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35 Years Ago Today – March 13, 1986 – Microsoft Went Public… Setting Off One Of The Greatest Generators Of Private Wealth In History

March 13 should be a holiday for those who want to read about persons with extraordinary fortune. What occurred on this day 35 years ago? Microsoft, a small software business in Seattle, went public.

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March 13 should be a holiday for those who want to read about persons with extraordinary fortune. If it was a holiday, today we would be celebrating the 35th anniversary of the launch of one of the greatest wealth-creating machines in human history. What occurred on this day 35 years ago? On that day, Microsoft, a small software startup in Seattle, went public.

The events of March 13, 1986 would eventually mint thousands of millionaires, a handful of billionaires and three of the largest personal fortunes in human history. Bill Gates, the co-founder of the business, would become the richest man in the world within ten years after its IPO, a position he would hold for the majority of twenty years.

How much wealth did Microsoft generate for its founders and where is that wealth today? How rich would you be today if you had been lucky enough to buy $10,000 worth of MSFT on March 13, 1986 and held for the next 35 years, collecting dividends and new shares from stock splits? Let’s investigate!

Early History of Microsoft

Microsoft was founded by childhood friends Bill Gates (aged 20) and Paul Allen (aged 22) in Albuquerque, New Mexico, on April 4, 1975. Yes, Albuquerque, you are correct. Unlike Seattle. The company was established in Albuquerque because Micro Instrumentation and Telemetry Systems had its headquarters there at the time it was founded (MITS).

While attending Seattle’s Lakeside School, Allen and Gates became friends. They became friends because they both loved programming and technology. Gates was two years Gates’ senior. After getting a perfect score on the SAT, Allen enrolled at Washington State University. After two years, he left school and started working for Honeywell in Boston, whose offices were close to Bill’s new school, Harvard.

[Fun fact – earlier this week, MacKenzie Scott (ex-wife of current richest person in the world, Jeff Bezos), announced she married a science teacher named Dan Jewett. Dan teaches science at… Lakeside School!]

Popular Electronics Magazine published an article on MITS’ most recent creation, the Altair 8800 microcomputer, in January 1972. Paul allegedly glimpsed the magazine’s cover while strolling around Harvard Square. He acquired the publication, located Bill, and urgently persuaded him to leave Boston (Bill was in the middle of his junior year), travel to Albuquerque, and work on creating an operating system for the Altair there.

Bill Gates and Paul Allen established “Micro-Soft” in Albuquerque on April 4, 1975.

1976 saw “Micro-Soft” make $16,005 selling software to some of the earliest personal computers ever made.

After removing the hyphen, Microsoft moved to Seattle in January 1979. In addition to being closer to their childhood homes, Gates and Allen found it difficult to recruit top quality programmers to move to New Mexico.

Steve Ballmer, one of Bill’s friends from Harvard, became Microsoft employee #30 on June 11, 1980. To oversee business development, he was hired.

One Brilliant Decision Launches A Fountain Of Wealth

According on the person you ask, there were a few different reasons why Gary’s IBM meeting went awry. These facts are known: Gary’s wife Dorothy welcomed the IBM executives to the meeting as they arrived. Gary was flying his plane when the meeting was scheduled, for reasons that have been disputed for decades. The formal IBM executives became enraged. They took a plane back to Seattle and pleaded with Bill to think again about developing their operating system.

There was only one issue. Microsoft was far from creating an operating system that could be adopted by IBM. Soooo Bill called up a Seattle-based developer named Tim Paterson who had developed a clone of Gary’s software which he called “86-DOS”. Bill reached an agreement to purchase 86-DOS for $100,000.

The IBM team was very pleased with MS-DOS and wanted to formally associate with it so that it would become the default operating system for all of their devices.

In what is arguably the most brilliant move in business history, instead of selling the rights to MS-DOS directly to IBM, Gates opted to license the software. As a result, Microsoft continued to own MS-DOS and was able to license it to new users.

Take a step back and consider the impact of that choice.

Consider being employed by Henry Ford to create an engine for his car. And imagine if instead of selling your creation to him outright, you licensed it so you earned a fee every time a Ford car was sold. Once new automakers like Dodge, Buick, Chevrolet, Ferrari, etc. started to appear, you also licensed your engine to them. As a result, for more than a century, you received a royalty each time an automobile was sold.

The same thing occurred with Microsoft. MS-DOS evolved into the de facto standard for pretty much every computer created as the PC revolution erupted around the globe. And every time a PC was purchased, a Microsoft MS-DOS license was also required.

When Microsoft officially incorporated in 1981, Steve Ballmer owned 8% of the company, Paul Allen owned 25% and Bill Gates owned 45%. The remaining 22% was distributed among some of the luckiest individuals to have ever joined a risky, nascent firm.

FINDLAY KEMBER/AFP/Getty Images

Getty Images/FINDLAY KEMBER

“The Graphical User Interface”

A ground-breaking operating system that linked the PC mouse to the computer screen was created by Xerox in 1983. For the first time ever, a human could move his or her hand, and the mouse would follow. Then click. Drag and drop The “graphical point and click interface” was its initial name. Nowadays, the “graphical user interface” is more often used (GUI, pronounced “Gooey”). To this day, every computer still uses this tiny invention as the norm.

For some crazy reason, Xerox invited officials from both Microsoft and Apple to see what they had produced. Literally, they extended an invitation to Steve Jobs and Bill Gates to attend a demonstration. It would be analogous to developing a brand-new alcoholic beverage without hangovers and then asking executives from all the major alcoholic beverage producers to sample it and inspect the contents.

Both Apple and Microsoft started developing their own operating systems with graphical, point-and-click mouse user interfaces in a couple of months.

Steve Jobs was incensed to find that Microsoft was developing an operating system based on Xerox’s inventions. Bill Gates was ordered to appear at Apple’s headquarters and give an explanation for his behavior. Here is what happened during the illustrious encounter in an Apple conference room:

Jobs shouted:

“You are defrauding us! I trusted you, and now you’re stealing from us!”

“Well, Steve, I believe there are several perspectives on the matter. I think it’s more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it.”

Michel GANGN/AFP/Getty Images

Images by Michel GANGN/AFP/Getty

March 13, 1986 – IPO DAY

It wasn’t just Microsoft that went public in the middle of the 1980s. In March 1986, it wasn’t the only software company to go public! Oracle Corp. went public exactly one day before Microsoft’s IPO. At a price of $15 per share, Oracle intended to sell 2.1 million shares. Oracle shares were trading at $19.25 at the close of the first trading day. The bankers overseeing Microsoft’s debut viewed this as a highly encouraging indicator, and as a result, MSFT’s starting price was increased from $16 to $21.

At the close of trading, 3.6 million MSFT shares had been traded, and the share price, which had reached a high of $29.25, was $27.75.

Ballmer has a $8.3 million interest in the company.

That’s right, Bill Gates was worth “just” $350 million after the Microsoft IPO. Even more bizarre is the fact that he only personally sold $1.6 million worth of shares on the first day of trading. Even after the business went public, he wasn’t there. On IPO day, Bill was on holiday in Australia. He would eventually use $150,000 of his IPO earnings to pay off the mortgage on his Seattle house.

A local newspaper quoted Paul Allen as saying he was “extremely thrilled” and might “go out for some champagne later to celebrate”—at least he was in Seattle on the day of the IPO. What a couple of maniacs!

Fortunes Made

What happened to Microsoft in the 30 years since it became a publicly traded firm is detailed here.

After going public, Microsoft (both the business and the stock price) expanded at an incredible rate. Annual revenue surpassed $1 billion by 1990. The business was making $10 billion in revenue by 1997. In 2020, Microsoft generated $143 billion in revenue, $53 billion in operating income, while returning $35 billion to shareholders in dividends.

A year or so after the IPO in 1987, Bill Gates achieved the status of being a billionaire for the first time. By the mid 1990s, as his net worth topped $10 billion, Bill was anointed the richest person in the world, a title he held without contention for the next twenty years. In 1997, his net worth for the first time exceeded $40 billion. At the height of the dotcom boom in 1999, his net worth first surpassed $100 billion.

With a net worth of $137 billion as of this writing, Bill Gates is the third richest person in the world. It’s interesting to note that he no longer owns a significant portion of Microsoft. Bill currently holds less than 1.3 percent of the business he established. He has donated tens of billions of dollars to charity and intends to give the majority of his fortune away before he dies.

Although he really departed Microsoft in the middle of the 1980s, Paul Allen remained on the board of directors until 2000. Paul invested his riches in a sizable real estate portfolio as well as businesses like Dreamworks. The Seattle Seahawks, Seattle Sounders FC, and Portland Trailblazers were three of the sports franchises he controlled. When he passed away in October 2018, he had a net worth of $20 billion. At some point, his riches will be given to a good cause. His sister Jody Allen is currently in charge of running the estate.

$10,000 Invested In 1986

On the day of the IPO, 476 shares of Microsoft would have been yours if you had spent $10,000. After various stock splits and dividend reinvestments, today you would own 137,088 shares.

Your stock would be valued at $32,215,680 at the closing price of today.

When Microsoft pays its quarterly dividend of $0.56 per share, you would receive $76,769. That comes to $307,076 a year.