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Microsoft Corporation Essay, Research Paper

Microsoft Corporation
















Market Differentiation 9

Pace of technological change 10

Advances to the Printed Word 11


The Internet 13

The Information Highway 14


Microsoft History

Historians categorize blocks of time with the discovery of certain raw materials

that humans utilized. The Bronze Age and the Iron Age were two periods in human

history that proved through the discovery of artifacts that humans learned to

harness these raw materials ingeniously. The Industrial Revolution of the late

nineteenth century brought the discoveries of the Bronze and Iron Ages to new

heights, and the advent of the locomotive, automobiles, cargo ships and

airplanes were the most evident by-products of such raw materials. Use of these

by-products from the earth’s raw materials dramatically changed the world of

business and trade. With the subsequent invention of wire communications (i.e.,

tapping out Morse code and speaking over telephone lines), business and trade

grew exponentially. Wireless communications via the inventions of radio,

television, and motion pictures contributed greatly to the advances of the

Industrial Revolution. The need to find better ways of doing business to keep

the marketplace fresh and innovative has driven the human race toward the brink

of a new eraCthe Information Age. Unlike more tangible qualities of prior ages,

the Information Age offers less defined qualities. At the heart of this new age

is the advent of the personal home computer. Pumping life into this otherwise

material home appliance is software that incorporates the necessary commands to

access information stored within the computer’s memory. The company that

offered the world its first software manufacturing company was Microsoft

Corporation (MSFT on the NASDAQ exchange). At the helm of this young, innovative

company are William Gates and Paul Allen, a pair of former high school chums who

envisioned a world of home computer technology years before such a dream became

even remotely possible.

Early Influences

Their story begins at Lakeside High, a private high school in Seattle,

Washington. The Mothers’ Club at Lakeside decided to purchase a computer

terminal for the kids with proceeds from bake sales and rummage sales. Students

at Lakeside became enthralled with this new toy. True to their innate curiosity,

Gates and Allen began to dabble farther into the workings of the computer; Gates,

for example, wrote his first computer program at the age of thirteenCa version

of Tic, Tac, Toe. Because the computer terminal was so slow, one game of Tic,

Tac, Toe took up most of a lunch break; if played on paper, a full 30 seconds

might have been required. Despite the simplicity of the program, it spawned the

creative genius in both young men to tackle more challenging programs in the

years ahead. Because the Mothers’ Club was unable to afford continued use of

computer time at $40 per hour, they decided to make it students’ responsibility

to purchase their own computer time. Most students complied by getting jobs

outside school. Gates and Allen became programmers in the summers for

compensation of computer time and $5000 in cash. In his 1995 book The Road

Ahead, Gates describes the mainframe computers of the early >70’s as A. . .

temperamental monsters that resided in climate-controlled cocoons . . .

connected by phone lines to clackety teletype terminals. . . .@ (11) He went

on to explain that a personal home computer called the DPD-8 was actually

available from Digital Equipment Corporation. According to Gates it was A. . .

an $18,000 personal computer which occupied a rack two feet square and six feet

high and had about as much computing capacity as a wristwatch does today . . .

Despite its limitations, it inspired us to indulge in the dream that one day

millions of individuals could possess their own computers.@ (11-12)

In the summer of 1973, Paul Allen, who knew more about computer hardware than

Bill Gates, shared an article with Gates buried on page 143 in Electronics

Magazine. The article described the invention of the 8008 micro-processor chip

by a young company called Intel. Paul was surprised to receive the technical

manual for the chip in the mail simply upon request. Immediately, he went to

work analyzing its capabilities. Due to the lack of transistors, the 8008 chip

was very limited in its use, but Allen discovered despite the limitations, the

chip was good for repetitive tasks and mathematical data.

First Business Venture

When Paul Allen entered college at Pullman, Washington, a town on the east side

of the state, sixteen-year-old Bill Gates traveled frequently by bus to visit

him. On these long trips across the state, Gates wrote a program that

facilitated the reading of traffic information gathered by municipalities

through a device set up on the side of certain intersections. A long, rubber

tube stretched across the road from one of these devices, and each time a

vehicle ran over the tube a punch was made in the roll of paper within the

device. People deciphered this crude data by visually inspecting the punch

holes and annotating the results. Gates’ program relieved humans from such a

tedious task, using the technology of the 8008 chip instead. With this program

Gates and Allen launched their first company, Traf-O-Data. The two programmers

were full of enthusiasm for the success of their new company; most communities,

however, were reluctant to purchase from two kids: consequently, their fledgling

company enjoyedonly marginal sales.

Education Attempt

Gates attended Harvard College in 1973 while Allen secured a job in Boston,

Massachusetts as a programmer for Honeywell. In 1974 Intel announced the advent

of the 8080 chip that boasted 2,700 more tran-sistors than its predecessor.

Because of the disappointment they experienced in the hardware side of computing

through dismal success in Traf-O-Data, Gates and Allen focused on new

opportunities in the software side of computers. With a vision of millions of

computers owned by individuals, the pair banked on competition between Japanese

and American companies for control of the computer hardware market. With this

in mind, and with the introduction of the 8080 microprocessor chip (and

inevitable successors to the chip), Gates and Allen determined that their future

lay in developing software for these computers.

The Motivational Side of Fear

During a cold, New England morning outside a newsstand in Harvard Square during

one of his frequent visits to Bill Gates, Paul Allen picked up a copy of the

January issue of Popular Electronics magazine. The cover photo pictured a small

computer kit called the Altair 8800. It sold for a mere $397, and had 4,000

characters of memory . Panic struck Gates: A>Oh no! It’s happening without us!

People are going to go write real software for this chip.’ I was sure it would

happen sooner than later, and I wanted to be involved form the beginning. The

chance to get in on the first stages of the PC revolution seemed the opportunity

of a lifetime, and I seized it.@ (Gates, 16).

Driven by fear of someone writing software for the Altair 8800 personal computer

before his own software was complete, Gates scrambled feverishly in his Harvard

College dormitory forgoing a decent night’s rest. Five weeks later, a version

of BASIC became the impetus for Athe world’s first microcomputer software

company . . . In time we named it >Microsoft.’@ (Gates, 17)

In the spring of 1975, Allen quit his job with Honeywell; Gates decided to take

an indefinite leave of absence from college (never intending to forgo a degree).

Both young men planned to dive into the world of the computer software business

at its very beginning stages. Allen was twenty-two years young and Gates was

only nineteen. They set up operations in Albuquerque, New Mexico because the

city was home to MITS, creator of the first inexpensive personal computer to be

offered to the general pubicCthe Altair 8800 .

Microsoft provided BASIC language because it allowed a format for computer users

to write their own programs instead of having to rely on scarce, packaged

software. Immediately, the MITS Altair 8800 faced strong competition from

computer makers such as Apple, Commodore, and Radio Shack who entered the

personal computer market in 1977. The strategy at Microsoft was to convince

computer manufacturers to buy licenses to Abundle@ Microsoft software with their

computers. Royalties would then be paid to Microsoft on each computer sale.

Aside from the antics of early software piraters and lack of government laws

preventing such activities, this strategy of selling licenses for the use of

their software worked well for Microsoft.

A Japanese Connection

By 1979 half of Microsoft’s business came from Japan. This was due in large

part to Asweat equity@ of one man in particular. His name is Kazuhito (Kay)

Nishi. Kay telephoned Gates in 1978 after discovering Microsoft in a newspaper

article. Both Gates and Nishi were only twenty-two at the time and shared many

similarities despite cultural and language differences. They met shortly after

the phone call at an electronics con-vention in southern California. Without

attorneys, they signed a 12 page contract which gave Nishi exclusive

distribution rights to Microsoft’s BASIC language in East Asia. Eventually,

their original expectation of $15 million was realized ten-fold through sales as

a result of that contract.

Microsoft moved from Albuquerque, New Mexico to its present home in Redmond,

Washington in 1979 with most of its twelve employees. According to Gates, the

mission of Microsoft was Ato write and supply software for most personal

computers without getting directly involved in making or selling computer

hardware.@ (44) The programming team adapted programs to each machine and were

Avery responsive to all the hardware manufacturers . . . we wanted choosing

Microsoft software to be a no brainer . . . along the way, Microsoft BASIC

became an industry standard.,@ Gates was quoted. (44)

IBM Influence

By 1980, International Business Machines (IBM) enjoyed an 80% market share of

large computer hardware, but only marginal success with the smaller personal

computer (PC) market. The Apple II computer appeared poised to takle the

business market, thanks in part to a popular spreadsheet program called VisiCalc.

Based on Apple’s success, IBM decided to enter the PC market. In the summer of

1980, two emissaries from IBM met with Gates to discuss IBM’s plans for a full-

market assault, with components already available off-the-shelf. IBM’s plan was

to utilize Intel’s microprocessor chip and to use Microsoft’s programming

expertise, rather than create its own software. As a result of this meeting,

Microsoft hired Tim Paterson, from a Seattle, Washington firm, who became

responsible for creating the Disc Operating System (DOS) for IBM compatible


Survival of the Fittest

The first IBM PCs hit the market in August of 1981 with a choice of three

operating systems: Microsoft’s DOS, UCSD-Pascal, and CP/M86. Gates realized

that only one operating system could survive, just as only one video cassette

recorder survived their market previously (VHS beat out Beta Max). Gates

developed a three-part plan to come out on top of the competition: < make

Microsoft DOS the best product of the three < help other software companies

write MS-DOS based software < ensure MS-DOS to be inexpensive.

A Crucial Deal

With these objectives in mind, Gates offered IBM an attractive deal. Microsoft

would allow IBM to use DOS (called IBM- or PC-DOS to distinguish itself from

the nearly identical MS-DOS) for a low one-time fee for as many PC’s IBM could

sell. This deal gave IBM the incentive to push DOS, rather than the other two

oper-ating systems, whose manufacturers received royalties for each PC sale with

their respective operating systems installed. Hence, IBM sold UCSD Pascal P-

system for $450 and CP/M-86 for $175 while DOS was offered at only $60.

Gates’s strategy worked as he stated:

AOur goal was not to make money directly from IBM, but to profit from licensing

MS-DOS to computer companies that wanted to offer machines more or less

compatible with the IBM PC. IBM could use our software for free, but it did not

have an exclusive license or control of future enhancements. This put Microsoft

in the business of licensing a software platform to the PC industry. AConsumers

bought the IBM PC with confidence . . each new customer . . . added to the IBM

PC’s strength as a potential de facto standard for the industry. . . . A. . .

the availability of software and hardware add-ons sold PCs at a far greater rate

than IBM had antici-patedCby a factor of millions,@ which meant Abillions of

dollars for IBM.@ (Gates, 49-50)

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