Hard Drive: Bill Gates and the Making of the Microsoft Empire (40 page)

Finally, a meeting with Microsoft’s Mike Maples was scheduled. Maples was head of the vaunted applications division. At the meeting, Maples told Cook that Microsoft planned to enter the business with its own product. There would be no partnership.

“He told us his guys had come to him with all the ways the deal had been proposed, and he couldn’t figure out a way to make it work,” Cook said of Maples.

In late 1990, Microsoft announced its own personal finance product for Windows, called Microsoft Money. Other software publishers began telling cocktail party stories about how Microsoft appropriated a lot of information from Intuit during the negotiations, information it could use to compete against Intuit later.

“It’s a rumor I’ve confirmed personally,” said one software publisher. “Microsoft stole a ton of stuff from the Intuit folks.”

Said the CEO of another software company: “Microsoft went down to Intuit and said, “We’d like to buy your financial package because we want to get into the business.’ They examined it, found out all their plans, made a totally frivolous offer and then announced that they were producing their own.”

Cook, however, told the FTC investigator that Microsoft did nothing wrong.

“Microsoft was naturally trying to learn as much as they could. But we knew that. We weren’t born yesterday. Even at the very beginning of our discussions, even before they told us they might enter the market, it was kind of obvious. They are a big company. Very smart. You don’t show them your crown jewels. A lot of the guys who are complaining about Microsoft are kids that got took, kids who exposed their private parts to Bill Gates to show off—‘Gee, look how good we are.’ But they are not thinking that Bill Gates is a smart competitor, so Microsoft naturally tries to learn as much as it can about existing software products.”

Cook said he told the FTC it was wasting its time investigating Microsoft. “They are pestering one of the best run companies I’ve ever seen,” he said, “a company that should be the model for American industry. ... When you lose to Microsoft, it’s because you snooze.”

But the FTC also heard from other industry executives far less generous in their praise of Microsoft. By mid-April of 1991, Microsoft was forced to acknowledge the investigation of the company had gotten much bigger. The word “monopoly” was used for the first time to describe the scope of the federal probe. Microsoft said it had been officially notified that the FTC was looking into allegations that the company “has monopolized or attempted to monopolize the market for operating systems, operating environments, computer software and consumer peripherals for personal computers.” In other words, the probe now covered every aspect of the company, from Windows and DOS to the tiny Microsoft Mouse.

Said Bob Kleiber, an analyst for Piper, Jaffray & Hopwood in Minneapolis, All of a sudden, the FTC has said 'Where there was just smoke before, now we think there’s fire.’ You don’t dig deeper if you haven’t found anything.”

Once again, with the announcement that the investigation had been expanded, the national media jumped on the Gates- bashing band wagon.

Can anyone stop Bill Gates?” the headline of a cover story in
Forbes
asked.
Newsweek
ran a story on Gates entitled “The Whiz They Love to Hate,” which devoted more than a page to the Bill-bashing saga. A Sunday
New York Times
article ran beneath the headline “One Day, Junior Got Too Big.” “From Computer Whiz to Bullying Billionaire” was the headline of a frontpage story on Gates in the
Seattle Post-Intelligencer
newspaper.

Said Philippe Kahn, chairman of Borland and one of Gates’ most outspoken critics, “No one wants to work with Microsoft anymore. We sure won’t. They don’t have any friends left.” Nearly two decades since he cut his first profitable business deals at Lakeside, Gates had emerged as the undisputed leader

of the computer software industry. But disputes were raging over what kind of leader he was.

As far as Bill Gates is concerned, business is war. You fight to win. Gates’ friend Heidi Roizen, president of T-Maker, an $8 million California software firm that makes the popular WriteNow word processing application for Apple’s Macintosh computer, has been one of those who has faced that competitive side of Gates in business. Some years ago, T-Maker came out with a new, faster version of its word processing program at a discounted price. When Gates learned of this, he priced Microsoft Word to undercut Roizen’s product. Microsoft had many times the revenue of T-Maker, but no piece of business was too small for Gates.

“He’s kind of won the world fair and square, but it sure doesn’t leave a lot left over for the rest of us,” Roizen said. “It’s frustrating to be up against him. While I’d prefer he not be in quite so much control of the world, I think that he’s earned it.

When her company first began competing against Microsoft, she and Gates would compare sales figures on how WriteNow was doing against Microsoft Word. During one encounter with Gates, she made the mistake of telling him her company had just shipped a thousand copies of WriteNow to Apple. Gates was furious. He whipped out a note pad and began questioning her like a prosecutor. Who did she sell them too? Who signed the purchasing order? Who authorized the sale? Have you shipped them yet? Later, over dinner, Roizen asked Gates what he was going to do with the information. Gates said he planned to call Apple and demand they not buy those 1,000 units of WriteNow. Gates never made the call. But he did give his friend some free advice about himself.

“Heidi,” Gates said, “don’t ever tell me anything you don’t want me to use against you.”

Because he is so competitive, Gates looks to take advantage of any business opportunity that lets Microsoft win. But others wonder if he plays fair.

“It’s not
whether
you compete, but
how
you compete,” complained John Warnock, chief executive of Adobe Systems. Wamock’s Palo Alto company rose rapidly in the late 1980s to dominate the software that controls the size and shape of type on computer printers. This font technology was an outgrowth of work Warnock did at Xerox PARC in the 1970s. Around 1989, Gates asked Adobe for the right to include those programs in Microsoft’s operating software, arguing that a linkup might vastly expand Adobe s markets. But Gates did not offer any royalty money, and Warnock refused. Gates then declared war on Adobe. He announced an alliance with Apple, Adobe’s largest customer, to produce its own font software. Adobe’s stock subsequently collapsed,
plungin more
than thirty percent.

“Microsoft positioned itself as experts in the field and they never produced a type face in their life,” said Warnock, who had an emotional and public falling-out with Gates. “What they were doing was not advancing the industry. Having multiple font standards is craziness Bill is extraordinarily competitive. Winning is important. But when the industry suffers, yeah, it’s too important.”

Despite the frontal attack from Microsoft, Adobe hung in, and by 1991 Microsoft had disbanded the team working on its printer software. The developer in charge had resigned, and programmers were shifted to other projects. Apple was once again Adobe’s main customer.

Complaints about how Microsoft does business are common, even from those who have entered into business arrangements with Microsoft.

Bob Metcalfe, founder of 3Com Corporation, likened a disastrous joint marketing venture with Gates in the late 1980s to “black widow spiders mating—you’d be lucky to get out alive.” Metcalfe said Microsoft double-crossed 3Com and precipitated his company’s first multimillion-dollar quarterly loss in 1991.

With $400 million in revenues, 3Com was well established in the flourishing computer networking market. As PCs proliferated, they were being used by more and more businesses as communications devices and for sharing information. PC computer networks allowed many PCs to link up and work together.

The undisputed leader of the networking market, with a seventy percent share, was Novell Corporation, owner of a bestselling network operating system called NetWare. Gates had been eying the market for several years, trying to get a foothold. He believed the market rightfully belonged to him. In the fall of 1988 Gates dispatched Ballmer to 3Com, who arrived bearing a demonstration program to show that Microsoft’s own network operating system—OS/2 LAN Manager—was well along in development. Ballmer proposed that the two companies team up to finish off development of the system, which would be based on computers running OS/2, and market it through 3Com s expensive dealer network.

Alan Kessler, 3Com’s general manager, was open to the idea. He believed, like most others at the time, that the match of IBM and Microsoft was the irresistible force of the industry. OS/2, rightful heir to DOS, was going to take over the PC world. An operating system based on OS/2 seemed the perfect antidote to Novell’s persistent success in that field. If all went well, 3Com and Microsoft would set the new industry standard.

“Microsoft,” Metcalfe recalled, “really wanted to take Novell on.”

Kessler and Mike Murray, chief of Microsoft’s network business unit, negotiated the deal in the weeks leading up to Christmas, faxing draft documents back-and-forth and haggling over the phone. Eventually, just one small obstacle remained; 3Com wanted Microsoft to help pay an up-front cost to a third-party developer whose technology 3Com had incorporated into some of its work. Ballmer stubbornly refused. Kessler called him in desperation just before Christmas, trying to complete the negotiation. “C’mon Steve,” Kessler implored, “for God’s sake,

Christmas is next week, let’s put a little something under the tree for all of us and go home.”

Ballmer relented, and the deal was done.

Gates was not involved in the negotiations, but he was familiar to 3Com executives. Metcalfe had known him since 1979, and they were on good terms. Gates and Ballmer attended a 3Com press conference announcing 3Com’s first product. Metcalfe, who had once worked at Xerox, steered Charles Simonyi to Microsoft when he was considering leaving Xerox. The two companies had occasionally collaborated in marketing since then, and 3Com was licensed to sell Microsoft’s first venture into networking, a product called MS Net.

Tension in the new partnership, however, began to build almost immediately. Their first joint press conference on the development effort was marred by squabbling between the two companies’ marketing departments, according to Metcalfe. Gates’ presence at the event did not ease the strain. 3Com had been counting on the public relations mileage it could get' out of a partnership with Microsoft, but the Redmond company’s marketing department seemed determined to shove them out of the limelight.

“They made it clear it was a Microsoft operation,” Metcalfe said. “It wasn’t a joint press conference, it was a Microsoft press conference. That’s how it was positioned and received, and it was extremely disappointing. We had committed a substantial number of dollars and people over a few years to this deal, and the attention we received and the credit we were given were not commensurate.”

The friction didn t ease after development got underway. Programmers for 3Com, responsible for writing some of the low- level code, weren’t getting along with the Microsoft engineers writing the higher level LAN Manager software. As the project progressed through 1989, both groups fell behind schedule. Code written by Microsoft programmers, who had limited experience in networking, was breeding bugs.

“Our engineers were treated like shit by Microsoft people,” Metcalfe said. “They ended up testing all the buggy software, and whenever anything was wrong, Microsoft’s general position was it was our fault. Our engineers were forced to suffer daily indignities in the face of these obnoxiously arrogant programmers. One of my friends referred to them as the Hitler Youth.”

Bugs and battles between programmers were not unusual. But when LAN Manager was introduced in October 1989, few were happy with the quality of the product. Customers had difficulties with it right from the start. Sales suffered accordingly.

“LAN Manager was fairly immature,” said a former Novell executive. “It clearly was not as strong as other network operating systems that were already out in the market, such as NetWare and others. We felt it had quite a ways to go before it was going to be a viable product. And we also felt that this was just phase one of a grander marketing plan.”

Gates had personally joined the fray. He was pitching the product to some of the largest companies in the nation. Bearing free software, he would meet with in-house computer technicians, trying to convince them to abandon Novell and NetWare for Microsoft and LAN Manager. “Bill would take the time to talk to them directly and say, ‘Gee, can I answer any questions as to why you should be developing for the OS/2 platform?’ ” said the ex-Novell executive. “We also heard a number of instances where Microsoft and IBM would go into the large
corporations
go right up to the manager of information systems level and say, ‘This is the future, LAN Manager is where the future is going to be, and Novell is part of the past.’ ”

Novell marketers countered with their roundhouse punches. When they began selling a new generation of NetWare, they expected Microsoft sales personnel would be out disparaging it. Microsoft, they felt, was nearly certain to attack it for system reliability, because the new operating system was programmed in a way that made it faster than LAN Manager, but— according to conventional wisdom—less protected against major system failure.