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Microsoft Volume I

How a college dropout turned one IBM licensing clause into the best business model in history.

▶98K views on YouTubePreview, 1 of 8 tactics free

With Ben Gilbert & David Rosenthal

"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
Ben Gilbert & David Rosenthal, on the episode

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.

Tactic 01

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.

Tactic 02

Price For Ubiquity, Not Margin

Tactic 03

Put A Best-Efforts Clause In Every Distribution Deal

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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