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3 Things You Didn't Know About the PC Industry

By Tim Brugger, Keith Noonan, and Brian Feroldi - Apr 15, 2016 at 1:00PM

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Critical decisions at key moments, hard-driving executives, and compromise played key roles in the evolution of the world’s most impactful tech innovators.

The difference between success and failure often comes down to one watershed moment. Big hitters including Apple (AAPL 2.54%), Oracle (ORCL 3.11%), and Microsoft (MSFT 2.03%) each made critical decisions at opportune times that would not only define their respective companies, but literally change the world.

Image courtesy of: Microsoft.

Tim Brugger: (Microsoft) The year was 1980 and IBM (IBM 2.47%) had just developed a cutting-edge product called a PC. Of course, building the hardware was only half the battle: IBM needed a compatible operating system to run its next big thing. IBM's plan was to license Digital Research's CP/M OS, but the two sides weren't able to come to terms.

Microsoft co-founder Paul Allen knew of an OS that could meet IBM's needs called QDOS, developed by some tech gurus at a little firm called Seattle Computer Products (SCP). After a call to SCP's owner Rod Brock, Microsoft inked a deal for QDOS and subsequently presented it to IBM as the answer to its OS needs. In Nov. of 1980, IBM paid Microsoft a reported $860,000 for the OS that would become MS-DOS, various programming languages, and on-going development and consulting services.

Turns out, IBM was actually expecting Microsoft to ask more for its operating system but Gates, Allen, and team had other ideas. Rather than ask for more money up front, or the usual royalty fee, Microsoft's deal with IBM came with one caveat: unrestricted rights to sell MS-DOS to other companies. That deviation from the "traditional" arrangement would prove to be the catalyst for Microsoft utterly dominating the PC operating system and software market.

Today, Microsoft is a $431 billion in market capitalization tech behemoth that still runs the vast majority of the world's PCs. Gates and Allen have become two of the world's wealthiest people, and Microsoft is a household name: all thanks to the deal with IBM to keep MS-DOS under Microsoft's roof.

Image courtesy of: Apple.

Keith Noonan: (Apple) If Steve Jobs and Apple had stuck with the original vision for the iPhone's software ecosystem, the company's popular "There's an app for that" tag line might instead have read "There's a web-based Safari app for that." That's an exaggeration on my part, but the clunky nature of that second, hypothetical tag highlights a reversal that had a huge impact on Apple and the broader mobile space.

According to Walter Isaacson's authorized Steve Jobs biography, the visionary Apple executive initially opposed plans to bring native apps to its iOS operating system, instead favoring Safari-based applications as a way to limit security concerns and retain greater control of the software suite on its operating system.

Lobbying within the company and developer initiatives, as well as the popularity of jailbreaking to get around the iPhone's restrictions, pushed Jobs and Apple to release an iOS SDK roughly seven months after the first iPhone's debut. The move to allow native apps to be downloaded through the App Store enabled the company to build one of the world's most valuable online software marketplaces and helped bolster the value of Apple's mobile hardware.

The App Store hosts more than 1.5 million distinct applications, and more than 100 billion downloads have been conducted through the platform. The mobile software store has also paid out more than $40 billion to developers and generates roughly 80% more revenue than Alphabet's Google Play, despite Android devices having somewhere in the neighborhood of a 5-fold global market share advantage.

Though the vast majority of Apple's revenues and profits stem from hardware sales, projected explosions in app downloads and in-app purchases in coming years will translate to Apple soaking up a significant portion of mobile software growth.

Image courtesy of: Oracle.

Brian Feroldi: (Oracle) Anyone who watches the technology industry closely is probably aware of Oracle's eccentric co-founder and current Executive Chairman Larry Ellison. Ellison was, and still is, extremely adept at spotting business opportunities, but did you know that he also had a gift for marketing his products? As an example, a year after the company's founding it created its first assembly language that it called Oracle Version 1, but the company never intended on releasing the product for sale.

Instead, their first commercial SQL database product was called "Oracle Version 2," which was named that in part to give potential customers the impression that the bugs had already been worked out of the system.

The marketing ploy clearly worked as Oracle grew from its humble beginnings to become one of the largest software companies in the world with annual revenues in excess of $38 billion. Oracle's huge growth has turned Ellison into one of the richest people in the world: he is ranked on Forbes list as 7th worldwide. His current net worth is roughly $43 billion.

While Ellison regularly makes headlines for extreme purchases and a lavish lifestyle, he's been extremely generous with his wealth. He has already donated hundreds of millions of dollars to charitable organizations, and has also signed the "giving pledge," publicly vowing to donate at least 95% of his net worth to charity.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$149.24 (2.54%) $3.70
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$138.37 (2.47%) $3.34
Oracle Corporation Stock Quote
Oracle Corporation
$71.88 (3.11%) $2.17
Microsoft Corporation Stock Quote
Microsoft Corporation
$266.82 (2.03%) $5.32
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,329.46 (1.77%) $40.56
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,334.03 (1.66%) $38.18

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