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Microsoft Volume I
How a college dropout turned one IBM licensing clause into the best business model in history.
Preview · 3 of 8 tactics
"He was really smart, he was really competitive, he wanted to show you how smart he was, and he was really, really persistent." — Paul Allen
The popular picture of early Microsoft is the shy nerd who got lucky with DOS. That picture misses the actual machine. Bill Gates was a ferocious competitor with a finance brain who saw the exponential before almost anyone. The wins that built Microsoft were structural: who owned the rights, who set the standard, and who controlled their own destiny.
Keep The Rights And Let The Giant Build Your Market
IBM paid Microsoft a fixed fee of about 430,000 dollars across testing, DOS, and languages, with no per-copy royalty, and Microsoft had bought DOS itself for just 75,000 dollars. The genius was the other clause: Microsoft kept the right to license DOS to anyone else. As the hosts put it, "Microsoft used IBM to generate demand for their software and then they used every other PC manufacturer to capture the value that all that demand created."
THE PLAY
In any deal with a bigger partner, take a fixed fee but keep the rights to license your work to everyone else.
Price For Ubiquity, Not Margin
Microsoft sold Apple eight years of BASIC for 31,000 dollars, far below what it could have charged. Gates was buying the standard, not the margin: "success reinforces success in a growing Market one way of doing something gets a slight advantage over its competitors." Once everyone wrote to Microsoft BASIC, no competitor could get oxygen.
THE PLAY
When you are racing to set a standard, price low enough that choosing you is a no-brainer, not whatever the market will bear.
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Put A Best-Efforts Clause In Every Distribution Deal
The MITS contract handed away exclusivity, but Bill's father, a lawyer, slipped in protection: "mitz must use its best efforts to license promote and commercialize the basic broadly in the marketplace and that any failure to do so by mits would be grounds for termination." When MITS dragged its feet, that clause won Microsoft its freedom in arbitration.
THE PLAY
Write a best-efforts-or-terminate clause into every exclusive distribution contract.
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5 more tactics + Action Plan
TACTIC 04
Hedge Every Platform Bet Until One Wins
TACTIC 05
Win On Version Three
TACTIC 06
Let Bottom-Up Adoption Carry You Into New Buyers
TACTIC 07
Go Global Before You're Ready
TACTIC 08
Stay Capital Efficient To Keep Control
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