Steve Ballmer: Microsoft’s DOS deal was the biggest business move of all time

Key Takeaways

• Microsoft’s transition from a consumer-focused company to a business-focused company has led to a loss of power in the consumer market.
• IBM was a dominant force in the early 1980s computer industry, overshadowing competitors.
• The licensing of Microsoft DOS is considered one of the biggest business deals in history.
• Microsoft’s original business model for its operating system involved a one-time charge rather than recurring payments.
• The early software industry had no established business models and was custom built.
• Luck plays an important role in the success of large companies, along with talent and hard work.
• There were initial doubts about the growth potential of the PC market.
• Windows was developed as an alternative to OS/2, which was associated with IBM.
• The OEM business was important to software sales, requiring hardware vendors to integrate the BIOS.
• The US Air Force has been one of Microsoft’s most important business customers for Windows.
• Microsoft’s strategic decisions have had a lasting impact on the technology industry.
• The evolution of software license types has impacted monetization and customer relationships.

Guest introduction

Steve Ballmer is the founder of the Ballmer Group and the owner of the Los Angeles Clippers NBA basketball team, who retired as the CEO of Microsoft in 2014 after leading the company for almost 14 years. During his tenure as CEO from 2000 to 2014, Ballmer grew Microsoft from nearly $25 billion in annual revenue to nearly $80 billion, while building the company’s enterprise software business and overseeing major initiatives including the Xbox division and the acquisition of Skype. He remains a key investor in Microsoft and leads USAFacts, a project focused on improving transparency in the US government.

Microsoft’s strategic change and consumer market impact

• Microsoft’s evolution from a consumer-oriented company to a business powerhouse has led to a loss of power in the consumer market.

• One of my regrets is that we lost the consumer muscle along the way because I think the ability to have an ultra… to have both of those muscles completely fired.

  – Steve Ballmer

• This change reflects a strategic decision to prioritize corporate business over consumer products.
• The change in focus affects Microsoft’s brand identity and market positioning.
• Understanding Microsoft’s historical focus on both the consumer and business markets is important.
• Strategic change has been a response to market demands and competitive pressure.
• Ballmer’s critical perspective highlights the trade-offs involved in strategic business decisions.
• The impact of this change can be seen in Microsoft’s current market for business solutions.

IBM’s dominance in the early computer industry

• IBM was a dominant force in computing in the early 1980s, overshadowing competitors.

• In fact, people said there was IBM and the majority were Burroughs, Univac, NCR, Control Data, and Honeywell, but they were just a bunch.

  – Steve Ballmer

• IBM’s dominance was due to its comprehensive offering in mainframes, software, and services.
• The competitive landscape of the early 1980s was heavily tilted in IBM’s favor.
• Understanding IBM’s role provides a historical context for the evolution of the computer industry.
• IBM’s position has influenced the strategies of other technology companies, including Microsoft.
• The company’s dominance marks innovation and market leadership.
• The historical context highlights the challenges that emerging technology companies faced at the time.

Importance of Microsoft’s DOS license agreement

• The licensing of Microsoft DOS is considered one of the biggest franchises in history.

• Licensing Microsoft DOS that didn’t even exist when IBM was talking to you about licensing other things is the biggest business deal in history.

  – Steve Ballmer

• This deal was instrumental in establishing Microsoft’s dominance in the software industry.
• The strategic foresight of Microsoft’s leadership played a key role in securing this deal.
• Understanding the historical significance of this decision is important in appreciating Microsoft’s impact on the technology industry.
• The agreement sets the precedent for future software licensing agreements.
• Microsoft’s early business decisions had a long-term impact on the company’s success.
• The DOS license agreement is a testament to the importance of strategic partnerships in technology.

The evolution of software licensing models

• Microsoft’s original business model for its operating system involved a one-time charge rather than recurring payments.

• We didn’t charge the operating system continuously we charge it once when you get a new version we charge it at another time.

  – Steve Ballmer

• This model has been a major change in the software industry, influencing monetization.
• This approach has impacted customer relationships and adoption of software products.
• Understanding the evolution of licensed models is essential to grasping the technology industry’s evolution.
• The one-time charge model was eventually replaced by subscription-based models.
• This change reflects broader trends in the software industry towards recurring revenue streams.
• Changing license types are impacting the business strategies of software companies.

Microsoft’s fundamental role in the software industry

• The software industry of old was custom built without established business models.

• When we started in the software industry there were a few software companies making packages for IBM mainframes but almost everything was custom.

  – Steve Ballmer

• Microsoft has played a fundamental role in defining what the modern software business looks like.
• The lack of standardization in the early days brought challenges and opportunities for innovation.
• Understanding the historical context of the software industry is essential to appreciating Microsoft’s impact.
• Microsoft’s approach to software development sets the benchmark in the industry.
• The company’s leadership in the early days helped shape the direction of the software market.
• The evolution of the software industry is closely linked to Microsoft’s strategic decisions.

The role of luck in business success

• Luck plays an important role in building great companies.

• Luck is important in building great companies and most people you know say we are world champions.

  – Steve Ballmer

• This understanding challenges the narrative of success based on talent and hard work.
• Recognizing the role of luck provides a nuanced understanding of business success.
• Many successful entrepreneurs acknowledge the element of luck in their stories.
• The interplay between luck, talent, and effort is critical to understanding business dynamics.
• Luck can create opportunities that talent and hard work can take advantage of.
• Fortune telling highlights the uncertainty of business success.

The first doubts about the growth of the PC market

• In the early days, there were doubts about the growth of the PC market.

• Andy Grove who was running Intel at the time said yes very soon we will be selling 100,000,000 PCs a year… and Bill and I laughed and said oh that’s not going to happen.

  – Steve Ballmer

• This skepticism reflects the uncertainty surrounding new technology markets.
• The final growth of the PC market exceeded early expectations.
• Understanding initial doubt provides context for the evolution of the technology industry.
• The growth of the PC market was a revolution in the technology industry.
• The skepticism highlights the challenges of predicting market trends in technology.
• Success at the end of the PC market underscores the importance of vision in business.

Strategic decision making in Windows development

• Windows was developed as an alternative to OS/2, which was associated with IBM.

• We still suspected that OS/2 might have won because it came from IBM but we just couldn’t like to wait three or four years.

  – Steve Ballmer

• The development of Windows was a calculated move to ensure competition.
• Understanding the competitive landscape between Windows and OS/2 is important.
• The strategic decision to continue with Windows reflects Microsoft’s commitment to innovation.
• Competition with OS/2 influenced Microsoft’s product development strategy.
• The decision-making process highlights the competitive complexity of the technology sector.
• The success of Windows was a key factor in Microsoft’s rise to prominence.

Importance of OEM business in software sales

• The OEM business was important to software sales, requiring hardware vendors to integrate the BIOS.

• The OEM business was a major part of our business and we had this retail business.

  – Steve Ballmer

• OEM partnerships were fundamental to the distribution of software products.
• Understanding the role of OEMs provides insight into business models in the technology industry.
• BIOS integration has been an important part of software distribution strategies.
• The OEM business model has contributed to the growth of the software industry.
• Partnerships with hardware vendors were essential to reach a wider market.
• The OEM business highlights the connection of hardware and software to technology.

Early enterprise adoption of Windows

• The US Air Force has been one of Microsoft’s most important business customers for Windows.

• Our first big customer for Windows at least as I recall was the US Air Force and they were buying one copy of Windows.

  – Steve Ballmer

• Government contracts played an important role in the early adoption of Windows.
• Understanding Microsoft’s early customer base provides insight into its growth strategy.
• The importance of business customers highlights the importance of strategic partnerships.
• The adoption of Windows by the US Air Force demonstrates the software’s flexibility and appeal.
• Government contracts have provided credibility and assurance for Microsoft products.
• The early enterprise adoption of Windows set the stage for its widespread use in business settings.