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Allen, Paul (b. 1953)

HistoryLink.org Essay 10335 : Printer-Friendly Format

Despite having made billions of dollars as a result of his computer programming skills, Paul Gardner Allen insists that he is not a geek.  "I wasn’t a nerd," Allen writes in his 2012 autobiography, Paul Allen: Idea Man. "I was just someone who happened to love computers, among many other things" (Allen, p. 49).  Co-founder of Microsoft Corp., investor and philanthropist, Allen was ranked in 2012 as the 48th richest person in the world, with an estimated fortune of $14.2 billion. Much of that wealth is in the form of shares of Microsoft, the company he launched with Bill Gates (b. 1955) in 1975.  Since leaving his full-time role with Microsoft in 1983, Allen has invested in a broad range of technology companies, real estate, sports teams, and the arts.  He has also become one of the country’s leading philanthropists, focusing his efforts on education, the arts, health care, space, and, especially, neuroscience. 

Born to Learn

Allen was born on January 21, 1953, in Seattle. His father, Kenneth Samuel Allen (1922-1983), was associate director of the University of Washington Libraries. His mother, Edna Faye (Gardner) Allen (1922-2012), was a fourth-grade teacher at Ravenna School in north Seattle.  

Allen credits his parents' love for learning with stimulating his own interests, especially those in science and technology.  His intellectual career received a real boost when his parents decided to send him to the prestigious -- and expensive -- Lakeside School in 1965, when Allen was 12 years old.  Not only was the school generally more challenging than most schools, but by 1968 it had a computer lab, a resource that made it nearly unique among secondary schools.  Actually, the lab -- funded by the Lakeside Mothers Club -- was just a room that had an electric typewriter and a teletype that was connected to a remote GE-635, a General Electric mainframe computer.  That’s where, in the fall of 1968, Allen met a fellow student named Bill Gates.

Despite their difference in ages -- the 15-year-old Allen was almost three years older than Gates -- they shared a passionate interest in computers. "Left to ourselves, Bill and I would program until we were starving," writes Allen (Allen, p. 39).

A former neighbor of the Allens confirmed the studiousness of the two. "I remember always seeing the lights on in Paul's room at 3 a.m.," said Lamont Benson. "He would be up there with that Gates kid, working on computer stuff" (Plummer).

Even before graduating from high school, Allen’s passion led to paid work -- although the pay in this case was free computing time on a mainframe. In November 1970, a Portland time-sharing company offered Allen and Gates a contract to write a payroll program.  "We outlined our experience and submitted our resumes; Bill, just turned 16, had written his in pencil on lined notebook paper," writes Allen. "We got the job" (Allen, p. 47).

Allen acknowledges that his eventual success was a result not only of hard work and talent but also of timing. "If I’d been born five years earlier, I might have lacked the patience as a teenager to put up with batch-processing computers," he writes. "Had I come around five years later, after time-sharing became institutionalized, I would have missed the opportunities that come from trying something new" (Allen, p. 49).

And while Allen was immediately drawn to work with Gates, he also indicates that there were hints at underlying problems. "While we were all bent on showing our stuff, Bill was the most driven and competitive, hands down," Allen writes.  "We were friends from the day we met, but there was an underlying tension, too" (Allen, p. 49).

Higher Education … Interrupted

In the fall of 1971, Allen entered Washington State University, thus suspending the work he and Bill Gates were engaged in while in high school. The suspension was short-lived.  During his first year at Washington State, he agreed to work with Gates on a scheduling program that Gates had contracted to produce for Lakeside School. 

One day during Allen’s second year at Washington State, Gates called with an opportunity Allen couldn’t resist. TRW Inc. was behind schedule in a contract to deliver a program to the Bonneville Power Administration for managing its power grid.  They were looking for programmers and had contacted Gates, then 17 years of age. Allen took a leave from Washington State and he moved to Vancouver where the future partners rented an apartment and worked for $165 a week. 

Again at Gates's urging, Allen took another leave from Washington State in 1974 to take a job with Honeywell in Massachusetts. Gates had received a job offer, too. But after Allen had committed to the move, Gates decided to attend Harvard instead. Nevertheless, the proximity of the two resulted in a new burst of collaboration. 

That winter Allen read about the MITS Altair 8800, the first minicomputer kit that was touted as a rival to commercial computers.  What the Altair lacked, however, was a programming language.  Allen, Gates, and Monte Davidoff (b. 1956), a fellow student of Gates at Harvard, developed one. 

MITS was impressed with the team’s Altair BASIC and immediately offered Allen a job. Allen was on the road again. In April 1975, he moved to Albuquerque, where MITS was headquartered, to become MITS's director of software development.

Founding Microsoft

When Gates and Allen were offered a contract by MITS for the right to use Altair BASIC, they formed a partnership, initially called "Micro-Soft."

While Allen later recalled that the partnership with Gates had always felt like one of equals, when they formalized the relationship in 1975 he was in for a surprise. "From the time we’d started together in Massachusetts, I’d assumed that our partnership would be a fifty-fifty proposition. But Bill had another idea," writes Allen. "'It’s not right for you to get half,'" he said. "'You had your salary at MITS while I did almost everything on BASIC without one back in Boston.  I should get more.  I think it should be 60-40.'" At first I was taken aback.  But as I pondered it, Bill’s position didn’t seem unreasonable. I’d been coding what I could in my spare time, and feeling guilty that I couldn’t do more, but Bill had been instrumental in packing our software with 'more features per byte of memory than any other BASIC we know,' as I’d written for Computer Notes. All in all, I thought, a 60-40 split might be fair" (Allen, p. 91).

Only months later, Gates would talk Allen into changing the split again, this time to 64-36. 

The new company’s first contract turned out to be a challenging one -- one the company barely survived. Due to piracy on the part of consumers and an alleged lack of effort on MITS's part to sell the software, Microsoft’s income from Altair BASIC was less than expected. Gates and Allen forced MITS into arbitration over the terms of the contract.  According to Allen, MITS was withholding payments while the arbitration was going on, a move that was crippling the company. 

After nine months, the arbitrator ruled in favor of Microsoft. "That case really, really scared us,” recalled Allen. “If we had lost, we would have had to start over ... We were on pins and needles the whole time" (Schlender).

Project Chess

If the contract with MITS was the occasion of Gates and Allen founding Microsoft, it was a deal with IBM in 1980 that put the new company on the map.

Since there was no longer a reason to be in Albuquerque, Gates and Allen had already moved Microsoft to Bellevue in January 1979. And by April 1979, Microsoft’s BASIC interpreter surpassed $1 million in sales.  The company had expanded to more than 35 people, including Steve Ballmer (b. 1956), a former Harvard classmate of Gates.

Then IBM contacted Microsoft, looking for a programming language for its secret PC project, dubbed "Project Chess."  "When IBM came to us in 1980, we thought they were just talking about buying our BASIC for their new PC project," said Gates, during a joint interview with Allen in 1995. "Then they said they'd also like to buy our FORTRAN and COBOL languages, and maybe even more from us." Allen concurred.  "It was like they were bringing up a menu and checking off 'all of the above,'" said Allen (Schlender).

Before the meetings were over, Microsoft had agreed to deliver an operating system for IBM’s new PCs.  The only snag was that Microsoft didn’t yet have an operating system for the 16-bit processor IBM was going to use.

Allen had already been negotiating with Seattle Computer Products to license Q-DOS (Quick and Dirty Operating System), written by Tim Paterson (b. 1956).  

"It got kind of tense," recalled Gates, "because there was about a 48-hour period after Ballmer and I had officially offered to license Q-DOS to IBM that we didn't really own it. Paul hadn't yet closed the deal with Seattle Computer, and I was really giving him a really hard time."

"We began to realize that MS-DOS would be the international centerpiece of personal computer technology," writes Allen. "So it was crucial for us to gain as much control over DOS as we could" (Allen, p. 143).

Ultimately, Microsoft bought the operating system for $50,000. "I knew it was a coup, and that a free-and-clear DOS would be a valuable asset but I cannot say that we knew just how valuable it would be," writes Allen (Allen, p. 143).

Struggles with Bill … and Cancer

Even as Microsoft began its rapid ascent, Allen was facing challenges that would soon lead to his departure from an active role in the company.

First, his relationship with Gates was increasingly strained. "Whenever we locked horns, I’d have to raise my intensity in my blood pressure to meet Bill’s, and it was taking a toll," recalls Allen. "Some people can vent their anger, take a breath, and let it go, but I wasn’t one of them. My sinking morale sapped my enthusiasm for my work, which in turn could precipitate Bill’s next attack" (Allen, p. 157).

According to Allen, their partnership was already "living on borrowed time," when Allen learned in September 1982 that he had Hodgkin’s disease.  Fortunately, he was told, it was caught at Stage 1-A and was, therefore, treatable with a high chance of success.

As Allen underwent radiation treatment, his day-to-day role at Microsoft diminished.  And then, one evening in late December 1982, Allen overheard a conversation that triggered a dramatic change in his life. 

"I heard Bill and Steve speaking heatedly in Bill’s office and paused outside to listen in," Allen relates in his autobiography:

"It was easy to get the gist of the conversation. They were bemoaning my recent lack of production and discussing how they might dilute my company equity by issuing options to themselves and other shareholders. It was clear that they had been thinking about this for some time. Unable to stand it any longer, I burst in on them and shouted, 'this is unbelievable!  It shows your true character, once and for all.' I was speaking to both of them, but staring straight at Bill. Caught red-handed, they were struck dumb.  Before they could respond, I turned on my heel and left. I replayed their dialogue in my mind while driving home, and it felt more and more heinous to me. I helped start the company and was still an active member of management, though limited by my illness, and now my partner and my colleague were scheming to rip me off" (Allen, p. 165).

According to Allen, that incident, coupled with his illness, made up his mind. "Once I was diagnosed with Hodgkin’s, my decision became simpler," he notes. "If I were to relapse, it would be pointless -- if not hazardous -- to return to the stresses at Microsoft.  If I continued to recover, I now understood that life was too short to spend it unhappily" (Allen, p. 167).

On February 18, 1983, Allen resigned from Microsoft, though he retained his seat on the board of directors. 

Recuperation and Redirection

Allen’s resignation marked the end of one major period of his life and, of course, the beginning of another. After a period of recuperation -- which included worldwide travels and learning to scuba dive -- Allen turned his attention to investing in new ventures and in philanthropy.

He founded Vulcan Inc. in 1986 to manage both his investments and philanthropic efforts, and he enlisted his younger sister, Jody Allen, as president and CEO.

One of Allen’s first major investments was straight from the heart. He was a longtime fan of the Seattle SuperSonics, and when the opportunity arose in 1988, Allen bought the Portland Trailblazers for $65 million. The team was valued in 2012 at $365 million.

In 1997, Allen expanded his sports holdings by helping to buy the Seattle Seahawks football team. The team’s owners had tried to move the Seahawks to Southern California the previous year, and a group of local politicians approached Allen with a plan to buy the team and keep it in Seattle. "If I entered the NBA out of passion, I was called to the National Football League out of civic duty," Allen explains (Allen, p. 208).

In 2007, Allen’s Vulcan Inc. also became a minority owner of the Seattle Sounders soccer team.

EMP

Allen’s founding of the Experience Music Project (EMP) was another effort that came straight from his heart. Allen has played guitar since high school and has long had an interest in rock history. He first got the idea for EMP in the early 1990s after buying at an auction a hat Jimi Hendrix (1942-1970) had worn. "When I opened the box and pulled off the tissue paper, it felt strange to hold that hat in my hands -- there was something of Jimi in it," Allen relates in his autobiography. "The power of that moment help spark the idea of creating a public venue to honor his art. I figured that other people would get a kick out of the artifacts, too" (Allen, p. 253).

The EMP -- which was designed by world-renowned architect Frank Gehry (b. 1929) and built at Seattle Center -- was inaugurated in June 2000. The $240 million project offers 140,000 square feet of space that is mostly used to display rock memorabilia. In addition to special shows and interactive exhibitions, the project includes a section devoted to the history of Seattle music, including Jimi Hendrix, Heart, and grunge music.

Emerging Technologies

Allen’s other major investment interest has been in emerging technologies. In November 1993, he paid $300 million for 80 percent of Ticketmaster, the event ticketing service. Allen’s intent was to push the company quickly into the online world.  Encountering resistance from Ticketmaster leadership, he sold his interest in 1997, doubling his investment. 

In 1995, Allen combined his interests in sports and the Internet by founding Starwave, a company designed to deliver up-to-the minute content about sporting events to the Web. The company immediately signed a five-year contract with ESPN to deliver content to ESPN’s new SportsZone website, the forerunner to ESPN.com. In 1998, Allen sold his interest in Starwave to Disney for $350 million.  

Convinced of the importance of broadband technologies to what he saw as the emerging "wired world," Allen also invested heavily in cable assets in the 1990s. In 1998 he bought Charter Communications for $4.5 billion. Combined with earlier purchases, Allen created the nation’s fourth-largest cable company.  By 2009, however, Charter had filed for bankruptcy.  By Allen’s own accounting, as of 2011, his investments in cable had cost him $8 billion.   

Charter has since emerged from bankruptcy and (in 2013) is starting to deliver some returns to investors, including to Vulcan Inc.

Winning the X Prize

In 2002, Allen turned to another longstanding interest: space. With aerospace engineer Burt Rutan (b. 1943), Allen formed Mojave Aerospace Ventures (MAV), an organization dedicated to achieving sub-orbital space flight in a privately built craft. Specifically, MAV was aiming at winning the X Prize, a $10 million challenge that required the privately built craft to reach space twice within five days. 

While it’s not clear that Allen and MAV actually profited from the venture, they did win the X Prize on September. 29, 2004, when their SpaceShipOne successfully reached space for the second time within the five-day window. 

As Allen relates in his autobiography, "SpaceShipOne was soon installed in the Smithsonian Institution next to the Spirit of St. Louis. On the fuselage were small, black letters that said, 'A Paul G. Allen Project.'  I haven’t had any days prouder than that one" (Allen, p. 243).

One other investment Allen made in which the returns far outweighed the actual profits was in his rock band Grown Men, which he formed in 1996.  Allen produced the group’s album Grown Men in 2000.  He plays guitar and wrote the lyrics.

Philanthropy

According to some critics, Allen discovered the joys of philanthropy a tad late in life.  As of 2006, one commentator noted that while Bill Gates had donated 35 percent of his wealth to charitable causes, Paul Allen had donated only 5 percent of his wealth (Singer). 

Since then, however, Allen has taken the pledge. In 2010, he announced he had taken the Giving Pledge -- widely publicized by Bill Gates and by investor and philanthropist Warren Buffett (b. 1930) -- to bequeath at least half his fortune to charity. 

And in 2011, Allen was listed as the most charitable living American. According to KIRO Radio, Allen’s donations totaled $372.6 million in 2011, surpassed only by two others, who were dead. 

Most of Allen’s philanthropy is handled by the Paul G. Allen Family Foundation, which is administered by Vulcan Inc.  Since 1990, the foundation has given more than $454 million, with virtually all of it going to nonprofit organizations in the Northwest and 59 percent going to organizations in Washington state. The highest-profile recipients have been the Experience Music Project, the Seattle Cinerama Theater, the Science Fiction Museum and Hall of Fame, and the Flying Heritage Collection.  

A major focus of Allen philanthropy has been medicine and the life sciences.  In September 2003, he launched the Allen Institute for Brain Science with a seed contribution of $100 million.  In 2006, the institute announced the completion of its mouse brain atlas project, and in 2010, the institute launched the Allen Human Brain Atlas, a resource that is publicly available online.  In 2011 the neuroscientist Christof Koch (b. 1956) became chief scientific officer of the Allen Institute for Brain Science. In March 2012, Allen contributed an addition $300 million to the institute. 

South Lake Union

Another focus of Allen’s investments has been real estate.  Specifically, Vulcan has for 20 years committed to the development of the South Lake Union area of Seattle. The investment began when Allen loaned a nonprofit committee $20 million in an effort to buy land for development of a proposed park, the Seattle Commons.  When Seattle voters rejected the proposal, ownership of the 11.5 acres that had been purchased went to Allen.

Since then, Vulcan has continued to buy and develop property in the area. At one point, the company owned 60 acres of land. Currently, Vulcan owns approximately 30 acres of South Lake Union property and has developed more than five million square feet of residential and commercial property.

In November 2012, Vulcan announced that the Allen Brain Institute, which is currently located in the Fremont neighborhood, would be expanding and moving to South Lake Union in 2014, putting it within walking distance of other biomedical research facilities, including UW Medicine and the Fred Hutchinson Cancer Research Center.

New Challenges

In November 2009, Vulcan Inc. made public the fact that Allen had been diagnosed with late-stage non-Hodgkin lymphoma, a blood cancer that has a five-year survival rate of 57 percent. 

Even while undergoing another extensive round of chemotherapy -- which has resulted in Allen remaining cancer-free as recently as October 2012 -- Allen was able to work on his autobiography, Idea Man, which was published in 2011.

The autobiography created quite a stir in the industry and especially at Microsoft.  According to Allen himself, as reported in a 2012 epilogue in the paperback edition, his comments caused a rupture in his friendship with Gates. There is no record of Bill Gates having publicly commented on the book. 

Sources:
Paul Allen, Paul Allen: Idea Man, (New York, Penguin Group, 2011), 49; "The World’s Billionaires," Forbes.com accessed February 20, 2013 (http://www.forbes.com/billionaires/#p_5_s_a0_All%20industries_All%20countries_All%20states); William Plummer, "Rich and Reclusive, Microsoft’s Other Cofounder Goes Hollywood," People Magazine, June 19, 1995, Vol. 43, No. 24; Brent Schlender, "Bill Gates and Paul Allen Talk," Fortune, October 2, 1995, CNN/Money website accessed, February 20, 2013 (http://money.cnn.com/magazines/fortune/fortune_archive/1995/10/02/206528/index.htm); “NBA Team Valuations,” Forbes website accessed February 20, 2013 (http://www.forbes.com/lists/2010/32/basketball-valuations-11_Portland-Trail-Blazers_324837.html); Peter Singer, "What Should a Billionaire Give -- and What Should You," The New York Times, December 17, 2006 (http://www.nytimes.com/2006/12/17/magazine/17charity.t.html?pagewanted=all&_r=0); "Paul Allen was most charitable living American in 2011," KIRO staff, MyNorthwest.com website accessed February 20, 2013 (http://mynorthwest.com/11/624253/Most-charitable-American-in-2011-from-Seattle).


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Paul Allen celebrates victory in special election for Seahawks Stadium, June 18, 1997
Photo by Elaine Thompson, Courtesy Associated Press


Paul Allen and Bill Gates, ca. 1980
Courtesy MIcrosoft


L to r, top: Steve Wood, Bob Wallace, Jim Lane; Middle: Bob O'Rear, Bob Greenberg, Marc McDonald, Gordon Letwin; Bottom: Bill Gates, Andrea Lewis, Marla Wood, Paul Allen, December 7, 1978
Courtesy Microsoft


Paul Allen Headquarters (NBBJ, 2001), 505 4th Avenue S, Seattle, August 11, 2005
Photo by Kevin Daniels, Courtesy Nitze-Stagen


 
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