The $80,000 Contract That Cost IBM the PC Revolution

Business Onion · 2:38

On November 6th, 1980, IBM signed a software contract with a 25-year-old Bill Gates — and the clause its lawyers didn't fight handed Microsoft the next forty years. IBM built the PC in one year with a twelve-person skunkworks in Boca Raton, launched it on August 12, 1981 at $1,565, and took 80% of the market. But the operating system was licensed, not owned: Microsoft kept DOS (bought across town for $75,000) and the right to sell it to every clone maker on earth. Why didn't IBM's famously careful lawyers fight it? Software looked like just another part — and after a decade under a federal antitrust suit, exclusive lock-ins were the last thing IBM wanted on paper. Compaq's founders sketched their copy on a pie-shop placemat and booked $111 million in year one — the biggest first year in American business history. Phoenix made the last IBM-only piece a catalog item. Every clone still paid Intel and Microsoft; IBM collected nothing. The fallout: Don Estridge, the father of the PC, died in the Delta 191 crash in 1985 and never saw the fall. IBM declined Gates' 1986 offer of a ~$100M stake in Microsoft, and its closed PS/2 counterattack failed. In January 1993 Microsoft's market value passed IBM's; that year IBM posted an $8.1 billion loss — then the largest in US corporate history. In December 2004, IBM sold the PC business to Lenovo for $1.75 billion. Some scenes are cinematic reconstructions of documented events. All quotes, dates, and figures are verified.