiest people.
When Was Microsoft Started and by Whom?
Bill Gates and Paul Allen co-founded Microsoft in 1979. The idea started half a decade earlier, though, when Paul Allen saw the Altair 8800, the first microcomputer, on the cover of Popular Electronics.
At the time, Allen and Gates were students at Harvard. They had also attended the prestigious Lakeside School in Seattle together. Allen brought the issue to Gates. The two computer enthusiasts immediately saw great potential for using BASIC to write software for the Altair 8800 and forthcoming models.
Allen and Gates did not have access to an Altair system. Despite this, Gates contacted the manufacturer and offered to demonstrate an interpreter that would let the system run a streamlined version of BASIC and executed precise commands.
Although they didn’t have an Altair 8800 or an interpreter to demonstrate, they did have an Altair emulator that Gates had developed. Over the next several weeks, they worked tirelessly with help from Monte Davidoff to build Altair BASIC.
With a functional version in hand, Paul Allen went to the headquarters of Micro Instrumentation Telemetry Systems (MITS) – the creator of Altair – in Albuquerque, NM. The system worked, and MITS offered to distribute it through their hardware.
The good news encouraged Bill Gates to drop out of Harvard immediately and move to Albuquerque, where he and Allen began work on the project that would lead to Microsoft.
How Did Microsoft Start Off?
Microsoft got started under the name “Micro-Soft,” a combination of the words microcomputer and software. The company didn’t retain its focus on serving MITS for long. By 1980, Microsoft had built its own operating system, Xenix. The following year, it released MS-DOS, an operating system that would become Microsoft’s dominant product throughout much of the 1980s.
Microsoft DOS showed that Gates, Allen, and their small crew could do more than develop a programming language MITS products. Microsoft’s team had the ability to develop diverse products, including those with the architectural requirements of an operating system.
MS-DOS remained a critical part of Microsoft’s product line until it released Windows 95.
In 1990, Microsoft further demonstrated its software development capabilities by releasing Microsoft Office, a suite of products that included Word and Excel. The Windows platform made it possible for practically everyone, including home users, to access word processing and spreadsheet software at affordable prices.
What Was Microsoft Originally Created For?
Microsoft was originally created to build a BASIC interpreter for the MITS microcomputer Altair 8800.
Microsoft wasn’t the first business venture from Gates and Allen. In the early 1970s, the two friends had used their computer programming skills to found the company Traf-O-Data. The company made simple software that would track and analyze traffic data. The pair, along with Paul Gilbert, built software that worked with an 8008 microprocessor to count cars.
Of course, Microsoft didn’t remain loyal to MITS for long. It quickly branched out to establish itself as one of the world’s largest software and hardware companies. Today, it’s known for products like:
- Bing, a search engine.
- Azure, a cloud-computing system.
- Microsoft Surface tablet computers.
- Microsoft Office software.
- LinkedIn, a social media platform for professionals.
- Skype, a telecommunications app.
- Visual Studio, a graphics-based platform for building applications.
- Xbox gaming system.
How Did Bill Gates Start Microsoft?
Bill Gates basically started Microsoft by telling a small lie. He and Paul Allen told the company MITS that they had built an interpreter that would let the Altair 8800 micro-computer execute commands written in a version of BASIC. Truly, Gates did not have the interpreter, but he did trust that he could build one before the MITS required a demonstration.
Gates recruited some other programmers, and they quickly put together a product that impressed MITS. Gates left Harvard, moved to Albuquerque – where MITS was based – and started Microsoft as a small business.
In 1979, Microsoft (MSFT) moved its headquarters to Bellevue, Washington, near Seattle, where Gates and Paul had grown up. The company has stayed in the Seattle area since.
From within the Seattle headquarters, Microsoft joined forces with IBM (IBM) to create an operating system. By 1985, the company launched Microsoft Windows, a graphics-based version of MS-DOS that became the world’s most popular operating system.
How Did Microsoft Get Funded Early On?
Many of today’s tech companies get funding by approaching investors. They use investment funds to build products, which can lead to revenues that reward the early investors and helps move the company toward sustainability.
Microsoft did not take this route.
Instead, Allen and Gates identified a client they believed they could help. They contacted the potential client, developed a product, and began earning money by serving the client’s needs.
When Did Microsoft Go Public?
Microsoft went public on March 13, 1986, about 11 years after its founding. On the first day, investors traded about 3.5 million shares at $28 each.
More recently, shares tend to trade for more than $250. Stock prices have grown quickly since 2016. In 2016, you could buy a share for about $50. By the end of 2017, the price had outgrown $85. Even during the stock market dip that occurred in March 2020, Microsoft shares managed to stay about $150.
And these price don’t factor in the nine stock splits that took place on MSFT shares too.
3 Reasons Microsoft Got So Big
Microsoft is such a successful company that it has created three billionaires and over 12,000 millionaires. Within less than 50 years, it has accumulated more than 165,000 employees and more than $300 billion in assets.
The obvious question is “Why did Microsoft get so big when most of its competitors have struggled to remain relevant?”
Each person will likely give you a slightly different answer to that question. Three factors, however, stand out as significant reasons that Microsoft got so big.
Microsoft Had Enormously Talented and Ambitious Founders
Bill Gates and Paul Allen have obvious talents as computer programmers and engineers. It wasn’t just their ability to develop software that made Microsoft so big, though. Far from it. It’s absurd to think that Gates and Allen did much of the development work after founding and growing Microsoft. They did, however, have the ambition to push development teams toward innovative ideas.
Keep in mind that Microsoft wasn’t the first company founded by Gates and Allen. The two created a tech business while in high school. While the business had limited success, it shows that Allen and Gates understood that their computer skills were much more than useful hobbies. They had real-world applications that could generate a lot of money when applied correctly.
Microsoft Succeeded Early, Giving It a Long-Term Advantage Over Competitors
Microsoft’s early success as a software company didn’t ensure its ongoing growth. Plenty of companies were building hardware-specific software at the time. Manufacturers knew how to build devices, but they didn’t always have teams of programmers. Instead, they relied on outside companies to build their software products.
Microsoft succeeded early and quickly. It then leveraged that success to tackle bigger projects. The Altair 8800 is an interesting piece of hardware that helped spark the personal computer revolution. The average person, however, doesn’t know what MITS is. IBM, however, was already a large, popular company by the time Gates and Allen started working with it.
Microsoft used its early successes as evidence that it could perform well on bigger and bigger projects. The confidence of its founders and the company’s track record made it an obvious solution for some of the biggest hardware manufacturers that needed reliable teams to build software applications.
Microsoft Has Always Followed a Revenue-Based Business Model
Finally, it’s critical to remember that Allen and Gates didn’t even found Microsoft until they had a prospective client. The company has always followed a revenue-based business model that avoids excessive debt.
Few of today’s startups expect to develop and sell products until they have funding from investors. That means they always have some type of debt or dilution, even if that debt is in the form of an investor’s expectations. Microsoft didn’t have to face situations that forced it to compromise. It had a profitable product from the very beginning.
To some extent, Microsoft’s ability to avoid equity dilution and liabilities and instead focus on revenue comes from luck. In the 1970s comparatively few had the necessary skills to build software as they do today. Furthermore, hardware manufacturers didn’t always know what their products could do until someone else wrote software for them. Today’s tech industry is full of promising engineers with novel ideas, making it hard for them to stand out and earn revenue.
Microsoft, in other words, got so large through a combination of talent, hard work, and luck. It’s a situation that very few people experience.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.