Hard Drive: Bill Gates and the Making of the Microsoft Empire (25 page)

By the end of 1982, revenues at Microsoft had more than doubled to $34 million, and employment had topped the
200 figure. But Microsoft wasn’
t the only computer company experiencing explosive growth. In fact, the personal computer industry as a whole had taken off.

In January of 1983, the editors of
Time
magazine broke with 55 years of tradition and chose the personal computer as its “Machine of the Year.”

Wrote Otto Friedrich in the cover story: “There are some occasions . . . when the most significant force in a year’s news is not a single individual but a process, and a widespread recognition by a whole society that this process is changing the course of all other processes. This is why, after weighing the ebb and flow of events around the world . . .
Time
s Man of the Year for 1982 ... is not a man at all. It is a machine: the computer.”

The information revolution long predicted had arrived, and neither America nor the world would ever be the same again. A nationwide poll commissioned by the magazine indicated that nearly 80 percent of Americans expected that in the very near future the personal computer would be as commonplace in the home as the television set. By the end of the century it was estimated that as many as 80 million personal computers would be in use around the world. That prediction would fall remarkably short of the mark. By the end of 1991, Microsoft’s operating system alone was being used on nearly 80 million IBM and compatible computers worldwide.

The article talked about the lack of good software that had so far made its way into retail stores. Alan Kay, chief scientist for Atari, was quoted as saying, “Software is getting to be

embarrassing
.”

Gates had said much the same thing a couple months earlier in a cover story in the November 1982 issue of
Money
magazine. It was the first time his picture had appeared on the cover of a major national publication, and Gates complained to Miriam Lubow that the picture made him look too young. The 27-year- old CEO still looked barely 19.

“Technology is out of control,” Gates told
Money.
There are tons of software out there. Much of it is pathetic. I
’
ve bought programs that don’t work, and with some I can’t even get past the manual.” But Gates said he expected software to get better. “Over the next two years, we’ll come up with software that will actually meet people’s needs all the way. . . . Right now much of the software is either bad or too hard to use. But these barriers are coming down.”

Microsoft’s Multiplan certainly met the needs of consumers who wanted a better spreadsheet to computerize the drudgery of bookkeeping. At the end of 1982,
InfoWorld
magazine had named Multiplan “software of the year.” Unfortunately for Microsoft, Lotus 1-2-3 was even better. Only a few months into the new year, it had completely overtaken both Multiplan and VisiCalc in the all-important retail market.

“When Lotus came out with 1-2-3, Bill was furious,” recalled Jonathan Prusky, a software developer who came to work for Microsoft in 1983. “Bill knew that applications was where the money was.”

Gates admired what Lotus founder Mitch Kapor had been able to do with Lotus 1-2-3, though losing to a competitor drove him up the wall. The 32-year-old Kapor, a former disk jockey with a fondness for psychedelic rock music and transcendental meditation, had founded Lotus in 1982 with several million dollars in venture capital, as well as a couple million dollars of his own money. He had made his fortune by writing two financial software packages for VisiCorp (then known as Personal Software) and later selling the rights to the programs.

Kapor’s strategy in developing his spreadsheet was just the opposite of that taken by Microsoft. Lotus 1-2-3 only ran on one machine: the IBM PC. It took full advantage of newer versions of the PC with 256K of memory. Multiplan, by comparison, had been designed at IBM’s request to fit into the 64K memory of the first version of the PC. The result, of course, was that 1-2-3 easily outperformed Multiplan. Lotus, and not Microsoft, had created the spreadsheet standard.

What helped to kill Multiplan was that it was built to go on every computer platform. During its development, Gates had made deals with dozens of computer makers. Although Microsoft owned the operating system for the IBM PC, it didn’t realize the PC was going to become the only computer platform of significance. Kapor, on the other hand, gambled that there would be a big enough market if he focused solely on the IBM PC; and he was right. Multiplan was better than Lotus in many ways, but it was slow. Lotus 1-2-3 ran ten times faster than any other spreadsheet on the market.

“This was a big, big loss,” said one industry executive, talking about the beating Microsoft took from Lotus. “It derailed a lot more than just Multiplan. It derailed all of Bill’s ideas [the Multi-Tool products Microsoft planned as a follow-up to Multiplan]. They were all going to be built around the same kind of architecture that Multiplan was, and it was no longer a reasonable way of approaching applications. Lotus definitely derailed and sidetracked Microsoft.”

But no one, including Lotus, knew in 1982 (when 1 -2-3 was developed) that the IBM PC would become the standard. According to Multiplan marketing manager Jeff Raikes, Kapor just happened to guess right. “I don’t even think they [Lotus] understood the key elements of their success.”

Still, for a very brief time in early 1983, Multiplan
did
enjoy an advantage over 1-2-3. Microsoft released its DOS 2.0 upgrade for the IBM PC/XT, causing problems for 1-2-3 on the updated operating system.

According to one Microsoft programmer, the problems encountered by Lotus were not unexpected. A few of the key people working on DOS 2.0, he claimed, had a saying at the time that “DOS isn’t done until Lotus won’t run.” They managed to code a few hidden bugs into DOS 2.0 that caused Lotus 1-2-3 to break down when it was loaded. “There were as few as three or four people who knew this was being done,” he said. He felt the highly competitive Gates was the ringleader.

In time, Lotus 1-2-3 did for the IBM PC what VisiCalc did for the Apple II. Earlier, many consumers had bought Apple’s computer because they wanted a good spreadsheet, and initially VisiCalc only ran on the Apple II. When Lotus came out with 1-2-3, consumers who might have decided on another computer bought the IBM PC to get the Lotus spreadsheet.

What helped to reinforce the IBM PC as an industry standard were the ubiquitous PC clones that began appearing on the market in early 1983. IBM had never intended to make a computer that would be particularly easy to copy, but that’s exactly what happened when it used off-the-shelf parts from other manufacturers for more than 80 percent of the computer s hardware. IBM decided to use “open architecture” because it did not have time to design its own proprietary parts and get the PC out in a year. Also, Big Blue’s corporate management simply did not believe the baby of its computer family would be significant enough to warrant investment in a proprietary system.

Compaq Computer Corporation, based in Houston, Texas, was first out of the gate with a PC-compatible machine in January of 1983. The company did more than $100 million in sales its first year. Within three years of the company’s founding, Compaq had cracked the Fortune 500 list of the top American companies, smashing the previous record of five years held by Apple Computer.

The clones hurt IBM, but helped Microsoft. “IBM compatibility” meant manufacturers had to license DOS from Microsoft. In addition, any application developed to run on the PC could also run on these much cheaper machines. By the end of 1983, Microsoft had made more than $10 million from sales of MS-DOS alone.

“With the Compaq computer, we saw the real power of IBM compatibility,” said Microsoft’s Raikes. “Everybody else had been building computers saying ‘We are different from the rest.’ Compaq came out and said ‘We are not different. We can run any software right off the shelf written for an IBM compatible computer.’ That was the beginning of PC compatibility.”

It was also the beginning of a change in strategy by Microsoft, whose programmers had been working hard to adapt software to a number of machines that were not compatible.

“We wound up doing a lot of work for nothing when the IBM PC emerged as a standard and compatible clones began showing up,” said Bily, the software developer who had joined Microsoft in 1982 after graduating from MIT.

Bily had been assigned to work with Paul Allen on developing a BASIC that could be quickly adapted for any computer platform with only a few hours of work. Microsoft felt that this project had the potential to bring the company enormous amounts of money with little investment of resources. The project was in beta testing in 1983 when it was suddenly canceled. A lot of other projects around Microsoft were also shelved because of the shift in strategy away from multiple computer platforms.

“You put your heart into a project and the world changes underneath you, said Bily. “Software engineering was not a job with us, it was an obsession. ... A lot of resources got lost because the industry changed and the engineers weren’t told about it.”
Bill Gates in his office on Microsoft’s sprawling, collegelike campus in Redmond, Washington. (Courtesy of the Seattle Post-Intelligencer)

It was not surprising that software developers around Microsoft didn’t see what was happening in the industry. They were usually sequestered in their offices like monks in a monastery, leaving only to sleep or have a late-night beer at the Mustard Seed Tavern in Bellevue. Sometimes, they just slept in the office. Bily described what it was like in 1982 and ’83 when he was working on the BASIC project with Allen: “It was all guys. ... I started at age 21, and about a year later I was one of the oldest guys in the group. Everyone had moved here from out of state, and didn’t know anyone. ... So you buried yourself in your work and got a lot of work done.”

Every Thursday night, many of these young programmers would go out for a beer, play foosball on the tavern machines, and talk science fiction before going home or back to work. Although Paul Allen would often join them for a beer, Gates did not.

Gates was so busy running Microsoft that he no longer even had time for his boyhood friend Carl Edmark. In early 1983 their friendship was inexplicably damaged by a seemingly minor incident. They had planned to see the just-released movie “Star 80,” based on the true story of Dorothy Stratton, a
Playboy
model and rising young movie actress who was killed by her jealous boyfriend. But Edmark showed up late at Gates’ house to go to the movie. “From then on, our relationship was strained,” Edmark recalled. “It’s something I never fully understood. We eventually grew apart completely. After that night, he simply didn’t have time for the friendship.” Edmark felt that Gates had rebuffed him because he was not rigorous enough in scheduling his time with Gates. The Microsoft CEO’s time had grown too limited.

The BASIC project Paul Allen had been working on with Raymond Bily would turn out to be one of his last at Microsoft.

Allen had discovered he was seriously ill in late 1982, While on a business trip in Paris with James Towne, Scott Oki, and a couple of others from Microsoft, he had to excuse himself during a meeting to return to his hotel room because he was feverish. Allen told the others he feared this was something more serious than just the flu. When he didn’t feel better after a couple of days, he went to consult a French doctor. But he felt uncomfortable so far from home in a country whose language he didn’t understand. Still running a high fever, Allen left the others in Paris, boarded the supersonic Concord jetliner at Orly Airport, and headed back to Seattle. The diagnosis took some time, but after extensive tests doctors determined Allen had Hodgkin’s disease, a form of lymph cancer. To save his life, they said, he needed to undergo a combination of radiation treatments and chemotherapy—immediately.

Colleagues said the relationship between Gates and Allen had become strained even before Allen became sick; this may have played a part in his decision to leave Microsoft. There were bound to be problems between the two after so many years working together. They pointed out that being around someone as intense as Gates was difficult even for short periods of times.

“It’s almost inevitable when people work so close together,” said David Bunnell, the former technical writer for MITS who knew Gates and Allen back in Albuquerque, “It’s like a marriage.” As a publisher of a national computer magazine, Bunnell stayed in touch with the two after Microsoft moved to Bellevue.

“They have very different personalities,” Bunnell said of Gates and Allen. “Paul was always much more laid back. All along, I thought Paul wanted to enjoy the fruits of his success a lot more than Bill. Bill wanted to drive on and on. I think Paul really wanted to not work so hard. I know he had a rock ’n’ roll band. He had a lot more interest in just enjoying life.”

One Microsoft manager said it was clear to him in mid-1982 that Allen and Gates were having problems. “They were not getting along. . . . There was a confrontation of some kind. It happened before I got there. Paul would much rather read science fiction novels, play his guitar and listen to music than be around the company after a while.” He would also occasionally take days off, something Gates would never do and which went against the hardcore work ethic at Microsoft, especially at a time when everyone was putting in 14-hour days.