Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence (21 page)
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Authors: Joachim Kempin
At the end of ’95, a number of proprietary user shells emerged, intending to make operating Windows PCs easier. The first one I ever saw was introduced by Packard Bell (PB) and soon followed by creations from Hewlett-Packard and Compaq. They rivaled our own design. I remembered that PB adamantly refused squandering capital. So I applauded her for investing in 95 and understood it as a positive sign. As long as these shells were just another icon on the Windows desktop, few people in MS took notice. We were convinced we would easily win with our internally considered superior interface. When PB and others went one step further and modified Windows to boot straight into their proprietary shells, bypassing IE completely, we took notice. They were not supposed to alter Windows code, but they selfishly ignored what they had formally agreed to. Ignorance or bliss?
The computer industry had grown up fostering and cherishing proprietary solutions to make switching between hardware vendors of the utmost difficulty. OEMs, creating proprietary shells, viewed them as an opportunity to go back to the future. Their old-school marketing folks believed that if customers would get used to a certain way of operating a PC, turning to a different vendor for their next purchase would become less likely. The underlying assumption of PCs becoming a commodity amplified that belief. I understood that OEMs were trying to create repeat customers, but in my mind, the chosen path could not accomplish that feat.
Too many other considerations when choosing the next PC came to mind. There was price, performance, reliability, support, and so on. A proprietary shell weighed against these elements paled. MS was light-years ahead of smaller software companies OEMs sourced their interface designs from. Few had the grit and endurance to fund such an adventure long-term. I was convinced that attempts to complement our embedded solution, while being a nice gimmick initially, would fade. I used these alternative shells and never found that they exceeded the functionality and convenience of our seamless design. My take: let the market decide and not waste time on legal arguments. I instructed my sales reps to remind OEMs that booting directly into shells violated their agreements and that they needed to remove that feature. Not enforcing this right away legally, OEMs interpreted my inaction as us looking the other way. I concur.
As this conflict was lingering, I followed the progress of quarterly Windows 95 shipments closely. By late 1996, MS-DOS-only PCs were less than 15 percent of my sales, and the same amount was sold with the aging combo. The rest constituted Windows 95 units. By then, OS/2’s version 4.0 warp drives were gasping for antimatter—our torpedo had fully struck, causing a deadly impact. IBM was now reporting her royalties timely and with great accuracy. The second OS war had basically been won. The browser war continued with all passion and legal ramifications as we will see.
Overall, ’95 was a highly successful year. In November, Bill Gates published his first book,
The Road Ahead
, showcasing his IT vision outlining the role of the Internet. This year’s crescendo was Bill’s December 7 keynote speech at the annual COMDEX trade show in Las Vegas. Firmly in the driver seat again, he committed the company to integrate corporate networks tightly with the blossoming Internet. The speech, considering its timing, was billed the “Pearl Harbor” speech. Highly aggressive and no longer a paper tiger, he sent a clear message to Netscape: we will beat you! Our employees were thrilled to follow their chairman into an unchartered and wide-open territory as he embarked on investing money left and right in new ventures, protecting our flanks.
Compared to four years earlier, the ’96 reelection campaign for President Clinton was a nonevent. Stung by how Janet Reno’s questionable justice department had treated the company, the big boys didn’t get involved publically. They used their influence behind the scenes, and as a result, MS’s Political Action Committee (PAC) contributions went at a 2:1 ratio to Republican candidates. Mostly wasted, Bill Clinton’s second term was a foregone conclusion.
The year would bring several key changes to the company’s organization, her products, and the competitive scenery. The hard-won lesson that one’s own government was as likely to ambush you for political gain as the competition did for market share had left a bitter taste and a reason to recalibrate the radar. Life’s ironies persisted, as always, as even the most mature among us must learn anew nearly daily.
At the end of ’94, Novell’s core product NetWare tanked, and Novell’s board ran Ray Noorda, her CEO, out of town. Deeply hurt, he blamed MS. In reality, aging NetWare had been beaten fair and square by a meanwhile matured and superior NT server. Ray swore in public that he was not yet done with us and surprised us two years later by acquiring DRI. Novell was happy to get rid of these nonperforming assets, knowing that the time of pure DOS systems had passed a long time ago. There was only one reason for purchasing them now. And vengeful Ray did not disappoint. He immediately filed a civil antitrust lawsuit claiming we had ruined DRI’s business over the last fourteen years with illegal means. The allegations stemmed from warmed-over accusations based on the 1989–94 DOJ investigation. As Ray’s word-swiveling lawyers commenced sifting feverishly through the collected ancient debris, they constructed a case that aroused him into salivation. His long-dreamed-of revenge was coming full circle, and a huge chunk of capital might be heading his way! I believed the lawsuit had a snowball’s chance in hell of succeeding, but the seventh-ring-of-Hades attorneys Ray had hired thought differently. They knew how to access the thermostat down there and believed they had the help of American jurisprudence to reset it.
Starting with BASIC back in ’75, computer programming languages had initially been MS’s main domain, and the company had continued nurturing that domain, building a steady lead. Twenty years later, a new rival emerged. One of Sun Microsystems’s founders, James Gosling, revisited a programming concept many programmers had long dreamed about: “Write a program once and run it everywhere”—regardless of the computer system and regardless of the OS making it tick. To realize and make popular his bitter brew of code—christened Java—he needed two components: instructions that programmers were familiar with and a clever OS-like underpinning enabling their execution. For the instruction part he, used elements of the familiar C and C++ programming language; for the underpinning, he constructed what IT experts call a virtual machine. To make Java’s applications portable, its programming language component remained identical for all systems it was hosted on. Its virtual machine, on the other hand, needed rewriting and adaptations for each and every host.
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When properly implemented, Java applications executed independent of the host computer’s OS. Could this put the need for Windows on PCs in danger or, worse, obliterate it totally? Again Bill had reasons to be scared.
The technique had been tried before in early BASIC and Pascal interpreters. What made Java’s implementation palatable and slick were two features: replacing the relatively slow interpreters with a very fast, on-the-fly compiler
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and restricting the new language to a bare minimum instruction set. The compiler improved the execution speed of Java applications, known as applets or scripts, while the reduced instruction set made implementing Java’s virtual machine on any system a less time-consuming task. As a lean and mean tool, Java suddenly allowed access to any computer via the Internet. The way this works is quite easy to understand. The applet you want to execute is sent from your PC to the computer in question and immediately executed—bypassing the main OS—as long as the targeted system hosts a Java virtual machine.
Investigating the Java concept, MS fully recognized its potential and licensed the product from Sun with the understanding of developing an improved version. To make it more useful, our developers extended its instruction set and invested heavily to improve performance. In August of ’96, we embedded our superior version into Internet Explorer 3.0. A browser that finally caught up with Netscape’s in features and quality! Sun immediately objected vigorously. Working on standardizing Java, our extensions crossed her plans. Sun’s burgeoning pride as inventor and standard setter and Scott McNealy’s, Sun’s CEO, scalding rivalry with Bill Gates left no room for compliments. Programmers using our version to its full extent could no longer write once and run anywhere except on Windows 95 PCs. Sun’s universality dream was shuttered until our extensions were retrofitted everywhere!
Unwilling to embrace them, Sun eventually filed a breach of contract lawsuit. In her view, MS was deliberately destroying the Java standard. In our opinion, we were merely following a now well-entrenched principle, the one our Internet fanatics had once proposed—“Embrace, extend, and
innovate
”—which Sun maliciously replaced with “Embrace, extend, and
extinguish
.”
The Feds watched the dispute with great interest, firmly believing we were out to destroy an alternative computing paradigm—by embracing it? The lawsuit was later settled but not before creating another injunction anxiety for MS and my OEMs who were shipping the Sun-challenged code embedded with 95 powered PCs. Nor did the settlement between the two companies end the dispute. The Feds later exploited the incident to smear MS by labeling her well-intending development and marketing efforts “anticompetitive behavior.” You be the judge!
By now, MS had gotten serious with NT. One of its design goals had been easier portability to other computer systems—just in case a non-Intel platform would challenge the incumbent one day. The AIM alliance threat had made such an undertaking an absolute necessity. To achieve the lofty goal of easier portability, its designers adopted a layering-technique approach. By separating the hardware specifics of an implementation from the application programming interface (API),
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comparable to what Sun had done with Java, only a very small portion of NT had to be rewritten in case it ever needed to be ported. Going beyond, Dave Cutler, the intellectual force behind the design effort, ingeniously enabled modular implementations of more than one API set for NT. Including from the get-go the ones for OS/2 and Windows, and later the ones for MS-DOS and POSIX, popular on UNIX systems, he attracted a far broader spectrum of applications to run on NT systems than anywhere else —creating a clear competitive advantage!
The technology he employed helped MS to remain flexible and competitive in the wild mood swings of the ever-changing IT industry and save time to market in response to a disruptive platform event. The same benefit applied in case an emerging API set became prevalent and had to be added quickly. NT further excelled through a secure operating mode by introducing a sophisticated kernel structure to prevent it from failing when a badly written application collapsed. Adding key networking features such as communication protocol stacks for Internet and intranet access, Dave Cutler delivered a most sophisticated and reliable OS, targeting OS/2- and UNIX-using enterprise customers alike.
First released in ’93 and by now in version 4.0, NT had fully matured—most ready for prime time. Intel’s new CPU, introduced in November of ’95, called Pentium Pro, a powerful successor to the 80486, made it shine further. There were two flavors of NT in the market: a server version, which had evolved from the original LAN-Manager product, and one designed for workstations. These were the higher-end PCs used for graphic design and complex analytical and engineering tasks. My group focused solely on selling the workstations derivate.
NT, being more capable than Windows 95, justified in my opinion a higher price. To determine its value, I studied competitive products as I had done for 95. One was OS/2. Its pricing was hard to determine. IBM had published a retail price of approximately $250. Yet that version was hardly selling. IBM’s OEM pricing was unknown to me. I estimated it to be between $60–100. We further knew that IBM gave lots of OS/2 copies away for free or sold them in bulk at extremely favorable conditions to enterprise customers. Therefore, the real price fluctuated probably between $0 and $250. The other competitive OS was the one running on the Apple Macs. It arrived installed without being priced out separately. Only retail upgrade pricing was obtainable. Last but not least, there were several UNIX systems in the market. One was Linux; it was given away for free and mainly used on servers—not what I was aiming for. UNIX versions, bundled with workstations, were not priced separately except their upgrades. SCO’s version had a retail price tag of around $400–$550 depending on the included libraries. With scant information and such huge price fluctuations, I asked Bill for advice.
We started our discussion by investigating future OEM business aspects and immediately agreed that growing my business was tied to two main factors: overall PC sales and a steady increase in NT penetration, assuming it could demand a higher price than 95. The first depended on the economy, affordability, and the PC’s hopefully enduring usefulness—which we could only indirectly influence and which in hindsight took over ten years to be seriously challenged. Increasing NT penetration, on the other hand, was directly correlated to how much enterprise workstation demand we would be able to create. I had a job to do.
Pricing NT higher than Windows 95 was a foregone conclusion for us. Just how much was the next issue to attack? Taking OS/2 and UNIX pricing into account and knowing NT contained most of the same goodies and was capable of running a more diverse number of applications, we eventually arrived at a $100 price; it sounded like a bargain to us. It sure is an easy one to get accustomed to if used as a from-the-hip multiplier, but could we really extract that much?
Our so-called bargain turned out to be extremely hard to sell. For every hundred units of Windows in 1995/96, only two to three units of NT were sold. The reasons: a combination of price resistance by the OEMs and so-far tepid customer demand because UNIX was favored on workstations. What made switching enterprise customers even harder was that they were still suffering through the OS/2 disaster. After IBM’s late solo had failed, they weren’t willing to easily trust MS’s intrepid lead. Stuck, I asked my marketing guys to break the deadlock and create a program incenting OEMs to crack the enterprise workstation segment with NT in mind.