Bill Gates is the richest person in the world with a current net worth of $81 billion. Minus the years between 2007 and 2013 (when Carlos Slim took the top spot), Bill has been the richest person on the planet for the majority of the last 25 years. Furthermore, at the peak of the dotcom bubble, Bill's net worth briefly topped $100 billion. That's equal to $136 billion in today's dollars after adjusting for inflation, which is enough to make Bill the 12th richest person in human history. Impressive stats, right?! And as we all know, Bill owes his good fortune to the company he co-founded, Microsoft – the largest and most successful software company in the world. But what if I told you that Bill actually owes his fortune to one simple business opportunity that was bungled by a rival software developer? As crazy as this sounds, the reality is that none of us should know the name Bill Gates today. Instead we should know the name Gary Kildall. Gary, who died in 1994, had the unfortunate distinction of making what will probably go down in history as the biggest business mistake of all time. A mistake that cost him the opportunity to become the richest person on the planet. As legend has it, Gary supposedly missed the meeting because he was out taking his plane for a joy ride. Others say the story is slightly more complicated. Either way, his mistake subsequently gave Bill Gates the steal of the century…
A Tiny Bit of Computer History
Gary Kildall was born on May 19, 1942 in Seattle, Washington. That made him around 15 years older than fellow Seattle natives (and Microsoft co-founders) Bill Gates and Paul Allen (current net worth $17.1 billion). Gary attended the University of Washington where he hoped to someday become a math teacher. He was soon enthralled by computers and ended up spending most of time in the computer lab instead of the math department. After graduating, he was drafted into the US Navy and sent to teach a the Naval Postgraduate School in Monterey, California.
While living in Monterey, Gary heard about how Silicon Valley (which was an hour away by car) was growing into a technology epicenter thanks to companies like Hewlett Packard and Intel. Speaking of Intel, when Gary managed to save up enough money, he bought one of the first commercially available microprocessors, the Intel 4004. He immediately began writing programs for the 4004 and even got a part-time consulting job at Intel on his days off.
In 1972, Gary returned to UW to complete a doctorate in Computer Science. At this exact time, a 17 year old Bill Gates could be seen sneaking into UW's computer labs at night to indulge his own early programming passions. After UW, Gary went back to Intel where he was put to work on the emerging technology known as "floppy disks". By 1973, Gary had developed the very first high-level programming language for Microprocessors. He called the language PL/M, which stood for "Programming Language for Microcomputers." This language would be used to write the firmware for the Service Processor components of many early Intel products.
In the very same year, 1973, Gary created another language called CP/M, which stood for Control Program for Microcomputers. Unbeknownst to Gary at the time, CP/M would eventually revolutionize the computer industry. CP/M offered a simple yet brilliant innovation that allowed computers to control and read a floppy drive independently. Gary also pioneered the concept having the computers themselves store a simple set of programs that enabled CP/M to be run seamlessly on different systems without needing any modifications or instructions. In other words, he standardized the operating system across hardware. These simple innovations combined the basic elements of what we know as a "computer" to this very day. Voila!
In 1974, Gary and his wife Dorothy founded a company to market CP/M that they called Intergalactic Digital Research. They later shortened the name to just Digital Research Inc, or DRI. At the time, Paul Allen and Bill Gates were still a year away from founding Microsoft in Albuquerque and five years from setting up shop in Seattle. Gary and Dorothy marketed CP/M in computer hobbyist magazines and soon sold licenses to a number of important early computer companies.
People were impressed by CP/M, and over the next few years, Gary's creation grew into the most popular operating system for all hardware being produced. CP/M was even used to run Steve Jobs' (more accurately, Steve Wozniak's) Apple II and some programs for Microsoft.
Even though little companies like Apple and Microsoft were making some waves, back in 1980 International Business Machines (better known as IBM) was the undisputed dominant force in the technology business. In early 1980, IBM had started planning their own version of a PC. And the IBM PC would need an operating system.
Being Seattle natives and fellow computer enthusiasts, Gary Kildall and Bill Gates had become close friends by the late 70s. Microsoft at the time was still trying to find its place in a crowded middle-market of software companies, while DRI was growing by leaps and bounds. In 1980, DRI was on pace to generate $5 million in revenue ($14 million today) thanks to royalties of CP/M.
Gates and Kildall were so close that when an IBM executive approached Microsoft in search of an operating system for the IBM PC, Bill actually suggested they go down to the Bay Area and talk to Gary and DRI. Gates even went so far as to call Gary while the IBM people were still in his office, so they could set up a time to meet the following day.
The Biggest Blown Opportunity In Business History
Depending on who you talk to, the IBM meeting was bungled for a couple different reasons. Here's what is known: At Bill's urging, the IBM executives flew down to the Bay Area the following day and drove to the headquarters of DRI (Gary and Dorothy's home, pictured above). When they arrived, the IBM execs were greeted by Dorothy. Gary, for reasons that have been debated for decades, was out flying his plane.
Years later, Gary would claim that it was standard operating procedure for Dorothy to field all new potential business and that on this fateful day, he was flying to deliver software to an important client. In hindsight, history has claimed that Gary missed the meeting because he was out fooling around in his toy plane.
Regardless of the reason for Gary's absence, the fact is that he was absent when IBM rang his doorbell that summer morning in 1980. And this experience did not sit well with the stuffy corporate IBM boys who had flown down from Seattle specifically to meet with Gary! But that's not the only way the meeting was bungled. When IBM met with Dorothy, she was immediately asked to sign a very one-sided non-disclosure agreement. She refused to sign anything without speaking to Gary first. Another sticking point was the fact that Dorothy and DRI's engineers were not sure they would have been able to produce the 16-bit version CP/M that IBM wanted in the relatively short period of time that they demanded.
Regardless of what actually happened on that fateful morning, the conservative IBM executives walked away from the hippy-dippy DRI without a signed contract. Guess where IBM went next?
Bill Gates For The Win
A few days later, IBM relayed their strange encounter with DRI to Bill Gates. By now Bill had recognized the massive opportunity that was being laid out at his doorstep. He was not going to let it slip away again. There was just one problem: Microsoft did NOT have an operating system!
Fortunately, Paul Allen had a solution. Right down the road from Microsoft's corporate headquarters, there was a man named Tim Paterson who worked for a rival software firm called Seattle Computer Products (SCP). A few months earlier, Paterson had created an operating system that he called "QDOS" which stood for "Quick and Dirty Operating System". Allen immediately called SCP's owner Rod Brock and negotiated an exclusive QDOS license for a flat fee of $10,000 plus a royalty of $15,000 for every COMPANY that Microsoft licensed the software to. Notice I said a $15,000 royalty for every COMPANY. Not every computer. This will be important in a minute.
At this point, Gates tried one more time to do the right thing and offer to sell their exclusive license of SCP's QDOS to IBM for a flat fee. But as one IBM executive put it years later: "If we'd bought the software, we'd have just screw it up."
So Gates, Allen and another Microsoft developer named Bob O'Rear (current net worth $200 million), met with IBM in Boca Raton, Florida to hash out the plan for developing their operating system.
A Brilliant Business Decision
During those Boca Raton meetings, IBM offered to pay Microsoft $450,000 for an exclusive license. Instead, Microsoft wanted a much lower fee, around $50,000. In exchange for the lowered fee, Gates made two demands that probably seemed insignificant at the time, but would eventually turn Microsoft into one of the largest companies in the world. #1) Microsoft wanted the ability to sell the final version of the operating system to other computer companies. And #2) Microsoft wanted a royalty every time IBM sold a copy of QDOS in one of their computers. Read that again. Every time IBM (and eventually every PC company on the planet) sold a computer that came with MS-DOS, Microsoft was paid a royalty. Do you know how many PC computers were sold over the ensuing decade?
And keep in mind, Microsoft was essentially just re-licensing someone else's software! They didn't even create anything themselves! Pretty much all Microsoft did was make a few customizations to software that already existed. Software that would turn out to be not that much different than CP/M. But more on that in a minute. Microsoft did make one important improvement, they changed the name "QDOS" to "MS-DOS".
Another thing that should be noted is that IBM's CEO at the time, John Opel, was family friends with the Bill Gates' mother. The two had served on the board of United Way together. When John Opel heard IBM would be working with Microsoft, he was even heard remarking: "Oh is that Mary Gates' boy's company?".
Microsoft did eventually end up buying the full rights to QDOS for $50,000. Most of SCP's employees then went to work at Microsoft, where they earned enormous sums of money:
The Richest Man In The World
By the time DRI engineers got their hands on an IBM PC, they quickly noticed some striking similarities between CP/M and MS-DOS. When Gary Kildall saw the final version of MS-DOS, he was shocked and furious. A DRI engineer would later say that "there were some shallow changes, but it was essentially the same program." Kildall and DRI immediately fired off angry letters to both Microsoft and IBM, but unfortunately software copyright law in the early 80s was an unproven ground.
Had DRI pursued a legal fight, it would be facing a very expensive uphill legal battle against one of the richest and most powerful companies in the world. After a few months of angry letter writing an veiled legal threats, IBM agreed to include CP/M as an option in its future PCs. Unfortunately for DRI, IBM made it so if a consumer chose use CP/M, the software fee would have been $240. If the very same consumer chose MS-DOS, the fee was $40.
The rest is pretty much history. Thanks to their non-exclusive agreement, Microsoft DOS not only became the default operating system for IBM, but for every PC in the world. And every single time a PC shipped with MS-DOS, Microsoft was paid a royalty.
By 1985, Microsoft was generating $150 million a year in revenue, thanks predominantly to MS-DOS royalties. A year later when Microsoft went public, the company was worth over $1 billion. Bill's 45% stake was worth $450 million. Within a few short years, he would be the richest person in the world. In a little more than a decade, he would be worth over $100 billion. Today Microsoft has a market cap of $400 billion.
Unfortunately, time was not as kind to Gary Kildall. On the bright side, he did end up selling DRI to Novell in 1991 in a transaction that made him a multi-millionaire. He bought an ocean-front mansion in Pebble Beach, California, and a lakefront mansion in Austin, Texas. He also bought a small fleet of sports cars, a Learjet and a boat.
But Gary also spent the rest of his life haunted by the story that he blew the biggest deal in technology history, and the chance to become the richest man on earth, because he was out "flying his plane". It didn't help that for many years Bill Gates relished that version of the story and would repeat it to anyone who was willing to listen. It also didn't help that Microsoft didn't just become a large company, it became one of the largest and richest companies in history. And Bill Gates didn't just become a CEO, he became a God-like, genius technology prophet.
A particularly embarrassing/annoying event happened in 1992 when Gary was invited back to the University of Washington to be recognized as a distinguished alumni at the 25th anniversary of the school's computer science program. After Gary arrived, he was disgusted to learn that UW had asked Bill Gates (who did not even attend the school) to give the keynote address. Gary walked out.
On July 8, 1994, Gary died after suffering from a head trauma at a biker bar in Monterey. The circumstances of what caused the head trauma are not known. He may have simply fallen, he may have gotten into a fight. A family friend admitted that Gary had been suffering with alcoholism in his later years, possibly brought on by the stresses still related to the Microsoft saga 15 years earlier.
Gary has since received some posthumous recognition for his contributions to technology. A year after his death, the Software and Information Industry Association recognized Gary with a handful of significant distinctions including being the first person to write an operating disk that sold over 250,000 copies, the first person to write a programming language for microprocessors, and the first person to the create system and data structures that were used in consumer CD-ROMs. Today there is a plaque in front of the Bay Area home that was formerly the headquarters of DRI.
Hindsight is 20/20. Or in this case, hindsight is $100 billion. Could you have recovered from a mistake the size and scale of Gary's? Even if you eventually did become moderately wealthy?