A small software company acquired the license to the QDOS operating system on July 27, 1981 and laid the foundation for an empire that would dominate the computer software world.
Bill Gates and Paul Allen spent $75,000 for QDOS and began selling sub-licenses for $47,500 in 1981 and $95,000 after that.
IBM was the first customer and received a slightly modified version of MS DOS 1.0 that was offered as PC DOS and sold by IBM for $40. However, Microsoft had sold IBM DOS and BASIC for $400,000 before they actually had access to the DOS operating system. Gates and Allen originally had planned to sell IBM their own Xenix OS, which was derived from UNIX and designed for Intel's 8086 processor, while IBM decided to go with Intel's 8088 CPU instead. Microsoft's solution eventually surfaced as QDOS.
While Microsoft turned DOS into a massive success, Tim Paterson is considered to be the inventor of DOS and wrote the first versions of MS DOS, up to version 1.25. Paterson got out of school in 1978, joined Seattle Computer products and had DOS running on prototypes by January 1979.
Gates initially estimated that IBM could sell about 200,000 DOS PCs, but more than 1 million were eventually sold by the end of 1984. Those first commercial PCs integrated Intel's 8088 processor and ran at 4.77 MHz. The first DOS PC, however, was offered by Seattle Computer products as a set of plug-in cards, including a 8086 CPU card.
Seattle Computer Products wanted $150,000 for the QDOS license, but was convinced by Gates to give it away for $50,000 as well as a $25,000 license fee from a customer that Microsoft kept secret. Sub-licenses for MS-DOS created the first windfall for the young company. In 1981, Microsoft had more than 15 million in revenue.