Marketing trumps challengers

Paul Allen, who had been serving as Microsofts head of research and new product development, left the company in 1982 after being diagnosed with Hodgkins disease. The following year, Gates faced a major challenge to Microsofts domination of operating systems for home computers when a company called VisiCorp developed a mouse driven computer system with a user interface based on graphics rather than the keyboard based and text driven system of MS DOS. Gates quickly recognized that VisiCorps system would be the wave of the future because it was much easier for technologically unsophisticated people to use. Even though Microsoft did not have such a system in the works at that point, Gates started an advertising campaign with an announcement at the Plaza Hotel in New York City that a new Microsoft operating system with graphical user interface (GUI) would soon be marketed. This next generation system was to be called Windows.Gatess announcement was a bluff; the truth was that Microsoft was nowhere near developing such a system. But the marketing ploy worked because people preferred to wait for a system designed to be compatible with their existing Microsoft products rather than undergo the trouble and expense of installing an entirely new operating system. Furthermore, Windows allowed users to avoid buying new software applications to replace the DOS compatible programs they currently owned.

Windows 1.0 was finally released in 1985. That same year Microsoft reported $140 million in revenue, including $46.6 million from overseas users.Microsofts growth continued to be relatively smooth in spite of several challenges, in part because the fiscally conservative Gates had financed most of the companys expansion entirely from its earnings. This cautious approach to financing, however, did not reflect an unwillingness to take risks. In January 1986 Gates launched an ambitious long term project to develop a new data storage system based on a compact disk, or CD ROM, that could hold any type of computer file, including music and visual files. In March of that same year, he took the company public. His 40 percent ownership of Microsoft shares made his net worth $390 million by June 1986. Gates had effectively cornered the market for operating software for the vast majority of personal computers (PCs) as well as developing a wide range of other popular programs. He effectively became a billionaire in March 1987, when his companys stock rose to $90.75 per share, up from $21.50 per share when the company went public. Brian OReilly commented a few months later in Fortune, [Gates] apparently has made more money than anyone else his age, ever, in any business (October 12, 1987).