You dropped out of Harvard in your junior year to start Microsoft with your friend Paul Allen. What was your original business plan?
Bill Gates: Microsoft was the first software company where we wrote software for personal computers. And we believed that we could hire the best engineers. There was an unbelievable amount of software to be written, and we could do it well and we could do it on a global basis. The original customer base was the hardware manufacturers. We sold to literally hundreds and hundreds, you know, over 100 companies in Japan, over 100 companies doing word processors and industrial control type things. We knew in the long run we wanted to sell software directly to users, but we actually didn't get around to that until 1980, when we had our first sort of games and productivity software that people would go to a computer store and actually buy the software package.
When did you first have the vision of a computer on every desk at work and in every home?
Bill Gates: Paul Allen and I had used that phrase even before we wrote the BASIC for Microsoft.
We actually talked about it in an article in -- I think 1977 was the first time it appears in print -- where we say, "a computer on every desk and in every home..." and actually we said, "...running Microsoft software." If we were just talking about the vision, we'd leave those last three words out. If we were talking an internal company discussion, we'd put those words in. It's very hard to recall how crazy and wild that was, you know, "on every desk and in every home." At the time, you have people who are very smart saying, "Why would somebody need a computer?" Even Ken Olsen, who had run this company Digital Equipment, who made the computer I grew up with, and that we admired both him and his company immensely, was saying that this seemed kind of a silly idea that people would want to have a computer.
When Microsoft was starting out, you guys made a deal with Apple Computer for a flat fee of $21,000 or something. What did you learn from that experience?
Apple sold a lot of those computers -- the Apple II. Wouldn't you have made a lot more money at that time if you had royalties?
Bill Gates: Well, we had plenty of ways to do new versions and add-ons and things. So no, the whole structure of the way we licensed things was that we knew we could write software more efficiently than if they hired the engineers themselves. So we always were able to say, "Hey, you would have spent a half a million developing that yourself. We'll license it to you for an inexpensive price." We probably could have had higher prices, but we were doing fine. In fact, that 6502 BASIC that Mark Chamberlain and I wrote, we licensed to about 12 different people. So our profitability was huge, even though it was a great deal for Apple. Per machine they paid almost nothing.
You came out very early against illegal copying of software. You wrote a piece for Computer Notes, warning that piracy could create serious obstacles for your industry.
When IBM first came to you for an operating system, you sent them to another company, Digital Research, first. Why did you do that?
Bill Gates:I had been talking about our BASIC, and running that on a computer. There's two ways you could run BASIC. You can run it where the BASIC is right on the hardware and the only thing you're running is BASIC, or you can put another layer of software in between, called an operating system, and it can take over some of the work, like managing the printers and things, and you can have many programs, BASIC or a spreadsheet or a word processor, running on top of that. And as we got disks on these computers, it made more sense to have that flexibility. The early computers don't have disks; they have cassette tapes and paper tapes and things like that. But by 1979, '80, we're starting to get these big, expensive -- actually, initially eight-inch -- floppy disks, then five-and-a-quarter inch, finally three-and-a-half inch. Now, when's the last time you saw a floppy disk? But they were very important. We still have a hard disk, the disk built into the computer. So you needed an operating system.
When IBM saw that we had written the software for all the personal computers, they came to us, sought our advice on the design, but we said, "You should put a disk in," and since they wanted to ship very quickly, another company called Digital Research had done that work for the 8-bit machines, and they were starting to do a version for these new 16-bit machines. We convinced IBM to do a 16-bit machine using this 8086, 8088 processor. Well, Digital Research really hadn't finished the work, and then IBM was getting frustrated because Digital Research wouldn't sign even the non-disclosure agreement, and then some of us, particularly Paul and a key person named Kazi Konishi, who was from Japan and worked with us, said, "No, no, no, we should just do that ourselves." And because of the quick timing, we ended up licensing the original code from another company and turned that into MS-DOS. So then subsequently, MS-DOS competed with this Digital Research CPM. After about two or three years, MS-DOS became far, far more popular than CPM, and then eventually we would take and add graphics capability on top of MS-DOS, and then integrate the two together. And so today when we talk about Windows, it actually includes all those MS-DOS things in it, that's the full operating system. Although mostly you think of the graphics and the windows and stuff, there's a lot of more classic operating system capability that's built in there.
Did you get a royalty from IBM for each computer they sold with MS-DOS?
Bill Gates: Actually, no.
The IBM initial deal is a flat fee deal, another flat fee deal. It had certain restrictions that prevented IBM from selling to other hardware makers. So if people did IBM PC compatible machines, we would get the revenue by doing business directly with those people. And the deal was very complicated, but it was a deal that Steve Ballmer -- who's a key person with the company by that time -- and I thought a lot about. It was a fairly junior team from IBM, so we tried to make sure that -- given our belief that personal computers would be hyper-popular -- that Microsoft would get a lot of that upside. So they felt they got a very good deal, which they did, but as the industry expanded, we -- for new versions and for different machines -- we got that opportunity, even though they did not pay us a royalty.
When did you realize just how wildly successful this business would be?
Bill Gates: Even in the early days, if you set a computer on every desk in every home, and you'd say, "Okay, how many homes are there in the world? How many desks are there in the world? Can I make $20 for every home, $20 for every desk?" you could get these big numbers. But part of the beauty of the whole thing was we were very focused on the here and now. Should we hire one more person? If our customers didn't pay us, would we have enough cash to meet the payroll? We really were very practical about that next thing, and so involved in the deep engineering that we didn't get ahead of ourselves. We never thought how big we'd be. I remember when one of the early lists of wealthy people came out and one of the Intel founders was there, the guy that ran Wang computers actually was still -- Wang was still doing well -- and we thought, "Hmm. Boy, if the software business does well, the value of Microsoft could be similar to that." But it wasn't a real focus. The everyday activity of just doing great software drew us in. And some decisions we made -- like the quality of the people, the way we were very global, the vision of how we thought about software -- that was very long term. But other than those things, we just came into work every day and wrote more code and hired more people. It wasn't really until the IBM PC succeeded, and perhaps even until Windows succeeded, that there was a broad awareness that Microsoft was very unique as a software company, and that these other companies had been one-product companies, hadn't hired people, couldn't do a broad set of things, didn't renew their excellence, didn't do research. So we thought we were doing something very unique, but it was easily not until 1995, or even 1997, that there was this wide recognition that we were the company that had revolutionized software.
When you were growing up, did you have any vision of what you wanted to accomplish?
Bill Gates: When I was very young I hadn't been exposed to computers so I was mostly just reading, doing math, learning about science, and I wasn't sure what my career would be. I knew I loved learning about things. I was an avid reader, but it was when I was 12 years old that I first got to use a computer, actually a very limited machine by today's standards. But that definitely fascinated me when I was first exposed.
Love at first sight?
Bill Gates: I was intrigued by figuring out what it could do and what it couldn't do. And some friends and I spent lots of time. The teachers got intimidated so we were on our own trying to figure it out. Actually, we gave a course on computers to the other students, and it became a fascination, where we got paid for doing computer work and talked about forming a company. But there was kind of a magical breakthrough when the computer became cheap, and we could see that everyone could afford a computer. That was much later, but that's what got us to really get together and create a company for software.
Tell us more about your childhood. What books were important to you as a kid?
Bill Gates: Well, I read a lot. There were always contests at the library, in the summer, where if you read ten books you got a little gold star, if you read 20 you got two. And there were five or six girls and I that would always read like 35 books, and we'd see who could do the most. It was a broad set of things. Eventually a fair bit of science fiction, because that intrigued me. Some biographies, understanding what different leaders had done and how they'd picked what they wanted to do. So I'd say science fiction and biographies were the categories that had the most impact.
Weren't you a Tarzan fan?
Bill Gates: Yeah. Among the science fiction things, William Rice Burroughs wrote a Martian series, and I read that. And then he also had the Tarzan books, and there's an unbelievable number of them, like 40 of them. I eventually decided to read those as well.
Was Catcher in the Rye a favorite later on?
Bill Gates: That's right. I didn't actually read Catcher in the Rye until I was 13, and ever since then I've said that's my favorite book. It's very clever. It acknowledges that young people are a little confused, but can be smart about things and see things that adults don't really see. So I've always loved it.
We've read that A Separate Peace is another book that was important to you.
Bill Gates: Yes, my second favorite book is the book by John Knowles called A Separate Peace. And that's a phenomenal book. I've been reading it to my son recently. There is actually a movie made of it that's fairly good, but I'd say the book is incredibly good.
What did you like about it?
Bill Gates: Well, it's two young boys growing up: one who is sort of intentionally trying to be good at things, and the other is just kind of naturally great at sports and has this wonderful energy and they have this great friendship. And it happens to be at a time where the older boys are going off to war, and they're trying go figure out what does that mean to them. And the author talks about this period of his life as really defining the rest of his life, how he sees everything sort of in comparison to this period where he didn't really know where he fit in. He thought of himself as maybe too calculating. The end of the book, which I won't spoil, is a bit of a tragedy with this friend of his, but it really talks a lot about what is our bargain with the world. How do we grow up? What are we worried about, and how do we take that into adulthood?
Bill Gates: Well, through eighth grade I was sort of enjoying the fact that I could do reasonably well without any effort. They had this thing where you'd get an "effort: which would be one, two or three, and then a grade. And so the ideal I always wanted was an A3, where you had the least effort, but the greatest grade. So my grades weren't all that great. And then in eighth grade I had been at a private school for a couple of years and decided that I better start getting good grades, both in terms of having some freedom, the way I'd be treated, and thinking about college. So from ninth grade on, I had a reasonably spotless grade record. I got quite serious about grades at that point.
Were you always good at math?
Bill Gates: Math was the thing that came most natural to me. And you know you'd take these exams, some of which were sort of nationwide exams, and I did quite well on those. That gave me some confidence, and I had some teachers who were very encouraging. They let me read textbooks, they encouraged me to take a college course on symbolic math, which is actually called algebra. So I felt pretty confident in my math skills, which is a nice thing, because not only the sciences, but economics, a lot of things if you're comfortable with math and statistics and ways of looking at cause and effect, that's extremely helpful.
Do any particular math teachers come to mind from that era?
Bill Gates: I had one named Paul Stockland at the school who challenged me. Later one named Fred Wright who challenged me. I actually majored in math for the time I was at college, because it's a very interesting topic. But it was kind of a strange topic, because there's not a direct career for most people in terms of being a full time mathematician. So for all but a very few people, it's a tool that you use, but probably not what you're going to spend your life working on.
Your parents took you out of public school to send you to the Lakeside School. Apparently that school had a big impact on you. Why did they make that move?
Bill Gates: My parents had this notion that I had this high potential somehow and that I was not taking advantage of it. The environment that I had been in, sort of being a goof-off was more socially rewarding than being that serious. It was public school, so they weren't pushing people all that hard. You could read the textbook in the first week and there wasn't anything interesting going to happen the rest of the school year. So they had me take an exam to go to a private school. And I thought, "Well, should I pass this exam or not? You could fail it and you wouldn't have to go." But that sort of violated my sense of integrity. "Hey, I'm good at taking tests. I don't want to get confused about that." So I was admitted and they encouraged me to go. It was a boys' school, reasonably strict. During the time I was there it actually transitioned, merged with a girls' school and stopped having uniforms, stopped calling the teachers "Master." So it became pretty normal, but it was a change at first. And the idea of just being kind of a goof-off wasn't the sort of high reward position like it had been in public schools. So my parents were right, it had the intended effect of creating a more challenging environment. And some teachers who were nice about saying that I should try harder, and exposing me to a lot of math and science, and eventually that's where I got to use the computer.
We've read that at first you weren't thrilled about the transfer to Lakeside.
Bill Gates: Lakeside was a longer school day, and it's a change. I had gotten super comfortable at public school, kind of being goofy, and here people were studying, and at first, because I didn't get great grades, they had me in a study hall, and a few people who got really good grades didn't have to go to the study hall. Nobody knew that I was actually clever, so they were actually treating me like some average student. Anyway, it was an adjustment. All the other kids there were making the adjustment as well. So it took a couple of years to get my grounding. I'm super glad that I went to that school. It is a fantastic school. I'll probably send my kids to that school.
Could you tell us about the role of the Lakeside School Mother's Club in introducing you to computers?
Bill Gates: The Lakeside's Mother's Club had a rummage sale every year to raise money for the school. And instead of just funding the budget, they always would fund something kind of new and interesting in addition. And without too much understanding, they decided having a computer terminal at the school would be a novel thing. It was a teletype -- upper case only, ten characters a second -- and you had to share a phone line to call into a big time-sharing computer that was very expensive. When you were connected up it would charge, and then when you actually had a program running it would charge a lot more. So they set up this teletype, and some of the math and science teachers played around with it. One of them accidentally spent a lot of money with an infinite loop program. They spent like $200 by surprise. So they were a bit intimidated, and a bunch of us kind of hung out there and tried out different things. The programming language was BASIC, which was quite novel at the time. It had been invented by some Dartmouth professors. So that was the first computer language I learned, and I wrote increasingly complex programs. So that eighth grade exposure was a pretty neat thing, even though the machine we were working on was quite limited.
Even most colleges didn't have one of those at that time.
Bill Gates: No, the idea of students playing around with a computer was very unusual at the time. In fact, that computer -- eventually the costs were high enough they took it away. But then some other computer companies had come around, including one in Seattle, that a bunch of us went down and volunteered to help out and do some work for. So from that point on we always managed -- although it was dicey at times -- to find access to computers. That was very unusual in high school. But it took a lot of initiative on our part to get those experiences, but we wouldn't have done it if we hadn't had that early eighth grade exposure.
For people who don't remember those early computers, could you explain why time-sharing was so important?
Bill Gates: Computers were immensely expensive and cost millions of dollars -- a machine that was far less powerful than what you have on a cell phone today. So either you would have a very important application or you just shared the machine with other people, and still you had to pay quite a bit of money. So time-sharing is where you're connected up and sharing the machine. It's a lot better than sending your programs in, because you can see when you make a mistake pretty quickly. Even so, because they charged us so much, we actually typed the programs off-line on a paper tape, so that we didn't have any delay for typing. Then, when we got onto the computer, we'd feed in that tape, so that it was less time online. But it gave you a sense of, "Okay, what you got right and wrong..." and you could try and correct things. We also -- because at that time, the dominant form of computing was using punch cards -- we actually did that quite a bit. We were down at the University of Washington and used some of those punch card systems. As computers became less expensive -- so called mini-computers -- then more people had access, mostly scientists and business people, but also we managed to find machines that weren't being used at night. The idea of a machine as something that an individual would use and that it would just sit there idle when they weren't using it -- that only made sense about a decade later, when the work that we and others had done had gotten the price down so dramatically that the idea of a computer sitting idle doesn't feel like some huge waste of resources, like it did when they were so expensive and rare.
To someone who's never done any programming, can you describe what made it so exciting to you at the beginning?
Bill Gates: Well, programming is where you're describing to the machine how to do something-- telling it how to play tic-tac-toe, telling it how to play the board game Monopoly, telling it how to convert numbers from one base to another. There are these simple instructions, but if you put them together you can synthesize something quite complex. It's a fascinating kind of mathematical thing. How can you make it fast? How can you make it small?
I went through several phases of doing more complex programs where people who were great programmers would look at my work, give me feedback on it, and you get so you can be quite a good programmer. It was kind such an intense activity, between the age of 13 and 17, that we learned a lot. Eventually one of the programs we took on was the idea of the scheduling of our school. When should the classes meet? Who should be in what section? You have all these requests for people who want different classes, and keeping them small, and not having the teachers teach too many classes in a row -- very complex kind of software problem. And actually, when the school first asked me to do it when I was 15, I said that I didn't know how and they asked some adults to do it, and that didn't work. Then, about a year later, I'd figured out how to do it, and so my friends and I actually did the software that did all this high school scheduling. It had some fantastic benefits to us, and we got paid for doing it. It was exactly the kind of complex problem that developed my skills very well. And we got some degree of control over who was in our classes, so it combined the best of everything!
We've read that at one point your fellow members of the computer club at Lakeside kicked you out. Is that true?
Was that C Cubed?
Bill Gates: Yes, Computer Center Corporation -- C Cubed -- which had been in the University District in Seattle. We'd spent a lot of time there, and they were wonderful to us, but they weren't a well run business, so they went bankrupt.
This company down in Portland, Oregon said, "Hey, we're not just going to give you computer time, you have to do something." So we agreed to write this payroll program. And a payroll program is surprisingly complicated. There's all these taxes and reports and things at the state level and federal level. Anyway, they said, "Well, if you could write one of those, we'd at least give you free computer time." So I negotiated that deal, and the two older members -- Paul Allen and Rick -- said, "There's not enough work to go around, so we're going to take charge of this." And I said, "Okay, I'm not that interested," because I had in mind how I wanted to do the payroll program. So they messed around for about three months, didn't get much done, and then said, "Will you join back up?" And I said, "Okay, but if so, I'm in charge of this," and it's going to kind of set a precedent for future activities. But they said, "No, no. That's fine." And so we worked. We actually finished this payroll program. It was a lot of work. The friend who was my age, Kent Evans, and I ended up doing the lion's share of the work. Now tragically, right as he and I finished that he was killed in a mountain climbing accident. So then there were just three of us left who'd been extremely involved, including Paul Allen, who was the one who was reading the magazines even more than I was. He was the one who actually saw this computer on a chip -- a so-called "microprocessor" -- in a very small obscure article. He saw that it would be deeply important and brought that to me in 1971. So we were still 15 -- I was 15, and he was 17 at the time.
Was it during your work with C Cubed that you got into some trouble for hacking into a system?
Bill Gates: These C Cubed people have this computer, which is a time-sharing computer, and they're letting us come in at night. And they had this deal with the company who made the computer, Digital Equipment Corporation, that they had this acceptance period. If they could find problems with it, they could delay their rental payments. So they thought of us as kind of monkeys that might find some problems and help them delay their rental payments. Well, that was a fair analysis, because at first we were just completely goofing around. Like, we'd try to run hundreds of jobs at the same time, or have all the jobs try and grab the same resources, to see if we could get the system to fail. And we did, in kind of this brute force approach. So they would report that as a problem and delay their rental payment. Well, a few months went by, actually about four months by the end of it. We had gotten very sophisticated. In fact, we'd gotten the source code of the operating system out of the garbage can, and were reading it, and the kind of problems we were finding were far more subtle. In fact, we would not only find the problem, we'd look and we'd suggest how they might fix it. Anyway, Digital Equipment got so tired of this they said, "Look, you've got to pay. You're going to be able to find these kinds of problems forever, but we need to get paid." So then there was a question whether they would let us stay there or not, and it was pretty tenuous. So Paul and I, we understood the system well enough that we could look at all the passwords of the various accounts, so we would use literally any account. And then, people -- when they found out we had done that, they got kind of mad about that. They weren't sure how mad they should be about it, because we hadn't really caused any damage, but it wasn't a good thing. Computer hacking was literally just being invented at the time, and so fortunately we got off with a bit of a warning. But there actually was a period that, because of that, they said we weren't supposed to use the computer. It was over a summer, and Paul actually went up to the University of Washington and found ways to use the computer and get connected up. He took a while before he told me and then eventually he told me about that and we got back on.
After you got kicked off the C Cubed system, was that tough, spending the summer without a computer?
Bill Gates: Yeah, well no. I had many things that were interesting. I was really quite serious about math at the time and various science things. Paul had actually read more science fiction that I had, by a lot, so he and I would talk about that. But I had plenty of things, it wasn't some great tragedy. But then we got pulled back in, and then that company went bankrupt, and then we had the work for this Portland company on the payroll program, and then we had the scheduling program.
We were lucky. There were always kinds of things that not only gave us an opportunity, but exposed us to that next level. After the payroll program, then there was a computer project to use computers to control all the electricity grid in the dams of the Pacific Northwest. A government agency called Bonneville Power had done a contract with a company called TRW to use computers to do all this control. And TRW had committed to do all this really high-reliability great software work. Well, they found it more difficult than they expected, so they were looking for people who understood these kinds of computers, which Paul Allen and I had done a lot of work on. These were the same computers that were at Computer Center Corporation and at this Portland company, Information Sciences. Anyway, we were kind of famous -- but nobody had met us -- because we had filed these problem reports. And by the end of these problem reports -- they were so sophisticated -- it was like, "Who are these guys out in Seattle telling us how to fix all this stuff?" So when TRW was saying, "Hey, we're desperate. Find us..." they're telling Digital Equipment, who makes these things, "Find us the best programmers," and somebody says, "Well, there's Gates and Allen..." and somebody says, "Nobody's really met them, but yeah, they're really good, we ought to be able to track them down." So they find us, this one guy, and we go for an interview. And these two kids show up and -- what was I when I was interviewed? I was 16 when they interviewed me. So they were like, "We can't hire you." But then they talked to us about software and we clearly know a lot. And when you're young and you know a lot, people don't have any kind of intermediate thing. You're either what you're supposed to be, which is a kid that doesn't know that much, or they think, "Whoa, this guy is the limit!" We were pretty good programmers. But anyway, so we got jobs at this TRW and that exposed me to some programmers, who were way better than I was, who critiqued my work. I could look at their work. And this one guy was really a phenomenal programmer.
Was that John Norton?
So Paul Allen showed you the article about the microprocessor first, and then wasn't there a cover story in Popular Electronics about the Altair 8800?
Bill Gates: In 1971, there's this obscure article on the microprocessor that Intel has done -- what was called the 4004 -- that Paul said, "Look, this thing's going to keep getting better and it's going to be better than these mini-computers." Mini-computers were like $10,000 to $200,000. Paul and I had borrowed some of those and messed around with those. And Paul said, "No, no. They're going to have something better than the mini-computer that costs like $1,000." So we kept watching those chips get better, and we did the scheduling program, then, my senior year, we're down at TRW, they're getting better. And in fact, in 1973, the 8080 chip comes out, and Paul shows that to me and I say, "Okay, this is better than most of these mini-computers." And so we think, "Wow, somebody's going to take that chip and do something wild."
In the meantime I start at Harvard University back in Cambridge, Massachusetts. Paul's at Washington State, another place, so I help him get a job out there in the Boston area, and we're just brainstorming, you know, "What's going to happen with the microprocessor?" I'm playing poker, signing up for lots and lots of classes, undergraduate classes, graduate classes, but then...
Finally, somebody takes the 8080 chip and creates a kit computer, and that's on the cover of the January 1975 Popular Electronics that comes out in December 1974. So we get that, and that's both exciting -- because finally this thing that we've expected has happened -- but the question is, "Is it happening without us?" And so this company, which is in Albuquerque, New Mexico, we call them up and say, "Hey, we can do software for this machine." And they say, "Oh yeah, sure." So we very quickly work on a BASIC for this computer, which I'm well equipped to do, and Paul had some brilliant ideas about how we'd simulate this machine, because we didn't have one, and that was amazing. So we write this thing and we call them up and we say, "Hey, when you connect a teletype up, what's the software programming to get the characters in to print them? How do you do that?" The so-called "input output." And they thought, "Well, that's interesting. You guys may not be flaky, because actually you're the first one who asked that question," which is, if you're going to really write the software, you eventually have to ask that question. So they give us the answer and Paul flies out with this paper tape of the software.
You did this while you were still at Harvard?
Bill Gates: Right. So I'm a student at Harvard, Paul's working at Honeywell, but we spend -- what was it? -- six weeks, and really write this thing, which -- you know, my whole career has sort of been building after this thing. It's one of the most -- probably the most fun piece of software I ever wrote. I mean, it's unbelievable, because it has to be very small -- there's only 4K bytes of memory -- and we don't have the real machine, so you have to be very careful you get everything right. Anyway, so Paul takes it out, and these guys mostly sell kit computers, they'd only assembled a few of them, and so they got it connected up and Paul puts it in and it runs the first time!
But you didn't even have the machine, did you?
Bill Gates: Yeah, that's a complication.
When you turn a computer on, there's nothing in it. It doesn't even know how to go out to the teletype and read this paper tape that has all these funny numbers on it that are this program. So you have to put in -- using the switches -- a little program, that's the program called the bootstrap loader that is the instructions to say, "Hey, go read a bunch of numbers off of this paper tape, put those into the memory and then go run that program." So he wrote a bootstrap loader, literally on the plane flying there, he wrote a nice bootstrap loader. It worked just fine. Later I wrote a really, really small one, because it's a pain to have to -- every time the computer is turned back on you have to reenter the thing, so the less of these funny little instructions, the better. Anyway, so he wrote that, and everybody was amazed because we had to do everything totally right, how we read this instruction set manual and they were selling these kit computers, but they had never really seen it do anything real. And so Paul would type in 'Print 2 plus 2.' Print..." and he ran programs and it worked.
And this was a machine that you had never actually seen.
Bill Gates: That's right.
The chip itself was fairly expensive. Paul and I had bought a previous chip to do a very specialized machine. We had bought an 8008 to do a little funny program that did traffic volume printouts, but this 8080 was much better. And we had never had one of those, so we just read the book that described how it worked. And then we made the big computer that we'd been using all those years -- and we're quite expert in -- Paul had a really breakthrough idea of how to do the simulation thing. So that gave us the full power of that computer to edit and debug and those things. But if we had any mistake in how we read this thing, that paper tape wasn't going to work at all. Anyway, so that was very exciting, and we signed a deal with them. That was called MITS, and their computer was called the Altair. And then I left Harvard University and we started Microsoft. So Microsoft was initially based down in Albuquerque, New Mexico. And this is 1973 when we get going.
Bill Gates: You know, we had been talking about that actually back at Harvard, microcomputer software, and nobody else had done a company doing software for these things, and we thought it was a cool term, "Microsoft." When we had been kids and sending our names in for mailing lists we'd played around with a lot of company names, including "Allen & Gates" or things like that, but we decided no, it would be better not to have our names in it, because it wasn't like a law firm that was always kind of a small thing. We thought, "Hey, we're going to have a big company, so we'll have a company name." So "Microsoft" was a very natural choice.
When Ed Roberts of MITS agreed to buy your program, you included a "best efforts" clause requiring him to try to sublicense and promote your software. How did that turn out?
Bill Gates: Microsoft was only a few people and we'd written this BASIC, and the idea was to license it to lots of companies and then to write other software. So the head of MITS said he could help us market it to other people and take a sales commission for that, and I wrote the contract so that if they weren't serious about promoting it and putting a lot of investment into that, they would lose that right. That was the "best efforts" clause, a very strong requirement. They never got serious about that, and yet they kind of liked the idea of them having the BASIC and other people not. So we were discussing that, how we were going to resolve this problem, because we needed to license it to other people, and we were doing all the work to license it to other people even though they were getting this commission. And right at that time, another company, Pertec, bought MITS, and then those people got confused about the contract and so they weren't even paying us the money they owed us. They were essentially trying to starve us, so we terminated the contract. It had an arbitration clause. The arbitrator found that we were right. Five out of five reasons to terminate the contract, we were only right about five of them! So that contract was terminated. And then we had to -- like, we ended up having to do -- built our sales and marketing activities. And by then we started to have some other programs as well. So we started to hire more people and things really got going. The big thing though, was that because Pertec moved that company out to California, we no longer had a reason to be in Albuquerque, because you couldn't recruit people there as easily as you could to other locations. So we talked about where to move, and eventually, in 1979, we move up to Seattle.
When you decided to leave Harvard to just concentrate on business, what was your parents' reaction?
Bill Gates: My parents had been fantastic throughout my whole student career. I mean, getting me to go to Lakeside, that my senior year at Lakeside, where I had wanted to take time off and do this job at TRW, they'd been very supportive of that, letting me live down in Vancouver, Washington. I challenged them a little bit when some of my coworkers at TRW said I should skip undergraduate and just go to graduate school, and they were not enthused about that. It looked like I would have an opportunity to do that, but I didn't, I just went to Harvard. And that was another case where they were right that, socially, being with other undergraduates was good. I got to take graduate courses up at MIT, and I did that to a limited degree. So I kind of had the best of both worlds. Anyway, when it came time to go on leave from Harvard, the policies of the school about -- if you're gone -- letting you come back are incredibly generous. So if the enterprise had failed, then I would have been back. So my parents were a little surprised, and kind of wondering what it meant, but they were pretty supportive. And in fact, when we got into this legal dispute with Pertec, my dad gave me good advice. He was very supportive on that, and so we saw that through. And then, as the company became successful, I hope they felt better about it. The only really bad case was if I stayed and the company was kind of mediocre-ally successful. If it failed it would be okay, if it was a big success it would be okay, and they could see I was very energized. And I thought we needed to get in at the very beginning and not waste a year or two, which is what I had left of my undergraduate course requirements.
But if kids wanted to follow in your footsteps today, wouldn't you advise them to stay in college?
Bill Gates: Well, college is amazing. There are all these smart kids sitting around, you can talk about anything, there are courses you can go to, there's tests to see if you know what you're talking about. There is nothing better than a great college for your experience. I would have stayed until the end if it hadn't been for the urgency. I watch lots of college lectures online now because I enjoy that so much. So unless you have something that's really uniquely, amazingly time dependent, it's a great thing to finish the degree.
Do you ever wonder what would have happened if the BASIC program for MITS had not worked?
What are you most proud of achieving? We know you're not done achieving yet, you're amazingly involved in global health and philanthropy, but if you had to look back now, what would you say you're most proud of?
Bill Gates: Microsoft was at the center of the personal computer revolution, and particularly the creation of a software market where you went out to lots of companies, and encouraged them to write software for different applications, mundane applications, wild applications. That idea that you would encourage people to be creative, and build software, and there would be a whole industry around that. Microsoft believed in that, and no one else did, and so we got that going. And that's led now to where you have all these great choices, and it just keeps getting better and better. And it's because of the volume of machines out there, it can be sold very, very inexpensively. So that whole bootstrap, getting the industry going, making it personal, making there be lots of software, that's what we are the most proud of.
What does the American Dream mean to you? Do those words have resonance in your own life?
Bill Gates: I think the American Dream is kind of a global dream now, that young people can come up with new ideas and create companies that make a contribution, not just jobs, but whatever their innovations that they bring about. Capitalism is this unbelievable open system that if you combine it with good infrastructure, good education, the creativity that we find for people who have had those chances is always going to surprise us. It's always going to come up with new seeds, new medicines, new software, new movies, things that make the world a better place.
Could you tell us briefly talk about your vision for the Bill & Melinda Gates Foundation? Early on you gave a great deal to libraries and schools, now global health seems to be a larger focus.
Bill Gates: The Foundation got started in the late '90s, with my dad -- encouraging me -- an executive named Patty Stonesifer, who'd left Microsoft, were helping out. I was still very busy, our kids were very young, but we got going. We put computers in libraries in many different countries, including the United States. We did some scholarship things. We were learning about reproductive health and population issues. And that kept growing, and we met people who knew about vaccines. So it was a part-time thing. Global health was a bit over half; the U.S.-focused libraries, scholarship education work was over a quarter; and it was a final piece that relates to other things to help the poorest, other than just health things, things like finance and savings. And you know, it grew. And then I saw that I could make a unique contribution there, and created a transition plan that was four years in the making. So now I'm full time at the Foundation and playing a role of being the Chairman and traveling a lot. So it's equally challenging, it's very fulfilling. It's taking these resources that I'm lucky enough to have, because of the success of Microsoft, and giving those back to the society in a way that can have the biggest impact.
In your priorities for the Foundation, discovery is one of the first. That's interesting, because it is kind of a parallel to Microsoft. So even in the area of medicine, and vaccines fighting malaria and so forth, you're still focused on discovery.
Bill Gates: Absolutely. We need new vaccines, we need cheap vaccines, we need vaccines that are easy to deliver, even in the poorest places, where something like having refrigerators is tough to do. And it does connect to my experience at Microsoft of finding great scientists, making sure they understand the problems that are important, getting them focused on those things, having milestones, even if there are setbacks, and making sure that -- if the possibility is still there -- that they get the proper backing. This is something that governments don't do much of. They fund a lot of the great delivery -- the foreign aid is very, very important -- but on the discovery side there's been a deep under-investment. Whether it's a malaria vaccine, tuberculosis vaccine, about 20 different diseases that -- if things go well -- we'll have vaccines for most of those within the next decade. So the Foundation is really taking the lead, financing that scientific work, and already some have been discovered. Some are getting out there, but there's a lot more still to be done.
Thank you so much for taking the time to talk with us today.
Bill Gates: Yeah. It was fun to talk about it.