Hard Drive: Bill Gates and the Making of the Microsoft Empire (38 page)

“Jim became very suspicious of Microsoft and the relationship started to fall apart,” said Stewart Alsop. “Had Lowe listened to Gates, none of the problems would exist.”

At the fall Comdex in November of 1989, Microsoft and IBM attempted to present a scene of reconciliation. At a Sunday night dinner meeting attended by Gates and Cannavino, the two companies announced to about 30 software dealers that they were “strengthening” their agreement on OS/2'. A joint press release described OS/2 as the “platform of the 90s.” Microsoft would limit capabilities of Windows and add features to OS/2, the statement said. It suggested Windows would be used on less powerful computers and OS/2 on more powerful ones.

Two days after the dinner meeting, during a press conference at Comdex, Cannavino gave half-hearted praise for Windows. Some software developers took this lack of enthusiasm to mean Windows was going to be sacrificed for OS/2. When Gates read some of the comments about the demise of Windows in the press, particularly one from Jim Manzi, chief executive of Lotus Deyelopment Corporation, he was furious. Gates now flip- flopped and did just the opposite of what Microsoft had promised in the press release. Instead of backing off from Windows, he aggressively pushed ahead with version three, shifting even more programmers off the OS/2 project and further angering IBM.

It made good business sense for Microsoft to go with Windows, even if it meant risking the lucrative marriage with IBM. By the end of 1989, OS/2 accounted for less than one percent of all operating systems sold worldwide. DOS, meanwhile, had sixty-six percent of the market. And Windows 3.0 was designed to run on top of DOS, not on OS/2. It represented the culmination of six years of work and more than $100 million in development costs. About three million copies of the two earlier versions had been shipped, and most were now gathering dust. But Gates had doggedly hung in with Windows, refusing to give up his vision of making the PC as easy to use as the Macintosh. Gates hoped the third time would be the charm. Windows

A huge grin like the Cheshire Cat’s spreading across his face, Bill Gates hitched up the pants of his new suit, pushed up the glasses that had slipped down his nose, and strolled out onto the stage in his penny loafers. He walked slowly, as if to enjoy every last decibel of the roar of approval from the hundreds who had gathered in New York’s Center City at Columbus Circle to hear the industry’s software guru spread the word about Windows 3.0.

His mother Mary had flown in from Seattle just to be with her son this day. May 22, 1990 would prove to be one of the most exciting and rewarding days of Gates’ young career.

Watching the glitzy event simultaneously on closed-circuit television in a half-dozen cities in the United States and seven more around the world, were an estimated 6,000 journalists, industry analysts, software developers, and various high-tech professionals. In London, Paris, Madrid, Singapore, Stockholm, Milan, and Mexico City, they crowded around big-screen televisions to watch satellite pictures of what had become the most hyped media event ever in the personal computer industry.

Some, caught up in the hoopla, were starting to sound a little giddy from Windows fever. “This is probably the most anticipated product in the history of the world,” gushed one analyst from the prestigious firm of Smith Barney to a reporter for
USA Today.

“If you think technology has changed the world in the last few years, hold on to your seats,” said Paul Grayson, head of a Texas software company and a long-time Windows booster.

Even many skeptics who had once ridiculed Windows had become supporters. “Believe me, I have not been a Windows fan in the past. But from what I’ve seen this is really slick,” said Nancy McSharry, an industry analyst with International Data Corporation. ·

On the West Coast, about 400 people crowded into the San Francisco Concourse to watch the multimedia production, which included a combination of Holly wood-style endorsements by industry figures and an MTV-like video hyping the new product. Up the coast in Seattle, at the world headquarters of Microsoft, hundreds of the company’s more than 5,000 employees jammed a large auditorium to watch Chairman Bill via satellite. They cheered wildly when Gates brought on stage the “Win 3” team of some two dozen programmers who had spent the last two years developing this latest version of Windows.

Unlike 1985, when Windows 1.0 was introduced with few applications because it was so late getting to market, this time Gates had lined up every major player in the software industry, including Lotus Development Corporation, which had steadfastly refused to endorse Windows as early as a month before the big rollout in New York. The video tape for the Windows

The one-day extravaganza cost Microsoft a cool $3 million and change. It was, Gates said, “The most extravagant, extensive and expensive software introduction ever.” Microsoft, which in 1990 would become the first computer software company to make a billion dollars in revenues, would spend another $10 million in the coming weeks promoting Windows 3.0. It planned to distribute 400,000 free demonstration copies. The high-profile ad campaign was further helped when Gates appeared on several television shows, including “Good Morning America.” As usual with Gates, it was money well spent. Windows 3.0 quickly became the hottest selling computer software product ever. The price of Microsoft’s stock headed up into the stratosphere, and Gates headed toward the top of
Forbes’
list of the 400 richest people in America.

As the second largest Microsoft stockholder, Paul Allen was moving up the list, too. Allen had come to New York not only to be with Gates for the Windows announcement but also to make one of his own. The day before the big Windows show, Allen stood in an elegant room of the New York City Public Library to announce Asymetrix’s first product, called ToolBook, an application for Windows that let hobbyists create customized software. That Allen should choose a library to announce his company’s first piece of software was not surprising, given his father’s former position as associate director of libraries at the University of Washington.

Only a couple weeks before the New York announcement, Allen had rejoined Microsoft’s board of directors. “This is something that Bill and I have been talking about for a number of years,” Allen said at the time. “Bill and I have worked together in the past and productive things have usually come of that relationship.”

While they were in New York for their respective product introductions, the two old friends went to a downtown sports bar to have a few beers ’and watch the televised playoff game between Portland and Phoenix of the National Basketball Association. A basketball fanatic who keeps a basketball in the back seat of his Porsche, Allen had bought the Portland Trail Blazers for $70 million in 1988. He could easily afford to do so. In 1990,
Forbes
listed Allen’s wealth at $1.2 billion. Allen not only bought the team; he also bought the team its own airplane, a plush 21- seat jet once owned by hotel magnate Leona Helmsley. Allen had the plane equipped with a host of high-tech gadgets, such as digital readouts in the cabin to show speed and altitude. He later bought his own jet and routinely flew to Portland from his home in Seattle to watch his team. Gates occasionally went with him.

“There was a lot of excitement working at Microsoft, but for pure joy, it didn’t compare with this,” Allen said of owning a professional basketball team.

Within four months of the New York coming-out party, Windows 3.0 had sold a million copies. “There is nothing that even compares or comes close to the success of this product,” said Tim Bajarin, executive vice-president of Creative Strategies Inc., a research and consulting firm. “Microsoft is on a path to continue dominating everything in desktop computing when it comes to software. No one can touch them or slow them down.” For the first time, computer users could spend $150 for a copy of Windows 3.0 and make a $2,500 PC clone as easy to operate as a $4,000 Macintosh.

Wrote PC
Computing:
“When the annals of the PC are written, May 22, 1990, will mark the first day of the second era of IBM-compatible PCs. On that day, Microsoft released Windows

About the only people who were not saying great things about Windows were at Apple. “Windows is simply an endorsement of what we’ve been doing all along,” said Jim Davis, director of systems software marketing at Apple. Using Windows on a PC was like putting a Rolls Royce front on a Volkswagen Bug—a pretty face, but still a Bug, he said.

To Microsoft, that was just Apple’s usual spin control. Chairman Bill had indeed taken a bite of the Apple. And it tasted good.

But he had also left some teeth marks on IBM, and that was not good for their continued relationship. While Gates was basking in the glow of the success of Windows, OS/2 was languishing in the shadows. And the folks in Armonk were as unhappy as those on the other side of the country in Cupertino.

“The success of Windows 3.0 has already caused OS/2 acceptance to go from dismal to cataclysmic,”
InfoWorld
said three months after Windows 3.0 was introduced. “Analysts have now pushed back their estimates of when OS/2 will gain broad acceptance to late this decade, with some predicting that the so- called next generation operating system is all but dead.”

In promoting Windows, Microsoft was plotting a strategy that was steering it further and further away from IBM. Microsoft had proved with Windows that it didn’t need Big Blue’s support to successfully launch a new product. Software, not hardware, was driving the industry, and IBM had to play to Gates’ strength. And Gates knew it. By September of 1990, troubles between the two companies had become a growing source of industry gossip and speculation. All communications between the technical staffs of the two companies had reportedly stopped. Ten years earlier, Bill Gates had rushed into a department store in Boca Raton to buy a new tie because he wanted to look his best when he went before IBM to argue that Microsoft develop the operating system for the first IBM personal computer. Now, the ties that bound the world’s biggest computer maker and biggest software maker seemed as threadbare as an old pair of jeans that had gone through too many washes.

Executives at Microsoft and IBM downplayed any differences. Steve Ballmer denied there were conflicts. “You may not understand our marriage,” Ballmer told
Business Week,
“but we are not getting divorced.”

But events seemed to suggest otherwise.

In September, IBM joined with Metaphor Computer Systems in a venture called Patriot Partners to create software that would allow a program such as desktop publishing to run on a variety of operating systems. Thus, programmers would work with Metaphor technology rather than Microsoft’s when creating new software. Stewart Alsop called the deal the “opening salvo” in a seven-year plan by IBM to regain control from Microsoft.

Alsop had recently had an encounter with Gates that convinced him the ten-year marriage with IBM was on the rocks. Gates was supposed to address a software entrepreneurs’ forum in Palo Alto, but he was running late after an all-day meeting with IBM’s Jim Cannavino in Milwaukee, Wisconsin. Gates arrived about five minutes before he was to speak to about 600 people. Afterwards, Gates and Alsop went to a bar at the II Fornaio in Palo Alto, next to the hotel Gates was booked in. The speech had gone well, and Gates was really up and having a good time. Alsop, knowing IBM and Microsoft were going through a terrible strain, decided it was the right time to ask about Cannavino.

“Whenever you talk to him,” Alsop said of Gates, “if you raise any subject about personal computers he will immediately focus on it, and start rocking back and forth, looking you straight in the eye, asking the fundamental questions. You’ve got to remember, he really knows everything. He knows the right questions to ask to find out if you are just bullshitting him. So I asked him. ‘What do you think of Jim Cannavino?’ By luck, I hit a hot button. He started ranting and raving, saying ‘You would not believe what this guy was telling me,’ how Cannavino was telling him, Bill Gates, how he should be running Microsoft.

“It was clear,” Alsop said, “that Gates had to restrain himself from saying more about Jim.”

On September 10,
InfoWorld,
the highly regarded trade publication, added fuel to the debate about a Microsoft and IBM split when it reported that Gates had taken a group of executives from Lotus Development Corporation to dinner and after a few too many drinks began trashing IBM and Cannavino, saying IBM wouldn’t be around in ten years and that he, Gates, would rule all—sort of a Microsoft Uber Alles. One of the Lotus executives went home and wrote a memo about the incident. It eventually found its way to Cannavino’s desk, according to
InfoWorld.

The story, by
InfoWorld
gossip writer Robert Cringely, was picked up by the national press, and Microsoft issued a strong denial that Chairman Bill had ever said such things about their good friends at IBM. Most everyone assumed Microsoft’s “thought police,” as the company’s aggressive public relations people were called by some in the media, were trying to cover Gates’ ass.