The Birth Of An Industry

Working in their attics, basements, and garages, seven entrepreneurs tacked together a totally new industry.

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In 1976, Bill Gates, then 20, and Paul Allen, 23, were running a company they had started the year before in Gates's college dorm in Boston. That same year, Gary Kildall, 34 was starting a company in his backyard toolshed in California. Tony Gold, 30, was still a credit officer at a New York City bank. Dan Fylstra, 25, was starting at the Harvard Business School. Dan Bricklin, 25, was getting ready to apply to business schools in Massachusetts, and Bob Frankston, 27, was working as a computer programmer near Boston.

All seven of these people started and now run companies that produce and/or publish software for personal computers. All five of their companies -- whose combined revenues just missed $50 million in 1981 -- are doubling or tripling in size each year. All of these entrepreneurs are, or soon will be, millionaires. All are likely to be the leaders of the personal-computer software industry -- quoted during economic crisis, looked up to by future business-school students.

The five companies they founded have created a new industry from scratch. And now they've been joined by as many as 1,000 more companies offering for sale some 5,000 software programs. The pressures to stay on top in the industry are intense. Some of the biggest companies in the country have turned their attention to micro software in recent months. Professional investors are scrambling to pour millions of dollars of venture capital into the leading companies. And the independents -- only a dozen or so had sales of more than $1 million in 1981 -- are straining to stay out in front.

"It's a tremendous business to be part of," says Mike Belling, 32, who bought the three-month-old Stoneware Inc. in June 1980 with his partner, Kenneth Klein, 42. "But it has its pitfalls, like cars used to. It's all so brand new that there's nothing to go by yet. There's no history to tell you how many copies of a program to produce, for instance."

Five years ago, the micro-software industry didn't exist. The first "personal computers" were introduced in 1975, but they were sold as kits and had no keyboards or video monitors: You used them by flicking on-off toggle switches and watching flashing red lights. In 1977, though, both Apple Computer Inc. and Tandy Corp.'s Radio Shack Division introduced preassembled and attractively packaged personal computers. And last October, the $26-billion computer giant, IBM, started shipping its own personal computers.

Now the installed base of personal computers has passed the 1 million mark and is forecast to grow as much as 50% a year for the next decade. The demand for programs, or software, to run these machines has mushroomed. In 1981, sales of micro software totaled about $500 million. By 1985, forecasts suggest that sales will range between $1 billion and $5 billion.

The beginnings of this ow-hot industry were inauspicious. Late one night in January 1975, Bill Gates was playing poker in his Harvard dorm. He was losing heavily, when a friend showed him that month's issue of Popular Electronics. The cover featured the first personal computer, called an Altair. "I decided that I better buy one," says Gates, who had been planning to go into law despite an extensive background in programming. "I thought it was a better use of my money than losing at poker."

Gates did buy an Altair. With his good friend Paul Allen, who was working at Honeywell Inc.'s Boston facilities, he began writing a programming language. The two of them had decided that these little machines needed a simple, "high-level" language with which users could write programs. (High-level means that it's easy for people rather than machines to understand.)

Gates's dorm room at Harvard became the site of weeks of what Gates fondly calls "working in the hard-core mode." They named their finished language Microsoft BASIC and started Microsoft Inc. to market it. They've since sold more than 600,000 copies of Microsoft BASIC, and the company, which they moved first to Albuquerque, N.Mex., and then to Seattle, had revenues of $15.8 million last year.

Like most of the other industry leaders, Gates likes to think of himself as a pioneer. Microsoft BASIC, he says, proved that high-level languages could be written for personal computers and opened up programming to nontechnical people. "We turned software into an independent industry," says Gates.

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