Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence (24 page)

IE 4.0 provided another unexpected headache for me. AOL had meanwhile conquered about 30 percent of the online-services mountain. She was still running a proprietary network but felt the urge to transition to the Internet to stay competitive. To move faster, she needed an AOL-specific browser. Not wanting to start from scratch, she simultaneously entered into secret negotiations with MS and Netscape to acquire browser code. Both companies made attractive offers, with both solutions offering unique advantages. Winning the deal was fiercely contested, understanding the tremendous customer base AOL presented and the usage share the winner would gain. At last, Netscape was announced the winner, only to be recanted twenty-four hours later. There was a sound technical reason for AOL to go with us. In contrast to Netscape’s, our browser design was modular and therefore easier to pick apart and adapt. After unexpectedly losing the bid in the second round, Netscape cried foul. Posturing and ranting in public about MS pulling imaginary evil strings yet never admitting we possessed indeed an unequivocal technical edge.

To close the complex deal, we consented to a last-minute sweetener by allowing AOL to promote her services in all Windows packages, including the ones OEMs inserted in their PC boxes. I understood our desire to win but objected right away to how far we had gone. With OEMs desiring to extract money for such favors, I knew my customers would be extremely unhappy with our arrangement. As I waded into the uproar, I discovered the deal was ironclad, and we had to honor it. As can be expected, our ill-guided promise added to the already rapidly growing pandemonium. Who had the right to desktop or boot-sequence modifications had now morphed into what OEMs needed to insert into their Windows packages! Hands tied again, I endured new complaints. Having made an exclusive deal with a different Internet service provider, Dell was the first to raise a stink, followed by Gateway, who had started her own online services. I fully shared their objections, unable to provide relief.

PRELUDE IN THE SENATE

Earlier that year, politicians got back in the ring after competitors like Netscape, Novell, Sun, IBM, and Oracle raised public and behind-the-scenes complaints about MS business practices to an unprecedented crescendo. As the head of the Senate Judiciary Committee, Utah’s Senator Orrin Hatch felt obliged to schedule a hearing, inviting Sun’s CEO, Netscape’s CEOs, RealNetworks’s CEO, Dell’s CEO, Bill Gates, and other computer-industry executives to wash some dirty laundry in congress.

Representing the state of Utah—where Caldera, Novell, and WordPerfect were headquartered—he should have recused himself or refrained from scheduling the hearing at all. All three companies had supposedly contributed generously to his election campaigns, and he now felt obliged to dress down a competitor of theirs—potentially greasing the skids for future donations. I still believe he abused his position, and I considered his behavior bold-faced sleaze in full and open public display, never noted by the free press or criticized by any of his colleagues.

His views on antitrust enforcement were well documented in a speech published in “Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Marketplace.” According to him, antitrust enforcement needed to focus on paradigm shifts in the IT industry and in particular regulate successful market leaders who supposedly exploited their market power in preventing start-ups to introduce disruptive technologies. Start in Utah, Senator! He theorized that such behavior would inhibit innovation and harm consumers. What a contradiction! Truly disruptive technology does not need protection from regulators regardless of how aggressively an already-entrenched market leader defends its turf. In particular, as a Republican senator, he was just plain wrong in recommending to artificially protect start-ups and crush the taxpaying establishment. There were no laws on the books to intelligently corroborate any of his awkwardly antagonistic policies.

No wonder the hearing quickly turned into a MS witch hunt, with Hatch and MS competitors calling us a monopoly. “Ei incumbit probation qui dicit, non qui negat.” Innocent until proven guilty, the senator, himself an attorney, failed miserably.

Watching the proceedings of the showlike trial on TV, I admired Bill for attending the devilishly choreographed charade of pseudojustice marching toward a resolutely staged outcome. Dell’s CEO saying something nice about MS was roundly ridiculed by politicians for not offering any non-MS OS for his PCs. The proof was presented based on a single phone call one of the staffers had made, the content of which didn’t reflect Dell’s policy at all. As usual, the predisposed press was all over the blatantly manipulated event, repeating for weeks thereafter the mounting alarmist accusations leveled by competitors and Hatch-like politicians. Some called the grilling of Bill a public service in the infamous public interest. I shook my head in disbelief, thinking of all the time and taxpayers’ money they wasted!

ANOTHER ALLIANCE ATTEMPT

With the demise of OS/2 WARP, clearer heads in IBM’s PC division finally prevailed. During my reinstituted quarterly dinner meetings with the local IBM lab manager, I indicated that Bill would be interested in reconsidering a broad partnership. My message got passed directly on to the right people. Bob Stevenson, Thoman’s successor, wanted to seriously explore it. Negotiations were back on. My team and I met several times with different players from within IBM, exploring the opportunity further. Following up with Bill, we outlined a plan. Bill’s interest in working with IBM now extended far beyond the PC platform, covering database technology, mainframe issues, intranet- and Internet-integration topics, PowerPC ambitions, etc. Competing and winning against OS/2 or Lotus products had faded away.

In turn, I detailed his assessment and interest at large with IBM’s division management and asked to explore Gerstner’s willingness to engage. His people came back with “He does not like to waste his time.” I interpreted their message as “I don’t think I can really trust Bill Gates.” We refused to give up, cultivated influencers, and in the end succeeded in arranging a private assignation between the top management teams of both companies.

The meeting took place in the early afternoon of a late and humid summer day in Chicago and began with sitting down for lunch together. The IBM guys were dressed in their rigid pinstripes while we had just changed, last minute, from Cabela’s sportswear into casual business attire. Straight off, I could see that Bill was in guarded mood. Steve had expressed skepticism on the way over. Paul Maritz and I kept an open mind without being overly optimistic about the outcome of the potshot gathering. Both parties had flown in on private jets and used black stretch limousines—curtains closed—to reach the designated meeting location in a North Chicago suburb.

In marching up the bricks of the alleyway, we used a greasy back entrance and filed into a Tattiano’s-like Italian restaurant to get into a compressed meeting room. Surrounded by IBM handlers, Paul and I couldn’t help but compare the moment and the mood to how Mafia bosses may have cautiously approached their clandestine rendezvous.

After introductions, we stood patiently around a long table as Lou made a great display of symbolically removing and then folding his cape and sword. The chairman of the largest IT company in the world was in an impressive form; Bill matched him—just kidding.

Sworn to secrecy, none of its attendees ever disclosed that the meeting ever happened. MS was represented by Bill, Steve, Paul Maritz, and me. Lou Gerstner had brought his software chief, SVP Jon M. Thomson; Ned Lautenbach, a sales SVP; and Bob Stevenson, who was SVP in charge of the PC division. I had met him twice before and had not been terribly impressed. Unfortunately, the meeting took place prior to Sam Palmisano’s appointment as head of the PC division, which came about two to three months later. Its outcome may have been much, much different.

The two big boys got right into the topics outlined in the relatively loose agenda. I remained mostly a silent observer. There was a lot more gray hair on the opposite side of the table. The meeting was cordial, sometimes a bit tense. I concluded early on, and so did Paul, as we had a quick exchange during a break that any real action would not be easily forthcoming. Lou and Bill were living in different worlds. Gerstner had been a consultant for a long time in his business life. He understood how serving customers diligently could make a company successful. An insight most instrumental for him as he engineered IBM’s turnaround!

Bill’s career had been a brilliant stroke of luck, betting on the superiority of the PC concept. He had truly lent a hand in creating, growing, and nurturing the industry. Possessing no sympathies for IBM’s mainframe approach, he had nevertheless concluded that bridging both worlds promised rewards for both sides. Could he charm—or better,
lure—Lou into an alliance for the good of all?

Steve understood that customers paid our bills and that only satisfied ones guaranteed our future. In this regard, he was closer to Lou than Bill and understood Gerstner’s reason for insisting on a humble customer-driven service culture. I had briefed him and the other MS participants on this subject in-depth and in detail. But none of them fully perceived the radical transformation IBM was painfully suffering through right before our eyes. To save and transform IBM and make his new service concept stick, Lou Gerstner had surrounded himself with a number of minions he knew and trusted from former work experiences. Most of his new team had no axe to grind with MS; the old crew who had lived through the divorce and the later rocky relationship was nearly all gone by now.

So there we were, expectations brimming. Would the titans clash or understand each other and bridge the gap? I noticed no personal hostility between the participants; everybody behaved. But real bridges of understanding weren’t built either. Lou came across as an empathetic GM type contrasting Bill, the futuristic visionary. Bill engaged him several times in technology discussions, but neither Lou nor his entourage could or wanted to follow along. Surprisingly, IBM’s white-haired software chief, Mr. Thomson, did not engage. For Paul and me, he was a true disappointment. He appeared to know budgets better than technology. Lou was talking in broad terms outlining business principles. His statements were kept ambiguous and not concrete enough for the MS team to seriously engage. The smallest passion for an alliance waned as the ticking clock started running out.

Steve behaved well and did not reveal his still-undiminished animosity; he tried hard to understand how these broadly worded and nonspecific suggestions could lead to a new form of cooperation. The meeting ended after approximately three and a half hours, and Paul and I got assigned the task of following up. We did so over several months with different groups inside IBM, but in the end, nothing concrete ever came out of our enduring dialogues.

No wonder we failed to find common ground to foster each other’s businesses. Lou Gerstner had put IBM on course to restore her lost leadership position. He got lucky betting on C-MOS technology for a new mainframe generation, although the real change he introduced to IBM’s culture—true to his former experience—was a new understanding of how to address and gratify customer needs. In the past, IBM’s consulting organization had refused to engage in service contracts for non-IBM products. Lou Gerstner modified this long-entrenched policy. If expertise was available, at a price, any and all IT projects were accepted, and customer preferences were no longer questioned. MS’s top management listened but could not believe that IBM had turned vendor neutral and was, from now on, willing to treat our products on equal footings. Had the ongoing war clouded our judgment?

We knew the Internet would demand opening up and embracing non-MS standards. But our primary goal was still to defend and cement success for generations of Windows to come. This centric view was causing a bunker mentality, hindering Steve and Bill to trust IBM’s promise. In a nutshell, you could say MS was still tapping bricks into her wall of defenses. IBM had started to dismantle hers to win customers back.

Examining the wide gap of practical and philosophical differences between two leaders allowed me to understand why no common ground was found. Bill, fond of his iconic image, presented himself as an esteemed visionary. Lou Gerstner gave the impression of a down-to-earth pragmatist. He was fully respected and at times feared by his employees when making unpopular decisions. On the other hand, Bill always looked for admiration and avoided making the tough decisions, leaving it to his subordinates.

Gerstner once told journalists that IBM did not need yet another strategy, which the press totally misunderstood and therefore ridiculed. In his book, he explained the need for strategies to be “short on vision and long on details.” As a consequence, solid strategies “start with a massive amount of quantitative analysis.” An anointed vision and gut feelings, to my consternation, were often the centerpieces of ours. In my opinion, Lou Gerstner was correct when stating “vision statements can create a sense of confidence.” They “are for the most part inspirational and play a role in creating community and excitement among an institution’s employees.” Bill and Steve reveled in them with convincing conviction. Lou played them down, considering them a necessary evil.

Observing their exchanges during our legendary meeting, I concluded the core reason why they misunderstood each other: they lived on two different planets. Both were running a successful business, though with dissimilar philosophies and principles and with antithetical disciplines. Lesson learned, mission not accomplished! The two limos idled out from the alleyway entrance and drove off into the late afternoon Chicago sunlight back to the same airport we had both arrived from and still in two vastly different directions.

Shortly thereafter, IBM appointed a new leader for the PC group. After the failed attempt to bring the big boys together a couple of months earlier, I made absolutely certain to meet Sam Palmisano at once and explore how we could improve our working climate. The rumor mill had it that Lou G. was preparing Sam to succeed him. I was full of anticipation and not at all disappointed. Sam was a class act of a manager, and we understood each other immediately. He was polite, to the point, and wanted to explore possible cross-company synergies on a small scale. Sam cracked a couple of jokes about the darker past while, at the same time, obviously wanting us to bury the hatchets. We touched briefly on the failed meeting, and he flat-out told me that Lou had considered it a waste of time. There was no reason to believe a grand alliance would come together in the near future. I appreciated his point-blank honesty. He appeared rather close to Lou, and perhaps the murmurings about Sam as his successor were right on. In retrospect, they were. We agreed to leave the past behind and make sure IBM and MS could at least work constructively on new product introductions. The first opportunity on the horizon was the launch of Windows 98, at that point less than a year away. I gave Sam my word to fully support him. As I left, he enlightened me on how IBM had survived her antitrust battles with the Feds in the ’80s, and he wished us luck accomplishing the same.