Birth Of The P.C.
In the mid-seventies, the first personal computer was a mini computer called the Altair, made by a company called MITS in Albuquerque. It was based on the Intel 8080 processor, and had only 256 bytes of RAM, and what it lacked in power and peripherals it made up for in cost. At only $400, it was snapped up by hobbyists who had grown bored of tinkering with radios and televisions. A young geek named Gates wrote a version of BASIC for the Altair, which became quite popular, so he started a company to sell it.
Within a few years, there were quite a number of companies selling machines based on the 8080 processor, and most of them ran an OS named CP/M written by a company called Digital Research.
Around 1980, the powers that be at IBM decided that they wanted to be in the personal computer market. So they sent one of their senior managers, Philip Estridge, off to Florida, with a big bag of cash and told him to build them a personal computer. Estridge decided that the cheapest and easiest way of doing this was to throw together a bunch of off the shelf components and cross his fingers.
At this time, Intel had just released their latest-and-greatest, the 8086 and 8088. They were basically the same chip, only the 8088 had an 8-bit bus, half that of the 8086. Estridge chose the 8088, which was substantially cheaper.
Once IBM had the machine put together, they called it the PC, and made its inner workings open. All the electronic schematics, ROM settings, everything about it was published, which made it very easy for third-parties to create new hardware and software for the machine. But before launching their PC, IBM needed some software for it.
As luck would have it, one of the IBM execs knew one Mary Gates (they were both involved in the same charity, as far as I remember), who suggested that her son's company could provide some software. Knowing its' popularity, IBM licensed a copy of Microsoft's BASIC interpreter to ship with the PC, but they still needed an operating system. Bill suggested CP/M, but the latest version, CP/M-86, was way behind schedule. So IBM asked Microsoft to write them an operating system.
Bill Gates knew of a CP/M-like OS called 86-DOS that was used by Seattle Computer Products to run hardware tests, so he bought the rights to it, and hired its author, Tim Paterson, to tidy it up. Tim delivered what he called Q-DOS (Quick 'n' Dirty Operating System), which Microsoft renamed MS-DOS and then in turn delivered it to IBM, who shipped it on every one of their PCs. MS-DOS's main (and probably only) virtue was that it could run most CP/M software, which was written for the 8080, with only minor changes.
But IBM never suspected the horror their partner would unleash upon the world...
Information adapted from Modern Operating Systems by Andrew Tanenbaum.