WHY MICROSOFT DIDN'T INVENT THE OPERATING SYSTEM IT SOLD
Microsoft is famous for creating:
Windows.
But one of the most important operating systems in Microsoft's history...
wasn't originally created by Microsoft.
And the way Microsoft turned it into a massive business is even more interesting.
IBM NEEDED AN OPERATING SYSTEM
In 1980, IBM was working on something that would become incredibly important:
THE IBM PC.
The company wanted to enter the personal computer market.
But there was a problem.
The computer needed an operating system.
IBM approached Microsoft.
And Bill Gates had an interesting problem of his own:
Microsoft didn't have the operating system IBM needed.
SO MICROSOFT LOOKED ELSEWHERE
At the time, a company called:
Seattle Computer Products
had developed an operating system called:
86-DOS
It was designed for computers using Intel's 8086/8088 processors.
Microsoft acquired rights to the software and eventually acquired the full product.
That operating system became the foundation for what Microsoft supplied to IBM as:
PC DOS / MS-DOS.
MICROSOFT DIDN'T INVENT IT FROM SCRATCH
This distinction matters.
Microsoft didn't sit down and create the original operating system from nothing.
It acquired an existing system...
then developed and adapted it for the growing PC market.
Microsoft's own historical material describes 1981 as its entry into the operating-system business, when IBM introduced its PC with MS-DOS 1.0.
THEN CAME THE REALLY SMART PART
Microsoft could have simply:
SOLD THE OPERATING SYSTEM TO IBM.
One deal.
One customer.
One product.
Done.
But that's not what happened.
MICROSOFT WANTED MORE THAN ONE CUSTOMER
The IBM PC used Microsoft's operating system.
But Microsoft also pursued a strategy of licensing its operating system broadly.
That meant other PC manufacturers could use Microsoft's software too.
And this created something incredibly powerful:
A STANDARD.
THINK ABOUT THE DIFFERENCE
MODEL A
Microsoft sells an operating system to:
IBM
One major customer.
MODEL B
Microsoft licenses the operating system to:
IBM + OTHER PC MANUFACTURERS
Now the same software can appear on computers made by many companies.
The second model can scale dramatically faster.
IBM CREATED THE HARDWARE
IBM built the:
PC
Microsoft supplied:
THE OPERATING SYSTEM
And other companies could eventually build compatible hardware around the same software ecosystem.
That created an enormous opportunity for Microsoft.
THE OPERATING SYSTEM BECAME THE COMMON LAYER
Imagine buying a computer from:
Company A
Then another computer from:
Company B
If both use the same operating system...
software developers don't necessarily have to create completely different versions of their applications for every manufacturer's machine.
That's extremely valuable.
DEVELOPERS FOLLOW USERS
More PCs using the same operating system meant:
More potential customers for software developers.
More software meant:
More reasons for people to buy those PCs.
More PCs meant:
More demand for the operating system.
This created a powerful ecosystem.
THE FLYWHEEL
MORE PC MANUFACTURERS
↓
MORE COMPUTERS USING MS-DOS
↓
MORE USERS
↓
MORE SOFTWARE DEVELOPED FOR DOS
↓
MORE USEFUL COMPUTERS
↓
MORE DEMAND
↓
MORE MANUFACTURERS
The operating system became more valuable because other businesses were building around it.
IBM HAD THE BRAND
This is what makes the story so interesting.
In 1981, IBM was the giant.
Microsoft was much smaller.
IBM had:
The brand
The hardware
The distribution
The reputation
Microsoft had:
The software.
But software turned out to be the layer that could spread across many different machines.
THEN MICROSOFT KEPT IMPROVING IT
Microsoft didn't simply buy an operating system and stop.
It developed the product further.
MS-DOS evolved.
New versions added functionality.
And Microsoft continued building its operating-system business.
Microsoft's own history records MS-DOS 2.0 in 1983 and Windows being announced later that year as an extension of MS-DOS.
THEN WINDOWS ARRIVED
In 1985, Microsoft released the first version of:
WINDOWS
It wasn't originally a completely separate operating system.
It was a graphical environment built on top of MS-DOS.
Microsoft announced Windows in 1983 and released the first version in November 1985.
THIS IS WHERE THE STRATEGY BECAME HUGE
Microsoft was no longer simply selling software.
It was building a:
PLATFORM.
And platforms are different.
A normal product makes money when someone buys it.
A platform can create an ecosystem around itself.
LOOK AT WHAT WAS HAPPENING
MICROSOFT
↓
Operating system
↓
PC MANUFACTURERS
↓
Computers
↓
SOFTWARE DEVELOPERS
↓
Applications
↓
USERS
↓
More demand for PCs
↓
More demand for the operating system
Microsoft sat in the middle.
IBM'S OPEN ARCHITECTURE HELPED TOO
IBM made an unusual decision with the PC.
Instead of keeping every component completely proprietary, the company used off-the-shelf parts and embraced an open architecture.
IBM even published technical information that helped companies develop compatible software and peripherals.
That helped the IBM PC become an industry standard...
and created room for an enormous compatible-PC ecosystem.
AND THAT ECOSYSTEM WAS THE OPPORTUNITY
IBM built the original machine.
But other manufacturers could build compatible PCs.
And many of those machines needed an operating system.
Microsoft was ready to supply one.
That's how a relatively small software company could benefit from an entire hardware industry.
THE BIG LESSON
Microsoft didn't need to invent every component.
It needed to understand:
WHERE THE VALUE WOULD ACCUMULATE.
The hardware was expensive.
The operating system was software.
Software could be licensed repeatedly.
And the same software could run across an enormous number of machines.
THIS IS A DIFFERENT WAY TO THINK ABOUT BUSINESS
You don't always need to invent something completely new.
Sometimes the opportunity is:
FIND SOMETHING USEFUL
↓
IMPROVE IT
↓
DISTRIBUTE IT
↓
CREATE A BUSINESS MODEL AROUND IT
The innovation can be in:
distribution
licensing
integration
business model
or
scaling.
THE CRAZY PART
The company that became famous for Windows...
started its operating-system journey with software that came from somewhere else.
But Microsoft turned that software into something much bigger:
A PLATFORM USED ACROSS AN ENTIRE INDUSTRY.
SIMPLE IDEA
Being first doesn't always make you the winner.
Sometimes the bigger advantage is knowing:
HOW TO DISTRIBUTE
HOW TO LICENSE
HOW TO SCALE
and:
HOW TO BUILD AN ECOSYSTEM.
Microsoft didn't have to invent the original operating system.
It had to make the operating system matter.
MAACAT PERSPECTIVE
The biggest business lesson isn't:
“Microsoft bought an operating system.”
It's:
“Microsoft understood that the operating system could become the common layer between hardware, software developers and users.”
Someone else created the starting point.
Microsoft saw the opportunity.
Then it turned that starting point into a platform.
Sometimes the billion-dollar idea isn't inventing the technology.
It's controlling what happens after the technology exists.
