The most popular software product for the MITS Altair 8800 computer was Altair Basic, the first Microsoft product. But there was a problem. Only about 10 percent of Altair owners paid for Altair Basic. On February 3, 1976, Bill Gates decided to do something about it. He wrote a letter titled An Open Letter to Hobbyists in which, among other things, he said he made around $2 an hour writing Altair Basic.
What Bill Gates’ product did
Altair Basic was a useful product, to be sure. It was a programming language that was easy for a hobbyist to learn, even if they didn’t have any formal training in computer science. It meant any hobbyist had a chance to write useful software for their new computer. But if they wanted to share their software with anyone, they needed a copy of the language in order to run it, because it didn’t create standalone programs. To think in modern terms, it was like Python, where you generally need a copy of Python in order to run a program written in that language. It wasn’t like C++, which produced standalone programs.
The problem with MITS’ business model
MITS sold the computers and Altair Basic at a break-even price. The profit was in memory boards. If you bought memory boards from Altair at $264 each, they’d sell you Altair Basic for $75. If you didn’t buy Altair’s memory boards, Basic cost $500. The problem was, Altair’s 4K memory boards weren’t completely reliable. Its design required the board to steal a cycle from the 8080 CPU to use as a pulse to refresh the memory. And if the CPU was busy and it missed a cycle, the contents of memory are lost. If you don’t have reliable RAM, you don’t have a reliable computer.
Because of these problems, third parties started making and selling memory boards for the Altair. This meant some MITS customers were only buying the computer from Altair, then buying a third party memory board that worked. They didn’t want to pay $500 to get what they saw as a necessary piece of software to use the computer.
Some didn’t even want to pay $75. A pre-release paper tape of Altair Basic disappeared in June 1975, about a month before MITS and Microsoft had even finalized their contract. A box containing 50 copies of the paper tape appeared at a subsequent Homebrew Computer Club meeting in Menlo Park, California. This was the club Steve Jobs and Steve Wozniak famously attended where they gained the inspiration to build their Apple I computer.
Bill Gates’ Open Letter to Hobbyists
MITS co-founder Ed Roberts saw the users who pirated Altair Basic as thieves, but also saw third party hardware companies as parasites. One of those companies changed its name to Parasitic Engineering in response to Ed Roberts’ comments.
It was against this backdrop of rampant piracy and name calling that Bill Gates wrote a letter titled “An Open Letter to Hobbyists,” dated February 3, 1976. David Bunnell published the letter in Computer Notes, MITS’ newsletter for its customers. Bunnell also sent copies of the letter to other publications. Five additional publications printed the letter.
Gates took an everyman approach, arguing in the letter that pirates weren’t stealing from a large corporation, they were stealing from a fellow hobbyist, one who had invested tens of thousands of dollars into creating the product, and ended up making less than $2 an hour on its sales.
He ended with the plea that hobbyists who had copied the software come clean and pay for it, and said he would love to hire 10 programmers to create more software.
Microsoft switched to fixed-price contracts rather than piecemeal royalties for its future deals with MITS and other computer makers. The cost ranged from $21,000 to $50,000, with most running around $35,000.
Reaction to Gates’ letter and assertions
The letter resulted in a few tense responses. Hal Singer, editor of the Micro-8 newsletter, said Roberts initially promised the Altair 8800 would cost $395 but a working system cost $1,000, accusing him of false advertising and suggesting a class action lawsuit or Federal Trade Commission investigation might be in order.
Singer also repeated rumors that Altair Basic was developed on a Harvard University computer funded by the US government, and therefore, customers should not pay for software already paid for by the taxpayer.
Gates, Paul Allen, and Monte Davidoff had indeed used a PDP-10 at Harvard’s Aiken Computer Center. The PDP-10 was funded by the Department of Defense through its Defense Advanced Research Projects Agency. Harvard officials weren’t pleased that Gates and a non-student, Paul Allen, used the PDP-10 to develop a commercial product. But since the computer belonged to the military, Harvard’s wishes didn’t apply. Professor Thomas Cheatham controlled the PDP-10, and he believed that students could use the machine for personal use. Harvard did eventually succeed in placing restrictions on the computer’s use. Gates and Allen had to use a commercial time share computer in Boston to finalize the software.
What happened to MITS and Microsoft
Microsoft, of course, went on to become successful, first by selling Basic interpreters to computer manufacturers, then branching into other languages and, eventually, operating systems, application software, and even hardware. Not in that order. Bill Gates went on to become a millionaire, a billionaire, and the world’s richest man, in that order.
On December 3, 1976, Ed Roberts sold MITS to Pertec Computer Corporation for $6 million in stock. Roberts received $2 million. The remaining MITS shareholders split the remaining $4 million. Roberts moved to Georgia where he bought a farm and enrolled in medical school, graduating in 1986. He practiced medicine in the small town of Cochran, Georgia, for 24 years until his death in 2010.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.
Parasitic Engineering was Howard Fullmer’s company. After it went defunct, Fullmer joined George Morrow’s company, Morrow Designs. Fullmer and Morrow also jointly led the effort to codify the S-100 bus standard with the IEEE.
What’s funny about the backlash to Gates’ letter is that it reflected a belief among a good number of the late 1970s hardware-focused hobbyists that software was not a viable commercial product. George Morrow himself made a few comments on this issue, painting software developers as a bunch of prima donnas who regularly over-promised and under-delivered. As far as George was concerned, software was something that should be sold bundled with a computer, not a standalone purchase.
Poor Bill, working so hard, inventing Basic, C, C plus, Delphi, Ms-dos, even inventing Windows and the mouse, with all those people around him trying to take away his inventions. No wonder the industry was set back for decades.
I find “Bill Gates The Godfather of Tech Industry”, an interesting YouTube documentary, that is over 10 hours long, about especially Gary Kildall stealing Bill his inventions, perfectly describing how tragic Gates his life became.