Painful stat of the day, IBM's market share of personal computers:
1981- 1.9 %
1984- 63 %
1990 - 15.2 %
2000- 5.4 %
As a kid we are really more inclined to buy and sell stuff then license stuff. The idea of licensing is not natural; it seems too complex, too intangible. Some kids pick it up quicker than others however. They are the ones who usually go on to make gobs of money while making it look easy. I watched an interview with Diddy, P Diddy, Puff Daddy, Daddy Puff…last week. I never knew he started off his career in licensing, he probably did not know it either. He recalled the look of disappointment on his Mother’s face when he would ask her for new shoes as a 12 year old boy. It hurt, the look really drove him to find a way to make money. The best gig going for a pre-teen was a paperboy but he was still too young, he needed an angle.
The ah ah moment! Cut a deal with an older paperboy to stay home then work the route; pay the older boy who already had the contract 50% of the revenues and the publisher would never know. He expanded to other paperboys and cut 30%, 20% even 10% royalties with college kids to stay on as the carrier of record and get paid for the license. As the pie grew, his share of the pie also grew. No wonder he is doing well in music and clothing, two giant licensing industries.
Somewhere along our journey, some of us pick up the fact quicker than others, more money can be made with less effort using our minds not our hands. Unless of course you have very talented hands, which I do not. Control the contract, control the cash, control the outcome.
"The day Gary Kildall went flying"
The tale of young Bill Gates cleaning up on old blue goes down in licensing lore as the Mother of all licensing deals. The legend goes like this: One fateful day in the summer of 1980, three buttoned-down IBMers called on a band of hippie programmers at Digital Research Inc. located in Pacific Grove, Calif. They hoped to discuss licensing DRI's industry-leading operating system, CP/M. Instead, DRI founder Gary Kildall blew off IBM to spend the day in his airplane, and the frustrated IBMers turned to Gates for their operating system. While he's revered for his technical innovations, many believe Kildall made one of the biggest mistakes in the history of commerce. (Strike one) *Licensing note, you cannot be great at everything.
Quick timeline recap:
1980 July 22nd team from IBM meet Bill Gates and Steve Ballmer to discuss Microsoft products. Microsoft is 5 years old by now.
Aug 28th Microsoft and IBM sign a formal contract for Microsoft to develop certain software products for IBM's new microcomputer. Microsoft will receive US$200,000 to adapt the operating system to the IBM PC, and US$500,000 for DOS, BASIC, and compilers. Microsoft is to have an initial version of the operating system and BASIC working by mid-January. Bill Gates also bets that IBM clones will flood the market soon and they will all need to use his software. He negotiates to also keep the copyright to the software.
Microsoft bought the rights to QDOS for $50,000, keeping the IBM deal a secret from Seattle Computer Products and inventor Tim Paterson.
Microsoft missed the January 1981 deadline, trickier then they thought. They must modify QDOS enough to avoid a lawsuit from Gary Kidall at Digital research and make it work on the IBM hardware.
1981 Aug 12th IBM announces PC for $1,565 with QDOS, modified and renamed MS-DOS.
Gary Kidall tells IBM that its MS-DOS infringes on its copyright, He says he will not sue if IBM sells CP/M on the IBM PC in addition to MS-DOS. (Strike two) IBM agrees then goes on to charge 5 times the amount to consumers to buy Gary Kidall’s software then MS-DOS.*Licensing note, watch backend points, don’t get enamored with the big numbers and take your eye of the finer points.
Don’t cry for Gary or IBM both came out ok. Gary sold his company to Novell for 120 million in 1991 and IBM’s PC numbers went intergalactic for the first 3 years under the agreement, only to squander the lead later.
In 1981, Tim Paterson (Inventor of QDOS sold to Microsoft for 50k) quit Seattle Computer Products and found employment at Microsoft.
Which is worse?
Selling your software for $50,000, join their company and watch your new boss go on to become the world’s richest man.
Or
Take out the plane and relax for the day and get beat out of the contract of the millennium.
Or
Go from 63% market share in PC’s to 5.4% and become the poster child for letting the big one get away.
It is easy to look back and believe you are a genius and would have done things very differently if you just had their luck to be in the right place at the right time. The fact is, history is written forward, not backward. When you are in the battle the answers are only clear after the fact and the “Geniuses” get to look back and spin their prophetic take on others mistakes.
Live and learn.
My StumbleUpon Page
