Microsoft may be a multi-billion-dollar company with tens of thousands of employees, but it still clings to its small-company roots, say CLAIRWYN VAN DER MERWE and JASON NORWOOD-YOUNG

The face synonymous with Microsoft hasn't changed much in 27 years. Then-and-now photographs show the hair's a centimetre or two shorter, the face more mature, the spectacles more sophisticated, but he's still wearing open-necked shirts, still not keen on ties and he's still not 'Mister'.

Bill Gates also likes to believe that today's Microsoft has much the same small-company culture it did when he and co-founder Paul Allen first start- ed dreaming of a world "with a computer on every desk and in every home".

"Although we've grown from a room full of programmers to a 38 000-strong corporation, the typical Microsoftie isn't much different from how we were back in 1975," Gates writes in Inside Out, the 500-plus- page coffee table book that Microsoft released at the turn of the century to celebrate its first 25 years. "They still work hard, order pizza, drink Cokes and play practical jokes on each other."

Pizza and soft drinks (the latter are still dispensed free at Microsoft offices across the world) were the fuel that fed Gates' and Allen's fire to write software that would bring computers out from behind their air-conditioned, glass-walled solitude. What lit the flame was an article in Popular Electronics magazine on a new, build-it-yourself personal computer, the MITS (Model - later Micro - Instruments and Telemetry Systems) Altair, and its "brain", the Intel 8080 microprocessor, ludicrously cheap at $500 for the lot.

Who needs to eat or sleep?

"It wasn't much to look at and it was pretty much impossible to make it do anything useful, but right away we thought the Altair was the start of a revolution that would change the world," writes Gates, who was 19 and at Harvard University at the time.

"Within seconds of seeing the cover of that magazine, I knew we had to write a version of Basic to run on the Altair," says Allen, also writing in Inside Out. Both were convinced that this was an opportunity "everyone else would jump on". "And we wanted to be first," writes Allen, "So time was of the essence."

"Paul and I didn't sleep much, and we lost track of night and day," says Gates. "When I did fall asleep, it was usually at my desk or on the floor. Some days I didn't eat or see anyone. But after five weeks, our Basic was written."

The team spent that time developing Basic for the Altair, not on the Altair itself, but instead - in true hacker style - using only the manual for the 8080 chip, the schematics for the Altair, and the Harvard PDF-10, reprogrammed to react like the Altair.

Allen was tasked with flying over to MITS in New Mexico and demonstrating the application to MITS founder Ed Roberts. Although it was the first time the code was ever run on an Altair, it worked perfectly. MITS bought the rights to BASIC.

Since MITS was based in Albuquerque, New Mexico, Micro-Soft (as it was then known) set up shop far away from the pair's hometown of Seattle.

After signing their first sales contract with the makers of the Altair, Gates and Allen left college for business and, within five years, had shipped one million copies of BASIC. "We marvelled that, wow, a million people are using our code to do God- knows-what number of interesting things," says Allen.

Basic on the Altair proved so popular that Microsoft ran into a problem that would dog it throughout its existence - software piracy. Gates accused PC hobbyists of illegally copying the Basic software in an open letter in MITS Computer Notes in 1976.

According to the letter, less than ten percent of hobbyist users had paid for BASIC. "As the majority of hobbyists must be aware, most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?" asked Gates.

Microsoft's relationship with MITS soon soured. Microsoft was approached by other computer manufacturers including GE and NCR - to port Basic to their platforms. A tough contract with MITS, how- ever, meant Microsoft had to okay any licensing of Basic to other manufacturers with MITS. This created a rift between the fledgling software company and its first customer, which led to legal action in 1977. In arbitration, Microsoft won the battle due to a small clause in the contract stating that MITS was to market Basic to the best of its abilities.

DOS attacks

MS-DOS served as the standard operating system for IBM and other PC manufacturers from the early 19805 until the mid- 1990s, and Microsoft raked in a cool $10 to $50 on every copy sold. Succeeding Microsoft's BASIC ports, operating systems became the company's flagship product.

While the first version of MS-DOS (originally Qdos, bought from Seattle Computer) didn't even support a directory tree, innovation in this operating system came fast. Most of the early work revolved around disk support -with the first machines, users had to manually take out the floppy disk and turn it over to read the other side, like an LP. By 1983, with the release of MS-DOS 2.0, MS-DOS could support a staggering ten megabyte hard drive (only one, mind you), and 360 kilobyte floppy disks.

In the same year, it launched Windows, although it would not ship the product until November 1985.

By version 3, MS-DOS started integrating advanced features, such as networking support. Larger memory support, a text editor, and an advanced BASIC found their way into the operating system with future releases.

However, all this innovation cost Microsoft when it included DoubleSpace into version 6. The company was competing with Novell's Dr-Dos 6, and in the catch-up game Microsoft stepped on Stac Electronics' copyright toes. Following legal action, DoubleSpace (which compressed live data to give the impression of a larger hard drive) was removed from MS-Dos. Microsoft instead licensed a package called Double Disk, which it released in version 6.22 in 1994.

It was an omen of trouble to come, with competitors eventually baying for Microsoft's blood as its applications integrated into its operating system started to close out competition.

Big Blue's Blues

After freeing itself from the hands of MITS, Microsoft pulled in business from the ever-growing list of PC equipment manufacturers, including Tandy, Apple, Commodore, Texas Instruments, Citibank, and Intel itself.

Next up was the MS-DOS operating system for the IBM computer, followed by the opening of the company's first international office, in Japan, and the shipping of its first mouse.

In 1980, IBM had managed to fail miserably at the PC business with its 5100, and the entire behemoth of a company was in trouble.

Bill Lowe was given the unenviable task of reviving IBM's PC business. He proposed to the company that, for its second attempt, it build a machine with off-the-shelf parts and sell it through the traditional reseller channel. He promised to do it in a year. IBM management gave him the nod, and Lowe set up shop in Florida.

Lowe approached Microsoft in 1981 for advice on how to build the PC, and Microsoft pointed the company in the direction of Digital Research, whose CP/M (Control Processor for Microprocessors) was the de facto operating system at the time. Microsoft had produced the immensely popular Z-80

SoftCard in 1980, which plugged into the Apple II and allowed Apple users to run CP/M applications. At the time, Microsoft had no operating system of its own.

For some reason, Digital Research managed to lose the deal, and IBM came knocking on Microsoft's door again. Whether this was because Gary Kildall, who developed CP/M, missed a meeting with IBM, or because he didn't wear a tie to a meeting, or because Gates' mother was on the United Way board with IBM president John Opal remains an ongoing debate.

Microsoft was asked to supply all the hardware for the new machine - operating system, applications, and. of course, BASIC. A non-exclusive licensing agreement with Tim Patterson, who had built a 16- bit operating system for the Intel 8086 processor, turned into a full purchase of 86-QDOS from Patterson's company, Seattle Computer Products, and by the time the IBM PC hit the streets in August 1981 it was known as MS-DOS version 1.

By the Seat of its pants

Times were a-changing and so was the PC market. In the early days at Microsoft, business revolved completely and utterly around writing software. "It was our life," says Gates. "We'd wake up, write code, maybe catch a movie, grab some pizza, write more code, and then fall asleep in our chairs." For the rest, Microsoft flew by the seat of its pants. "Whoever answered the phone was the 'shipping department'. They'd run to the back office, copy a disk, put it in the mail and then go back to their desk and write more code," says Gates, who also managed the payroll, did the taxes and handled the contracts.

That approach worked fine while PC users were hard-core computer enthusiasts, but the market was growing more sophisticated. In the beginning. Gates had some reservations about hiring people who couldn't write code. "We were a software company made up of really good programmers, and I thought we should stay focused on that... But I came to realise we needed smart non- technical guys like Steve Ballmer to work with our developers..."

Ballmer, now CEO, arrived in 1980 just as Allen, who had been undergoing treatment for Hodgkins disease, was leaving. "Cancer therapy takes a lot out of you," says Allen on his decision. "But it was more than that. To be 30 years old and have that kind of shock - to face your mortality - really makes you feel you should do some of the things that you haven't done yet."

So Allen left to be closer to his family and to try out some other business ideas, but remains close to his high school friend, Gates. "These days, when Bill and I catch up and brainstorm about where the industry is going, it feels like the old days - nothing's changed."

Listless about listing

Meanwhile, Microsoft was growing and growing and by its tenth anniversary, because of its practice of offering stock options to employees, a listing became inevitable. The prospect wasn't one that Gates was relishing. "Don't be surprised if I call it off," he warned in April 1985. "I hate the whole thing. All I'm thinking and dreaming about is selling software, not stock," he was quoted as saying in February 1986, just weeks before Microsoft went public.

"Bill complained bitterly about the entire process until we actually got to the road show, when we talked to investors about the company. He really got into that," says Jon Shirley, former COO, in the Microsoft 25th anniversary book.

When Microsoft went public in March 1986, its stock was trading at $25.75 a share, well over the $16 to $19 price range that Gates had set. "It's wild! I've never seen anything like it. Every last person is trading Microsoft and nothing else," CFO Frank Gaudette told Shirley via telephone from the trading floor.

The milestones rolled on. The early 1990s saw the launch of Word for Windows, Microsoft's first word processor with a graphical user interface, followed by Encarta, the first multimedia encyclopaedia, and then BackOffice, an integrated information system for corporate networked environments. In 1995, Windows 95 was launched, selling more than one million copies in just four days. Next came Internet Explorer, Microsoft's first web browsing software, then Windows CE and Office 97.

The biggest small company

So too did opposition to Microsoft's relentless grip on world software dominance. The US Department of Justice announced an anti-trust investigation into Microsoft. Dragging on for years, the case gave the company some "bad hair days", says Steve Ballmer, who took over from Gates as CEO in 2000. [Gates has since returned to his roots as chief software architect - or, as Fortune magazine puts it, a sort of "grand geek", reportedly spending much of his time working on Microsoft's next big thing, Longhorn.]

Despite prosecutors' hopes of breaking up the company, it effectively received a slap on the wrist in court. So Microsoft, now with close on 40 000 employees and 72 subsidiaries across the world, remains the world's "biggest small company", in its own eyes at least.

The small-company culture is manifes, as anecdotes throughout Inside Out reveal, in its lack of a dress code, insistence on first-name terms, share options for all staff, risk-taking atmosphere ["act now and ask for forgiveness later"], a flat organisational structure that allows anyone in the company to send e-mails to Gates or Ballmer, the proliferation of cafeterias for all, and an absence of executive dining rooms and elitist perks.

Like a small company, it acts lean, avoiding first class airline flights and posh hotels. Excess destroys success, is the motto, and there is a famous anecdote that, when dining at company expense, employees order "weenies rather than shrimp".

Its start-up mindset is what seems to keep the company on its toes. Says Danny Glasser, one of over 1 000 Microsoft employees interviewed for Inside Out. "We try to keep our start-up mentality as much as possible. And we get criticised for that because the rules are supposed to be different for us. We're supposed to act like the industry leader and just lumber along. But if we don't hang on to our start-up spirit, all these companies will come along and make us obsolete. And if we let that happen, we have only ourselves to blame."

Swashbucklers of yore

In an early attempt to curb software piracy, Bill Gates released the following letter to PC hobbyists in MITS's Computer Notes publication.

3 February 1976 An Open Letter to Hobbyists

To me, the most critical thing in the hobby market right now is the lack of good soft- ware courses, books and software itself. Without good software and an owner who understands programming, a hobby computer is wasted. Will quality software be written for the hobby market?

Almost a year ago, Paul Allen and myself, expecting the hobby market to expand, hired Monte Davidoff and developed Altair BASIC. Though the initial work took only two months, the three of us have spent most of the last year documenting, improving and adding features to BASIC. Now we have 4K, 8K, EXTENDED, ROM and DISK BASIC. The value of the computer time we have used exceeds $40 000. The feedback we have gotten from the hundreds of people who say they are using BASIC has all been positive. Two surprising things are apparent, however, l) Most of these "users" never bought BASIC (less than ten percent of all Altair owners have bought BASIC), and 2} The amount of royal- ties we have received from sales to hobbyists makes the time spent on Altair BASIC worth less than $2 an hour.

Why is this? As the majority of hobbyists must be aware, most of you steal your soft- ware. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?

Is this fair? One thing you don't do by stealing software is get back at MITS for some problem you may have had. MITS doesn't make money selling software. The royalty paid to us, the manual, the tape and the overhead make it a break-even operation. One thing you do is prevent good software from being written. Who can afford to do professional work for nothing? What hobbyist can put three man-years into programming, finding all bugs, documenting his product and distribute for free? The fact is, no one besides us has invested a lot of money in hobby software. We have written 6800 BASIC, and are writing 8080 APL and 6800 APL, but there is very little incentive to make this software available to hobbyists. Most directly, the thing you do is theft.

What about the guys who re-sell Altair BASIC, aren't they making money on hobby software? Yes, but those who have been reported to us may lose in the end. They are the ones who give hobbyists a bad name, and should be kicked out of any club meeting they show up at.

I would appreciate letters from any one who wants to pay up, or has a suggestion or comment, just write to me at 1180 Alvarado SE, #114, Albuquerque, New Mexico, 87108. Nothing would please me more than being able to hire ten programmers and deluge the hobby market with good software.

Bill Gates

General Partner, Micro-Soft