Bill Gates Paid $50,000 to Get the Software That Helped Microsoft Land IBM

In 1980, IBM approached Microsoft about providing an operating system for its upcoming personal computer. The problem was that Microsoft did not yet own an operating system. Bill Gates moved quickly, acquiring the rights to 86-DOS from Seattle Computer Products for $50,000 in July 1981.

The operating system had been created by programmer Tim Paterson and was originally called QDOS, meaning “Quick and Dirty Operating System.” Gates acquired the software, Microsoft adapted it, and it eventually became MS-DOS, while IBM used a version called PC DOS.

Gates’ mother, Mary Maxwell Gates, also had an important connection to IBM. She served on the board of United Way alongside IBM chairman John Opel, and that relationship helped facilitate an introduction between IBM and Microsoft. While her connection helped open the door, Gates and Microsoft still had to negotiate the agreement and deliver the operating system.

The $50,000 purchase turned out to be an extraordinary investment. Rather than allowing IBM to own the operating system outright, Microsoft retained the ability to license DOS to other computer manufacturers. As the personal-computer industry exploded, Microsoft’s software spread far beyond IBM’s machines.

A $50,000 software purchase in 1981 ultimately became one of the foundations of Microsoft’s rise to dominance in the personal-computer era.