Venture Investor | Company Builder | Best-Selling Author of Transformative | Innovation Strategist
Acquired nails it again: learning about Microsoft's early days is like sitting at the feet of the software startup gods. Two things really stood out beyond Acquired's playbook below: >> Team talent. An unnatural amount of talent that already was within their own social circle was a real catalyst. Also, I gained a real appreciation for Steve Ballmer and his contribution in building a real enterprise software company. >> Waiting for the right business model. The patience of Bill Gates in building the right, with an all you can eat DOC license for IBM to build a market is admirable. That gave Microsoft the opportunity to sell on individual licenses to the clone manufacturers, where they made their money. That was really playing the long game. Thanks again to David Rosenthal and Ben Gilbert for an outstanding episode. #innovation #startups #microsoft #software #startup
Today feels like the Super Bowl of Acquired: our Microsoft episode, finally. We all know them today as the behemoth in Redmond. (And the world's most valuable company) But how... did it happen? How did a scrappy group of kids in their twenties figure out that software was going to change the world, and position themselves to invent that future? Here are a few themes of why Microsoft became so unbelievably dominant from 1975-95: 1) 📅 Timing the PC Revolution Bill Gates and Paul Allen knew the microprocessor was going to change everything. It made access to computing 10x-100x cheaper. They didn't know what the "Personal Computer" would be called, but they knew it was coming. When the Altair 8800 and later the IBM PC launched, they were right there as the first software vendor to create programming languages and an operating system. 2) 💾 The magical software business model When you write software, nearly all of your costs are one-time expenses up-front to write the code, and then it is ~free to create every incremental copy. We all take this for granted now, but this was novel stuff in the 70s and 80s! Before that era, a company like IBM would sell you the hardware, software, support, services, etc. Microsoft discovered that if you just sell software, you can run a high gross margin business with amazing scale economies as you become the market leader. 3) 🖥️ Owning the platform is a hell of a thing Today, everyone talks about building platforms. But that wasn't the case in the IBM era. IBM controlled everything and there was no such thing as a software-only platform that other people could build upon. But with the creation of DOS, that all changed. When the IBM PC launched, Bill, Paul, and Steve Ballmer realized that the OS could become an important base layer for developers to build applications on top of. Gates structured a very clever deal with IBM where Microsoft wouldn't ask for *any* ongoing royalties on sales of DOS for the IBM PC. This of course meant nearly everyone who bought an IBM PC (the market-leading PC) had DOS. Which meant developers wanted DOS. And users wanted DOS. And therefore... Microsoft could make plenty of money licensing DOS to *other* PC manufacturers. Microsoft used IBM to create demand for their platform. Then captured that value from every other OEM out there. Once you become "the standard" platform everyone uses, that's a hell of a flywheel (also later true with Windows!) 4) 💰 Bootstrappers control their own destiny Microsoft is the most successful bootstrapped company in history. They raised $1m of venture capital and $45m in their IPO. But never spent a dollar of it. Because Microsoft was profitable very early on, they never relied on outside capital (and interests) for their success. They also could make bold non-consensus bets, like breaking up with IBM to bet the company on Windows and the GUI -- a terrifying proposition! Full episode here: https://lnkd.in/gbBp7E93
