MS-DOS - The Source of Microsoft's Growth
Gates was able to convince IBM to let Microsoft withhold the
rights to market MS-DOS apart from the IBM PC. It was because of this very negotiation that
Microsoft flourished. The company had the ability to license its operating system to
anyone they chose, and because of the high volume of manufactures interested in using MS-DOS
in their own PC’s, it uncovered huge potential for the company.
"MS-DOS soared in popularity with the surge in the PC market. Revenue from its sales fueled
Microsoft's phenomenal growth, and MS-DOS was the key to company's rapid emergence as the
dominant firm in the software industry. This product continued to be the
largest single contributor to Microsoft's income well after it had become more
famous for Windows."
- LINFO,
Linux Information Project
The New Standard
The sales of MS-DOS computers grew rapidly and soon the royalties
from IBM came pouring into Microsoft, "like an avalanche". As corporations saw the phenomenal
success of IBM and Microsoft, they decided they wanted to use Gates’s operating system as well. Soon, Gates had royalties to
the majority of PC makers everywhere. "MS-DOS was on the way to becoming the
standard in personal computing"
- Rit Nosotro ,
Hyper History
"To create a new standard, it takes something that's not just a little bit different; it takes
something that's really new and really captures people's imagination..." - Bill Gates
Microsoft Goes Public
"The wonder is that Microsoft waited so long. Founded in 1975, it is the oldest major producer of software for personal
computers and, with $172.5 million in revenues over the last four quarters...
Microsoft stood pat when two of its archcompetitors, Lotus and Ashton-Tate, floated stock worth a total of $74 million in
1983. Nor did it budge in 1984 and 1985, when three other microcomputer software companies managed to sell $54 million of
stock. The reasons were simple. Unlike its competitors, Microsoft was not dominated by venture capital investors hungry to
harvest some of their gains. The business gushed cash. With pretax profits running as high as 34% of revenues, Microsoft
needed no outside money to expand. Most important, Gates values control of his time and his company more than personal wealth."
- Bro Uttal,
Fortune
"Gates had said that 1986 might be the year. 'A projection of stock ownership showed
we'd have to make a public offering at some point,' says Jon A. Shirley, 48, Microsoft's
pipe-smoking president and chief operating officer. 'We decided to do it when we wanted to,
not when we had to.' " - Bro Uttal,
Fortune
"This is a fantastic time to be entering the business world, because business is going to change more in the next 10 years than it
has in the last 50" - Bill Gates
"By the board meeting of October 28… it was time to select underwriters and gave the task to Frank Gaudette, 50, the chief
financial officer, who had come aboard a year before. Gaudette was just the man to shepherd Microsoft through Wall Street.
Gates said the company was contemplating a $40-million deal. Microsoft would raise $30 million by selling two million shares at an assumed
price of around $15. Existing shareholders, bound by Gates's informal rule that nobody should unload more than 10% of his
holdings, would collect the other $10 million for 600,000 or so shares.
The underwriters, as is customary in initial public
offerings, would be granted the option to sell more shares. If they exercised an option for 300,000 additional shares of
stock held by the company, almost 12% of Microsoft's stock would end up in public hands, enough to create the liquid market
the company wanted." - Bro Uttal,
Fortune
"By late January only one major item remained undecided -- a price range for the stock.
The bull market that began in September had kept roaring ahead, pushing up P/E (Price/Earnings) multiples for other software
companies. The underwriters suggested a price range of $17 to $20 a share. Gates insisted on, and got, $16 to $19. His
argument was ultraconservative: $16 would guarantee that the underwriters would not have to go even lower to sell the shares,
while a price of $20 would push
Microsoft's market value above half-a-billion dollars, which he thought uncomfortably high.
Gaudette stressed that unless Microsoft left some money on the table the institutional investors would stay away.
The three decided on a range of $21 to $22 a share, and Gaudette put in a conference call to Goldman and Alex. Brown."
- Bro Uttal, Fortune
"The commission declared at 9:15 that Microsoft's registration was effective. On the trading floor at Goldman Sachs, Gaudette
heard a trader say, 'We're going to shoot the moon and open at 25!' At 9:35 Microsoft's stock traded publicly on the
over-the-counter market for the first time at $25.75. Within minutes Goldman Sachs and Alex. Brown exercised their option to take an extra 300,000
shares between them. Gaudette could hardly believe the tumult."
- Bro Uttal, Fortune
