Microsoft Founded

The January 1975 issue of Popular Electronics put the MITS Altair 8800 on its cover: a microcomputer you could own, US$397 as a kit, US$498 assembled. Paul Allen bought the issue at a Harvard Square newsstand and carried it to Bill Gates, then a Harvard sophomore. Gates has recounted Allen's reaction as: "Here we are freezing to death, and the revolution has happened without us."

The Rehearsal: Traf-O-Data

The two had already run a company. Traf-O-Data, a partnership of Gates, Allen and Paul Gilbert formed while Gates and Allen were at Lakeside School in Seattle, read the paper tapes that roadway traffic counters punched with axle counts and timestamps, and turned them into reports for traffic engineers. Gilbert built a microcomputer around the Intel 8008; Gates and Allen wrote the software. It made a little money and then died when the State of Washington began offering cities the same processing for free.

One detail from it matters more than the business did. To write and test the software before the hardware existed, Allen wrote a program on a PDP-10 at Washington State University that emulated the 8008. Three years later the same manoeuvre, at larger scale, produced Microsoft's first product.

Eight Weeks in the Aiken Lab

Gates and Allen telephoned MITS to offer a BASIC for the Altair. MITS asked to see a working version. Neither of them owned an Altair, or had ever touched one.

What they had was access. Gates had talked his way onto Harvard's PDP-10 — "Harv-10," in the Aiken Computation Laboratory — as an undergraduate, a machine reserved largely for graduate students. "There was a big computer here that nobody was supervising, and I went to the professor as an undergraduate, which was weird, and got permission to use this graduate computer," he told a Harvard audience in February 2025. Working from the Intel 8080 specification, they built an 8080 emulator on the PDP-10 and wrote the interpreter against it. Monte Davidoff, Gates's Currier House roommate, joined after a conversation about the project over dinner in the Currier dining hall.

The bill came due. By Davidoff's account, Harvard's accounting software flagged a single sophomore consuming an enormous share of the machine, and the matter went to the Harvard College Administrative Board. "They were kind of aghast," Gates said of the administrators. "They called me up, and they're like, 'Who are you and what are you doing on this computer?'" The Board let Gates stay but barred him from giving Allen and other non-students access — Allen was not a Harvard student, and the PDP-10 was partly federally funded. Gates also agreed to place an earlier version of the interpreter into the public domain, and not the one the three of them had just written.

By Microsoft's own reckoning, Gates and Allen completed Altair BASIC and sold it to their first customer in February 1975; Allen joined MITS as director of software in March. Allen flew to Albuquerque with the paper tape without ever having run the code on real hardware. It ran. On 7 April the first issue of MITS's Computer Notes carried the headline "Altair BASIC – Up and Running." In July it shipped as version 2.0, in 4K and 8K editions.

What "Founded in 1975" Actually Means

Microsoft dates its founding to 1975, and 4 April is the conventional date, but the company took shape in stages and the paperwork lagged the work by years.

The 1975 year-end sales figure, as reported on a Form 1065 US Partnership Return of Income, was $16,005.

The Open Letter to Hobbyists

Copies of the BASIC tape circulated freely among hobbyists, and almost nobody was paying. Gates wrote a one-page letter dated 3 February 1976. Microsoft records it as first published in MITS's Computer Notes; the Homebrew Computer Club newsletter reprinted it on page 2 of the issue whose masthead reads Volume 2, Issue 1, 31 January 1976 — the editor noting that it "arrived from Bill Gates via MITS" as the newsletter was in final preparation, "the only MITS 'software' we have ever reproduced."

The argument runs on arithmetic before it runs on morals:

The feedback we have gotten from the hundreds of people who say they are using BASIC has all been positive. Two surprising things are apparent, however. 1) Most of these "users" never bought BASIC (less than 10% of all Altair owners have bought BASIC), and 2) The amount of royalties we have received from sales to hobbyists makes the time spent on Altair BASIC worth less than $2 an hour.

Why is this? As the majority of hobbyists must be aware, most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?

Then the claim the letter is remembered for — that piracy does not injure a distributor, it removes the reason to write anything good:

One thing you do do is prevent good software from being written. Who can afford to do professional work for nothing? What hobbyist can put 3-man years into programming, finding all bugs, documenting his product and distribute for free? ... Most directly, the thing you do is theft.

It ends, not entirely bitterly: "Nothing would please me more than being able to hire ten programmers and deluge the hobby market with good software." The signature reads Bill Gates, General Partner, Micro-Soft.

Getting BASIC Back

The letter is the famous document; the consequential move came the following year. On 18 November 1977 Microsoft terminated MITS's exclusive licence to BASIC and announced versions for the 8080 and the Z-80. Two months earlier it had taken delivery of new machines from Commodore, Radio Shack and Texas Instruments. Freed from a single hardware partner, Microsoft could sell the same interpreter to every manufacturer that shipped an 8-bit micro — the licensing shape it would use again, and to far greater effect, when IBM introduced its Personal Computer with MS-DOS 1.0 on 12 August 1981.

The revenue line follows the shape of that decision: $16,005 in 1975, $22,496 in 1976, $381,715 in 1977, and $17,331,000 in 1981.

The 1976 Argument, Still Unsettled

In the fiscal year ended 30 June 2026, Microsoft reported revenue of US$331.8 billion and net income of US$133.7 billion, with 223,000 employees worldwide. What happened in between is covered elsewhere on this site — the Windows 95 launch, and Windows 11 a quarter-century after it.

And the 1976 argument — whether software must be paid for, who its author is, what copyright in code covers — still sets the terms of the fight: through the Apple App Store and Epic Games litigation, the EU Digital Markets Act, and the present arguments over training generative models on copyrighted work. Whether one agrees with Gates or argues against him, the frame is his.