No Leg Work Wednesdays – How IBM Blew The Deal With Microsoft
It seems like the modern, internet-connected consumer has a little bit of information about a wide variety of subjects.
For example, many people know Bill Gates is the richest man in the world. And most people know that he made his fortune on the back of his iconic company Microsoft (NASDAQ: MSFT), which rose to prominence with the MS-DOS and Windows operating systems. But tell people that Bill Gates' rise was as the result of one of the biggest business blunders in history, and you are likely to be met with blank stares.
To understand how International Business Machines (NYSE: IBM) made one of the worst business mistakes in history, an error which would make Bill Gates a multi-billionaire many times over, first you have to understand a few things about the times they were in. In the early 1980s IBM was at the forefront of the burgeoning personal computing industry. IBM needed an operating system to run its new personal computers, and contacted computer giant Digital Research for help.
It turns out that during a critical step of the process Digital Research head Gary Kildall was out of the office, reportedly delivering products to clients. His absence gave Microsoft an important opening. IBM and Digital Research failed to reach an agreement, and instead turned Bill Gates and company to provide the operating system – which was then known as PC DOS. But, the details of the contract would come back to bite the computing giant.
IBM's Contract Flaw
Though the agreement IBM reached with Gates did not allow him to sell PC DOS to any other computer manufacturer, a loophole allowed him to create another, similar, operating system – which he named MS DOS. This operating system was quickly adopted by IMB “clone “companies and the rest is history. The personal computer grew throughout the 1980s and 1990s, and only really began losing steam after 2010, with the introduction of smart phones and tablets.
It is interesting to consider that there were really two amazing blunders which occurred during this historic course of events. If either Digital Research had been available and receptive when IBM came knocking, or if IBM had done its due diligence when signing the contract with Gates, the world could be a very different place today. At the very least there may be an entirely different set of people among the world's richest.
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