Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence (39 page)

I sensed at times, with Bill being moved aside, that I had lost my key mentor and protector. After another pushy session with Steve, I wrote him a well-thought-out e-mail asking him to honor our agreed-upon deal and to respect what the old warrior had done for the company. Telling him point-blank I saw no benefit in reporting to Jeff—implicitly suggesting I was his senior. Underscoring, what Steve had admitted, managing me was not a lot of work for him. I proposed to leave the OEM group untouched. He, in turn, thanked me for my considered and thoughtful summary and patiently refrained from any changes. My trust in him was restored.

My direct reports discovered Steve was from now on showing increased interest in the OEM business. No wonder—he knew I was likely leaving within the next eighteen months. The organization had always followed my directions, but straightaway I spotted a certain behavior shift among my senior managers. I had encouraged them to showcase their talents to Steve to better determine if they could succeed me. As a strange but plausible result, a few of my senior guys now wanted major decisions cleared by both of us. This ground fog of ambivalence appeared to be helped by the general uncertainty taking root in the company. In these tricky and ambiguous times, my crew was looking for additional reassurances. Arresting the trend early and with full authority stopped the nuisance. Even as Steve and I occasionally agreed to disagree, no second-guessing was needed. With few exceptions, I knew where my authority ended and how much elbow room I had. My crew interpreted this as me being bulletproof. I hadn’t been before, and I wasn’t then; everybody is replaceable, but as long as they thought so, I just laughed it off.

By mid ’00, the search for my successor had started in earnest. There had always been a leading candidate in Richard Fade, who had just recently rejoined my group. He was well liked and generally respected by my people and, more importantly, by Steve and Bill. Richard, though, had encountered unfortunate health matters in his family, forcing him to take an extended leave of absence. I wasn’t sure about the level of commitment he would be capable of if he stepped into my shoes. Shortly after I took over from my predecessor, I had promoted him to supervisor. He excelled and had been instrumental in resolving our distribution challenges and addressing the tricky piracy issues. Consistently a devoted top performer, he owned a deep familiarity of the OEM business. I entrusted him with larger roles over time, until Steve lured him away to run the Far East region out of Tokyo. With his move came a then-rare VP title. I encouraged to him to jump at the opportunity. Back in the United States, as head of the consumer and desktop division, he had been instrumental in launching the successful and stable Office 97 product. I liked him a great deal as a person but sometimes believed he wasted time when trying a bit too hard to build consensus. I sincerely hoped the home front situation would not take a larger toll on him. I was aware that not all of my direct reports appreciated his management style as much as I did, but that’s business life, isn’t it? We had to expect and tolerate personal shifts and departures after I was gone. Wisdom and maturity required as much, and my group’s structure was healthy and solid enough to easily absorb a hit or two.

For the first time ever, Steve asked me to attend with my crew the company’s worldwide sales meeting next year in Atlanta, Georgia, and forgo our distinct annual OEM summit. No friend of participating in such a monstrous event, I nevertheless reluctantly agreed. Expecting ten thousand participants, its format had to be rigidly structured just to move the crowd along. Typically, you could expect three days of training sessions punctuated by geography-specific meetings, reward ceremonies, and several all-attendee rallies, often in a sports stadium. Always featuring Steve as the frothy, cheerleading company whip followed by Bill as the rational and placate keynote speaker. Johnny Carson and Ed McMahon! With Steve reveling in the role of group orchestrator and augmenter, Bill had completely slipped in the role of regal software architect and elder statesman—a touch less aggressive and vibrant than in the past. I had witnessed several similar events before and often left with growing skepticism about the display of rabble-rousing righteousness and choreographed chest-thumping pedantry.

The annual OEM sales summits had evolved quite differently. They were always held in June, allowing us a running start for a fiscal year starting July 1. For the first two days, I brought my sales and marketing team to Redmond for intense and intimate training sessions. Speakers from relevant business groups, customers, logistic experts, and as highlight, Steve and Bill addressed the assembled crew. Every speaker’s performance was measured on meaningful content and less on showmanship. Afterward, my troops precisely understood our product road map, our sales goals and marketing campaign objectives for the upcoming year, and our previous year’s failures and accomplishments. As a special bonus, we then embarked on the fun part of the gathering, each year full of surprises, adventures, and team-building exercises. The crescendo was the official naming of winners from last year’s contests during a gala dinner. Thanks to our fabulous admins and their extraordinary inventiveness and hard work, they grew into happenings highly envied by other parts of the company. People talked about them for years. So going to Atlanta in the hot, humid summer of ’00 in its place was not welcomed, and it sucked. Steve kept his word, letting me devise next year’s gathering in our proven and memorable format. My last one as I already knew it would be.

The reason we organized our annual events differently from the rest of the company could be blamed squarely on me. The first two, after the one in Hood Canal in ’89, had transpired at cushy resorts, featuring extended leisure and camaraderie. I hated them. I was managing a group of vital young professionals, yet we behaved like retirees lying on the beach and enjoying the easy nightlife. Too many people got drunk, and except for soaking up sunshine, there was nothing too terrific to report about. The third year I surprised my crew. We went into the Canadian Rockies, slept in unheated tents at below freezing, endured wild canoe races, and engaged in competitive games exploring the untamed wilderness. The spirit of the organization changed on a dime. No one, except my fellow German female sales reps, was the least disturbed when the hot water for their morning shower ran out before commencing on a tough sixteen-mile hike. People were exhausted yet inspired by the exhilaration of outdoor adventures combined with team-building fun. The traditional last-evening poker game did not materialize either—the day had been too grueling.

Morale had never been better and from there on; expectations set, we geared up for extra adventures and team-building opportunities, inducing motivation and creating long-lasting memories. The outcome, my team felt rewarded for what it had accomplished and was less afraid of whatever lay ahead. In good old MS style, no words were minced—camaraderie triumphed. When the enthused and exhausted crew rejoined their coworkers in the subsidiaries around the globe, they truly had lofty adventures and lessons to extol.

Unfortunately, for the first time since I had taken the reins, results for the FY year had been slightly off, missing our revenue budget by a whopping 2 percent. A considerably improved profit margin had still enabled the division to deliver the anticipated contribution to the corporation. Our growth was down to a mere 15 percent. The dot-com bubble had burst, and overall PC volume was gravely disappointing. The enterprise group had sold more Windows NT workstation copies than forecasted, resulting in lost revenue for us. Our absolute growth was nevertheless fabulous. Compared to the previous year, we had once again increased our revenue by approximately one billion dollars. No one was depressed, and no doom-and-gloom feelings set in despite our slight underperformance.

XBOX

By 1998/99, planning for an MS entertainment console had gone into overdrive. MS, the ultimate software company, was boldly venturing into the sharply different dimensions of being a hardware vendor. Yes, we had produced computer mice and ergo keyboards before, but a fully functioning computer system had never been on our list of offerings since ’86, when we had abandoned an early game console in Japan.

Since then, the competitive landscape for game consoles had changed radically. With Nintendo in the lead, Sony had launched PlayStation, immediately making life difficult for all competitors. Keeping a wary eye on her progress, Bill was concerned that this alternative computing platform could conquer the living room. Sony’s division was run by Ken Kutaragi, an energetic and impressive entrepreneur and business executive. He had equipped his console with an advanced, lightning-quick proprietary graphic processor that was far beyond anything found in PCs, attracting a huge number of leading-edge game developers. Nintendo with her GameCube and Sega with her Dreamcast system felt pummeled as gamers left opting for the newcomer.

We landed a deal with Sega, making Windows CE her OS of choice. It got us a foot in the door. Yet Bill insisted on gaining a larger piece of the action by launching a full-blown game console of our own, stopping Sony’s march. To justify his ambitions to the board and the shareholders, he wondered if we could offset predictable console losses with game-software profits. Ed Fries, a MS veteran and the genius behind MS’s immensely popular flight simulator program, made a convincing case confirming Bill’s idea, and soon the race was on. Promising to attract and recruit a critical mass of independent software vendors for the new platform, Ed sealed the deal. Short on detail and long on vision, MS style.

I was stunned to hear about this new endeavor. My main concern: how much would our OEMs appreciate our move into producing a complete computer system potentially endangering their PC business? We had enough daunting challenges already; why take on yet another where initially huge losses were expected? I further questioned our ability of sourcing parts cheaply enough and managing production aspects in a cost-effective and timely manner. The idea of still-to-be-created game software coming to the rescue for this hardware adventure did not strike me as a solid business foundation. Questions regarding the software being delivered on time and us being able to create hot-enough titles crossed my mind. To accomplish our profitability goal, we first of all had to sell lots of consoles at probably substantial losses for years to come.
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Despite my customer-related concerns, Bill was dead set, brimming with optimism and perfectly willing to gamble with shareholder’s money. The ambitious project soon went one step further with Nathan Myhrvold, our chief technology officer and resident propeller-head, insinuating we could eventually transform our game console into a full-blown PC. I shook my head. Fortunately, cooler heads prevailed. At least for the moment.

In the end, Bill listened and offered me a chance to approach several OEMs, swaying them to build and launch a game console on their own account using our blueprint. We committed to supplying a special Windows edition along with a promise to develop game software exclusively for the new platform. We talked to Dell, Compaq, Hewlett-Packard, Acer, and Nippon Electric Company (NEC). Thanks but no thanks! They had studied the Sony and Nintendo business models in detail and didn’t believe they had the ability to compete profitably. Leaving us to stick our neck out, alone! We should have listened closely. After this setback, there was talk of buying Sega or Nintendo, neither faring too well, but no deal was ever seriously attempted.

Just after I left the OEM post in 2001, Xbox was launched. The project had gone through several iterations and numerous delays. MS had a hard time designing the box properly and sourcing the components at acceptable prices, shocking AMD when deciding to go with a special low-priced Intel Pentium CPU. Ed Fries did a super job recruiting ISVs, but even then, games for the new platform were coming along slowly. ISVs were outright skeptical if we would pull it off and were busy writing PlayStation games. Buying one of them enabled us to publish one big hit,
Halo
, a supersuccessful war game, yet not enough to compensate for mounting losses. In the following ten years, the company lost well over $ 10 billion on Xbox before breaking barely even. Not the type of success I would have aimed for.

One last aspect to our hardware story: Rick Thomson, who had been in charge of building all MS hardware products, joined the Xbox team in ’99 to build the new platform. As he left the company a year later, frustrated by internal politics, our hardware group experienced compounding difficulties. New management came in and decided to abandon the OEM mouse business I’d been nurturing all along. I was deeply disappointed but no longer had the passion to fight for its revival. The little critters would from now on be supplied by other manufacturers while MS would focus entirely on the supposedly more profitable retail sector. Opportunity lost!

LATE CHALLENGES

My travel in 2000 was mainly to developing countries such as South Africa, China, and India. I was not satisfied with our progress in India in particular and decided to visit the country for the first time ever. The leading IT Company to visit was Hindustan Computer. Founded in ’76 and still mostly focused on India but with plans to branch out into Africa, she had moved beyond selling hardware and transformed herself into a top-notch IT consulting and engineering company. Bill recommended I talk to Jai Chowdhry, her CEO and founder, calling him one of the smartest people he had ever met. After my arrival, he graciously gave me an educational overview of India’s fast-growing IT industry and the local PC market in particular. Typical of a developing country, India’s PC business was firmly in the hands of small system-builder shops. Among the relatively few larger manufacturers, HCL was the most eminent. To stay competitive with the screwdriver outfits, the smaller manufacturers sold their PCs mostly without any software and let the pirates find a way to take over at the point of purchase. HCL, with her established brand name and her primary target of serving enterprise customers, was a noble exception to the rule.