Microsoft's first popular operating system was MS-DOS, so your first versions of Windows kinda acted like DOS as far as third-party software was concerned:
- No concept of installers apart from an INSTALL.COM or INSTALL.EXE provided by the vendor.
- Installer often just copied stuff to a new root-level subdirectory, selectable in the installer, if one was there. Sometimes you just had to make your own subdirectory and copy everything yourself.
- Often everything regarding the application was done in that subdirectory, including running executables, reading data, writing data, and often saving documents. This was very different from the UNIX tradition of putting executables in /bin, and read/write data in /etc or /var, with appropriate permissions set.
Other interesting stuff:
- Apart from a couple of files (IO.SYS, MS-DOS.SYS) needing to be the 1st and 2nd "inodes" on the disk (so the bootloader could find them), and CONFIG.SYS and AUTOEXEC.BAT having to reside somewhere in the root directory, the kernel of MS-DOS didn't really care at all about any other file. Even COMMAND.COM could be anywhere you want - you would tell MS-DOS where it was with the COMSPEC= setting in CONFIG.SYS. So all your DOS external commands could be anywhere (and reachable if a PATH command was in your AUTOEXEC.BAT), although I believe the MS-DOS installer put them at \DOS or \MSDOS, so that was probably pretty de-facto standard.
So... DOS, the precursor to Windows - it was anything goes.
When Windows became a thing (version 3.x was when it took off), the above is typically how users worked with programs under MS-DOS at the time. It's why programs tended to do everything in their "C:\Program Files" folder.
And I don't know when Microsoft developed the arcane and overengineered .MSI system but it wasn't right when Windows NT came out in 1993 and I think it wasn't even there for Windows 95 when that came out. Even if Microsoft did have .MSI right with the first release of Windows NT/95, there were still many existing programs that didn't use it and wouldn't use it right away. So Microsoft had to support the existing mess and habits from DOS days.
C:\Program Files is a Windows 95 thing, Windows 3.x was pre-VFAT and didn't even support showing long file names. I don't remember where programs would be placed in Win 3.1...
I do remember the full screen setup.exe programs with the blue background...
I remember on my old DOS/Win3.11 machine, I imposed some order on things by only installing “minor” applications to C:\BIN, and larger programs to C:\APPS. Wanted as few top-level folders as possible. Took a bit of effort sometimes, but otherwise there’s total chaos.
I would always cringe whenever I noticed how other folks would have everything installed in the top-level folder, or sometimes in C:\WINDOWS or other random places.
If I were to do it over again today, I would do it differently: I’d install programs that are strictly for doing stuff TO the computer itself in C:\UTILS, and everything else in C:\APPS.
If I ever build a windows installer, I’m manually adding in that full screen blue background for nostalgia’s sake.