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What with the arrival of the category-defining Commodore VIC-20 and the dramatic growth of the British PC market, 1981 has provided us with no shortage of new machines and other technical developments to talk about. Yet I’ve saved the biggest event of all for last: the introduction of the IBM PC, the debut of an architecture that is still with us over 30 years later. As such a pivotal event in the history of computing, there’s been plenty written about it already, and no small amount of folklore of dubious veracity has also clustered around it. Still, it’s not something we can ignore here, for the introduction of the IBM PC in late 1981 marks the end of the first era of PCs as consumer products as surely as the arrival of the trinity of 1977 spelled the end of the Altair era of home-built systems. So, I’ll tell the tale here again. Along the way, I’ll try to knock down some pervasive myths.

One could claim that the IBM PC was not really IBM’s first PC at all. In September of 1975 the company introduced the IBM 5100, their first “portable” computer. (“Portable” meant that it weighed just 55 pounds and you could buy a special travel case to lug it around in.)

The 5100 was not technically a microcomputer; it used a processor IBM had developed in-house called the PALM which was spread over an entire circuit board rather than being housed in a single microchip. From the end user’s standpoint, however, that made little difference; certainly it would seem to qualify as a personal computer if not a microcomputer. It was a self-contained, Turing complete, programmable machine no larger than a suitcase, with a tape drive for loading and saving programs, a keyboard, and a 5-inch screen all built right in along with 16 K or more of RAM. What made the 5100 feel different from the first wave of PCs were its price and its promoted purpose. The former started at around $10,000 and could quickly climb to the $20,000 range. As for the latter: IBM pushed the machine as a serious tool for field engineers and the like in remote locations where they couldn’t access IBM’s big machines, not as anything for fun, education, hacking, or even office work. The last of these at least changed with two later iterations of the concept, the 5110 and 5120, which were advertised as systems suitable for the office, with accounting, database, and even word processing applications available. Still, the prices remained very high, and actually outfitting one for this sort of office work would entail connecting it to a free-standing disk array that was larger than the machine itself, making the system look and feel more like a minicomputer and less like a PC. It’s nevertheless telling that, although it was almost never referred to by this name, the IBM PC when it finally arrived had the official designation of (with apologies to Van Halen) the IBM 5150, a continuation of the 5100 line of portable computers rather than an entirely new thing — this even though it shared none of the architecture of its older siblings.

In February of 1978 IBM began working on its first microcomputer — and it still wasn’t the IBM PC. It was a machine called the System/23 Datamaster.

Designed once again for an office environment, the Datamaster was built around an Intel 8085 microprocessor. It was large and heavy (95 pounds), and still cost in the $10,000 range, which combined with its very business-oriented, buttoned-down personality continued to make it feel qualitatively different from machines like the Apple II. Yet it was technically a microcomputer. IBM was a huge company with a legendarily labyrinthine bureaucracy, meaning that projects could sometimes take an inordinately long time to complete. Despite the Datamaster project predating the PC project by two years, the former didn’t actually come out until July of 1981, just in time to have its thunder stolen by the announcement of the IBM PC the following month. Still, if the question of IBM’s first microcomputer ever comes up in a trivia game, there’s your answer.

The machine that would become known as the real IBM PC begins, of all places, at Atari. Apparently feeling their oats in the wake of the Atari VCS’s sudden Space Invaders-driven explosion in popularity and the release of their own first PCs, the Atari 400 and 800, they made a proposal to IBM’s chairman Frank Cary in July of 1980: if IBM wished to have a PC of their own, Atari would deign to build it for them. Far from being the hidebound mainframer that he’s often portrayed as, Cary was actually something of a champion of small systems — even if “small systems” in the context of IBM often meant something quite different from what it meant to the outside world. Cary turned the proposal over to IBM’s Director of Entry Systems, Bill Lowe, based out of Boca Raton, Florida. Lowe in turn took it to IBM’s management committee, who pronounced it “the dumbest thing we’ve ever heard of.” (Indeed, IBM and Atari make about the oddest couple imaginable.) But at the same time, everyone knew that Lowe was acting at the personal behest of the chairman, not something to be dismissed lightly if they cared at all about their careers. So they told Lowe to assemble a team to put together a detailed proposal for how IBM could build a PC themselves — and to please come back with it in just one month.

Lowe assembled a team of twelve or thirteen (sources vary) to draft the proposal. In defiance of all IBM tradition, he deliberately kept the team small, the management structure informal, hoping to capture some of the hacker magic that had spawned PCs in the first place. His day-to-day project manager, Don Estridge, said, “If you’re competing against people who started in a garage, you have to start in a garage.” One might have expected IBM, the Goliath of the computer industry, to bludgeon their way into the PC market. Indeed, and even as they congratulated themselves for having built this new market using daring, creativity, and flexibility stolid IBM could not hope to match, many PC players lived in a sort of unvoiced dread of exactly this development. IBM, however, effectively decided to be a good citizen, to look at what was already out there and talk to those who had built the PC market to find out what was needed, where a theoretical IBM PC might fit. In that spirit, Jack Sams, head of software development, recommended that they talk to Microsoft. Sams was unusually aware of the PC world for an IBMer; he had actually strongly pressed for IBM to buy the BASIC for the Datamaster from Microsoft, but had been overruled in favor of an in-house effort. “It just took longer and cost us more,” he later said. Sams called Bill Gates on July 21, 1980, asking if he (Sams) could drop by their Seattle office the next day for a friendly chat about PCs. “Don’t get too excited, and don’t think anything big is about to happen,” he said.

Gates and Steve Ballmer, his right-hand man and the only one in this company of hackers with a business education, nevertheless both realized that this could be very big indeed. When Sams arrived with two corporate types in tow to function largely as “witnesses,” Gates came out personally to meet them. (Sams initially assumed that Gates, who still had the face, physique, and voice of a twelve-year-old, was the office boy.) Sams immediately whipped out the non-disclosure agreement that was standard operating procedure for IBM. Gates: “IBM didn’t make it easy. You had to sign all these funny agreements that sort of said IBM could do whatever they wanted, whenever they wanted, and use your secrets however they felt. So it took a little bit of faith.” Nevertheless, he signed it immediately. Sams wanted to get a general sense of the PC market from Gates, a man who was as intimately familiar with it as anyone. In this respect, Gates was merely one of a number of prominent figures he spoke with. However, he also had an ulterior motive: to see just what kind of shop Gates was running, to try to get a sense of whether Microsoft might be a resource his team could use. He was very impressed.

After consulting with Gates and others, Lowe presented a proposal for the machine that IBM should build on August 8. Many popular histories, such as the old PBS Triumph of the Nerds, give the impression that the IBM PC was just sort of slapped together in a mad rush. Actually, a lot of thought went into the design. There were two very interesting aspects.

At that time, almost all PCs used one of two CPUs: the MOS 6502 or the Zilog Z80. Each was the product of a relatively small, upstart company, and each “borrowed” its basic instruction set and much of its design from another, more expensive CPU produced by a larger company — the Motorola 6800 and the Intel 8080 respectively. (To add to the ethical questions, both were largely designed by engineers who had also been involved with the creation of their “inspirations.”) Of more immediate import, both were 8-bit chips capable of addressing only 64 K of memory. This was already becoming a problem. The Apple II, for example, was limited, due to the need to also address 16 K of ROM, to 48 K of RAM at this time. We’ve already seen the hoops that forced Apple and the UCSD team to run through to get UCSD Pascal running on the machine. Even where these CPUs’ limitations weren’t yet a problem, it was clear they were going to be soon. The team therefore decided to go with a next-generation CPU that would make such constraints a thing of the past. IBM had a long history of working with Intel, and so it chose the Intel 8088, a hybrid 8-bit / 16-bit design that could be clocked at up to 5 MHz (far faster than the 6502 or Z80) and, best of all, could address a full 1 MB of memory. The IBM PC would have room to grow that its predecessors lacked.

The other interesting aspect was this much-vaunted idea of an “open architecture.” In Accidental Empires and even more so in Triumph of the Nerds Robert X. Cringely makes it out to be a choice born of necessity, just another symptom of the machine as a whole’s slapdash origins: “An IBM product in a year! Ridiculous! To save time, instead of building a computer from scratch, they would buy components off the shelf and assemble them — what in IBM speak was called ‘open architecture.'” Well, for starters “open architecture” is hardly “IBM speak”; it’s a term used to describe the IBM PC almost everywhere — and probably least of all within IBM. (In his meticulous, technically detailed Byte magazine article “The Creation of the IBM PC,” for example, team-member David J. Bradley doesn’t use it once.) But what do people mean when they talk about “open architecture?” Unfortunately for flip technology journalists, the “openness” or “closedness” of an architecture is not an either/or proposition, but rather, like so much else in life, a continuum. The Apple II, for example, was also a relatively open system in having all those slots Steve Wozniak had battled so hard for (just about the only battle the poor fellow ever won over Steve Jobs), slots which let people take the machine to places its creators had never anticipated and which bear a big part of the responsibility for its remarkable longevity. Like IBM, Apple also published detailed schematics for the Apple II to enable people to take the machine places they never anticipated. The CP/M machines that were very common in business were even more open, being based on a common, well-documented design specification, the S-100 bus, and having plenty of slots themselves. This let them share both hardware and software.

Rather than talking of an open architecture, we might do better to talk of a modular architecture. The IBM would be a sort of computer erector set, a set of interchangeable components that the purchaser could snap together in whatever combination suited her needs and her pocketbook. Right from launch she could choose between a color video card that could do some graphics and play games, or a monochrome card that could display 80 columns of text. She could choose anywhere from 16 K to 256 K of onboard memory; choose one or two floppy drives, or just a cassette drive; etc. Eventually, as third-party companies got into the game and IBM expanded its product line, she would be all but drowned in choices. Most of the individual components were indeed sourced from other companies, and this greatly sped development. Yet using proven, well-understood components has other advantages too, advantages from which would derive the IBM PC’s reputation for stolid reliability.

While sourcing so much equipment from outside vendors was a major departure for IBM, in other ways the IBM PC was a continuation of the company’s normal design philosophy. There was no single, one-size-fits-all IBM mainframe. When you called to say you were interested in buying one of these monsters, IBM sent a rep or two out to your business to discuss your needs, your finances, and your available space with you. Then together you designed the system that would best suit, deciding how much disk storage, how much memory, how many and what kind of tape drives, what printers and terminals and punched-card readers, etc. In this light, the IBM PC was just a continuation of business as usual in miniature. Most other PCs of course offered some of this flexibility. It is nevertheless significant that IBM decided to go all-in for modularity, expandability, or, if we must, openness. Like the CPU choice, it gave the machine room to grow, as hard drives, better video cards, eventually sound cards became available. It’s the key reason that the architecture designed all those years ago remains with us today — in much modified form, of course.

The committee gave Lowe the go-ahead to build the computer. IBM, recognizing itself that its bureaucracy was an impediment to anyone really, you know, getting anything done, had recently come up with a concept it called the Independent Business Unit. The idea was that an IBU would work as a semi-independent entity, freed from the normal bureaucracy, with IBM acting essentially as the venture capitalists. Fortune magazine called the IBU, “How to start your own company without leaving IBM.” Chairman Cary, in a quote that has often been garbled and misattributed, called the IBU IBM’s answer to the question, “How do you make an elephant [IBM] tap dance?” Lowe’s IBU would be code-named Project Chess, and the machine they would create would be code-named the Acorn. (Apparently no one was aware of the British computer company of the same name.) They were given essentially free rein, with one stipulation: the Acorn must be ready to go in just one year.

Having been so favorably impressed with Bill Gates and Microsoft, Jack Sams returned to them almost as soon as IBM officially gave Project Chess the green light — on August 21, 1980. After having Gates sign yet another NDA, he was ready to move beyond the theoretical and talk turkey. He explained that IBM was planning to make its own PC, something that surprised no one in the room. In keeping with the philosophy of building a machine that could be configured to do anything, he planned to offer the user a choice of using a ROM-hosted BASIC environment similar to that of the Apple II, PET, and TRS-80, or of booting into the disk-oriented operating system CP/M, hugely popular among business users. Microsoft, the premier provider of microcomputer BASICs, was the obvious place to go for the first of these. They had also recently branched out into other, compiled languages like FORTRAN, and Sams wouldn’t mind having him some of those either. Robert X. Cringely and others make much of IBM’s turning to an outside vendor like Microsoft for its software (more of the “slapdash” trope), but this was really not at all unusual. Apple, Commodore, and Radio Shack amongst many others had in fact all done the same, sourcing their BASICs from Microsoft.

Sams was, however, very confused about something else. That spring Microsoft had introduced its first hardware product, the Z80 SoftCard. It was a Z80 CPU on a card which plugged into one of the Apple II’s expansion slots. Once the card was installed, the user could elect whether to give control of her machine to its standard 6502 CPU or to the Z80; the card contained circuitry to allow the Z80 to use the Apple II’s standard memory and other peripherals. Developed in partnership with Seattle Computer Products, a small hardware company with which Microsoft had quite close relations at this time, it really was a marvelous little hack. Because CP/M ran only on Z80 processors, Apple II users had hitherto been cut off from the universe of CP/M business software. Now they had the best of both worlds: all of the fun and educational software that took advantage of the Apple II’s graphics capabilities (not to mention VisiCalc), and all of the text-oriented, businesslike CP/M applications. The SoftCard became a huge success, second only to VisiCalc itself in making the Apple II the only 6502-based machine to be significantly adopted by American business; an Apple II with SoftCard soon became the single most popular CP/M hardware configuration. Based on the SoftCard, which shipped with a copy of CP/M, Sams assumed that Microsoft owned the operating system. Now Gates explained that this was not the case, that Microsoft had only licensed it from its real owner, a company called Digital Research.

Gates and Gary Kildall, the head of Digital and original programmer of CP/M, had known each other for years, and had developed a mutual respect and sort of partnership. When a new machine came out, Microsoft did the languages and Digital did the operating system. Steve Wood, an early Microsoft programmer:

“When we were talking to another OEM, a hardware customer who wanted to run BASIC or any of our products, we got to a point by 1977 or ’78 where we were always trying to get them to go to Digital first and get CP/M running because it made our job a whole lot easier. When we were doing custom things like the General Electric version or NCR version, it got to be a real headache. It made our lives a lot easier if someone would just go license CP/M and get that up on their machines and then our stuff would pretty much run as is. And Gary would do likewise. If someone went to him to license CP/M and they were looking for languages, he would refer people to Microsoft. It was a very synergistic kind of thing.”

Gates and Kildall had even discussed merging their companies at one point. As it was, there was a sort of unwritten understanding that Microsoft would stay out of operating systems and Digital would stay out of languages. In late 1979, however, Digital began distributing a non-Microsoft BASIC with some of their CP/M packages, a development Gates and others at Microsoft viewed as a betrayal of that trust.

Still, Gates dutifully called Kildall right there in Sams’s presence to set up a meeting for Sams and his team for the very next day. He told him they were very important customers, “so treat them right.” For his part, Sams was not thrilled. He was so very impressed with Gates and Microsoft, and “we really only wanted to deal with one person” for all of the systems software. Yet he didn’t see a choice. CP/M, you’ll remember, ran on the Z80 CPU. Sams therefore needed much more than to just purchase a license from Digital; he needed them to agree to port the operating system to the newer 8088 architecture, and to do it on his schedule. The next morning he and his team were on an airplane bound for Pacific Grove, California, home of Digital Research.

This is where the story gets famously unclear. Both Sams and Kildall were asked many times in later years about the events of August 22, 1980. Their stories are so factually disparate that it seems impossible to attribute their differences to mere shading or interpretation. Someone (or perhaps both), it seems, was simply not telling the truth.

Sams claims that he and his team arrived at the Victorian house that served as Digital’s headquarters right on time, only to be told that Kildall had decided to take advantage of a beautiful day by blowing off the meeting and going flying in his private plane. Sams and company were left in the hands of Digital’s business manager, Kildall’s wife Dorothy. Shocked but stalwart, Sams pulled out his NDA as a prelude to getting down to business. Now, on the face of it, this was an intimidating and unfair agreement, saying essentially that the other party could be sued if they revealed any of IBM’s secrets, but that IBM had complete immunity from legal action for the reverse. Gates had had, in his own words, “faith,” and signed right away. Dorothy, however, said no, that she would have to consult with her lawyer first. While Sams fidgeted impatiently in the lobby, she and the lawyer, Gerry Davis, dithered until three o’clock in the afternoon, when she finally signed. With most of the day gone and with the technical mastermind who would need to actually do the port not even present, negotiations didn’t really get anywhere. Sams left Digital, frustrated and annoyed, without even the beginning of an agreement, and immediately started casting about for an alternative to dealing with these people.

For his part, Kildall (who died in 1994 under very strange circumstances) admitted that he was out flying when Sams arrived for his meeting. He claimed, however, that, far from joyriding (joyflying?), he was flying himself home from a business trip. He said it was perfectly okay for the IBM team to have been left in the hands of Dorothy at the beginning of the meeting, as she was much more involved in all business negotiations than he. He nevertheless said that he was back by the afternoon, and that it was in fact him who convinced Dorothy and Davis to just sign the NDA and get on with it. After that negotiations proceeded quickly, and IBM and Digital had a “handshake agreement” by the time the day was over. Further, Kildall claimed that he and Dorothy flew out that night (via commercial airliner this time) to begin a vacation in Florida, and that the IBM group happened to be on the same flight. There they all talked about their plans some more.

Sams says that he did not even fly to Florida immediately after the meeting, but rather back to Seattle to continue to talk with Microsoft, admitting only that perhaps one or two members of the group might have gone directly back to Boca Raton. For years he also adamantly maintained that he never met Kildall at all that day, “unless he was there pretending to be someone else.” Only in recent years has he softened that stance somewhat, saying it’s “possible” Kildall was there, although he “doesn’t remember it.” He also recently said, “We spun it, Kildall spun it, and Microsoft spun it.” This might be read as the last refuge of a man who hasn’t always been entirely truthful, but who knows really. There are witnesses that partially corroborate each version of events. A Digital executive and friend of Kildall named Tom Rolander says he was on the business trip with Kildall, and that they did indeed meet with Sams that afternoon. Meanwhile Davis, Digital’s lawyer, says that he is certain no handshake deal was reached that day, and other IBM staffers do recall Sams saying immediately after the expedition that Kildall never showed up for the meeting.

So, what to make of all this? We might start by looking at Kildall’s personality in contrast to Gates’s. Popular accounts of these events often boil Gates and Kildall down to caricatures, the maniacally driven East Coast businessman versus the laid-back California hippie. They’re actually not awful as caricatures go. Both were wonderful hackers, but they could otherwise have hardly been more different. Gates was determined to prove himself and to win, over and over. When a bigger fish like IBM came calling, he was perfectly willing to humble himself, even to the point of obsequiousness, as long as he needed them as a steppingstone to the next level. (Once he didn’t need them anymore, of course, all bets were off.) It may not have been grounded in the most admirable of traits, but Gates’s ambition made Microsoft beloved by many of their partners. Not only had Gates assembled a very talented team, but they reflected their boss’s personality in being willing to work like dogs and walk through walls to get the job done and outdo their competitors. Kildall, meanwhile, often didn’t even seem certain he wanted to be running a business in the first place:

In one of the darkest of those moments in the late ’70s, Gary passed the parking lot by on his way in to work, and continued around the block, realizing that he just couldn’t bring himself to go in the door. He circled the block three times before he could force himself to confront another day at DRI.

One can’t imagine a remotely similar moment of doubt plaguing Gates.

The joy of hacking was what was important to Kildall. Users needed just be patient. While he would be happy to work with IBM, they needed to get in line like everyone else. Certainly he wasn’t interested in groveling to them. Digital’s vice president in 1980, Gordon Eubanks, says, “Gary cared a lot more about partying than running a business.” In addition to partying, Kildall cared about software. Gates cared about the software business. Eubanks:

The differences between Bill and Gary were just striking. Bill saw an opportunity, he would drive, he’d commit, he’d probably over commit, no problem. Gary was like, “I don’t care, I’m Digital Research. You deal with me, and you deal with me on my terms.”

And then of course there’s the personality of Sams, or rather of his corporate parent. IBM was the big dog in computers, and they expected to be treated like it. If they condescended to visit the likes of Microsoft or Digital, they should be treated like the VIPs they were, shown that the company in question really wanted their business. When Digital failed to demonstrate their respect and thankfulness to the same degree as did Microsoft — and whatever else happened that day, it does seem pretty clear that this at least was the case; Eubanks describes Dorothy as constantly “bitchy” to everyone, including potential customers — Sams was angry. “Don’t these people know who I am?” he must have wondered. Further, it’s pretty clear that Sams was unhappy about having to deal with Digital in lieu of Gates before he ever boarded that flight for California. As our mothers always told us, going into something with a bad attitude usually yields a bad result.

What is certain is that, handshake or no handshake and regardless of what impression Kildall might have been under, Sams was not pleased with his experience at Digital. He asked Gates, who had by this time signed an official consulting deal, whether he might find him an alternative to CP/M. Gates said he would see what he could do. In the meantime Sams claims he continued to try to work out something with Digital, but couldn’t get a commitment to develop an 8088 CP/M on the strict timetable he needed. Eubanks says that Kildall just didn’t find the project all that “interesting,” in spite of the obvious, pressing business need for it, and thus worked on it only halfheartedly.

And then Gates came back with QDOS.

In November of 1979, Microsoft’s frequent partner Seattle Computer Products released a standalone Intel 8086 motherboard for hardcore hobbyists and computer manufacturers looking to experiment with this new and very powerful CPU. The 8086 was closely related to the 8088 that IBM chose for the PC; the latter was a cost-reduced version of the former, an 8-bit/16-bit hybrid chip rather than a pure 16-bit like the 8086. IBM opted for the less powerful 8088 partly to control costs, but also to allow the use of certain hardware that required the 8-bit external data bus found on the 8088. But perhaps the biggest consideration stemmed, as happens so often, from the marketing department rather than engineering. The 8086 was such a powerful chip that an IBM PC so equipped might convince some customers to choose it in lieu of IBM’s own larger systems; IBM wanted to take business from other PC manufacturers, not from their own other divisions.

The important thing to understand for our purposes, though, is that both chips shared the instruction set, and thus could run the same software. Everyone wanted to run CP/M on the SCP boards, but CP/M existed only for the Intel 8080 and Zilog Z80. Thus, SCP had the same problem that Sams and IBM would face months later. Digital Research repeatedly promised an 8086/8088 version of CP/M, but failed to deliver. So, in April of 1980 Tim Paterson of SCP decided to write his own 8086/8088 operating system. He called it QDOS — the “Quick and Dirty Operating System.”

The ethicality or lack thereof of what Paterson did has been debated for years. Gary Kildall stridently claimed many times that he ripped off the actual CP/M source code, but this is a very problematic assertion. There is no evidence that he even had access to the source, which Digital, like most companies then and now, guarded carefully. On the other hand, Paterson freely admits that he pulled out his CP/M reference manual and duplicated each of its API calls one by one. On the other other hand, and while it may not have reflected much originality or creative thinking, what he did was pretty clearly legal even by the standards of today. Courts have ruled again and again that APIs cannot be copyrighted, only specific implementations thereof, and that reverse engineering is therefore allowed. (Well, there is patent law, but that’s a swamp we’re going to stay well away from…) Food for thought for open-source advocates and Microsoft haters: if QDOS was ethically wrong, then Linux — largely a reimplementation of the Unix standards — must be equally wrong. Paterson claims that he had a good reason to copy CP/M so closely: he wanted to make it as easy as possible for programmers to move existing CP/M software over to QDOS. He also claims that beneath the surface, where he could get away with it, he substantially improved upon his model, notably in disk- and file-handling.

In the meantime Gates was wondering how he was going to come up with an operating system for IBM in the time frame they wanted. Then one day Paterson called Paul Allen of Microsoft to tell him about QDOS, just in case Microsoft was interested in writing some software for it or using it in-house. Gates, just the man to recognize an out-of-the-blue savior when he saw one, called Sams, asking, “Do you want to get [it], or do you want me to?” Sams’s answer to that question would cost IBM billions and billions over the decades to come. “By all means, you get it,” he said. Recognizing that PC software was far from his realm of expertise, Sams had already pretty much thrown all of his systems-software problems into Microsoft’s lap, and he saw no reason to change course now. “We wanted this to be their problem,” he later said. Microsoft’s “problem” would in a few years become a big, big problem for IBM.

On September 30, Gates, Ballmer, and Bob O’Rear flew down to Florida to make their final proposal to IBM. For Sams, who wanted to essentially foist the software problem on someone else, their plan sounded ideal. Microsoft would take responsibility for providing an operating system, four programming languages (BASIC, COBOL, FORTRAN, Pascal), and a range of other software to be available at launch (including our old friend Microsoft Adventure). One point Gates carefully stipulated: Microsoft would license all of this to IBM, not outright sell it to them, and would expect to be paid on a per-copy royalty basis. IBM, feeling there was opportunity enough for everyone to do well out of this and that it couldn’t hurt to have Microsoft’s own fate tied so closely to that of the IBM PC, agreed. This huge company, legendarily risk-averse and conservative, elected to place the fate of one of their biggest projects ever in the hands of a 24-year-old. If Microsoft failed to come through, the IBM PC itself would be stillborn. On November 6, Microsoft and IBM officially signed the contract, which immediately paid Microsoft $700,000 to begin porting all of this disparate software to the new architecture. Ironically, by that time both Lowe and Sams, who had played such prominent roles in everything that came before, had been transferred to other divisions. Project Chess may have been an Independent Business Unit, but it obviously wasn’t entirely immune to the fickle ways of the IBM bureaucracy. Don Estridge took over leadership of the project.

While the software deal was being finalized, Project Chess had not been idle. That same November Microsoft received its first two prototype machines. IBM, desperately concerned about secrecy, demanded they keep them in a windowless vault secured with locks they themselves provided. Microsoft and IBM’s Project Chess, just about as physically far apart as two organizations can be and still be in the United States, nevertheless developed a working relationship that seems similar to those of today, when geography matters far less. They communicated constantly through telephone and (especially) a special email system they set up, shuttled packages back and forth via an overnight service, and visited one another frequently — and sometimes without warning. (This became a particular concern for Microsoft; IBM had a habit of dropping in unannounced to see if all of their byzantine security procedures were being practiced.) The IBM team of course had plenty to keep them busy, but Microsoft were truly up against it. Thanks to all of the negotiations, they were according to Gates already “three months behind schedule” the day the contract was finalized. Everyone worked months of seven-day weeks. Most didn’t even take Christmas off.

The first goal had to be to get the machine running in its two modes of operation: BASIC and the disk-based operating system. The former Microsoft could handle on their own, but the latter left them dependent on Seattle Computer Products. Even as Microsoft had been finalizing their deal with IBM and starting to work, Paterson and SCP had been continuing their own work, refining QDOS from a “quick and dirty” hack into an operating system they could sell. Along the way they renamed it, for obvious reasons, to 86-DOS. As 1980 drew to a close, they at last had a version they felt was suitable for the outside world.

Until this point, Bill Gates has basically behaved himself, acting like a hard-driving but straightforward businessman. Now, however, we start to see some of that legendary Gates shiftiness come out. He wanted for Microsoft a royalty-based agreement that would let them share in the hoped-for success of the IBM PC. But he wasn’t ready to share those fruits with SCP, who still had no idea that the IBM project was even happening or that their modest little one-man-authored operating system was key to the plans of one of the biggest companies in the world. Gates wanted to keep them in the dark, but he needed 86-DOS, like, yesterday. He therefore needed to pry 86-DOS out of their hands without letting them know why he wanted it.

Paul Allen negotiated an agreement with SCP owner Rod Brock in January, implying that Microsoft had a whole stable of customers eager to run 86-DOS. The deal would essentially allow Microsoft to act as middleman — or, if you like, retailer — in these transactions. For each customer to whom they sold a license for 86-DOS, they would pay SCP $10,000, or $15,000 if the license also included the source code. They would also pay SCP an initial fee of $10,000 to begin the agreement. For SCP, a much smaller, hardware-focused company without the reach or marketing skills of Microsoft, the agreement sounded great — especially because business lately had not been particularly good. Microsoft seemed convinced that they could sell quite a few licenses, bringing in effortless money for SCP for this operating system Paterson had begun almost on a lark. One clause buried in the contract might have raised a red flag: “Nothing in this licensing agreement shall require Microsoft to identify its customer to Seattle Computer Products.” Brock later said, “That seemed strange to us, but we agreed to go along.” In reality, of course, Microsoft had no stable of eager licensees. They had just one, the biggest fish of all: IBM. Microsoft sold just one license under the agreement, acquiring IBM’s operating system for them complete with source for just $25,000.

In February, Bob O’Rear of Microsoft got 86-DOS to boot for the first time on one of the prototype machines:

“It was like the middle of the night. It was one of the most joyous moments of my life, to finally after all the preparation and work, and back and forth, to have that operating system boot up and tell you that it’s ready to accept a command. That was an exciting moment.”

IBM was soon requesting a number of changes to 86-DOS. Microsoft thus found themselves in the awkward position of having to go back to Paterson, who of course knew 86-DOS far better than anyone else and whom they had signed to a consulting contract, to request changes without telling him where the requests were really coming from. In the end they convinced him to leave SCP and come to work for them full-time. “It’s IBM!” they told him as soon as he walked through the door on his first day as an employee. Ironically for Paterson, who has spent decades battling critics who claim he ripped off CP/M, many of the changes IBM requested actually made 86-DOS look even more like CP/M. For instance, the command prompt showing the current drive — i.e., “A>” — was the result of one of IBM’s requests, and a carbon copy of CP/M’s. Paterson says it made him “want to throw up,” but of course on this project what IBM requested IBM generally got.

IBM planned to announce the IBM PC in August of 1981 — as per the original plan, which gave Project Chess exactly one year to complete its work. They weren’t interested in postponing, so everyone in Boca Raton and especially at Microsoft just worked harder as smaller deadlines were missed but the biggest one just stayed fixed. They also began confidentially approaching other developers, of software such as VisiCalc and the word-processing package Easy Writer, to add to Microsoft’s lineup of applications and games. They even arranged to make another of our old friends, the UCSD Pascal P-System, available for those who wanted to run it in lieu of 86-DOS or the Microsoft BASIC environment. Incredibly given its expanding scope, the project remained a complete secret for quite a long time. But finally in June InfoWorld printed a detailed article that described the entire plan down almost to the last detail, even mentioning that the operating system would not be CP/M but would be “CP/M-like.” They missed only the planned announcement date, saying it would happen in July rather than August. The Datamaster, the earlier “PC-like” project that had provided technology and personnel to Project Chess, did make its own belated debut that month. Many assumed that the project InfoWorld had scooped was the Datamaster, and thus that the magazine had gotten it all quite wrong. Those better connected, however, knew better by this time.

Then on July 27, 1981, barely two weeks before the planned announcement, Bill Gates made what has often been called the deal of the century.

Rod Brock at SCP was a disappointed man. The legion of 86-DOS licensees he had anticipated following the Microsoft deal hadn’t materialized, and now he had lost Paterson, the one software guy at his hardware-focused company, to Microsoft. It was pretty obvious by now who the one 86-DOS sub-licensee must be, but SCP was strapped for cash and lacked the ability to support an operating system. He started to shop 86-DOS around a bit, looking for someone willing to take over support in return for an exclusive license to it. Gates pounced immediately, offering SCP a much-needed $50,000 for the deal — with one crucial difference. He stipulated that Microsoft would not be buying an exclusive license, but would be buying the software itself, outright. They would then grant the exclusive license to SCP, essentially turning the deal on its head. Brock was uncertain, but he really did need the money, and he didn’t quite know what to do with 86-DOS himself anyway…

He signed the agreement, making Microsoft the sole owner of 86-DOS — or, as it was immediately renamed, MS-DOS. It’s yet another example of the terrible financial decision-making that was so endemic to the early microcomputer industry, as hackers who knew everything about bits and bytes but nothing about business suddenly found themselves running companies. These were the kinds of mistakes that Gates never made, but knew how to exploit and even engender in others. When dealing with innocents like Brock, it was as easy as leading the proverbial lambs to slaughter. MS-DOS, purchased for $50,000, was earning Microsoft more than $200 million per year by 1991. Even more importantly, it was the key building block in the Microsoft monopoly that would absolutely dominate business computing by the mid-1980s, and dominate virtually all computing throughout the 1990s. This decision, more than any other, is the one that made Microsoft the giant it still is today.

But Microsoft (and IBM) suddenly had one more legal hurdle to clear. By this time, with the IBM PC becoming more and more of an open secret in the industry, Gary Kildall had seen a copy of 86-DOS/MS-DOS in action. He was convinced that Paterson had stolen his operating system, that he had somehow gotten a copy of the source code, made only those changes needed to get it running on the Intel 8086/8088, filed off the digital serial numbers, and sold it to IBM. Now he began to threaten legal action, and (perhaps of more concern to IBM) to cause a huge stink in the press that could cast a cloud over the upcoming announcement. He and Gates met for lunch to try to hash things out, but to no avail. “It was one of those meetings where everybody was nice to each other, then everyone shouted at each other, then everyone was nice to each other, then everyone shouted at each other,” recalled John Katsaros, a Digital Research colleague who was also there. And so IBM stepped in to make a deal. They would also offer CP/M-86, the 8088-compatible version of the operating system which Digital were still messing about with, on the IBM PC just as soon Kildall could give them a completed version. Kildall, at least somewhat placated, accepted. The IBM PC, which IBM had from the start envisioned as a true “anything machine,” would now have no fewer than four available operating paradigms: the ROM-hosted BASIC, MS-DOS, CP/M, or UCSD Pascal.

IBM officially announced the IBM PC on August 12, 1981, at the Waldorf Astoria Hotel in New York. With 16 K of RAM and a single floppy drive, the machine had a suggested price of $1565; loaded, it could reach $6000. Those prices got you Microsoft BASIC for free, hosted in ROM. MS-DOS, sold under IBM’s license as PC-DOS, would cost you $40, while UCSD Pascal would cost you over $500. IBM also announced that CP/M-86 would be available — at some point. In the end, it would be over six months before Digital would finally deliver CP/M-86. When they did, IBM dutifully put it in their catalog, but at a price of some $240. Kildall, who remained convinced until his death that MS-DOS was a rip-off of CP/M and from time to time claimed to be able to prove it via this secretly imbedded message or that odd API attribute, believed that IBM deliberately priced CP/M six times higher than MS-DOS in order to make sure no one actually bought it, thus honoring the letter of their agreement but not the spirit. IBM, for its part, simply claimed that Digital had demanded such high licensing fees that they had no choice. Of the four operating paradigms, three of them — CP/M, Microsoft BASIC, and UCSD Pascal — ended up being used so seldom that few today even remember they were options in the first place. MS-DOS, of course, went on to conquer the world.

The hardware, meanwhile, is best described as stolid and, well, kind of boring. For all of its unusual (by IBM standards) development process, the final product really wasn’t far removed from what people had come to expect from IBM. There was no great creative flair about its design, but, from its keyboard that clunked satisfyingly every time you pressed a key to its big, substantial-looking case with lots of metal inside, it looked and operated like a tool you could rely on. And that wasn’t just a surface impression. Whatever else you could say about it, the IBM PC was built to last. Perhaps its most overlooked innovation is its use of memory with an extra parity bit to automatically detect failures. It was the first mass-market microcomputer to be so equipped, giving protection from rare but notoriously difficult to trace memory errors that could cause all sorts of unpredictable behavior on other early PCs. RAM parity isn’t really the sort of thing that inflames the passions of hackers, but for a businessperson looking for a machine to entrust with her livelihood, it’s exactly the sort of thing that made IBM IBM. They made you feel safe.

Indeed, and even if its lack of design imagination would just confirm hackers’ prejudices, for plenty of businesspeople uncertain about all these scruffy upstart companies the IBM PC’s arrival legitimized the microcomputer as a serious tool for a serious purpose. Middle managers rushed to buy them, because no one ever got fired for buying an IBM — even if no one was ever all that excited about buying one either. IBM sold some 13,500 PCs in the last couple of months of 1981 alone, and the numbers just soared from there.

With IBM in the PC game at last — machines actually started shipping ahead of schedule, in October — those who had been there all along were left to wonder what it all meant. Radio Shack’s John Roach had the most unfortunate response: “I don’t think it’s that significant.” Another Radio Shack executive was only slightly less dismissive: “There definitely is a new kid on the block, but there is nothing that IBM has presented that would blow the industry away.” Apple, then as now much better at this public-relations stuff than just about anyone else, took a full-page advertisement in the Wall Street Journal saying, “Welcome IBM. Seriously.” Like so much Apple advertising, it’s quite a masterful piece of rhetoric, managing to sound gracious while at the same time making it clear that a) IBM is the latecomer and b) Apple intend to treat them as peers, nothing more.

Years later it would be clear that the arrival of the IBM PC was the third great milestone in PC history, following the first microcomputer kits in 1975 and the trinity of 1977. It also marked the end of the first era of Microsoft’s history, as a scrappy but respected purveyor of BASICs, other programming languages, and applications software (in that order). In the wake of the IBM PC’s launch, Microsoft quite quickly cut their ties to the older, more hacker-ish communities in which they had grown up to hitch their wagon firmly to the IBM and MS-DOS business-computing train. Plenty of aesthetic, technical, and legal ugliness waited for them down those tracks, but so did hundreds and hundreds of billions.

The other players in this little history I’m just completing had more mixed fates. Seattle Computer Products straggled on for a few more years, but finally went under in 1985. Rod Brock did, however, still have one thing of immense value. You’ll remember that Brock had sold 86-DOS to Microsoft outright, but had received an exclusive license to it in return. With his company failing, he decided to cash out by selling that license on the open market to the highest bidder. Microsoft, faced with seeing a huge vendor like Radio Shack, Compaq, or even IBM themselves suddenly able to sell MS-DOS-equipped machines without paying Microsoft anything, decided retroactively that the license was non-transferrable. The whole thing devolved into a complicated legal battle, one of the first of many for Microsoft. In the end Brock did not sell his license, but he did receive a settlement check for $925,000 to walk away and leave well enough alone.

Of course, the man that history has immortalized as the really big loser in all this is Gary Kildall. That, however, is very much a matter of degree and interpretation. Digital Research lost their position at the head of business computing, but continued for years as a viable and intermittently profitable vendor of software and niche operating systems. Kildall also became a household name to at least the nerdier end of the television demographic as the mild-mannered, slightly rumpled co-host of PBS’s Computer Chronicles series. Novell finally bought Digital in 1991, allowing Kildall to retire a millionaire. For a loser, he did pretty well for himself in the end. Kildall, always more interested in technology than in business, was never cut out to be Bill Gates anyway. Gates may have won, but one suspects that Kildall had a lot more fun.

Although the IBM PC marked the end (and beginning) of an era, eras are things that are more obvious in retrospect than in the moment. In the immediate aftermath of the launch, things didn’t really change all that much for happy Apple, Commodore, Atari, and Radio Shack users. IBM throughout the development process had imagined the IBM PC as a machine adaptable for virtually any purpose, including going toe to toe with those companies’ offerings — thus the BASIC in ROM, the cassette option, and even an insistence that it should be possible to hook one up to a television. They even made a deal to sell it through that bastion of mainstream Americana, Sears. Still, the machine was quite expensive in even its most basic configurations, and it lacked the base of casual software (particularly games) and the dedicated users of those competitors. Nor were its graphics and sound capabilities, if perhaps surprising for existing at all, particularly tempting, especially when a new machine called the Commodore 64 came down the pipe in 1982. So, while the business community flocked to the IBM and MS-DOS in remarkably short order, the world of home, hobbyist, and educational computing would remain fairly divorced from that of the IBM PC for quite some time to come. MS-DOS would win out in the end here as well, but that would take more than a decade instead of mere months, allowing space for some of the most vibrant and fun computing cultures ever to grow and thrive. Thus, just as with its predecessor CP/M, I’ll likely have less occasion to talk about the MS-DOS world than its industry success might suggest — at least until about 1990, should we get that far.

Of course, to get to 1990 we really have to get out of 1981, don’t we? I have just one more subject to cover, and then we’ll do that at last.

(Usually when I write about something in this blog I’m digging for every scrap of information to try to piece together a history I can have confidence in. In the case of this topic, though, I had mountains of material at my disposal; the birth of the IBM PC and particularly the downfall of Kildall and CP/M must be one of the most commonly told tales in computing history. As such, the hardest thing became trying to separate the, shall we say, “folk histories” from the more rigorously researched sources. Some quick but by no means exhaustive notes on sources:

Of the many mainstream books that profile Gates and/or Microsoft, I was most impressed with Hard Drive by James Wallace (in spite of the cheesy title), and used it most extensively of all.

The very first issue of PC Magazine gives a great picture of the IBM PC’s earliest months, when no one was certain of the uses to which it would eventually be put, and also features a great interview with a Bill Gates on the verge of becoming, well, Bill Gates.

David J. Bradley wrote a great memoir of Project Chess for Byte‘s September 1990 issue, and another that admittedly goes over much of the same ground in the IEEE Computer of August 2011.

Tim Paterson wrote articles about the development of MS-DOS for the March 1983 Softalk for the IBM PC and the June 1983 Byte.

Accidental Empires and its television companion Triumph of the Nerds are fun and give decent overviews, but don’t really drill much beyond easy stereotypes, and by focusing almost exclusively on Apple, Microsoft, and IBM miss about 85% of what was interesting about computing in the 1980s. Kind of like this series of posts, come to think of it, but, hey, this is just one topic in a blog, right?)