The Man Who Could Have Been Bill Gates

The saga of the computing industry is rich with outsize characters and
surprising plot turns, but there's one story that has risen over time to
mythic proportions. It's the tale of how software pioneer Gary Kildall missed
out on the opportunity to supply IBM with the operating system for its first PC-essentially
handing the chance of a lifetime, and control of tech's future, to rival Bill
Gates and Microsoft Corp.. In the process, he may have missed out on becoming
the world's richest man.

The legend goes like this. One fateful day in the summer of 1980, three
buttoned-down IBMers called on a band of hippie programmers at Digital Research
located in Pacific Grove, Calif. They hoped to discuss licensing DRI's
industry-leading operating system, CP/M. Instead, DRI founder Gary Kildall blew
off IBM to gallivant around in his airplane, and the frustrated IBMers turned to
Gates for their operating system. This anecdote has been told so often that
techies need only be reminded of "the day Gary Kildall went flying" to
recall the rest. While he's revered for his technical innovations, many
believe Kildall made one of the biggest mistakes in the history of commerce.

But what if that's not what happened? What if IBM and Microsoft deprived
Kildall not only of untold riches but also of the credit for a seminal role in
the PC revolution? That's the thesis of a chapter about Kildall in They Made
America, a serious coffee table history book by renowned author and former
newspaper editor Harold Evans. The book, released by Little Brown on October 12,
profiles 70 American innovators and is the inspiration for an upcoming PBS
series. And while other tech authors have debunked the gallivanting story
before, Evans bases his Kildall chapter on a 226-page, never-published memoir
written by Kildall just before his death in 1994. Early on, Kildall seemed to
represent the best hopes of the nascent computer industry. But by the time he
died at age 52, after falling in a tavern, he had become embittered and
struggled with alcohol.

TWO VERSIONS  Kildall said he had a deal with IBM. But one IBMer says no

They Made America is certain to elicit cries of protest. That's because it
attacks the reputations of some of the key players of the early PC era-Gates,
IBM, and Tim Paterson, the Seattle programmer who wrote an operating system,
QDOS, based partly on CP/M that became Microsoft's DOS. Evans asserts that
Paterson copied parts of CP/M and that IBM tricked Kildall. Because Gates rather
than the more innovative Kildall prevailed, according to the book, the world's
PC users endured "more than a decade of crashes with incalculable economic
cost in lost data and lost opportunities." David G. Lefer, one of Evans'
two collaborators, says: "We're trying to set the record straight. Gates
didn't invent the PC operating system, and any history that says he did is
wrong."

There's no doubt that Kildall was one of the pioneers of the industry. He
invented the first operating system for microcomputers in the early 1970s,
making it possible for hobbyists and companies to build the first personal
computers. Legalities aside, Microsoft's original DOS was based in part on
Kildall's CP/M. His insight was that by creating an operating system separate
from the hardware, applications could run on computers that were made by
different manufacturers.

Still, Evans' book falls short of clarifying exactly how Kildall lost out
to Gates. He relies primarily on Kildall's memoir, his family, and his
friends. Evans says he requested an interview with Gates, which he says
Microsoft denied. He didn't make contact with IBM or Paterson, but tapped
previously published accounts for that side of the story. IBM would not talk to
BusinessWeek for this article, but former IBMers take issue with Kildall's
version of events. Microsoft calls the book "one-sided and
inaccurate," and says the company is proud of the "foundational
role" it played in the industry. Paterson denies he stole Kildall's
intellectual property. He says he's stunned that the authors failed to get in
touch with him. "You'd think they might have asked. I'm not hard to
find," he says.

Hazy Memories

What's hard to find is the truth. A dozen interviews by BusinessWeek with
people on all sides paint a blurry picture of those crucial days in the summer
of 1980. While Kildall claims in his memoir that he met with IBM that first day
and reached a handshake agreement, DRI's own lawyer at the time, Gerry Davis,
says there was no deal. One of the IBMers who visited DRI that day insists he
didn't talk to Kildall, but another, Jack Sams, now retired, says it's
possible he was introduced to Kildall, although he doesn't remember it. Sams
says faulty memories and self-serving accounts make it nearly impossible to tell
exactly what happened during those chaotic weeks. "Back in those days,
there was a lot of misinformation that was deliberate," he says, pointing
out that IBM originally claimed it had made the PC all by itself. "We spun
it, Kildall spun it, and Microsoft spun it."

GATES IN 1985 His DOS was similar to Kildall's CP/M system

The story begins unambiguously. A group of IBMers, working on a secret
project to build a personal computer, flew to Seattle in August, 1980, to see if
Gates could supply them with an operating system. He couldn't-and referred
them to Kildall. When they showed up at DRI's offices the next day, Kildall's
then-wife, Dorothy McEwen, the company's business manager, refused to sign
their nondisclosure agreement. She is now ill with brain cancer and can't
remember the events, according to daughter Kristin Kildall. But Rolander, who
flew with Kildall on a business trip that morning, tells BusinessWeek they
returned in the afternoon and Kildall did meet with IBM.

If Kildall struck a handshake deal that day, it didn't stick. Sams says he
did get together with Kildall in Pacific Grove a short time later, but they
couldn't reach an agreement. At around the same time, he saw Gates again. He
and Gates both knew of the operating system Paterson had built at Seattle
Computer Co. As Sams recounts, "Gates said: 'Do you want to get ,
or do you want me to?' I said: 'By all means, you get it."' Gates
bought Paterson's program, called QDOS, for $50,000, renamed it DOS, improved
it, and licensed it to IBM for a low per-copy royalty fee.

The Shouting

It wasn't until nearly a year later that Kildall discovered that Gates, a
longtime friend, had plucked the plum software deal out of his grasp. IBM sent
test versions of its PC out shortly before it was announced in August 1981, and
a consultant working for DRI noticed the operating system was remarkably similar
to CP/M. The consultant, Andy Johnson-Laird, remembers that Kildall looked at
the screen and was stunned. "There were some shallow changes, but it was
essentially the same program," says Johnson-Laird in an interview with
BusinessWeek.

Kildall was furious. He and DRI's vice-president for marketing, John
Katsaros, met with Gates in a Seattle restaurant to hash things out. "It
was one of those meetings where everybody was nice to each other, then everyone
shouted at each other, then everyone was nice to each other, then everyone
shouted at each other," recalls Katsaros in a BusinessWeek interview.
Nothing was resolved. Kildall also confronted IBM. But his problem was that
software copyright had just become law three years earlier, and it wasn't
clear what constituted infringement. Davis, the DRI lawyer, believes that based
on the number of similarities DRI's forensic consultants found between the
original DOS and CP/M, "in today's world, you could take it to court and
get an infringement." But not in 1981. So rather than sue, Kildall agreed
to license CP/M to Big Blue. He was floored when the PC was released and IBM
charged $240 per copy for CP/M and just $40 for DOS. Kildall's conclusion,
according to his memoir: "I believe the entire scenario was contrived by
IBM to garner the existing standard at almost no cost."

Within a couple of years, the IBM PC was the undisputed champ, and Microsoft
was the leading operating system provider and on its way toward PC industry
domination. CP/M gradually faded into irrelevance. Kildall ultimately sold his
company to Novell in 1991 for $120 mn. He went on to create some pioneering
multimedia technology, but never again was an industry player.

The last straw was when the University of Washington in 1992 invited Kildall
to attend the 25th anniversary of its computer science program. He was one of
its earliest and most distinguished graduates, earning a PhD, yet they had
picked as keynote speaker Gates, a Harvard dropout. Kildall says it was this dig
that prompted him to write his memoir. "Well, it seems to me that he did
have an education to get there. It happened to be mine, not his," Kildall
wrote.

Kildall's resentment is understandable, but even his friends agree that he
was partly to blame. For all his technical brilliance, he was a poor
businessman. One big mistake was not moving ahead fast enough with a more
advanced version of CP/M. He was slow to deliver a 16-bit operating system. It
was that delay that created an opening for Paterson to design a 16-bit
alternative, and because DRI didn't have its own version ready in the summer
of 1980 IBM decided to deal with Gates, says Sams. Once IBM agreed to market his
software, Kildall demanded a relatively high royalty-contributing to its being
priced so high, say former DRI execs.

Would history have taken a different path if Kildall triumphed in those early
days? "I'm convinced," says John Wharton, a tech consultant and
Kildall pal. He believes the industry would have been more collegial and
innovative if Kildall rather than Gates sat at the crossroads of computing. But
others say Kildall didn't have what it took to lead an industry. "Bill
succeeded because he was a tenacious businessman," says lawyer Davis.
"Gary was not tenacious."

As for Kildall's family, they're grateful his story is finally being
told. "The truth is different for everybody," says daughter Kristin.
"I think everybody believes they're presenting the truth. Obviously, they're
different. I don't know why. I'm just glad my truth is out there."
History may typically be written by the victors. But in this case, Gary Kildall
has secured-and deserves-more than just a footnote.

By Steve Hamm in New York and Jay Greene in Seattle in BusinessWeek.
Copyright 2004 by The McGraw-Hill Companies, Inc

How Kildall Lost Out

In a few fateful days in the early 1980s, PC software pioneer Gary Kildall
missed the opportunity to supply the operating system for IBM's first PC-opening
the door to rival Bill Gates of Microsoft. Here's how it happened

August 21, 1980

IBMers visit Bill Gates at Microsoft and lay out their plans for a PC.
They discover that he can't supply an operating system. He refers them to Gary
Kildall and Digital Research Inc., which has an operating system called CP/M.

August 22, 1980

IBMers meet at Digital Research in Pacific Grove, Calif., with Dorothy McEwen,
Kildall's wife and DRI's business manager. IBMers say that they were unable
to come to a nondisclosure agreement with McEwen, and they didn't meet Kildall.
But Kildall, in his memoirs, says he met the IBMers and reached an oral
agreement to license CP/M to them.

August 28, 1980

Gates signs a consulting contract with IBM, agreeing to develop software for
the PC. Later he pays $50,000 for an operating system, QDOS, that was similar to
CP/M. Microsoft improves QDOS, renames it DOS, and licenses it to IBM.

July 21, 1981

Kildall confronts IBMers with his claim that DOS infringes on his copyright for
CP/M. He agrees not to sue in exchange for IBM's promise to sell CP/M in
addition to the PC.

August 12, 1981

IBM announces its PC, offering CP/M for $240 and DOS for just $40. DOS far
outsells CP/M and becomes the de facto standard operating software for the PC.