MSX History Book

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By MICHAEL W. MILLER

This article originally was published Aug. 27, 1986, in The Wall Street Journal.

They were unlikely candidates to be industry titans.

William Gates was one of America's first computer nerds, a compulsive hacker with big glasses and messy hair. Kazuhiko Nishi was a tubby, hyperactive engineering student from Kobe, Japan. When they became partners in 1978, they were both 22-year-old dropouts obsessed by an esoteric new technology: the personal computer.

But over the next seven years, through a combination of foresight and theatrics, Mr. Gates and Mr. Nishi helped transform personal computers from a novelty into a giant, explosive industry. Mr. Gates and a high-school friend founded Microsoft Corp., MSFT +1.89% and Mr. Nishi set up a company in Japan that worked with Microsoft. With Mr. Nishi's guidance, Microsoft played a crucial role in designing Japan's first personal computer. Then, thanks to an impromptu airborne sales job by Mr. Nishi, Microsoft developed one of the first portable personal computers. And Mr. Nishi's impetuous counsel in a late-night debate spurred Mr. Gates to make a lucrative alliance with International Business Machines Corp. IBM +2.11%

This year the Gates-Nishi partnership collapsed. The breakup followed months of disintegrating relations, with Mr. Gates increasingly torn between close friendship for Mr. Nishi and frustration at his unpredictable behavior. As of today, Mr. Gates and Mr. Nishi, who goes by the nickname Kay, haven't spoken in four months. Their fortunes have also diverged sharply. Mr. Gates's stake in Microsoft is valued at more than $300 million; Mr. Nishi owes the company $500,000.

In Redmond, Wash., the Seattle suburb where Microsoft is based, Mr. Gates laments that business considerations forced him to break ties with a soul mate. "For a guy from Japan, Kay's more like me than probably anybody I've ever met," says Mr. Gates, who, like Mr. Nishi, is 30 years old. "But he just went overboard."

In Tokyo, Mr. Nishi fumes that Mr. Gates betrayed him and asserts that Microsoft has lost its spark. "Bill Gates used to be very creative, but now he is a political person," Mr. Nishi says bitterly. "Now he is in the position of protecting himself."

Even before they met, Mr. Gates and Mr. Nishi followed surprisingly parallel paths 5,000 miles apart. Mr. Gates discovered computers as a Seattle schoolboy and was a fiendish programmer by the time he entered Harvard in 1973. There he spent his time playing poker, fiddling with electronics and, in his words, "sitting in my room being a philosophical depressed guy, trying to figure out what I was doing with my life." Finally, in 1975, he packed his bags and headed for Albuquerque to start a company in the young microcomputer industry.

Meanwhile, Mr. Nishi entered Tokyo's prestigious Waseda University and thought about eventually going to work at the private school his parents owned. But in two years he, too, had quit college, to throw himself into soaking up information about PCs and starting a quirky newsletter about them.

In 1978, Mr. Nishi flew to the U.S. and talked Mr. Gates into making him Microsoft's Far East agent. At the time, Microsoft's product line -- software that let people write programs for PCs -- was beginning to sell to users of the first wave of personal computers, such as the Altair, the Apple II and the Commodore PET. But Mr. Gates and Mr. Nishi dreamed of a day when an industry of giant companies would fill the market with millions of microcomputers.

The two set out to become part of as many PC ventures as they could. Some companies were just starting to think about entering the business. Mr. Gates and Mr. Nishi wanted to help design their machines and supply their programming software. A lot of electronics firms knew nothing about microcomputers and had no intention of making them. Mr. Gates and Mr. Nishi wanted to make sure that those firms changed their minds.

Remarkably, their plan took off. Their first triumphs came in Japan. Mr. Nishi rummaged through his list of contacts at Japanese technology companies and came to the name Kazuya Watanabe, a manager at giant NEC Corp. 6701.TO 0.00% who had once expressed interest in personal computers. Soon Mr. Nishi had persuaded Mr. Watanabe to fly to the U.S. to meet Mr. Gates and his co-founder, Paul Allen.

Mr. Watanabe was nonplused by the two fast-talking young Americans who met him at the Albuquerque airport and whisked him away in a Porsche. But he was also impressed by their excitement about the powers of PCs and by the work Microsoft had already done for American companies. When he returned to Tokyo, he told NEC executives that the company should produce a microcomputer and that Microsoft should help design it.

That decision in 1979 led to Japan's first commercial personal computer, the NEC PC 8001. At the time it was an extraordinary gamble for a conservative, insular Japanese corporation to place a risky new venture in the hands of an unknown local entrepreneur and his young American friends.

"Microsoft played a big role in our decision-making," remembers Mr. Watanabe, sitting in the Tokyo office where he now oversees the $1.5 billion personal-computer business of NEC, the overwhelming market leader in Japan. "I always felt that only young people could develop software for personal computers -- people with no tie, working with a Coke and a hamburger -- only such people could make a personal computer adequate for other young people."

The PC 8001's success made personal computers a hot topic HOTT +5.90% in Japan, giving Mr. Gates and Mr. Nishi an opportunity to rush into the center of the Japanese electronics industry. They started appearing at computer trade shows, giving speeches at industry ceremonies and granting dozens of interviews about the future of technology. Soon they had made themselves famous as the young whiz kids who were bringing America's newest technical wonders to Japan.

Adding to their celebrity was the impudent style of Mr. Nishi. His ability to captivate executives two and three times his age was matched only by his ability to appall them by being extravagantly rude. More than one Japanese manager recalls hearing Mr. Nishi give a formal presentation at a business meeting and then rise from his chair, stretch out on the floor and fall immediately asleep. Other times he dozed off in his seat or stared off into space breathing noisily.

He also began indulging in splashy luxuries that were out of place in Japan. He hopped from appointment to appointment in a chartered helicopter, sometimes touching down dramatically at a corporation's front door. He took up residence in an assortment of expensive hotel rooms, where he caught quick naps in between late-night and early-morning meetings.

Mr. Nishi had no patience for the Japanese practice of dealing with the lower corporate levels first and slowly working up to the decision makers. Once, to land an appointment with the powerful president of Fujitsu Ltd., he waited outside the executive's home one Sunday night and collared him as he approached his front door.

"I am famous for random activities," admits Mr. Nishi over dinner at a favorite Tokyo haunt, a swank French restaurant overlooking the Imperial Palace. He speaks in animated, cheerful bursts, pausing frequently to giggle, run his fingers through his shaggy hair, and rub his eyes with fatigue. "I have many moods," he says, "high and low, and the difference is very big."

Somehow, Mr. Nishi's peculiar formula worked. His and Mr. Gates's charm and ubiquity left Japanese companies convinced that buying design services and software from Microsoft was the only way to enter the personal-computer industry.

"When micros are getting popular, top management is quite at a loss," Mr. Nishi recalls. "They ask, 'What is micro? Is there someone who can tell us? Let's watch the whiz kids.'"

At times Mr. Nishi's brashness led to big business. In 1981 he visited Mitsubishi Corp., 8058.TO +2.18% which wanted Microsoft to adapt its programming software to a new personal computer. Mr. Nishi asked Mr. Gates what he thought the deal was worth; Mr. Gates replied $400,000 or $500,000. Mr. Nishi went in and asked for $1 million, and he walked away with $670,000.

The same year, flying first class from San Francisco to Tokyo, he found himself sitting next to Kazuo Inamori, the president of the big industrial ceramics firm Kyocera Corp. KYO +1.64% Mr. Nishi, dressed in sneakers and sweat pants, hurriedly began describing one of his latest brainchildren: a briefcase-sized computer with a liquid-crystal-display screen.

Before long Mr. Inamori had signed on to manufacture the machine. Mr. Gates and Mr. Nishi designed the computer and lined up companies on three continents to market it: NEC, Ing. C. Olivetti & Co. and Tandy Corp., RSH +0.65% which sold the product to thousands of American journalists and traveling salesmen as the Radio Shack Model 100.

Meanwhile, in the U.S., Mr. Gates and Mr. Nishi landed Microsoft's most important deal of all.

In 1980, IBM was working on a secret project code-named Chess, studying the possibility of entering the personal-computer market. IBM ordered programming software for a prototype machine from Microsoft. The Chess planners also asked Mr. Gates for advice about procuring an operating system, the built-in program that controls a PC's loading, storing and other basic tasks.

One night at Microsoft's headquarters, Messrs. Gates, Allen and Nishi talked about making a bid to design an operating system for IBM. It was an alluring prospect, but problematic: Microsoft was already badly overworked, IBM was working on a tight timetable and the machine might still be canceled.

In the end, Mr. Nishi's impulsiveness helped resolve the problem. "That night Kay was the first guy to stand up and say, 'Gotta do it! Gotta do it!'" Mr. Gates remembers. "Kay's kind of a flamboyant guy, and when he believes in something, he believes in it very strongly. He stood up, made his case, and we just said, 'Yeah!'"

IBM used Microsoft's operating system, called MS-DOS by Microsoft and PC-DOS by IBM. Most of the other companies that entered the PC business after IBM used MS-DOS as well so that their computers could run the same software as IBM's.

Today the personal-computer business is a battlefield as dozens of large and small makers of IBM "clones" seek to loosen Big Blue's stranglehold on the market. But all the competitors continue to buy MS-DOS from Microsoft. The product is copyrighted, and no rival could design an alternative operating system that would still run all the software written to MS-DOS's specifications.

As a result, Microsoft is in a formidable competitive position, almost as if it were the only supplier of engines to the entire international auto industry. In the year ended June 30, about half of Microsoft's $60.9 million operating profit came from MS-DOS license fees and royalties, according to analysts' estimates.

The success of MS-DOS has given Microsoft enormous financial strength. Its return on equity at the end of 1985, before its public offering, was 43%, which is enormous even for a young growth company. MS-DOS is also an important reason the company's foreign business has swelled to 40% of its nearly $200 million in sales, one of the software industry's broadest international bases.

But as Microsoft grew bigger, relations between Mr. Gates and Mr. Nishi started to wear thin. By 1983, Microsoft was doing business with some three dozen companies in Japan, most of which snapped up MS-DOS for their machines. Mr. Gates worried that Mr. Nishi was spending too much time chasing new technology schemes and not enough attending to these customers.

In the U.S., Mr. Gates was putting more complex organizational structures in place at Microsoft and hiring a corps of older, seasoned managers to run them. Some of them began to bristle at the unorthodox way that Mr. Nishi and his company, Ascii Corp., were running Microsoft's Asian operations.

So did some of Mr. Nishi's own colleagues in Japan. "In the cowboy age, Billy the Kid can be a star," says Susumu Furukawa, who left Ascii this year to run Microsoft's Japanese subsidiary. "But Microsoft became an army, and Kay was still playing like Billy the Kid. Kay's not a general who can manage an army."

Then came the dinosaur episode. Mr. Nishi set out to produce a television show that would make computers enticing to schoolchildren and promote his company's products. He conceived an elaborate story featuring a young boy who uses Microsoft software to re-create a brontosaurus.

Word of the project filtered back to Microsoft, and one day Mr. Gates learned that Mr. Nishi had spent about $1 million to have a special-effects wizard construct a life-size dinosaur and erect it in one of Tokyo's most expensive rental spaces, outside the Shinjuku train station.

The news infuriated Mr. Gates. Mr. Nishi was using his own company's funds, but the money might otherwise have gone toward marketing Microsoft's software in more conventional ways. Mr. Gates fired off a series of irate telexes to Tokyo and began to agonize about Mr. Nishi's role at Microsoft.

"I kept telling him, 'Kay, look, we gotta change, we gotta change,'" Mr. Gates says. "It made me wonder when am I going to get off the stick and give up my sentimental belief that Kay will reform."

Mr. Nishi was making matters worse by piling up personal debts to Microsoft. First, in 1981 he borrowed $100,000 to invest in a laser-printer venture that never got off the ground. Then, two years later in the San Jose airport, Mr. Gates heard his name paged. "Bill, it's desperate!" came Mr. Nishi's voice on the other end of the line. He explained that on the spur of the moment, he had ordered $275,000 of stock in a U.S. company that had caught his eye. Now his stockbroker was demanding payment, and he needed the cash fast.

Wearily, Mr. Gates arranged for Microsoft to bail Mr. Nishi out. Why? "Because Kay was Kay," he says with a sigh. "What did I want, my best guy ever to go to jail for bad debts?"

This year Microsoft began preparing to go public, and Mr. Gates decided that he had to settle conclusively the company's troubles with Mr. Nishi. He suggested that Mr. Nishi, who was already a Microsoft director and vice president, join the company full time and take a valuable equity stake.

But Mr. Nishi balked at the idea. "Bill Gates demands 100% loyalty and demands being his subordinate," Mr. Nishi says. "I'd be very happy to work with him, but I don't want to sell my soul to him."

The tensions finally came to a head in March, the day after Microsoft completed a very successful public offering. Mr. Gates had gone to Australia to visit Microsoft's Sydney office and take a celebratory cruise on the Great Barrier Reef. Mr. Nishi met him there, and the two boarded a plane together for Tokyo.

In a wrenching 30-hour session, they haggled about restructuring their partnership. "We'd talk about our vision, and then we'd get mad at each other, and then we'd apologize," recalls Mr. Gates. "You can get kind of mad when you're gone from the guy, but then I'm reminded what a great guy he is."

There was no resolution, though. "Kay would rather see it all go down in flames than feel like he's compromised in some way," says Mr. Gates. The two finally decided to dissolve the partnership.

The separation was messy. Microsoft opened its own Japanese subsidiary and infuriated Mr. Nishi by quickly hiring away 18 Ascii employees. In public statements, Microsoft officials declared that they bore Mr. Nishi no ill will and hoped to keep working with him. But Mr. Nishi doesn't believe it. "Give me a break," he says, spitting out the words. "They are all liars."

Mr. Gates says he sympathizes with his former partner's anger and frustration. "The guy's life is a mess," he says sadly. "He's worth negative half a million and I'm worth X million -- that's certainly seeds for bitterness."

Mr. Nishi tries to be philosophical. He vows that the breakup will spur him on in risky new technology ventures that he couldn't have pursued at Microsoft -- a sound-and-graphics microchip, an on-line computer network and some projects that he won't talk about yet.

"The only way to keep physically strong, mentally awake and culturally active," he says, "is to abandon what you have."

The MSX Story
Reproduced from 'The MSX Standard: The New Computers' by R. C. Wood

The development of the MSX is one of the most colorful stories in the colorful computer business. It illustrates a great deal about how the Japanese take American technology and use know-how – practical, often low-tech techniques, many popular in the United States many years ago – to make it more useful.
It can be seen as the story of two small-time New York importers and of how they and their friends among the hard-working wheeler-dealers of Hong Kong tried to give Americans the first true home computer, then saw their dream taken over by Japan Inc.

It’s more realistic and more helpful in understanding where MSX is taking your family if you can see MSX as the Japanese see it – as a part of a long-term effort to help their nation make the best use of new information-era technologies. This effort has already included some 7 years of work on ‘home bus’ standards to bring computer networking and digital video technologies to every corner of the homes of the 1990s, and ‘information network system’ technologies to tie the homes of the fuure into a worldwide information grid. You must also see it as a story of Kazuhiko “Kay” Nishi, a pudgy, affable, but strong-willed, Japanese entrepreneur who largely designed the New Yorkers’ computer, then convinced the entire extended family of Japanese electronics industry that this vision suited their own goals. Nishi made the MSX the standard for home computers in the Orient, and encouraged the Japanese industry to begin thinking of MSX as a standard for all computers everywhere.
It was early 1982 when the two importers, Harry Fox and Alex Weiss, set out to build a “true” home computer. The term ‘home computer’ then usually indicated machines like the Sinclair ZX-80 which cost about $100 but could do almost nothing useful. Occasionally the term would also be applied to the Apple II or the Atari 800, but assembling a complete system from those products cost as much as buying a car, and few ordinary American homes could afford that kind of investment just so the kids could computerize their homework.
“We were in the watch business in New York, and we could see that the way the technology was going, the product we were importing was going to cost about six cents, and there would be no way you could continue making money on it,’ Fox recalled in an interview in early 1984.
On the other hand, Fox and Weiss noted that the same technological changes which meant watches would only be worth a few pennies at wholesale, also meant truly useful home computers could be produced for just a few dollars more than the Sinclair ZX-80. Fox and Weiss talked with Tony Law, an entrepreneur in Hong Kong whose Bondwell Group had produced watches for them and also for Timex. They chose the name Spectravideo.
It was obvious that no one would buy a computer made in Hong Kong from an unknown company unless it somehow gained some credibility in the marketplace. Therefore, Fox set out to hire Microsoft Corp., which had produced operating systems and other basic software for IBM, Apple, Radio Shack, and a host of other manufacturers, to write the system software for the Spectravideo.
Fox launched a campaign to capture Microsoft’s interest. It consisted largely of long-distance telephone calls from Hong Kong. “It took about two months to get them to take us seriously,’ he recalls. “ Then finally I got through to Kay Nishi and he asked me to send him our specs. He got them and he was all excited. Within about ten hours he was on the plane to Hong Kong.”
The Japanese and Home Computer Standards

Nishi’s excitement indicated more than an appreciation of Fox’s idea. Computers are one of the few manufacturing businesses in the world where the “United States and Japanese markets have until recently remained largely separate, with completely different brands dominating in the two countries. (A machine Nishi designed – the lap computer produced by the Japanese manufacturer Kyocera and sold in the United States as the Radio Shack Model 100 – was the first Japanese-made computer to achieve major sales in the United States.)
Nishi and many others in the Japanese electronics industry had, like Fox, noted that the technology was making true home computers possible. The Japanese home computer market, though, made the United States market look simple by comparison. Home computer software in the US could be written in only a few formats: Apple, IBM, Sinclair, Atari, Commodore, and Texas Instruments. In Japans it seemed every electronics company was introducing its own home computer totally incompatible with everyone else’s. By mid-a983 a foreigner was able to find a video game in 14 different formats in one Ginza store. Everyone, except perhaps some corporate bureaucrats at Nippon Electric Co. (NEC), which had the largest market share in Japan, agreed that some kind o standardization was needed.
Nishi is best known in the US simply as a Japanese vice president of Microsoft, but the Japanese company he helped found, ASCII Corporation, is important in its own right. It is Japan’s largest supplier of both microcomputer software and microcomputer magazines. One ASCII official estimated in 1983 – before MSX machines arrived on the Japanese market – that ASCII had 30% of the Japanese microcomputer software market, an estimate which if accurate would give ASCII a far more commanding position in Japan than any other company has ever held in the US. In addition, through a relationship Nishi developed, ASCII is Microsoft’s representative in Japan. It supplies every Japanese computer manufacturer with a version of the language BASIC, which ASCII, together with the Microsoft home office in Bellevue, Washington, has prepared for each Japanese computer.
By early 1982 Japanese electronics leaders were already calling ASCII-Microsoft Corp. for the same type of help Spectravideo sought. Some – notably Kazuyasu Maeda and Dai Akutani of Matsushita Electric Corp., the world’s largest consumer electronics company -- were already calling for new standards in the industry. The idea of a home-computer standard appealed to the Japanese because it fit into Japanese industry’s “information network system” and “home bus system” plans. Nippon Telephone and Telegraph Corporation, The Ministry of Posts and Telecommunications, Matsushita/Panasonic, and other Japanese companies had been working on these plans since 1978 to tie together consumers’ homes and the nation and world as a whole with fiber optic cable. The plan was for consumers to control security systems, audio and video systems, robots, and kitchen appliances from anywhere in the house, tap into an array of new information and entertainment services, and through a more powerful telephone network control the same appliances and reach the same services from outside the home as well. Matsushita had exhibited a prototype of the system in 1979.
“We have the technology to do it now,” says Ken Shimba, a Matsushita spokesman in the US. “But the problem is price. We think that when we can get the price down so that the whole system costs as much as a car, the consumer will buy it.” Matsushita and other companies believed home computer standards would speed the system’s development.
Kay Nishi and Spectravideo
Kai Nishi is an idea man in a country where possessing original ideas is considered a bit impolite. Moreover, in seeking industry agreement on a standard, Nishi faced a problem common to standard setters everywhere. If he proposed accepting as standard something that was already on the market, producers whose product was not accepted as standard would feel they were losing competitive position. If he proposed a totally new product as standard, he would have to justify his own original idea to the entire industry, and it’s especially tough to justify an original idea in Japan without sounding rude.
Thus Nishi found the Spectravideo proposal extraordinarily significant. Nishi knew that the configuration Fox proposed could create an unusually capable, flexible home computer. Nishi disagreed with the goal of trying to produce a $100 computer immediately, but he knew that a computer based on the technology Spectravideo expected to use could rival expensive office machines in processing capability, produce superior graphics and sound, yet cost perhaps half as much to produce as a computer based on the chips which power the IBM Personal Computer.
Nishi arrived in Hong Kong within 48 hours of his conversation with Fox and rode directly to Bondwell Holdings’ offices, where a Spectravideo headquarters had been established. “He looked at our plans and he began saying immediately, ‘Change this here, change the pin-outs over here, make this bigger,’” recalls Weiss. In two days in Hing Kong Nishi:
◊ Reorganized the computer’s layout to make it more easily expandable.
◊ Expanded the computer’s read-only memory (ROM) several-fold.
◊ Promised that Microsoft would develop a BASIC for the computer even more powerful than the BASIC in the IBM PC.
◊ Made it easy for the computer to support an array of add-ons and to access a disk drive in the same way that professional computers do.
◊ Set up an easily programmable interrupt system so the computer can, for instance, continue monitoring a home security system at the same time the kids are using it to do their homework.
◊ Reworked the computer’s keyboard.
When he was through, Nishi had produced a machine that would -- at least for the first couple of years – cost significantly more to manufacture than the $30 Fox had originally intended. It was however, also a machine that, unlike any other computer then on the market, could do virtually everything a business computer could do and yet also had the graphics, sound capability, and ROM cartridge slot needed for a fine entertainment machine. Nishi pointed out that the price would fall further as technology improved. “He said to us, ‘Don’t worry, you can sell this same machine for five years,’” recalls Fox.
“Kay Nishi is unique,” Weiss says in remembering the performance.

How MSX Became a World Standard
If Fox and Weiss felt a bit overwhelmed watching Nishi leave, they were even more overwhelmed when they got another call from him 8 months later in April, 1983. “The entire Japanese electronics industry wanted to license our design,” says Fox. “And they weren’t going to pay us more than a few cents a machine.”
Nishi had gone visiting the leading Japanese electronics companies. He had carried with him a mock-up of the Spectravideo computer, and showed off its diverse features. The reaction had been, “That’s very good. Make us something like that.” The Matsushita leaders had been especially impressed, and had seen the Spectravideo as an ideal basis for their dream of a home computer standard acceptable to the entire Japanese electronics industry.
Fox was accustomed to negotiating watch import deals, but never before had he negotiated with a united front of electronics companies from the world’s most advanced manufacturing nation. Moreover, he had to admit that most of the design consisted of Nishi’s ideas, and he hardly felt he could hold out for a high price when selling Nishi back his own ideas. He essentially gave the design away.
“At first they talked about a license for Japan only. But then they said they wanted to be able to sell it all over the world,” Fox recalls. He wanted exclusivity on Spectravideo design. He suggested tha Nishi prepare a new design, “enough different so that you don’t have to license it from us, but close enough so that you can make our machine compatible with an adapter.”
Nishi agreed. The plan not only allowed him to save on royalties, but also enabled the companies supporting the standard to add more advanced features with less worry about compatibility with the original Spectravideo design. There features included the capability of addressing much more memory and the sophisticated switching system which would enable any MSX computer to instantly recognize and work with up to 16 MSX compatible add-on devices plugged into slots that look simply like game cartridge ports. It was natural or the Japanese to name the system after Microsoft Extended BASIC, because they saw it as an extension of the languages they had been buying from Nishi for years. The MSX standard was born.
Ironically, Spectravideo never found the millions of dollars in financing it would have needed for anything but a token sales effort in the United States. Although its machine was sold in Europe and Asia, Spectravideo has so far made little direct impact on the United States or world markets.

at those time, FDD were not so much common. apple II is a PC like (more professional computer)
maybe the main limit was the VDP. outdated for its time.

I am no business analyst but I actually think that being a standard killed MSX. Standards other than de facto standards do not work in industries that develop fast. While Commodore and Apple could invent new computers ASCII was forced to adopt already existing technology and then try to convince Sony, Matsushita and others that adopting this technology was in their best interests. This can be difficult and slow. This forced MSX to be behind other makers in terms of technology and while others could just develop 16 and 32 bit computers MSX could not do it easily.