Microsoft's first contract paid $30 a copy. Altairs shipped a thousand a month while BASIC sold in the hundreds

On February 3, 1976, Bill Gates wrote an open letter to Altair users. The computer time used for development, he wrote, was worth $40,000, and most hobbyists steal their software.

Founders’ writing about hard times usually emerges after success. This letter is different. It was written by Gates himself when the company still put a hyphen in its name, at a point when nobody knew how far revenue would go.

The letter was angry because the shape of the contract was not working. The first deal was a royalty per copy, built on the premise that BASIC would sell as computers sold. Several numbers record that premise coming apart. Listed companies fall outside this site’s criteria for cases, so only the first two years are covered here, as a column.

From the March 1975 demo to registering the name in November 1976

The only figure written by the founder at the time is the $40,000 of computer time. The rest comes from contract terms, MITS’s price tags and records later compiled by people involved and by researchers.

A $30 royalty sold in the hundreds beside a thousand machines a month

Laid out plainly, the first contract set Microsoft’s share per copy of BASIC sold: $30 for the 4K version, $35 for 8K, $60 for the expanded one. $3,000 on signing, a total cap of $180,000, and a ten-year exclusive for MITS.

This shape works if BASIC sells as many copies as MITS sells machines. At the end of 1975, MITS was shipping roughly 1,000 Altairs a month. BASIC sales, however, reportedly stayed in the low hundreds. Machine shipments and BASIC sales were an order of magnitude apart.

One reason lay in how the price was built. The 8K BASIC cost $200 alone but $75 when bought with Altair memory and an I/O board. For MITS, BASIC was a product priced like an add-on to sell hardware. Then came paper-tape copies. At a Homebrew Computer Club meeting, 50 paper tapes copied from pre-release BASIC reportedly circulated.

The royalty model left the developers’ share at the mercy of both the hardware seller’s pricing and how easy copying was. The desk reads both as having sat outside the developers’ control.

The $40,000 figure was disputed even then

The $40,000 Gates cited in the letter is the value of computer time used for development. Most of the development, though, happened on Harvard’s PDP-10, and not all of it was time the two paid for. Years later Lee Felsenstein, at the centre of Homebrew, called that valuation of computer time “funny money” and said it was the hobbyists’ word of mouth that made the BASIC an industry standard.

Even a number written by a participant at the time has a number seen from the other side. The $40,000 is the writer’s claim of how much went in, not an expense in the books. Still, the weight of this letter surviving as a founder’s text written before success does not change.

The next contracts were flat fees, not per copy

After the letter, Microsoft’s pricing changed shape. Later licenses were signed with each manufacturer for a single flat fee. Apple paid $21,000, Radio Shack $50,000 and most others about $35,000. The 6800 version for MITS was a flat $31,200 as well.

Under a flat fee, the developer’s share is cut loose from how many machines the manufacturer sells and from whether users copy. The payer is a company that wants to ship its own computers with BASIC on board. What follows is inference: the switch looks designed to move both variables that sat outside the developers’ control in the first contract out of the contract altogether.

The relationship with MITS ended in a dispute, and the arbitrator sided with Microsoft, finding that MITS had not made its best efforts to sell. The first contract had left the effort of selling in someone else’s hands.

Records of re-choosing how to charge exist at smaller scales too

The same choice of how to charge sits in the records of small businesses. VMagicMirror passed 10 million yen in cumulative BOOTH sales while giving away nearly every feature for free, and set its 2,500 yen paid version up as something close to a donation. Instead of stopping copies, it made paying easy for those who wanted to. BoltAI chose a one-time license in an AI tools market dominated by subscriptions, and Small Bets published two years of breakdowns for a lifetime-membership community.

The list setting Microsoft beside other legendary companies is in the column tracing 22 founding legends to their sources.

What could be confirmed

The limits need stating. Contract terms, MITS’s prices, shipment volumes and BASIC sales rest not on the letter itself but on records compiling the accounts of those involved and magazines of the time. BASIC sales are known only as “the low hundreds.” One record says 50 paper-tape copies appeared, another says one person made and handed out 25. Microsoft’s first revenue appears as $16,005 through the end of 1976 in one account and $1M for 1975 in another, two orders of magnitude apart. The full letter was not read, only the portions quoted in records.

The complaint was written before the success

In the founding years of legendary companies, most hard-time scenes survive as recollections after success. Microsoft’s first two years come close to being the exception. The developer wrote down his small share and his anger at copying while the outcome was still unknown.

And what followed the letter was not a change of mood but a change in the shape of the contract: from piling up $30 a copy to collecting a lump sum from each manufacturer. The founder’s complaint went on the record, and the answer to it was written into the next contract.