The day Bill Gates got lucky

LOOK into any office building anywhere in the developed world and what do you see? Desks.

And on each desk, a computer. In the City alone, there are hundreds of thousands of these "desktop" computers. And the strange thing is that they are all direct descendants of a machine first launched 20 years ago this week.

This was the machine that transformed the personal computer business from a nerdish sandpit into a global industry worth about $178 billion a year - the fourth largest after energy, automobiles and illegal drugs.

The computer IBM unveiled on 12 August 1981 was the device which transformed the software company Microsoft and the chipmaker Intel from start-ups into two of the world's most valuable companies. The PC made Bill Gates richer than Croesus.

And, ironically, it nearly destroyed the company which created it.

It's hard to imagine it now, but there was a time when IBM dominated the computer business the way Microsoft does today. The company sold or leased huge mainframe computers on which it made colossal profits and kept customers locked in by spreading "fear, uncertainty and doubt" about competitors and providing intensive, handholding support for its customers.

IBM employed hundreds of thousands of people, rarely sacked anyone and suppressed competitors by methods which eventually landed it with an antitrust suit similar to the one that Microsoft is now fighting in the US courts.

When small "personal" computers began to emerge from the garages of US nerds in the 1970s, IBM looked disdainfully on the puny machines and their scruffy advocates. These were not computers as understood by serious men in suits.

But in 1980, as it became clear that one particular model -- the Apple II -- was selling to men in suits, IBM's senior management had a second think.

Perhaps there was something in this new trend for diminutive machines after all. And if there was, IBM had better dominate it.

In conditions of secrecy, the company assembled a team of 12 engineers (inevitably called the "Dirty Dozen") led by a man named Don Estridge and packed them off to Boca Raton in Florida with a simple mission: create an IBM personal computer, and do it in 12 months.

Given the deadline, they decided all they could do was assemble a machine from hardware and software made by other companies and stick an IBM badge on it. They then embarked on a nationwide trawl for the components. For the CPU - the central processing unit - they went to a small company called Intel, which was then primarily a manufacturer of memory chips. They didn't tell Intel what they wanted the chip for - a policy which sometimes had hilarious results. On one occasion, Intel and IBM engineers sat at opposite ends of a table shouting at one another through a dense black curtain. The Intel boys were expected to figure out the bugs in a product they were not allowed to see.

For the operating system (the software which transforms a computer from an expensive paperweight to a device that can do something useful like word-processing), Estridge and his colleagues went to a tiny Seattle company run by a fanatical young man named Bill Gates.

Nothing in their corporate lives had prepared the IBM guys for Gates.

He looked about 15, but was prone to the ungovernable tantrums of a five-year-old. He spoke in a high-pitched nasal twang, had an IQ of about 200 and drove a Porsche with crazed abandon.

The strangest thing of all was that Microsoft wasn't an operating systems company - it specialised in computer languages such as Basic.

But when the IBM representatives asked Gates if he could supply a system for their new machine, he said yes without a moment's hesitation. Could they have a demonstration? "Come back in a few days," he told them.

After they'd left for their hotel, Gates went around the corner to a small Seattle company which had written an operating system for the Intel processor and bought it, outright, for $50,000. A few days later he sold a customised version of this to IBM for $80,000. But he retained the right to license the operating system to other manufacturers, and for some unfathomable reason, the IBM representatives agreed.

It was one the greatest corporate heists in history. Gates realised that IBM had not obtained an exclusive licence on the Intel chip -- which meant that, sooner or later, other manufacturers would clone the IBM design. And they would need to license an operating system for their clones. Microsoft would supply those licences.

OVERNIGHT, the IBM PC created a new industry. With its beige case and sober design, it looked safe to the corporate world. The company had expected to sell 241,000 between launch and 1985. In fact, it was soon selling that many in a single month. And, as Gates foresaw, the design was rapidly cloned by Compaq and countless others, all of whom needed a Microsoft operating system for "PC compatibility".

In the end, IBM became a minor player in the market it started, and almost went under as the new machines undermined its market for more powerful computers.

Which is how Gates went on to become the world's richest man.

Next time you look at a desktop PC, remember that it represents a payment of between $40 and $80 to his company. "It's like income tax," one of his lieutenants once observed, grinning, "only better."

Copyright 2001
Provided by ProQuest Information and Learning Company. All rights Reserved.