Steve Ballmer: Microsoft’s DOS deal was the greatest business move ever

Key Takeaways

• Microsoft’s transition from a consumer-focused company to an enterprise giant resulted in losing some consumer market strength.
• IBM was a dominant force in the early 1980s computing industry, overshadowing competitors.
• The licensing of Microsoft DOS is considered one of the greatest business deals in history.
• Microsoft’s initial business model for its operating system involved a one-time charge rather than ongoing fees.
• The early software industry lacked established business models and was mostly custom-built.
• Luck plays a significant role in the success of great companies, alongside talent and hard work.
• There was initial skepticism about the growth potential of the PC market.
• Windows was developed as a strategic alternative to OS/2, which was associated with IBM.
• The OEM business was crucial for software sales, requiring hardware vendors to integrate BIOS.
• The US Air Force was one of Microsoft’s first significant enterprise customers for Windows.
• Microsoft’s strategic decisions have had a lasting impact on the tech industry.
• The evolution of software licensing models has influenced revenue generation and customer relationships.

Guest intro

Steve Ballmer is co-founder of Ballmer Group and owner of the Los Angeles Clippers NBA basketball team, having retired as Chief Executive Officer of Microsoft in 2014 after leading the company for nearly 14 years. During his tenure as CEO from 2000 to 2014, Ballmer grew Microsoft from approximately $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 significant investor in Microsoft and leads USAFacts, a project focused on improving transparency in US government.

Microsoft’s strategic shift and consumer market impact

• Microsoft’s evolution from a consumer-focused company to an enterprise powerhouse led to a loss of consumer market strength.

• One of my regrets is we lost the consumer muscle along the way because I think the ability to be ultra ultra… to have both of those muscles totally firing.

  — Steve Ballmer

• This shift reflects a strategic decision to prioritize enterprise business over consumer products.
• The change in focus has implications for Microsoft’s brand identity and market positioning.
• Understanding Microsoft’s historical focus on both consumer and enterprise markets is essential.
• The strategic shift was a response to market demands and competitive pressures.
• Ballmer’s critical view highlights the trade-offs involved in strategic business decisions.
• The impact of this shift is evident in Microsoft’s current market dominance in enterprise solutions.

IBM’s dominance in the early computing industry

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

• Literally people would say there’s IBM and the bunch and the bunch was Burroughs, Univac, NCR, Control Data, and Honeywell but they were just the bunch.

  — Steve Ballmer

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

The significance of Microsoft’s DOS licensing deal

• The licensing of Microsoft DOS is considered the single greatest business deal in history.

• The licensing of Microsoft DOS which didn’t even exist when IBM approached you about licensing some things is the single greatest business deal in history.

  — Steve Ballmer

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

Evolution of software licensing models

• Microsoft’s initial business model for its operating system involved a one-time charge rather than ongoing fees.

• We didn’t charge for the operating system on an ongoing basis we charged for it one time if you got a new version we charged another time.

  — Steve Ballmer

• This model was a significant shift in the software industry, impacting revenue generation.
• The approach influenced customer relationships and the adoption of software products.
• Understanding the evolution of licensing models is essential for grasping the tech industry’s development.
• 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.
• The shift in licensing models has implications for software companies’ business strategies.

The foundational role of Microsoft in the software industry

• The early software industry was largely custom-built with no established business models.

• When we got started of the software industry there were a couple of software companies that made packages for IBM mainframes but almost everything was custom.

  — Steve Ballmer

• Microsoft played a foundational role in defining what a modern software business looked like.
• The lack of standardization in the early days presented challenges and opportunities for innovation.
• Understanding the historical context of the software industry is key to appreciating Microsoft’s impact.
• Microsoft’s approach to software development set a benchmark for 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 tied to Microsoft’s strategic decisions.

The role of luck in business success

• Luck plays a significant role in the creation of great companies.

• Luck is important in the creation of great companies it is and a lot of people you know sort of say we’re masters of the universe.

  — Steve Ballmer

• This insight challenges the narrative of success being solely based on talent and hard work.
• Recognizing the role of luck provides a more nuanced understanding of business success.
• Many successful entrepreneurs acknowledge the element of luck in their stories.
• The interplay between luck, talent, and effort is crucial for understanding business dynamics.
• Luck can create opportunities that talent and hard work can capitalize on.
• The acknowledgment of luck highlights the unpredictability of business success.

Initial skepticism about the PC market’s growth

• In the early days, there was skepticism about the growth of the PC market.

• Andy Grove who was running Intel at the time said yeah pretty soon we’ll be selling a 100,000,000 PCs a year… and Bill and I laughed and said ah that’s not gonna happen.

  — Steve Ballmer

• This skepticism reflects the uncertainty surrounding new technology markets.
• The eventual growth of the PC market exceeded early expectations.
• Understanding the initial doubts provides context for the tech industry’s evolution.
• The PC market’s growth was a turning point for the tech industry.
• The skepticism highlights the challenges of predicting market trends in tech.
• The eventual success of the PC market underscores the importance of vision in business.

Strategic decision-making in the development of Windows

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

• We still suspected OS/2 could be the winner because it came from IBM but we couldn’t just like stop for three or four years.

  — Steve Ballmer

• The development of Windows was a calculated move to ensure competitiveness.
• Understanding the competitive landscape between Windows and OS/2 is crucial.
• The strategic decision to continue with Windows reflects Microsoft’s commitment to innovation.
• The rivalry with OS/2 influenced Microsoft’s product development strategies.
• The decision-making process highlights the complexities of tech industry competition.
• The success of Windows was a key factor in Microsoft’s rise to prominence.

The importance of the OEM business in software sales

• The OEM business was crucial for software sales, requiring hardware vendors to integrate BIOS.

• The OEM business which was the biggest part of the business yep and then we had this retail business.

  — Steve Ballmer

• OEM partnerships were foundational for the distribution of software products.
• Understanding the role of OEMs provides insight into the tech industry’s business models.
• The integration of BIOS was a critical component of software distribution strategies.
• The OEM business model influenced the growth of the software industry.
• The partnerships with hardware vendors were essential for reaching a broader market.
• The OEM business highlights the interconnectedness of hardware and software in tech.

Early enterprise adoption of Windows

• The US Air Force was one of Microsoft’s first significant enterprise customers for Windows.

• Our first big Windows customer at least as I remember it was the US Air Force and they were buying single copies of Windows.

  — Steve Ballmer

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