Microsoft

Microsoft did not write the operating system that made it rich. It bought one, licensed it back to the world’s largest computer company, and kept the right to sell it to everybody else.

The Clause

In November 1980, IBM needed an operating system for a personal computer it was building in a hurry.

Microsoft did not have one. It bought 86-DOS from Seattle Computer Products, rebranded it MS-DOS, and delivered it. The IBM PC shipped in August 1981.

The decisive part of that arrangement was not the software. It was that Microsoft retained ownership of MS-DOS.

IBM had assumed the hardware was the valuable thing and the software was a component to be sourced. Then other manufacturers reverse-engineered the PC and began building compatible machines — and every one of them needed the same operating system, which they could only get from Microsoft.

IBM had bought a licence. Microsoft had kept an asset. Within a decade the clone makers had taken the hardware market from IBM, and Microsoft was collecting from all of them.

It is the most profitable contract term in the history of business, and it was written before the company had a hundred employees.

Albuquerque, 1975

Bill Gates and Paul Allen founded Microsoft on 4 April 1975 in Albuquerque, New Mexico, having previously run a small venture called Traf-O-Data. The company moved to Bellevue, Washington in January 1979 and to Redmond on 26 February 1986.

The reason they were in Albuquerque at all was a magazine cover. The January 1975 Popular Electronics carried the MITS Altair 8800, and Gates and Allen wrote to MITS offering a BASIC interpreter for it — before they had written one, and without ever having seen an Altair. They developed it on a simulator Allen wrote for a different machine. When he flew to Albuquerque to demonstrate it in March 1975, the first time the code ever ran on real hardware was in front of the customer.

It worked. MITS licensed it, and Microsoft moved to be near its only client.

Gates spent the following February writing an open letter to hobbyists complaining that most of them were copying the tape rather than buying it. The argument he made in it — that software is a product and not a courtesy — was unpopular, and it is the assumption the entire industry now runs on.

It listed on NASDAQ on 13 March 1986. The share price created four billionaires and roughly twelve thousand millionaires among its own employees.

Windows, and the Office Lock

Windows 1.0 shipped on 20 November 1985 and did not matter much. Windows 3.0, on 22 May 1990, did — it was the release after which both Windows and Office became dominant together. Windows 95 followed on 24 August 1995, then XP in October 2001, 7 in October 2009, 10 in July 2015 and 11 in October 2021.

The pairing is the point. Windows made Office valuable because that is where the users were; Office made Windows unavoidable because that is where the documents were. Neither product had to win on merit once both existed, because the cost of leaving was leaving both.

That is a defensible business. It is also, in the view of two governments, an illegal one.

The Decade in Court

The Federal Trade Commission began examining Microsoft in 1990. The Department of Justice filed over per-processor licensing — charging manufacturers for every machine shipped, whether or not it carried MS-DOS — on 27 July 1994. In October 1997 it challenged the bundling of Internet Explorer into Windows.

Europe followed. The European Commission acted in March 2004 with a €497 million fine, and on 27 February 2008 imposed a further €899 million for failing to comply.

Microsoft was not broken up. What the years in court did instead was slower and arguably more expensive: they made the company cautious at precisely the moment it needed to be fast.

The Era It Watched Go Past

Steve Ballmer was chief executive from 13 January 2000 to 4 February 2014 — the exact span in which computing moved from the desk to the pocket.

Microsoft had a mobile operating system before the iPhone. It had a tablet before the iPad. It ended the period with effectively no position in either.

The reason is not that its engineers were worse. It is that every mobile strategy the company considered had to be evaluated against the question of what it would do to Windows — and the answers that were good for phones were bad for Windows. A firm defending a monopoly will keep choosing the option that protects it, and each of those choices is individually rational.

The Nokia mobile unit was bought in September 2013 for about $7 billion and did not recover the position.

Ballmer’s record deserves more nuance than it usually gets: he roughly tripled revenue, built the enterprise business, and started Azure. He also presided over the single largest missed transition in the industry’s history.

2014

Satya Nadella became chief executive on 4 February 2014, and the change he made was less a strategy than a permission.

Azure had launched on 27 October 2008, built as a cloud platform for Windows. Nadella allowed it to stop being that. Microsoft began shipping its software to Apple devices and Android phones, put Office on the iPad, released products for Linux, and stopped treating every decision as a defence of the desktop.

The trade was explicit: give up trying to own the platform, and sell to everybody who is on somebody else’s.

It worked. Microsoft passed a $1 trillion valuation in April 2019, $2 trillion in 2021, and was the most valuable company in the world in January 2024.

What It Bought

The Nadella era has been unusually acquisitive, and unusually willing to leave what it buys alone.

LinkedIn in 2016. GitHub for $7.5 billion, announced 4 June 2018 and closed that October. ZeniMax for $8.1 billion in March 2021. Nuance for $16 billion. And Activision Blizzard for $68.7 billion, announced 18 January 2022 and completed on 13 October 2023 after a long fight with regulators in three jurisdictions.

The GitHub purchase is the one that says most. Microsoft spent its 1990s treating open-source software as an enemy; in 2018 it bought the place where open-source software lives, and then largely did not interfere with it. Developers who had spent careers avoiding Microsoft found themselves working on its property and, on the whole, not minding.

On 23 January 2023 it announced a multi-year, multi-billion-dollar investment in OpenAI, tying the company’s AI position to a partner it does not own.

Where It Stands

For fiscal 2026, Microsoft reported revenue of $331.8 billion and net income of $133.7 billion, on total assets of $758.4 billion, with about 223,000 employees.

Two things are worth recording alongside those numbers.

In July 2025 Microsoft announced roughly 9,000 job cuts — about four per cent of its workforce — explicitly to control the cost of building AI infrastructure. The company earning $133 billion a year was reducing headcount to pay for data centres.

And in June 2025 a United Nations report named Microsoft among companies central to Israel’s surveillance apparatus during the Gaza conflict. The company disputes characterisations of its role; the finding is on the public record and belongs in any complete account of it.

Fifty-one years on, the shape is unchanged. Microsoft still makes its money by being the layer everyone else has to build on — only the layer moved from the disk to the data centre.

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