Hard Drive: Bill Gates and the Making of the Microsoft Empire (30 page)

Gates himself fired off E-Mail at all hours of the night and early morning. It was not unusual for programmers to come to work and find an electronic message from Gates that had been written in the early hours of the morning, commenting on code they had written. His messages were blunt and often sarcastic, what Microsoft employees would eventually term flame mail. Raymond Bily said most of his communication with Gates was by E-Mail after he moved from software development to marketing in late 1983. “I would get these huge E-mail letters from him that had been written at 2:00 in the morning. They would be this kind of stream of consciousness,” said Bily. Many of the messages sent to Bily had to do with Borland International and its colorful CEO, Philippe Kahn.

At the time, Borland had successfully launched a series of computer languages called Turbo Pascal, which were much faster than anything Microsoft had. Turbo Pascal made it possible for software developers to write application programs for the IBM PC and compatible machines faster than ever before. Gates was angry that Microsoft, the original microcomputer language company, was being beaten so badly by a mail-order startup company only a year old.

Scott MacGregor, the developer in charge of the Windows project, said Gates “couldn’t understand why our stuff was so slow. He was incredibly upset. He would bring in poor Greg Whitten [programming director of Microsoft languages] and yell at him for half an hour.”

Gates saw Kahn’s success in very personal terms, according to Bily. He couldn’t understand why Kahn had been able to beat an established competitor like Microsoft.

“That’s just how he looked at things,” said Bily. “When Turbo Pascal was successful, it wasn’t something that Borland did, it was something Philippe did. It was very personal to him. . . . That was just his way of personalizing or
focusing
. It was Bill versus Philippe rather than Microsoft versus Borland.” Gates’ competitive fires were once again fully stoked.

During the first few months of 1984, Gates was also fired up about another of his competitors, Mitch Kapor of Lotus Development Corporation. It had been more than a year and a half since the chairman had vowed to put Lotus out of business. Nonetheless, Lotus still dominated the spreadsheet market.

Kapor was himself upset. The issue of
Time
magazine that featured Gates on the cover had touted Microsoft as the number one software company. Yet Lotus’ revenues just from the sale of 1-2-3 were more than that generated by all of Microsoft’s products combined. (For the 12 months ending in June 1985, Lotus would report revenues of $200 million to Microsoft’s $140 million.)

Although Lotus had established the spreadsheet standard for the PC, Gates hoped to counterattack with Odyssey, the codename for a souped-up new spreadsheet under development at Microsoft. The genesis for the project had been a three-day retreat in late 1983 at which Gates, Jeff Raikes, Charles Simonyi, and several programmers discussed what to do about the formidable threat from Lotus 1-2-3. Simply improving Multiplan would not be enough. They had to come up with a new product. The project they came up with, Odyssey, would incorporate many of the features used in 1-2-3 but would run faster and offer several improvements. Doug Klunder was given the job of chief coder. Gates wanted Odyssey delivered before the end of the year.

“This was to be a very strategic product for Bill,” said one of the managers working on Odyssey. “He knew all along he was going to take on Mitch Kapor with it. This was to be the real Mitch-beater.”

With Gates devoting much of his time to the development of Windows and Odyssey, Jon Shirley focused his efforts on problems in the company’s retail division. Microsoft was now selling applications for the Macintosh as well as the PC and the PC clones, and it was critical that the retail side get up to speed. The manager brought in to run the department in 1983 after Vern Raburn left had not worked out. In March of 1984, after an exhaustive search, Microsoft hired Jerry Ruttenbur to be vice-president of retail sales.

Ruttenbur had spent 13 years in the candy business, managing sales and marketing for M&M Mars. He had also served a stint as national sales director for Atari and as vice-president of sales for Koala Technologies Corporation, a producer of hardware and software for microcomputers. Ruttenbur was one of a series of more experienced managers that Shirley was bringing in to the company to fix some long-neglected problems.

“Microsoft’s applications products were beginning to come on stream,” Ruttenbur said, “and they really didn’t have anybody in the company who understood the retail side of the business, the different types of selling that had to be done, all of the distribution issues, the channel conflicts, how to put a sales force together and keep them motivated. There were lots of problems at that time. But the biggest challenge at that point in their evolution was their customer service area. It was a total disaster. . . . They didn’t realize how important it was until somebody got in there and started making them aware of the impact it had on their overall business.”

His first week on the job, Ruttenbur walked into the customer service office and found it staffed by two women who were on the phone returning calls to customers wanting an updated version of one of the company’s products or having complaints or questions. Ruttenbur was shocked to see two stacks of hundreds of unreturned phone messages on each of their desks. That’s nothing, the two women told him, pointing to another table filled with hundreds of other as-yet unreturned messages.

“That’s when I knew that I had a major challenge on my hands,” Ruttenbur said.

Ruttenbur was given complete authority to make any changes he felt were necessary. Customer service would soon grow to more than 30 employees, while the technical support staff tripled to about 60 employees. Ruttenbur also greatly expanded the company’s retail sales force. Only major changes involving corporate strategy had to be cleared by Shirley.

“Shirley watched the day-to-day stuff at Microsoft, he was good at that, a good detail guy,” Ruttenbur said. “He paid attention to the details so that Bill could think product and do the strategic stuff. Although that’s how a lot of people described Bill in those days, he was also very much involved in everything that happened in that company. Bill wanted to know everything that was going on. He didn’t require approval, he just wanted to know what you were doing and he wanted you to explain and justify it. . . .”

By his second or third product management meeting, Ruttenbur realized that it was vital that he stand up and speak his mind if he felt strongly about something. Some managers seemed intimidated by Gates, who would often rock back and forth in his chair, staring off into space as if he were not paying attention. Then suddenly, when he heard something he didn’t like or didn’t agree with, he would stop rocking, sit up straight, and become visibly angry, sometimes throwing his pencil. He often yelled or pounded his fist on the table to make a point. At first, Ruttenbur thought Gates was just putting on an act. It was hard for him to believe a CEO could react so emotionally to every issue. But he soon realized this was no show; Gates simply reacted to things on an intense emotional level.

“He would get upset if we were behind the competition in any way,” said Ruttenbur, “and that meant in terms of the product, in terms of the distribution, the accounts, in terms of shelf space, all of those things. It was made very clear that our job was to make sure we were number one. . . . But I learned after awhile that he respected people who disagreed with him. He didn’t expect people to always agree with him, and I think sometimes he disagreed just to see if someone was that strong in their beliefs to really support and fight for their opinion. With the right people it really works well, but with some people it suppresses their creativity.” He felt that if Gates could have learned to use his intensity and anger with strong employees who responded well to that kind of motivation and to temper it with people who became intimidated by it, he would have become a more effective manager.

Ruttenbur was part of the group that came up with the name for the Odyssey spreadsheet project—Excel. But the project had taken a strange turn. In mid-1984, Gates completely changed his strategy and decided Excel would be developed for the Macintosh, rather than the IBM PC and its clones. Lotus was designing a new spreadsheet called Jazz for Apple, and Microsoft simply could not allow Lotus to establish an applications foothold with the Mac as it had with the PC. Gates desperately wanted Microsoft to become the standard bearer for graphical user interface applications. That was the future, as he saw it. Jazz was clearly a new threat, and he could not allow it to catch on.

With Jazz, Lotus planned to offer customers much more than just a spreadsheet like 1-2-3. The hot new trend in application development was so-called integrated software that combined several different applications into one easy-to-use program. The user could switch, say, from a spreadsheet to word processing without having to load another application. Jazz would combine several functions, including a database, word processing, and graphics, as well as a spreadsheet.

c

Apple was enthusiastically supporting Jazz. The initial excitement over the Macintosh had died down and sales were sluggish. What the company needed was a hit application that would make people line up to buy the Mac just as they had bought thousands of Apple II computers because they wanted VisiCalc.

“Apple was in a lot of trouble then. They really thought Jazz was going to be their savior,” said Ida Cole, who in 1984 was director of new product development at Apple.

When Lotus demonstrated a prototype of Jazz at a trade show, Gates dispatched two of his programmers to check it out. The two furiously scribbled notes as Mitch Kapor talked about Jazz and gave a demonstration. Some Jazz features later turned up in Excel.

Microsoft was experiencing internal squabbling over the Excel project. Although Gates had decided to develop Excel for the Mac after talking with his marketing managers, he had never discussed the change in strategy with Doug Klunder, the programmer in charge of coding Excel for the PC machines. Because the coding for Excel up to that point had been done for the PC, the switch meant basically starting over after months of hard work. Klunder was furious and threatened to quit, which he ended up doing a few months later.

“Bill just screwed up from a human management point of view. I was killing myself on Excel,” Klunder would later say.

Gates brought in a new programmer from Wang to head the project, Philip Florence. Before working for Wang, Florence had created the research and development group at Leading Edge, one of the PC clone makers.

“It was a pressure cooker,” Florence said of Microsoft. “I was working directly under Bill and he took a special interest in Excel.”

Florence thought he was being brought in to manage the project. But before long Gates told Florence to write code and check for bugs in the program as well. The project fell further and further behind schedule. When Florence told Gates he couldn’t manage the project and write code at the same time, Gates exploded, slamming his fist down on the table to get his point across and carrying on in a rage. Said one of the managers who worked with Florence, “Imagine an extremely smart, millionaire genius who’s 14 years old and spoiled and subject to temper tantrums.”

It was clear that Florence was not cut out to work in an emotionally charged, pressured environment like Microsoft on a project that Gates himself took such an intense interest in. A few months after he arrived, Florence, who had been putting in 100-hour weeks, had a heart attack. As a result, he had to have bypass surgery.

During this time, Steve Jobs had been trying to convince Gates to incorporate integrated software features in Excel similar to those in Jazz. But Gates refused. He was convinced Lotus was taking the wrong approach. And this time, unlike his strategy with Multiplan, Gates would be proved right.

Because Microsoft did not have any integrated programs, it needed a way to respond directly to this bonus feature of the Jazz software. Gates was savvy enough to realize that if Microsoft could develop a quick way of switching between smaller programs on the Mac, it would be more effective than having one huge integrated program like Jazz. Thus was born the idea behind the “switcher.”

Andy Hertzfeld, who had left Apple to strike out on his own, was in the midst of designing his own switcher when he got a call from a friend at Microsoft. His friend asked him to come in and talk about a hot new project that Microsoft was working on for the Mac. It was Hertzfeld who several years earlier had given Gates the first demonstration of the Macintosh prototype at Apple’s offices. When Hertzfeld sat down with the folks at Microsoft, he discovered the company wanted him to write a switcher program very much like the one he had started a couple weeks earlier.

Hertzfeld was convinced his design was better. At the end of his meeting with several of the Microsoft managers, he was ushered in to see Gates for a one-on-one meeting. Hertzfeld was about to get a first-hand demonstration in the art of The Deal from the young master himself.

According to Hertzfeld, Gates treated him as if he were a naive technical person who had little business sense, whom Gates tried to manipulate into an unfavorable business arrangement.

The negotiating, according to Hertzfeld, went like this:

“You’re a really great programmer, right?” asked Gates.

“Yeah ... I don’t know. Sure, I guess so,” said Hertzfeld, caught off guard and unsure where Gates was heading.

“Well,” said Gates, “a
really
great programmer should be able to write this program pretty quick, right?”

“Yeah, I guess so ... I don’t know, sure,” said Hertzfeld.

So how long do you think it should take you?” asked Gates.

“Gee, I don’t really know.”

“Well,” said Gates, “if you are
really
good, and you
are
really good, right, then it shouldn’t take you too long.”

Gates’ strategy soon became clear to Hertzfeld. Gates was attempting to appeal to Hertzfeld’s ego, his vanity, to get him to vastly underestimate the time it would take to write the program. Like a chess master, Gates was planning his negotiating strategy for the sale price several moves ahead. They finally agreed that Hertzfeld could write the program in about eight weeks.

Gates then asked Hertzfeld how much money he made a week. Hertzfeld told him about $5,000.

“Well,” said Gates, “you can’t expect to make more than that, right? So eight times $5,000—that’s $40,000.”

Realizing his program was strategically important to Apple and to Microsoft, Hertzfeld resisted Gates’ maneuvering and rejected his offer of $40,000. But they left on friendly terms. “Bill said even if I didn’t sell it to Microsoft, they wanted to support it.”

Hertzfeld turned around and sold the switcher program to Apple for $150,000. It was packaged with the Mac for free and also was sold separately. The switcher enabled the user to run as many as four different applications on the Mac at the same time, keeping each in memory while moving between them with the flick of the mouse.

When Gates received a prototype of the switcher, he sent Hertzfeld a note telling him how “great” he thought the program was. “I have been demoing it to everyone who walks in my office.” He added that it was important enough to Microsoft that the switcher worked well that he was adding sections to the manuals of Microsoft software describing how to use the switcher. “You are really the only person who knows all the system insides well enough to get it done,” he added. ‘ Keep up the good work.”

Lotus officially announced Jazz in November 1984. Kapor said it would be ready to ship to customers in a few months. Both Jobs and new Apple Chairman John Sculley couldn’t praise the program enough. But in March 1985, Lotus admitted that Jazz would be a couple months late. By this time Apple was hurting. The personal computer industry was going through a rough time. Business was down, and Apple had laid off hundreds of workers. Sales of the Macintosh had slowed to a trickle. Only sales of the still popular Apple II were keeping the situation at Apple from becoming much worse.

Microsoft decided to officially announce Excel in New York City on May 2, 1985, several weeks before Lotus shipped the first copies of Jazz. An elaborate launch was planned, with a press conference and demonstration of the program’s capabilities. Gates talked Steve Jobs into attending, even though Apple was still backing Jazz.

Microsoft’s public relations agency booked Gates and his party into the Pierre, an elegant hotel next to Central Park. The Excel announcement was to take place at the Tavern on the Green near Central Park. But when Gates arrived in New York on May 1 and saw the accommodations, he was furious. The Pierre, he told his people, was much too expensive.

“I thought the Pierre was wonderful,” said one member of the Microsoft group who arrived with Gates. “But Bill couldn’t believe that we would do anything that extravagant.. . .” There was no time to book rooms elsewhere. Gates, his feathers already ruffled, immediately went to work with several of his programmers on setting up the Excel demonstration at the Tavern on the Green. A large television screen was wired to a computer terminal, displaying what was shown on the computer screen. Everything had worked flawlessly at Microsoft. But suddenly Gates and his programmers could no longer get the demo to work. When Excel was brought up on the computer, the computer immediately crashed. Gates became hysterical, screaming at his programmers, who began shouting back at him. For a time the situation threatened to degenerate into chaos. Finally, hours later, they got the program to work twice in a row and they called it a night.

The next morning a limousine came by the Pierre to pick up Gates and a couple of his senior managers for the official Excel announcement. Gates, his face creased with worry, was a mess. He had neither shaved nor showered, and he had obviously not had much sleep. His hair was matted and oily, and he was badly in need of deodorant.

At least one of his managers was appalled. “It was obvious Bill had not bathed in some time. I just couldn’t believe it. This was the most important announcement that we’d ever made. And Steve Jobs was there to endorse the product, as well as a, lot of other important people. We’d really pulled out all the stops with the press, and here Bill was. ... I just couldn’t imagine, you know, it only takes five minutes to shower.”

If the press noticed, however, no one wrote anything about Gates’ appearance. Perhaps they were used to seeing him that way.

To Gates’ relief, the announcement went off without a hitch. Despite his fears, Excel worked perfectly. Jon Shirley spoke, as did Jobs, who for the first time publicly endorsed Excel as well.

Excel was on the market by September, and the reviews were excellent. Lotus spent about $7.5 million on a marketing campaign for Jazz. Microsoft spent less than $1 million to promote Excel, yet the Microsoft program blew Jazz away. Some trade publications said Excel on the Mac worked even better than 1-2-3 on the PC. The Mac now had a winner of an applications program, and Apple could rest easier. And Gates once again had set the standard. In time, Microsoft would become the top seller of software applications for the Mac. Lotus, as it turned out, had badly miscalculated with Jazz and its integrated software strategy.

Jeff Raikes, director of Microsoft’s applications marketing, told the
New York Times
: “They [Lotus] thought all Mac owners are yuppies who drive BMWs. They said, ‘Let s boogie with Jazz.’ But we gave the market a product that proved you could do more with a Mac than with an IBM PC.”

The euphoria over Excel, however, was tempered by Microsoft’s disappointment with Windows. After many delays, Windows had still not been officially released at the time of the Excel unveiling, even though the project was well into its second year.

The ragged appearance of Gates when he left the Pierre Hotel for the Excel announcement would not have surprised most people who worked closely with him at Microsoft. Although he was about to celebrate his 29th birthday, Gates had not changed much from his hacker days in the computer room at Lakeside when he would forget to clip his fingernails.

It wasn’t so much that Gates didn’t care about his appearance; he just couldn’t bring himself to allocate the time to clean up on a regular basis. There always seemed to be more pressing matters that needed his attention. When he could find the time, he did shave, shower, and change his shirts. But that part of his life just wasn’t a high priority.

When you saw Bill, it always made you wonder, where did he sleep last night, in his office?” said one young woman who worked at Microsoft from 1983 through 1986. “You always wanted to go up and ask him, Gee Bill, I don’t know if you shower every day, but if you do you should also wash your hair.’ ”

Of course, no one would ever have
said
such a thing to Gates, even though many employees probably thought it. He was legendary around Microsoft for never cleaning his glasses; they always had a coating of oil and dirt on the lenses.

When Gates began appearing on the cover of national magazines, beginning with
Money
in late 1982, Microsoft’s public relations department trusted his secretary to make sure he looked his best. “She would actually go out to his house and pick up some stuff, bring him a clean shirt,” said another Microsoft employee.

A few weeks after the Excel announcement, the
Wall Street Journal
called Microsoft about arranging a photo shoot with Gates. The paper was running a series of promotional ads featuring various CEOs around the country. One of the ads showed Eddie Bauer holding up a
Wall Street Journal
with the tag line, Next to the
Wall Street Journal,
nothing keeps you warmer on a winter night.” It was good publicity for the paper and good advertising for Bauer’s clothing stores. The
Wall Street Journal
told Microsoft it would like a shot of Gates holding up the paper, with the tag line, “Next to my software, nothing is more user friendly than the
Wall Street Journal.”
Gates reluctantly agreed to the shoot, as long as it didn’t take more than one hour of his time.

When the
Wall Street Journal
group came out to Microsoft, they brought along a hair stylist. Microsoft had never hired a hair stylist to work with Gates when national magazines wanted pictures. “We finally figured out that if we wanted his hair washed we might have his secretary set up an appointment to get his hair cut the day we needed him to do something because at least then we knew it would be washed,” said one Microsoft manager who sometimes “handled” Gates. ,