This version of DOS is generally referred to as 'European MS-DOS 4' because it was developed for ICL and licensed to several European companies. In the mid-1980s, Microsoft developed a multitasking version of DOS. By the early 1990s, most PCs adhered to IBM PC standards so Microsoft began selling a retail version of MS-DOS, starting with MS-DOS 5.0. Microsoft provided an OEM Adaptation Kit (OAK) which allowed OEMs to customize the device driver code to their particular system. DOS was structured such that there was a separation between the system specific device driver code ( IO.SYS) and the DOS kernel ( MSDOS.SYS). One major reason for this was that not all early PCs were 100% IBM PC compatible. Microsoft originally sold MS-DOS only to original equipment manufacturers (OEMs). CP/M faded, with MS-DOS and PC DOS becoming the marketed operating system for PCs and PC compatibles. Side-by-side, CP/M cost US$200 more than PC DOS, and sales were low. IBM responded by offering an agreement: they would give PC consumers a choice of PC DOS or CP/M-86, Kildall's 8086 version. Digital Research became aware that an operating system similar to CP/M was being sold by IBM (under the same name that IBM insisted upon for CP/M), and threatened legal action.

IBM continued to develop their version, PC DOS, for the IBM PC. Microsoft later required the use of the MS-DOS name, with the exception of the IBM variant. Within a year Microsoft licensed MS-DOS to over 70 other companies, which supplied the operating system for their own hardware, sometimes under their own names. This became Microsoft Disk Operating System, MS-DOS, introduced in 1981. Microsoft purchased 86-DOS, allegedly for US$50,000. The system was initially named QDOS (Quick and Dirty Operating System), before being made commercially available as 86-DOS.

There, programmer Tim Paterson had developed a variant of CP/M-80, intended as an internal product for testing SCP's new 16-bit Intel 8086 CPU card for the S-100 bus. Gates in turn approached Seattle Computer Products.

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