By the end of 1975, Micro-Soft had a hit. Altair BASIC was the software that made a hobbyist's blinking box of switches feel like a real computer — you could type a program, run it, and watch it work. There was just one problem, and to Bill Gates it was an infuriating one: almost nobody was paying for it.
MITS, the Albuquerque company selling the Altair 8800, was shipping roughly a thousand machines a month. And yet paid copies of BASIC were selling in the low hundreds. The software was everywhere and the money was nowhere. Somewhere between the factory and the living room, thousands of copies were slipping through the cracks — passed hand to hand on rolls of punched paper tape, entirely for free.
The tape that got away
The leak had a specific origin story. In June 1975, MITS sent its promotional camper van — the "MITS-Mobile" — on a national tour to show off the Altair. At a stop in Palo Alto, members of the Homebrew Computer Club packed a hotel conference room to see the machine. During the demo, a pre-release paper tape of Altair BASIC went missing.
It ended up in the hands of a club regular, Dan Sokol, who happened to have access to a high-speed tape punch. At the next Homebrew meeting, a cardboard box appeared holding fifty freshly duplicated copies of Altair BASIC — free for the taking, on the understanding that whoever took one would make more and pass them on. For a community that believed information wanted to be free, this was simply how things were done. Hardware you paid for; software you shared.
To Gates, still a nineteen-year-old on leave from Harvard, this was theft, plain and simple. And the economics genuinely stung: the interpreter had been written on expensive time-shared mainframes, and every unpaid copy meant the team's months of work had earned them almost nothing.
An open letter, sent everywhere
So Gates sat down and wrote. His "Open Letter to Hobbyists," dated February 3, 1976, opened with a line that would follow him for decades:
"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?"
The argument underneath the anger was one no one in the hobbyist world had really made out loud yet: software is a product. It costs real time and real money to build, and if the people who write it can't get paid, then good software simply won't get written. Gates laid out his numbers. He claimed the computer time alone had run to some $40,000, and that when he divided the royalties actually collected by the hours the team had put in, it worked out to less than two dollars an hour for a professional-grade product. Why, he asked, would any talented programmer keep doing this?
The letter didn't stay in one newsletter. David Bunnell, the editor of MITS's Computer Notes, was firmly on Gates's side and mailed the letter by special delivery to every major computer publication in the country. It ran in Homebrew's own newsletter, in Computer Notes, and beyond. Gates had turned a private frustration into a public manifesto.
The fight that built an industry
The reaction was, predictably, a firestorm. Hobbyists wrote back accusing Gates of inflating his figures. Some pointed out — correctly — that the interpreter had been developed partly on a PDP-10 at Harvard's Aiken Computer Center, a machine funded by the U.S. military, which raised uncomfortable questions about whose computer time was really being counted. Homebrew's Lee Felsenstein dismissed the $40,000 as "funny money." Others offered a gentler rebuttal: Jim Warren, editor of Dr. Dobb's Journal, argued that when software is free or cheap enough that copying isn't worth the trouble, it simply won't be stolen — and pointed to the community-built Tiny BASIC project as proof.
Here is the twist that history loves. All that free copying didn't kill Microsoft BASIC — it crowned it. Because everyone had a copy and everyone was learning on it, Microsoft BASIC quietly became the standard. When chipmakers and computer companies later needed a BASIC of their own, they asked which one everybody already used, and the answer was always the same. The piracy Gates raged against had done his marketing for him.
He also learned a harder-nosed lesson about how to get paid. The MITS deal had been built on per-copy royalties, which only work if copies are honestly counted. Microsoft soon pivoted to flat-fee licensing — a lump sum for the right to ship the software — striking a fixed-price contract for its 6800 BASIC and, later, the same structure with Commodore, Apple, and Radio Shack. Get paid once, up front, no matter how many copies fly out the door. It was a business model tailor-made for an industry about to explode.
The Open Letter is often remembered as a young man's tantrum. It was really something bigger: the moment the software industry declared that code was worth money. The hobbyists lost that argument — and so, in a way, did the version of computing they believed in.
Next in the series: 1980 — a phone call from IBM, a deal made in a hurry, and the single most valuable contract clause in tech history. Microsoft's "Deal of the Century" is coming up.
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