In the summer of 1972, Paul Allen was home in Seattle from college and Bill Gates was heading into his senior year at Lakeside college. The kids decide to start their maiden business venture. It was idea to measure traffic pattern by counting cars wheel that run over a pressure sensitive rubber tube. The machine would punch holes into a customized paper which has to be manually read. Instead, they though of using a Intel 8 bit microprocessor called 8008. This would give them exact amount of traffic in any particular area and hence government would know where to focus road repair and install street lights. They start working on the prototype and scraped together $360 and brought a 8008. After two years they successfully built the machine on a budget of $1500 and called it Traf-O-Data, a name Bill Gates proposed.
There was only one problem, despite their immense effort they could not find any customer for Traf-O-Data. From 1974 to 1980 they received a net loss of $3490 and were forced to finally close the shop. Traf-O-Data was a good idea, way ahead of it’s time, but Bill and Paul made a simple but crucial mistake of not doing any market research.
For Paul, it made three things very clear. First, soon microprocessor will run same program as large computer but with lower cost. Second, it sparked the idea of simulate 8008 microchip on mainframe which led to Altair BASIC, first high level language to run on microprocessor. Third, it confirmed to Paul that every failure contains the seeds of your next success.
These were essential step towards development of personal computer and the keystone in creation of Microsoft.