Software companies need an income to overcome their market failures, and Microsoft need cash reserves to survive. In August 1980, Gates had signed a contract for a royalty on MOS-DOS for each IBM or IBM-compatible personal computer sold, and millions of dollars poured in. MOS-DOS had become the link between hardware and software for each of them.

Microsoft attempted to diversify with a spreadsheet called MULTIPLAN, which was to compete with VisiCal, but was no match for Lotus 1-2-3. In 1982, Microsoft developed a word processing package called WORD. Despite expensive publicity, it had little impact on market leader WordStar. By 1983, Microsoft was only a weak sixth among the personal computer software developers, but income from MOS-DOS continued to pour in and overcome their failures.

Apple had introduced the Macintosh as a business machine in 1984, but it was not well suited to the business market because of insufficient memory, and it couldn't compete with "IBM-compatible" products. Microsoft was acquainted with the Macintosh during development by it of some minor parts in 1981. Microsoft had not, however, been successful in writing spreadsheets, and word processors, but the Macintosh offered them an opportunity to develop a range of sophisticated applications, in a non-competing market. Later, Microsoft converted these applications to would run on IBM-compatible machines. By 1987, Microsoft was deriving half of its revenue from its Mackintosh software. More importantly, working on the Mackintosh gave Microsoft, firsthand knowledge of the technology of graphical user interfaces, on which to base its Windows operating system.

Several attempts were made to introduce a graphical-user interface before Windows. VisiCorp produced a system called "VisiOn", but it was only able to run on applications especially developed for it. Gary Kindall's Digital Research, original developers of CP/M, the operating system used on 8-bit computers, was next to try when its GEM operating system was introduced in 1984. It lacked the capability of a full-scale operating system and did not succeed.

Microsoft's Windows was heavily based on the Macintosh user interface, and they signed a licensing agreement with Apple to copy the visual characteristics of the Macintosh. They estimated six program years to develop an operating system, but it would take eighty program years to complete, and contain 110,000 instructions. Though priced at $99, sales of Windows were sluggish and failed to replace the popular MS-DOS operating system. Not until the late 1980's would Windows become truly practical with the advent of Intel's 386 and 486 more powerful chips. In April 1987, IBM and Microsoft announced the intention to jointly develop a new operating system, OS/2 to replace MS-DOS for the next generations of computers.

Microsoft, carried along by its revenues from MS-DOS, began to win market support for its Excel spreadsheet and Word. In 1987, it released Windows 2.0, and in May 1990 offered Windows 3.0. Apple sued Microsoft for copyright infringements, and IBM would offer its own operating system, OS/2. Microsoft would win both contests.