When IBM approached Microsoft seeking a 16-bit operating system, the company had to scrape around to put one together. Rather than writing a new one from scratch, they made overtures to Tim Paterson’s Seattle Computer Products for its existing 86-DOS (aka QDOS) system. Microsoft bought a non-exclusive license for $25,000. The following year it paid another $50,000 for all the rights. Within a month, Microsoft’s MS-DOS was shipping on IBM personal computers. This is how Microsoft came to dominate the personal computer industry. The software powered almost every computer for two decades and for a while was by far the most widely used piece of software in history – a fact that eventually turned Bill Gates and Paul Allen into two of the richest men in the world.
The brains behind it all
Tim Paterson landed a job at Seattle Computer products back in 1976 during his sophomore year at The University of Washington. The company only had 10 employees at the time and because Paterson was the only engineer on the payroll, he was placed in charge when the company required someone to build a new operating system for its 16-bit machines.
Paterson essentially replicated an existing operating system but tweaked it so that it would work on the new computers.
He worked part-time for about four months and eventually cobbled together some clunky code he named ‘Quick and Dirty Operating System’ because, “I had envisioned doing a better job.”
Microsoft, paid Seattle Computer Products a total of $75,000 for Paterson’s software, and would later go on to license it for billions. QDOS, which was subsequently named 86-DOS before becoming MS-DOS, was Microsoft’s first foray into the operating system business and still represents a significant chunk of the company’s revenue today.
The license permitted Microsoft to sell DOS to other companies, which it ultimately did. The deal was spectacularly successful and Seattle Computer Products later claimed in court that Microsoft had concealed its relationship with IBM in order to purchase the operating system cheaply. SCP ultimately received a $1million dollar settlement.
Despite the huge disparities between what QDOS was sold for and what the operating system went on to generate in terms of revenues for Microsoft, Paterson remains reluctant to call the deal a blunder.
“I think it’s been pooh-poohed as Seattle Computer being suckers or something for taking the deal because it made Microsoft so much money. There’s no way to know what’s a fair price. I don’t know how many people would have said the guy who provides the operating system to IBM is going to make it rich,” he added. “I have the impression Bill [Gates] and Paul [Allen] felt it was a gamble, not that they were sitting on a gold mine and knew it.”
Paterson never got rich from writing DOS itself, but he became an early employee of Microsoft and has the stock options to show for it.
“I could have been rich, but I’m doing fine. I don’t have any regrets that I wasn’t richer sooner. I was able to retire when I was 42. Seems young enough to me, so no complaints.”
Paterson’s code lingered in the Microsoft DNA for decades in varying degrees, and was buried in almost everything Microsoft built for many years. By the time Windows 95 came into being, 14 years after the original DOS deal, the only thing that was still powered by Paterson’s code was the clock.
Paterson has his own company today called Paterson Technology. It recorded sales of $50,000 during its best year, but Paterson says that the real point of the business is to keep himself busy.
Paterson is arguably one link in a long chain of things that made Microsoft what it eventually became, but It’s hard to fathom just how different the world would be if Microsoft hadn’t been able to develop its operating system.
In our opinion Mr. Paterson shouldn’t be too downhearted about only receiving $75k for something that would go on to be worth billions. Our publisher Darcus White once spent £75k on stocks and shares and they’re now worth absolutely nothing!