Hard Drive: Bill Gates and the Making of the Microsoft Empire (26 page)

Rather than discussing their differences with each other directly, Gates and Allen communicated primarily through electronic messages, or E-Mail, according to another company manager. Employees would almost never see Allen in Gates’ office, although Steve Ballmer was in there a lot.

When asked about speculation that he and Gates had had a falling out, Allen replied, “That’s bullshit.” A deeply sensitive man, Allen seemed genuinely hurt that anyone at Microsoft would think he didn’t want to work as hard as everyone else. He was receiving radiation and chemotherapy treatments, he pointed out, while continuing to work, and this was why he wasn’t around at times. In fact, Allen used to joke with friends at Microsoft about his hair falling out. Some in the company did not even know he was sick. Allen, although a captivating conversationalist, was a very private man and never one to explain his feelings.

Of his relationship with Gates at the time, Allen said: “There certainly were times when Bill and I had our differences. Sure, it was intense. We didn’t always see eye to eye. But what always came out in the end was productive.”

Allen did acknowledge that the illness changed his outlook on life, and that’s why he decided to leave the company. “For a while, I just needed to get away from work. . . . You have to strike a balance between work and enjoying the other things in life.” Microsoft’s other co-founder could never make such a statement. For Gates, work
was
his life.

In early 1983, after eight years of grueling 80-hour weeks and few vacations, Allen left the company he had helped found to recover from his bout with cancer and to enjoy a life that now seemed much more precious. Although he resigned as executive vice-president of Microsoft, Allen remained on the board of directors with Gates.

After leaving Microsoft, Allen toured Europe and spent time with family and friends. His cancer went into remission, and it remains so today. It would turn out to be a difficult year for Allen. In November his father died unexpectedly after routine surgery on his knee. Five days after the operation, while walking around his Seattle home on crutches, he collapsed and died from a blood clot. Only 62 years old, he had just recently retired as associate director of libraries at the University of Washington. Allen and his father were very close, and he took his father’s death hard.

At the spring Comdex show in Atlanta in 1983, six months after Lotus had announced its 1-2-3 spreadsheet at the fall Comdex show in Las Vegas, Microsoft took its second swing at a hit in the retail market. On an IBM PC in the Microsoft booth the company displayed a new word processing application called Microsoft Word. Charles Simonyi, like a proud father, demonstrated to curious customers the new features of the program.

Microsoft Word had been under development for about a year, and it incorporated many of the cutting-edge graphical user interface (GUI) concepts Simonyi had toyed with at Xerox PARC. The most unusual attention getter was a “mouse” that allowed the user to position a pointer on the computer screen by moving the small device around on a flat surface. Most of those who watched the demonstration at Comdex had never heard of a mouse. In addition, as many as eight different documents could be viewed and edited at the same time in so-called windows, which divided the screen up into sections. Word also included features such as multiple fonts and italics and was designed to work with the latest laser printer technology.

Simonyi and his team had developed Microsoft Word specifically for the IBM PC and compatible machines. But it could also work on other computer platforms. As far as Gates and Simonyi were concerned, the GUI concepts used in Microsoft’s first word processing application represented the next generation of personal computer software, concepts that would soon become the foundation of a new product to be announced later in the year—Windows.

When he had launched Multiplan, Gates wanted to overtake and eliminate VisiCorp, which at the time marketed the bestselling VisiCalc spreadsheet. With Microsoft Word, Gates was now taking aim at MicroPro. Only a few months earlier, he had told programmer Richard Leeds that Microsoft was going to put MicroPro out of business.

MicroPro was riding high with its best-selling WordStar, which had captured 50 percent of the word processing market. WordStar had been comfortably on top since its introduction in 1979. Sales in 1983 hit $25 million. Seymour Rubinstein, MicroPro’s founder, was well acquainted with Gates. They had first done
^-
business together in 1978 when Rubinstein was working for IMSAI Manufacturing, which produced a personal computer that was a rival to the Altair. Rubinstein negotiated with Gates for Microsoft’s FORTRAN language as well as something called an “overlay editor,” which allowed the language to be broken into modules that could be placed into memory as needed—a very useful program given the limited memory capacity of the early microcomputers. Typically, Gates had been eager to close the deal with Rubinstein, although Microsoft had never made an overlay editor before. Skeptical that Gates could deliver the software in the agreed-upon time, Rubinstein insisted the contract provide for penalties in case Microsoft was late. It was. “Bill never did deliver it,” said Rubinstein. But IMSAI soon went bankrupt and was unable to collect on the penalties from Microsoft.

After the release of his new company’s WordStar, Rubinstein occasionally ran into Gates at industry trade shows and in Europe. By this time, Gates was helping establish the company’s International Division and pushing MS-DOS. Rubinstein hardly held Gates in awe. In fact, he felt Gates was lucky to have ended up with the operating system on the IBM PC.

“He was able to maximize a series of good fortune and lucky breaks,” Rubinstein said. “He was able to make a lot of mistakes and recover. He was not in operating systems when he started, but through foulups from Gary Kildall, Gary lost that position and IBM chose Bill Gates. That was pure luck. There was no foresight, no imagination, no brilliant maneuvers, just a lucky break caused by a combination of Digital Research screwing up and Seattle Computer Products having something which wasn’t very good that could be modified for IBM.”

But Rubinstein respected Gates. He knew it was just a matter of time before Microsoft came out with its own word processing program to compete with WordStar. “I’d talked to Bill many times,” Rubinstein said. “He was a very ambitious guy.” Their companies traded products back and forth. Microsoft needed the program editors made by MicroPro, and MicroPro needed Microsoft’s languages. Not long before Microsoft introduced Word in 1983, Rubinstein visited Gates in what turned out to be one of the most unusual business meetings Rubinstein can remember. Gates had a date in traffic court and if he didn’t go, the police had threatened to jail him, according to Rubinstein. Gates asked Rubinstein to come along with him, which he did.

Gates had been getting a lot of speeding tickets of late. He had traded in his green Porsche 911 for a much faster, high- performance Porsche 930. Gates had good lawyers who had been able to get some of his speeding tickets dismissed on technicalities, but his driving record was poor. He was in danger of losing his license.

On the way to traffic court with Rubinstein, Gates explained that he had a radar detector in his Porsche. He felt the police

officer had given him a speeding ticket because he saw the device. Gates was going to argue with the judge that he was within his rights to have the radar detector. Rubinstein gave the combative Gates some friendly advice:

“I told Bill, ‘You may very well be within your rights to have a radar detector in your fast Porsche. But the fact is they won’t like it because they’ll think the principal reason that you have it is to escape the law. The best thing for you to do is to tell them that you are going to throw away your radar detector, that you are really sorry about what you did, and that you are not going to speed anymore. Otherwise they are going to crush your nuts.’ ”

In court Gates did as Rubinstein suggested and as a result, he got off with only a fine.

Not long after his day in traffic court Gates, worried he would lose his license if he didn’t slow down, bought a sluggish Mercedes diesel sedan. He said the car was a good test of his mental discipline because it was so slow. And there was no radio to distract his thinking. Actually, the Mercedes just took a bit longer to get up to high speed. Gates pushed it hard, too, and racked up several more speeding tickets, but he never did lose his license. The brown Mercedes, however, was a topic of conversation at Gates’ tenth anniversary high school reunion. Apparently, Gates had forgotten to put oil in the Mercedes and had burned up the engine.

The Mercedes was soon repaired. Nonetheless, Gates continued to use the Porsche 930 for late-night drives when he needed to do some serious thinking. Jonathan Prusky, who was hired by Microsoft in 1983 to work on Word, recalled Gates telling him that he would go out late at night and drive the legal speed limit down the express lanes of Interstate 5 (the main interstate through Seattle), checking for police, and then would roar back through the stretch at 150 miles per hour if the coast was clear.

No doubt Gates wished Microsoft Word could run as fast as the Porsche. Word was in beta testing when the company decided the program ran far too slowly.

Richard Brodie, chief coder for Word along with Simonyi, worked for weeks to make it faster, but Gates pointedly told him it wasn’t good enough. Somehow, over the next weekend, Brodie was able to make it two to three times faster, according to Prusky. But it still wasn’t particularly fast.

“Bill wasn’t really involved in the design of the product, contrary to some stuff that I’ve read,” said Brodie. “I did almost all the coding initially. Bill saw it after it was pretty much done and tried it out, as he likes to do. He sent E-Mail back with about 17 things he didn’t like about it. So I took the E-Mail and not knowing any better I started working on what he wanted. The next time I saw Bill he was really surprised because evidently it was the first time anyone had ever responded like that to a piece of E-Mail. People got E-Mail from him all the time, but this was the first time anyone had ever done anything about it.”

When Microsoft Word was released several months after the Comdex show in Atlanta, Microsoft used a glitzy $3.5 million campaign to market the software that included a diskette-in-a- magazine promotional gimmick. Microsoft planned to distribute

The promotional campaign for Word was part of an aggressive sales approach by Rowland Hanson, the newest member of the Microsoft management team. Before he arrived at Microsoft in early 1983, Hanson was vice-president of marketing for Neutrogena Corporation, which made soap and other products. He had also been marketing manager for General Mills. Why not market software like the cosmetics industry marketed soap, he suggested, and provide some free samples? Hanson knew nothing about computers, but he
did
know a thing or two about soap and marketing.

Gates’ decision to bring in an outsider to the computer industry reflected the growing emphasis he placed on marketing. Microsoft was in the midst of its transition from being a language and operating system company to one selling applications into the retail market. It was not enough just to develop good software—Microsoft had to make customers want to buy it, too.

“If you think about it,” said Hanson, “who understands brands better than the cosmetics industry? Look at the halo around Clinique or Neutrogena. These companies are brand dominated. If their brand isn’t strong, then nothing else matters, because there isn’t reality to cosmetics. Soap is soap.”

At Microsoft, Hanson’s job title was vice-president of corporate communications, which involved all advertising, public relations, and production services—anything and everything pertaining to packaging, merchandising, and marketing Microsoft’s products.

Word was originally going to be released as Multi-Tool Word, a continuation of the Multi-Tool application product line that was to follow Multiplan. Hanson suggested a different product-naming strategy. It was important for a product to be identified by its brand name, he pointed out. Microsoft had to get its name associated with its products, just like Neutrogena.

Hanson later elaborated on the concept in this way: “If you look back at some of the old articles that were written in the industry, you’ll see the word 'Multiplan’ but no ‘Microsoft’ associated with it. That was because Multiplan was a stand-alone name. It started to take on its own meaning, beyond Microsoft, just like WordStar. People who wanted a word processing program knew the name ‘WordStar,’ but they could not have told you MicroPro was the company that made it.”

Hanson wanted to make Microsoft the Sara Lee of the software industry. Everyone knew the Sara Lee brand, regardless of whether they were shopping for apple pie or pound cake.

“The brand is the hero,” Hanson said. “People start to associate certain images with the brand, and that becomes much more important than any single product. What the consumer goods companies realized years ago was that products come and go. You are going to have a product and it’s going to rise and fall. But if you can create a halo around a brand name and create equity in a brand, when you introduce new products under that brand halo it becomes much easier to create synergy, momentum. ... We decided that we needed to make Microsoft the hero.”

Gates immediately saw the logic of Hanson’s argument. As a result of Hanson’s efforts, the Multi-Tool names were thrown out. Taking their place were Microsoft Word, Microsoft Plan, Microsoft Chart, and Microsoft File.

The strategy worked as Hanson had hoped. Word became known as a Microsoft product. Unfortunately, the first version of Word for the PC was a fairly mediocre program, and reviews were mixed. Word was widely criticized for being too technical and difficult to learn. Sales, while healthy enough to put Word into the top 100 of the best-selling software products on the market, were below expectations.

According to Simonyi, Word was too far ahead of its time. Some of the concepts, such as the mouse, were intimidating to users. And Simonyi took the blame for incorrectly insisting that Word use publishing industry jargon such as “folio,” which he later believed contributed to the slow start.

“There is no question that version one of Word or version one of Multiplan weren’t the incredible successes other programs in their category were,” Simonyi said. “They were tactical disappointments, but I think they were fantastic strategic successes.”

Microsoft would eventually get Word right, but it took several major revisions. This would become a pattern with most of the company’s initial application products for the IBM PC and compatible computers. Vern Raburn, former president of Microsoft’s Consumer Products Division, discussed this aspect of Microsoft in
Fortune
magazine: “With few exceptions, they’ve never shipped a good product in its first version. But they never give up and eventually get it right. Bill is too willing to compromise just to get going in a business.”

In a sense, it was all part of Gates’ master plan. As that master of military combat tactics, General George S. Patton, liked to say, a good plan, violently executed now, is better than a perfect plan next week.

In hiring Roland Hanson, an industry outsider, for a key executive position at Microsoft, Gates was taking something of a risk at a critical juncture in the company’s development. Gates had gambled
similarly
on his new president, James Towne, and the gamble had not paid off.

In an interview with
Business Week
in May of 1983, Towne dismissed reports of serious tension between him and Gates: “We are going through a transition process from a centrally organized outfit to something where others have more responsibility.” But not long after that interview, Towne was gone. Microsoft’s first president had lasted just 11 months. Gates would later say that Towne was “sort of random”—a favorite “techie” expression used at Microsoft, meaning confused or haphazard behavior, and usually used to describe someone you didn’t like. Towne has declined comment on why he left Microsoft. Gates, too, has said very little. But based on interviews with other managers at Microsoft during Towne’s tenure, a revealing picture emerges of two people who came to dislike each other intensely. The parting was far less amicable than it was portrayed in the press and by both parties.

The crux of the matter was that Towne never gained Gates’ respect. He just wasn’t technically proficient enough to talk bytes and bits with Gates, who lived in the strange, rarefied language of computers.

“I came aboard about the time Towne did,” said Raymond Bily, “Jim came in from a corporate environment at Tektronix to help Microsoft through some of the growth stages, and he felt very strongly that professionally trained managers needed to be in management positions. And Bill felt strongly that technologists needed to be managing technical people. It was a question of whether this company was going to be technology driven or management driven.”

Others said Towne only wanted to bring traditional management practices into the business side of the company, not into the more creative software development area that Gates handled. “The part of the company that needed creative organization was software development,” one manager said. “They have always been difficult to manage. That was always under Bill. He could motivate those guys. But the other side of the company, the financial organization, really didn’t require all that much creativity.”

There were deeper problems, however, than just differences in management philosophy. Towne was never invited into Microsoft’s inner sanctum of power, which at the time included only Gates and Ballmer. Although Ballmer officially reported to Towne on the management chart, Towne was often left out of the decision making. He would learn weeks later of something that had been decided by Gates and Ballmer at 3:00 in the morning. Part of the problem was that their lifestyles didn’t mesh.

Towne was 40 years old and, with a wife and two kids at home, he understandably wanted to spend time with them. Gates had no such desires or obligations. He would get increasingly intense late at night, about the time Towne was heading out the door for his home.

“Bill would say that some of his best times were sitting in his office at 2:00
a
.
m
.,”
said one Microsoft manager who worked with Towne. “Bill felt better then than any other time, knowing his company was working. And Towne wasn’t around a lot of those hours. He was with his family.”

After staying up most of the night, Gates would often be late for important morning meetings, which irritated Towne. He once complained to a colleague that Gates was immature. At times he felt more like a babysitter than a company president. Once, as Gates and Towne were leaving an industry trade show, Gates told Towne he had left his bags in his room and asked Towne to fetch them. When Towne entered the room, he found Gates’ dirty underwear on the floor and his clothes scattered helter-skelter. He had to pick up the underwear and clothes and put them in Gates’ suitcase. This was not, Towne told a friend, what a company president should have to do.

“Bill admitted lots of times he needed to grow up, but he didn’t know how,” said one Microsoft executive who was with the company when Towne left. “Frankly, he needed a big brother more than he needed a president.”

After a while, the two avoided each other whenever possible. Towne felt his meetings with others in the company went much better when Gates was not around. But it was clearly not a healthy situation. Both men knew it wasn’t working out. One Friday morning Gates called Towne into his office and informed him he had nine months to find another job. Towne had a job in Portland by the following Monday. He would later be named Oregon’s “executive of the year.”

Gates assumed the role of company president once again after Towne departed. But he understood the mistake he had made in hiring Towne. From the start, there had never been any rapport between the two. Gates needed to find someone he already knew, someone he liked and felt comfortable with. That was as important as a candidate’s managerial and technical acumen. In Jon Shirley, a vice-president of the Tandy Corporation in Texas, Gates found both a friend and someone knowledgeable about the industry.