The rest of the story behind Microsoft’s OS deal with IBM

by on August 8, 2007

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You’ve heard the stories about how Microsoft and Bill Gates got the operating system business with IBM and how Gary Kildall and Digital Research lost the deal.

But I’ve always wondered about why Gary was out flying that day.

So when I got a chance to sit down with Gary Kildall’s best friend and FLYING PARTNER that day I jumped at the chance. That’s Tom Rolander who held a key role inside Digital Research (the folks who made CPM which, back before the IBM PC, was one of the most popular personal computer OS of the day — my dad had a CPM card for our Apple IIs so we could run software designed for it).

This is still the biggest business story in the tech industry. It is one that business school students will study for a long time.

It’s a story of arrogance. Legal misjudgments. Misjudging the players. And an abiding deep friendship that comes through.

If there’s a piece of video that will probably outlast me this is it.

Actually there’s four pieces. The first hour you meet Tom and hear the story of when IBM came to visit. That’s the interview that was put up today.

The second piece takes us to a restaurant where Tom tells lots of fun early industry stories.

The third piece takes us on a tour of Pacific Grove which is where Digital Research was located. We take you to the house where IBM visited Digital Research.

The fourth piece is where Tom introduces you to his new company, Crossloop, which is developing software to enable you to help others with their computer problems.

One interesting thing you’ll learn?

Bill Gates and Microsoft didn’t want the operating system business and sent IBM down to Digital Research.

Oh, and thank you to Tom and Mrinal Desai of Crossloop. He wrote me a few weeks ago on Facebook and said that his new boss was the one flying with Gary Kildall that fateful day.

Have you ever blown a multi-hundred-billion-dollar business deal? Me neither.

But now you can say you’ve met one of the guys who can say that.

Another thing you’ll learn? Why we all owe a debt of gratitude to Gary Kildall for the modern operating system architecture.

There’s a lot more, but it’s better just to watch the videos. Hope you find this as interesting as I do.

Oh, and if someone can post these to Gary Kildall’s wikipedia page, I’d be most grateful.

The beginning of the video brings introductions — I started filming the minute we got out of my car (you meet Buzz Bruggeman, CEO of ActiveWords, and Patrick Scoble, my son, and Mrinal). I think this is interesting stuff so we don’t edit it. The meat of the story starts up at about 16 minutes into the video, but I think you’ll find the rest of the conversation interesting. It’s one of the most interesting conversations I’ve ever been a part of.

  • I look forward to the rest of the series.
  • Without a doubt, the most important story in the computer world.. all that refers to the greatest deal in history. :P
  • sk
    Interestingly Tom did not know about LogMeIn.com whic has free service, of course with limited control.
  • Thanks for this story Robert, can't wiat for the other segments...A friend of mine had a house just a block or two away from DR (towards the bay), walked by there many times during those days. Just slightly before this incident.
  • that define history as will appear in the books, Robert keep us posted!
  • Dileepa
    Amazing story. (BTW, this is the first ScobleShow that I watched completely.)

    CrossLoop: Very well done piece of software. Using it is so straightforward.
  • I'd like to echo the praise. Very well done! The ScobleShows on tech history are incredible.
  • Outstanding. I really appreciate you bringing these types of inside stories to those of us who aren't in a position to get them ourselves. I love tech history - "Hard Drive", "Nerds 2.0.1", "Dealers of Lightning". To me, the interesting part of these stories is always the early, struggling part.

    Looking forward to the other parts.
  • I always thought Gary was on a boat ... when IBM wanted the source code for quality assurance purpose and Gary's wife did tell them, no need to wait, we never would give out the source code to anyone.

    Good to hear different stories ...

    Actually, it wasn't such a big, promising business at the time and Microsoft really didn't have much to offer ... and CP/M was still on the first specs IBM gave out.
  • Er... Robert, I haven't yet watched the video (open plan office - no headphones with me today) but the story was told more than 10 years ago on Robert Cringley's TV program "Triumph of the Nerds". That had film of someone who was in the room with Bill Gates when he called Gary ad said he was sending someone to see him. I'd understood from then that the "Gary was flying" morphed from "Gary was stuck in a airport" to "Gary was out doing loops over the desert", in the retelling over the years.

    As for the commenter who said "Greatest deal in history" ... might be #2 but the US purchase of Alaska might come out ahead of it.
  • Shmuel
    "Bill Gates and Microsoft didn’t want the operating system business and sent IBM down to Digital Research."

    Really? I actually recall from Bill Gates's bio that Microsoft doing languages and Digital Research doing OS's had an agreement to keep off each others turf.

    I might be misremembering...
  • @Tom R.

    If you could afford a small aircraft you guys should have definitely hired proper sales people to handle this instead of having family members do it.

    That first time IBM came and talked about licensing CPM, you could have closed the deal right there. Even if they wanted a flat license instead of royalties, you could have put in a clause that limited the number of copies for that license, then have royalties be additional. The renaming thing could have easily been settled as well. Unless you really think the CPM brand would have been permanently damaged by it.

    I think developers are sometimes the worst people to be doing business deals because they can't step out of the picture frame and see their own software for what it is.

    It was really hard for me to do that at first as well.
    When IBM asked not to sue in exchange for letting people choose a cheaper QDOS or your superior CPM, you should have gone exclusive or nothing. That's like asking joe public whether they want taco bell or to eat at a 5 star french restaurant. After the meal most people will be full anyway, and won't really care.

    I feel really bad for you Tom. You're office is nice.
  • s/You’re/your/
  • Tom, I also noticed that your office space is small. If you ever need an extra coder we have awesome prices for college computer science graduates. The best in North America. Just click my name link if you ever need the service.

    I pulled your zip code from the DNS whois, 93950, so I can advertise there with spotrunner.com as well, since there seem to be more businesses like yours in that area. They work by zip code.
    At any rate, great interview, very illuminating.
  • Billy
    "Really? I actually recall from Bill Gates’s bio that Microsoft doing languages and Digital Research doing OS’s had an agreement to keep off each others turf."

    I've not watched the video yet, but the story is that IBM went to Microsoft to secure a deal to bundle Microsoft BASIC. During the making of that deal, IBM asked where to get an OS from. MS said, "We do languages; go to Digital Research, they do OSes." IBM goes to DR, Kildall is out flying, his wife rebuffs IBM's NDA requests, so IBM goes back to MS still looking for an OS. MS says, "Fine, we'll supply an OS". MS buys QDOS from Seattle Software, repackages it as MS-DOS, and the rest is history.

    But IBM PCs shipped with both MS-DOS and CP/M. But IBM sold MS-DOS for ~$50 and CP/M for ~$250, which resulted in people just using DOS.
  • I have to say, that I could not agree with you in 100% regarding o.us poetry, but it's just my opinion, which could be wrong :)
  • Robert - great job getting this recorded, but is there a way you might extract the audio? I'd really like to hear these stories, but frankly I don't have time to sit and watch the videos. An audio recording, however, I could put on my phone and listen at work or in the car or something?

    -Ricky
  • Terry Doran
    I was given my access code it still sent me back to square one,what is goin on?
  • Lock Deltz
    You know what even though Kildall got screwed by IBM and Microsoft and his company never became successful. I'll always remember Kildall as the father of the PC, a guy who really innovated the PC, and thats what really matters. It's sad on what happened to him and Digital Research. The CP/M and it's successors will always be my favorite operating system and GEM will always be my favorite GUI.
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