Feature - In our second article covering Bill Gates’ milestones, we are looking at the Eighties, which were crucial for the struggling Microsoft to score a major product hit and open the cash flow floodgate. After toying around with Unix and his own home computer, Gates realized what Microsoft really needs was a new operating system. Although Windows was met with lukewarm reception initially, Gates insisted to push the product until customers would accept it. In the process, Gates outmaneuvered both IBM and Steve Jobs in an OS/2 move famously known as "the head-fake."

In the 1970s, Gates main preoccupation was to grow the company, micro-manage the business and seek new opportunities. In parallel, he personally checked every piece of code the company created or optimized the code himself. It was a rather romantic period for the company in a time where it was still struggling. The first big success was the IBM deal. While it was not extremely lucrative on a financial basis, Gates made the fortunate decision to retain copyright so that he could offer a re-branded DOS to clone makers. Gates was eager to expand the licensing business but the need for new product was more apparent as months passed by.

Microsoft started to feel the heat from Apple, which released its Macintosh with a graphical user interface. Also, IBM was working on OS/2, a GUI operating system that would protect its new, proprietary PS/2 hardware design. It was the first time Gates and Microsoft were under huge market pressure. At that time, Gates decided to stop wasting his time programming and began focusing on business strategy instead. He forged a friendship with Steve Jobs and agreed to develop OS/2 for IBM. But Microsoft was secretly developing Windows. The industry was shocked with Microsoft's deceiving tactics when Gates announced that OS/2 partnership with IBM was over. The company then released Windows 3.0, which sold 100,000 copies in the first two weeks.

In the meantime, Gates expanded Microsoft's business into other areas, such as book publishing, hardware peripherals and office productivity. We know about the effects of this initial expansion today, as Microsoft makes significant, if not crucial, profits. As the decade neared its end, the industry realized that a once small software maker had grown into a big operating system provider. Outmaneuvering IBM and Steve Jobs exposed Microsoft's cunning thinking, deceiving tactics and aggressive marketing for the first time. But it worked as lots of cash from software sales and operating system licensees started to pour into Microsoft's bank account, preparing the company for the next decade, which would prove to be the most important period in the firm’s history so far.


The Unix error

Contrary to the popular belief, Microsoft's first shot at operating systems wasn't Windows or MS-DOS. In 1980, Gates struck a distribution license deal for AT&T's Unix variant that Microsoft called Xenix. Gates wanted to port Xenix to numerous platforms so he licensed it to OEM makers. He didn't want Microsoft to sell Xenix to end-users on its own. The first-ever Word version was released in 1983 for Xenix, dubbed "Multi-Tool Word".

It is generally believed that Xenix briefly was a priority in Gates' mind since he agreed to a deal with IBM to make DOS operating system for Big Blue's upcoming PC in fall of 1981. Gates apparently thought that he could keep a low profile with Xenix, leaving OEM vendors to sell it as a "just in case" scenario, if his partnership with IBM failed. After DOS had become standard on IBM PCs and especially when Gates aggressively pushed MS-DOS (re-branded version of DOS found on IBM PCs) to a flood of clone makers, Microsoft got its first big break in the industry.

In the mid-1980s, Gates decided he would not Xenix anymore and dropped Unix business entirely. Some believe this was a colossal mistake as several variants of the Unix operating system and a myriad of open-source Unix applications are the last line of defense against a complete Windows dominance. For example, many companies opt for Linux and Ubuntu since it is believed to run more stable and efficient than Windows and costs significantly less. Unix was also chosen as the basis for Mac OS X operating system that powers Macintoshes and other Apple gadgets, such as iPod touch, iPhone and Apple TV.


MSX flop

A home computer called MSX was Gates' another "just in case" scenario launched in 1983. It was powered by MSX-DOS, a version of the DOS Microsoft made for the IBM PC. The system was popular in Europe, South America and Japan but it was short-lived due to rapid sales growth of PC clones. The believed reason why Microsoft made its own computer is that Gates had correctly predicted that IBM would soon lose its exclusivity over the PC design and that various other vendors would make similar and compatible machines. Gates knew that all it would take to create a PC clone is for someone to clone IBM's BIOS, exactly what Columbia Data Products did, followed quickly by Compaq and Eagle Computer. Gates wanted a piece of the action, but he soon found out that MSX was competing with PC clone makers to whom he licensed MS-DOS. Since then, Microsoft has stayed away from making its own PCs.


Decision of a century: Outmaneuver IBM, OS/2 and Apple

Although Microsoft milked MS-DOS for years, Gates knew early on that a graphical user interface was the way to go. He first caught a glimpse of the graphical user interface when Steve Jobs demonstrated a Macintosh prototype with a mouse, icons and drop-down menus. Windows was a perfect example of Gates outmaneuvering IBM and Apple at the same time. On one side, Gates had Steve Jobs who sent Microsoft early Macintosh prototypes prior to the product release in 1984 so that the software maker could write a Macintosh Office suite in time for Macintosh release. On the other side, Gates had to protect his DOS partnership with IBM and MS-DOS business with clone makers.

When Apple released the Macintosh in 1984, customers were stunned by its high-resolution graphical user interface and the functionality of the mouse. Scared that Apple may take over the market, IBM and Microsoft partnered in the development of the OS/2 operating system in August 1985. OS/2 was also planned to be based around a mouse and a GUI, but OS/2 was designed to deliver memory protection and multitasking capabilities – features the Macintosh OS lacked at the time. However, IBM made a far-reaching mistake by tying OS/2 to its proprietary hardware design called PS/2. Big Blue refused to consider licensing OS/2 to clone makers, because they were already eating into the company’s PC business.

Microsoft, on the other hand, made most of its profits by licensing MS-DOS to PC clone vendors. Bill Gates intended to continue licensing Microsoft's operating system to other vendors but that would not have been possible with OS/2. Thus, Gates decided that Microsoft should develop its own graphical based operating system. It was called Windows and it needed to be developed in secrecy. Gates continued the OS/2 partnership with IBM as if nothing happened. At the same time he was making sure that his friendship with Steve Jobs would last as long as possible so that he could keep an eye on what was coming out of Apple.

Read on the next page: Windows failures, teh OS/2 crash and Office