Microsoft Seizes Control of the Computer Industry

On this day in economic and business history...

Microsoft (NASDAQ: MSFT  ) took its biggest step toward consolidating the fast-growing PC industry under its operating system on May 22, 1990, when it released Windows 3.0 to the public. It had been five years since Microsoft's first Windows release, which introduced a graphical user interface to compete with Apple's (NASDAQ: AAPL  ) Macintosh systems. However, earlier versions of Windows were barely used -- Microsoft itself didn't introduce Excel on the platform until 1987, and Word wasn't available on Windows until version 3.0 was nearly finished. That finally began to change with the launch of 3.0, especially once Windows 3.1 hit the market two years later.

Key to 3.0's success was Microsoft's ability to convince many early PC-makers to pre-install the operating system on machines before they reached consumers. Although IBM (NYSE: IBM  ) and Compaq (now part of Hewlett-Packard) refused to commit to pre-installs -- IBM was still trying to push its 3-year-old OS/2 (an early Windows competitor), and Compaq's general policy opposed all pre-installs at the time -- Microsoft still managed to assemble a lineup of 30 computer makers, virtually none of which still make computers today, to include Windows 3.0 on machines out of the box. The $150 operating system sold 100,000 copies in its first two weeks on the market, and 4 million PCs were running Windows 3.0 by the end of its first year on the market.

Windows 3.0 didn't kill off the Mac -- Apple's market share actually grew slightly during the early '90s as second-tier systems like the Amiga and the Atari died off -- but it nevertheless closed the door on any real competition for the IBM-compatible PC in homes and offices. Windows 3.1 would sell at a brisker pace, with 3 million copies moved in its first three months, and Windows 95 provided all the fuel necessary to send Microsoft into the stratosphere: 40 million copies sold in its first year alone.

The difference between Microsoft's stock and Apple's over the remainder of the turbocharged 1990s is telling: From the launch of Windows 3.0 to the end of the decade, Microsoft shareholders enjoyed a return of about 5,800%, while Apple shareholders saw only 160% price growth. This underwhelming performance failed to beat the Dow Jones Industrial Average (DJINDICES: ^DJI  ) , which gained 300% over the same time period, and which would induct Microsoft to its ranks right at the close of the decade -- one of its worst decisions, for the software maker would depress the index for more than a decade afterward. Windows 3.0's success also nearly undid IBM by rendering OS/2 irrelevant, resulting in the largest loss in corporate American history by 1992.

Who owns flight?
Behind many great inventions is often a fierce patent war. Few were so consequential to American enterprise as that waged by the Wright brothers, who had filed a patent on their flying machine months before making the first successful flight in Kitty Hawk. When it was granted on May 22, 1906, it became a cudgel the brothers would use against all competitors. Wilbur Wright opined several years later: "It is our view that morally the world owes its almost universal use of our system of lateral control entirely to us. It is also our opinion that legally it owes it to us." It's no wonder that they so fiercely defended the patent, if they believed in the originality of their creation with such religious fervor.

The Wright aircraft patent war dragged on for years, restricting development of new aviation innovations before World War I. The Wrights were relentless in their pursuit of Glenn Curtiss, another early aviation pioneer. The Curtiss company would avoid legal and financial repercussions for years through legal delays, stalling tactics, or outright refusal to pay licensing fees, but few other early aviation tinkerers could amass the resources to fend off a Wright legal assault. By the eve of America's entry into World War I, the Wrights and Curtiss had a tight patent chokehold on the domestic aviation industry, which would have prevented the construction of a useful American air force if not for government intervention.

In 1917, the two major aircraft manufacturers were forced into a patent pool that would offer modest licensing terms for prospective upstarts. By this point, the Wrights were out of the industry. Wilbur had died years earlier, and Orville had sold his stake to outside investors, leaving Curtiss with an easier path to the dominance previously denied him. The Wrights' reputation was badly damaged, and competition came to the industry despite their efforts. Years later, on the eve of the Great Depression, Curtiss gained a final measure of victory when his company and the Wrights' namesake business merged to become Curtiss-Wright (NYSE: CW  ) , which was at the time the largest aviation company in the United States. This company was also briefly a part of the Dow (from 1928 to 1930), making it the first aviation component in the index's history.

More on Microsoft
It's been a frustrating path for Microsoft investors, who have watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, the company is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so be sure to claim a copy of this report now by clicking here.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 22, 2013, at 12:43 PM, jdmeck wrote:

    I miss the Amiga!

  • Report this Comment On May 22, 2013, at 4:31 PM, althotos wrote:

    Microsoft, missed the proverbial boat on the mobile revolution. It is still floundering with it's ill-fated launch of Window's 8 and the Surface tablets. Microsoft still hasn't grasped the concept of mobile, handheld computing - people don't do spreadsheets or create documentation on handheld devices. Apple understood that and later, so did Google/Android. Microsoft still has that PC-centric view of the world, even as a tectonic shift enormous magnitude is occurring under their feet as consumers flee to inexpensive, mobile devices.

  • Report this Comment On May 22, 2013, at 7:25 PM, Hoptopia wrote:

    Dredging up all those wretched years of Windows, a product that should have died at the hands of OS2. It has only become somewhat useable as a server platform in the last 5 years. It is too bloated to be an efficient mobile platform. I've wished for 20 years that they'd stick a fork in Windows and focus on cross platform apps yet they keep putting lipstick on that pig!

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