Hard Drive: Bill Gates and the Making of the Microsoft Empire (24 page)

The first versions of Multiplan were released for the Apple II and the IBM PC. A version for machines that ran on the CP/M operating system followed. Multiplan was soon running on dozens of different computers, from the PDP-11 minicomputer made by DEC to the Osborne I, the industry’s smallest computer.

The $1,795 Osborne I was the brainchild of industry gadfly Adam Osborne. It was the world’s first commercially successful portable business computer.

When Osborne had first developed his new computer, he licensed the CP/M operating system from Gary Kildall and made deals with Gordon Eubanks and Gates for their BASIC languages. He offered Gates and Kildall stock in his company, which incorporated in early 1981. Osborne had a high regard for Gates, and he wanted the young CEO on his board of directors. Gates took the stock offer but turned down the board position.

“He’s one of the few in the industry who has an enormous technical acumen,” said Osborne of Gates. “He’s the only entrepreneur in the industry who will pick up the code and comment on how good it is. He has the ability to look at it and tell what the programmer is doing right or wrong.”

But Osborne, a very proper fellow who speaks with a very precise British accent, did come to question Gates’ judgment in one nontechnical area—women. In 1982, Gates reportedly had an affair with the wife of one of Osborne Computer’s overseas executives. The woman was about 40 years old and had been married several times.

“Bill had a real fondness for older women then,” said another Osborne Computer executive who knew about the affair. The woman made the first move, according to the executive. “She decided she was going to sleep with Bill Gates.” When Osborne found out about the affair, he talked to Gates and told him to stop playing around; he was ruining a marriage. Gates told Osborne to mind his own business.

The tryst did not last long. Neither did Osborne Computer. In 1983, with a public stock offering in the works, the company declared bankruptcy. In two years, its revenues had soared from nothing to more than $100 million. But the growth was uncontrolled. The company collapsed under mounting debt as a result of questionable strategy.

Osborne had tapped into a vast and lucrative market with the Osborne I. Microsoft saw the possibilities for a small computer, too. Throughout 1982, it helped to develop what would become known as the Radio Shack Model 100, a portable computer small enough to sit on a person’s lap. The Model 100 laptop was the brainchild of Kay Nishi, Microsoft’s high-flying, globe-trotting representative for the Far East. The genesis for the project was the first-class cabin of a Boeing 747 Jumbo jet,

Nishi was flying back to Tokyo after one of his frequent business meetings with Gates when he found himself seated next to Kazuo Inamori, the president of the big Japanese industrial ceramics firm Kyocera Corporation. Nishi, who could turn a roomful of skeptics into believers, began describing to Inamori a portable computer with a liquid-crystal display screen. Nishi said the computer could be made small enough to fit into a briefcase.

The intense, long-haired, disheveled, baby-faced Nishi, dressed in sweat pants and sneakers, must have been a surprising sight. Obviously, he was not the typical Japanese businessman. But Nishi was convincing. Kyocera Corporation, Inamori said, would be honored to manufacture the computer.

Before long, Nishi had lined up others for the project. Hitachi agreed to produce in volume the 8-line liquid-crystal display.

A few months later, Nishi was on a plane heading for Fort Worth, Texas, to demonstrate a plastic mockup to Radio Shack.

Gates wanted Radio Shack to market the computer in the United States, and he had arranged for Nishi to meet with Jon Shirley, who was then vice-president of computer marketing for the Tandy Corporation. Nishi delivered one of his patented presentations, and the marketing ball was rolling. NEC later signed on to sell the computer in Japan.

The Radio Shack Model 100 represented his concept of the ideal computer.

“I remember Nishi running around with this
calculator sized
computer, showing it to everybody and saying “This is the future, everything is going little,” said Raymond Bily, who had joined Microsoft as a software developer in 1982.

Although the Model 100 did not sell as well as Tandy expected, it was still considered a marketing and technological success and was used by thousands of travelling sales representatives and journalists.

Coupled with Microsoft’s push into applications and retail sales, Gates wanted to expand the company’s marketing base outside of the United States. He had moved into Japan before his competitors and, with Kay Nishi’s aggressive salesmanship, bagged the lion’s share of the language market there. The reward was millions of dollars in revenue for Microsoft’s coffers, almost as much as that pouring into the company from all its U.S. sales. But Europe and other overseas markets for the most part remained untapped.

In early 1982 Gates decided Microsoft needed an International Division. He handed the assignment to Scott Oki, a recent recruit from the Sequoia Group, which built turn-key computer systems for physicians.

Oki was taken by surprise when Gates asked him to organize the International Division. He had only been to Europe once in his life. Not long afterward, Oki informed Gates that he had prepared a business plan for the International Division.

“What’s a business plan?” Gates asked. The Microsoft CEO had never heard of one of the most basic business planning tools.

Oki’s plan called for the formal launch of the International Division in April of 1982. Microsoft would set up subsidiaries in Europe and elsewhere, finding local agents to handle its business interests. For Oki, it was the start of several years of off- and-on 20-hour days. “I went weeks at a time at that pace,” he said.

At first, success in penetrating the foreign markets came slowly. Until 1983, Digital Research dominated the operating systems market in Europe. It took a while before the IBM PC and compatible machines that ran on MS-DOS became as popular there as in the United States. Within a few years, however, Microsoft had wholly owned subsidiaries in Italy, Sweden, Australia, Canada, Japan, Mexico, and the Netherlands.

It was a heady time for Microsoft on both sides of the Atlantic. One of the company’s executives, recalling the pace of activity in late summer of 1982, said: “We were introducing products into several market places. We were setting up offices in Europe. We were pumping DOS, trying to beat CP/M. We were trying to expand Multiplan’s position. We were starting to talk about Word. We were still pushing XENIX. We were doing a new COBOL. It was crazy.”

Gates was still pretty much running Microsoft single-handedly. But a lot of his time was being taken up with technical matters—he wanted the final say in everything. Allen, on the other hand, was becoming more involved in management. He had taken over responsibility for operating systems and the Multi-Tool line of application products. Steve Ballmer, in the two years he had been with Microsoft, had bounced all over the company, serving as a roving troubleshooter for Gates, general manager of the Consumer Products Division, vice-president of corporate staff, and finally chief financial officer. He also handled recruiting and hiring.

In recruiting people like Raikes, Oki, and Simonyi for key management positions in the company, Microsoft went after highly competent technical people rather than skilled managers with an MBA. The recruiting emphasis was on finding exceptionally bright young employees with intensity, technical ability, and almost rabid enthusiasm. Knowing how to write code was more important than knowing how to write a business plan.

But Ballmer recognized that Microsoft needed a professional manager. The company was in the throes of diversification and faced the inevitable management problems brought on by rapid growth and expansion. There was serious concern over whether Microsoft had the key management talent, as well as the management structure and control, to move into all these highly competitive arenas at once. In the summer of 1982, Ballmer convinced Gates to allow him to initiate a search for the company’s first outside president, someone who could take some of the load off Gates.

Although Microsoft had established a considerable reputation in the industry, it was still a relatively small company, with fewer than 200 employees. Most of the explosive growth in the personal computer industry was taking place in the Silicon Valley of California, and it was difficult to induce top industry managers to move to Oregon and Washington. Several possible candidates who were approached did not want to relocate there. Frustrated, the headhunter hired by Microsoft called James Towne, an old friend from Stanford Business School who worked for Tektronix, a $1.2 billion maker of engineering equipment.

At Tektronix, Towne had worked his way up the management ladder, rising in 12 years from a low-level employee to a vice-president in charge of the company’s largest division, with annual revenues of about $700 million and some 7,000 employees worldwide. But Towne was ready for a change. And Towne was a Portland native—Tektronix was located in Beaverton, just 180 miles south of Seattle.

After a brief courtship, Towne agreed to take the job at Microsoft.

Towne hardly fit the profile of the typical Microkid. About to turn 40, with a wife and two kids, he was 15 years older than the average Microsoft employee, and he did not have a technical background. What he did have was a brilliant mind and a lot of energy, qualities that Ballmer and Gates demanded of key people who worked for the company. Towne was a personable man who believed in delegating authority and managing through subtleties. He would prove quite a contrast to Gates and Ballmer, whose styles were anything but subtle. Despite its overwhelming financial success, Microsoft was in dire need of sound management practices, as Towne quickly discovered. Bookkeeping for the multimillion-dollar company was still being done on a small Radio Shack computer. The marketing people had no idea how much of a product they thought they could sell. There was no budgeting system or salary structure. For example, huge differences existed in the stock options granted to programmers who did equivalent work. It seemed to Towne there was a philosophy at Microsoft that to be creative, one had to be out of control.

“This is a critical time for the company,” Towne said in an interview with
Softalk,
the industry magazine for the IBM personal computer user. “It’s my job to shepherd it through the stage from twenty to sixty million dollars in sales. . . . I’m not a software guy, but I enjoy this company . . . helping solve their industrial problems. All the structures get different in bigger companies, but we have to recognize that to bright people, big is not beautiful.”

One of Gates’ managers would not survive the company’s explosive growth. Vern Raburn, president of the Consumer Products Division, was responsible for developing retail markets where Microsoft’s new software application products would be sold. Microsoft had little experience in the risky retail end of the business. It was used to dealing with computer manufacturers who needed languages or an operating system. Penetrating the consumer retail market required more than technical ability. It required a strong marketing and sales department as well.

Raburn’s great strength lay in his relationships with the early pioneers in the industry. He knew everyone, and he did business by simply picking up the phone and calling on a friend. Early on at Microsoft, he had achieved terrific results based on these friendships. But his way of doing business could not sustain Microsoft as the company grew. A more formal and professional marketing approach was required.

“We needed to move to the next level of distribution sophistication,” said one Microsoft executive. “We needed broader and more aggressive merchandising tactics that an IBM would use rather than a small company.”

Gates made the painful decision that Raburn, although a good friend, wasn’t the right person to take Microsoft to that next level. Raburn denied he was fired or asked to resign. “There were a series of blowups. If I hadn’t quit, Bill probably would have fired me,” Raburn said. “It was the wrong place for me to be. ... I left Microsoft because it wasn’t an enjoyable place for me to work. It was an environment I didn’t perform well in. I was hurting the company.”

His friendship with Gates remained intact, despite the difficult parting. In fact, Gates was best man at Raburn’s wedding several years later.

When he left Microsoft in late 1982, Raburn ironically landed a position as general manager for Lotus Development Corporation. At Microsoft, Raburn had been trying to open up new markets for the spreadsheet Multiplan, the company’s first application software. When he joined Lotus, the company was just about to come out with its own electronic spreadsheet, and it proved so successful that sales would eventually catapult Lotus ahead of Microsoft as the industry’s top revenue-producing software company. It would take several years of aggressive battling before Microsoft reclaimed its place at the top of the heap.

Lotus introduced its 1-2-3 spreadsheet in November 1982 at the fall computer trade show, Comdex, held in the cavernous

Las Vegas Convention Center. More than 1,000 computer companies, including Microsoft, were in attendance, showing off their latest products to more than 50,000 eager buyers. Microsoft had expected to have a successful convention. But when Charles Simonyi took one look at Lotus’s 1-2-3 crunching numbers lickety split on an IBM PC, he knew Microsoft’s much slower Multiplan was in serious trouble.