Success Reinforces Success: The Platform Standard Strategy
Context & Vision
Bill Gates recognized early that the software industry follows exponential dynamics fundamentally different from traditional businesses. In markets with high fixed costs and near-zero marginal costs, a slight initial advantage compounds into market dominance.
The insight came from observing Moore's Law: computing power doubles every 18 months while costs halve. This means the addressable market for software expands exponentially. The company that sets the standard captures most of this expanding pie.
Strategic Principles
1. Standard-Setting Through Aggressive Pricing
Price software low enough to eliminate competitor oxygen. When "high technology products in great volume have minimal marginal cost increases," market share matters more than per-unit margin.
Example: Microsoft licensed BASIC to Apple for $31,000 for 8 years—far below market value—to ensure BASIC became the lingua franca of personal computing.
2. Positive Feedback Loops
- +More users → more developers → more software → more users
- +Standard language → more code written for it → must-have status → deeper entrenchment
3. Platform Over Applications
Control the layer that all applications depend on. Hardware is commoditized; the OS and language layer captures the value.
Key Tenets
- "We want to be the IBM of software" — Own the standard, let others compete on hardware
- Ubiquity over margin — $10 from every PC beats $100 from some PCs
- Backward compatibility — Never strand your installed base; they become your moat
- "The rising tide lifts all boats, but we own the water"
Metrics & Outcomes
| Year | Revenue | Market Position |
|---|---|---|
| 1975 | $16K | Startup |
| 1977 | $381K | BASIC standard across Trinity |
| 1980 | $8M | IBM partnership secured |
| 1985 | $140M | DOS dominance |
| 1990 | $1.18B | Windows 3.0 + Office suite |
Long-term Impact
This strategy created one of the most durable moats in business history. By 1995, Microsoft had:
- 90%+ OS market share on PCs
- De facto standard for productivity software
- Platform lock-in through APIs and file formats
- Network effects that made switching prohibitively expensive
The strategy's success enabled Microsoft to survive the antitrust era and pivot to enterprise and cloud markets while competitors struggled to gain footing.