Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence (30 page)

The last time I met Beny as CEO of PB, he was a changed man, though still with a roaring fire in his belly. He told me he was no longer willing to put up with the prescriptive BS the board was throwing at him and would take his money and leave. The old warrior exercising Auftragstaktik expected the same from his board members. Living in an ancient world of inflexible mandates and egocentric myopia amid the ossified ruins of lost empires and forgotten armies, they simply could not find it in themselves to oblige. Shortly thereafter in ’99, he tried a comeback after buying the assets of AST, another PC manufacturer who had not survived the onslaught. Unfortunately, he did not succeed a second time and decided to venture into other areas of interest. I missed wrestling with the shrewd tank commander and relentless warrior; he was an impressive character—smart, inventive, and to the bitter end ever true to his own best interests.

With the Feds attacking us in court over the legality of protecting the copyright for Windows, our OEMs got increasingly bolder in asking for total configuration freedom. Solid relationships began to erode as a result—best explained by exploring the Gateway (GW) conundrum. In early ’98, CEO and cofounder Ted Waitt moved GW’s headquarters from the wind-scoured plains of South Dakota to San Diego, California. As I remember it, from down-to-earth prairie life to southern California glitz! The proffered reason: he could no longer attract the appropriate level of management to the less-than-thrilling setting despite a by-now paved parking lot. The local community was at first little impacted, with most manufacturing operations remaining in place. My suspicion was that his new wife was behind the move, unenthused about life in the chilly, dreary, flyover country of the noncosmopolitan Dakotas and having to tolerate the stench of a nearby meatpacking facility. This may explain the purchase and remodel of an expensive new homestead in La Jolla, competing with Bill’s $60 million mansion on Lake Washington.

Simultaneous with the move to the glamour coast, tensions between the two companies accelerated sharply. I experienced it myself when we renegotiated a new contract for bundling our Office applications. To smooth feathers, I had to personally get engaged and meet Ted at Denver International Airport. The mile-high oxygen-deprived atmosphere was at once outright hostile. He asserted that our original agreement to sell Office application bundles was solely responsible for the dominance we had gained in that product category. Then he imploringly complained that we should have been far more grateful to him after giving us that opportunity. I could only shake my head as he refused to acknowledge that GW already had the best deal between OEMs in regard to Office. I personally was his staunchest fan. In the end, though, none of my arguments convinced. He looked like he possessed a kind of sad, delusory logic, not trusting me any longer. No wonder it took hours to arrive at a reasonable agreement; in this case, it was accomplished by me personally breaking the deadlock and making an essential price concession after talking to him at length one-on-one—a rare occurrence indeed.

Hotly contested issues developed over the Windows desktop configurations between me and Jim Collas, his man in charge of product procurements. Being an ex-Apple employee, he probably didn’t have too much sympathy for MS from the get-go. Initially, our relationship was cordial at best; now he veered sharply into the anti-MS camp and made an unending flurry of demands. My way of responding to the most outrageous ones had grown simple. “The matter is before the courts, and I’m not willing to relent until the case is decided upon.” I considered using the current legal dispute to leverage truly far-reaching entreats nothing short of blackmail.

More irritations were caused when GW bought all of Amiga’s patents, making our patent-assertion clause harder to negotiate. We never understood why Ted acted upon this specific patent portfolio, though we learned that he later sold it to Escom in Germany. Neither company ever developed plans to produce Amiga PCs.

Influenced by advice from insiders and outsiders, Ted slowly but surely refocused his allegiance and realigned his stance toward MS. I blamed it on the brilliant SoCal sunlight. Had the down-to-earth boy from the Dakota plains gotten too much of it, or had his obvious success finally gotten into his head? After briefing Steve about the changing relationship, he asked if I had heard anything about Ted secretly dealing with the Reback group or the Feds. Nothing direct, I replied, just rumblings through the grapevine. To get to the bottom of these rumors and dispelling or confirming them, we invited him to meet with us. Emphasizing his status as chairman and CEO, he made his attendance conditional to having a solo audience with Bill.

I let him have his twenty minutes in eternity. Not surprisingly, Bill told me afterward that they mostly talked about their foundations. Then he joined us. At the end of our talk, Steve asked him point-blank if the alleged rumors had any foundation. Friend or foe? Reacting with extreme evasiveness, Ted was not about to be forthcoming, avoiding eye contact and denying any behind-the-back dealings. After accompanying him to his waiting limo, I went back to recap our examination. Steve told me straight off the bat that he felt Ted had deceived us. I just nodded. Taking a deep breath, he said, “I never want to see this guy again!” Ted missed a golden opportunity of redemption by airing any grievances openly. Steve, having an admirable capacity for compromise and forgiveness when confronted directly by customers, was always ready to make amends.

Later that year, Ted groomed Jeffry Weitzen for the CEO post and stepped away from day-to-day business while retaining the chairman title. Having grown tired of running the place, he wanted to spend time with his family, enjoy his fortune, and tend to his foundation. Cloning Bill? By ’01 he was back in the saddle, running the company after the appointment hadn’t worked out. The rest of the GW story is not a pretty one. After buying a low-end supplier (eMachines) in ’04, the once-phenomenal company went into a sudden and colorful financial tailspin. In ’07, the Taiwan-based Acer acquired what was left. Having obtained substantial wealth in the process, Ted resigned. I wish him all the best in his new endeavors, and I hope he remembers a lesson learned!

The other company going through a lot of change was behemoth Compaq. In early ’97, her CEO Eckhard Pfeiffer finally made an attempt to explore the mail-order channel by trying to purchase Gateway. As Bill and I departed a meeting with Compaq’s upper brass, we observed a line of stretch limos idling up to her headquarters. Despite the gleaming smoked-glass windows, I spotted a Gateway VP in one of them. Bill and I exchanged puzzled looks. The Compaq crew had been quiet about the happenings, but a few days later, Eckhard called Bill before he could read about it in the papers. However, the deal never closed despite Compaq’s generous $3.5 billion offer. Friends in Compaq later told me that Ted had gotten cold feet after recognizing the changes in store, particularly for his top management team and the South Dakota facilities. Ever the country boy, he later confirmed to me that he had no desire to put his existing hometown employees in danger of being laid off. While the deal did not materialize, its due diligence did, and soon thereafter, I took calls from Compaq execs asking for the same Office deal we had extended to their acquisition target. Confidentiality had again gone out the window. True to form, my answer was swift: “Give us an identical commitment, and I will give you the same treatment.” The bitter truth was understood though totally underappreciated.

Instead, Compaq bought Tandem, the NonStop computing server company—the last manufacturer to ever launch a computer system with a proprietary OS. Gary Stimac, Compaq’s SVP, had been on her board since March of ’97, just three months before the takeover offer was extended. Loving her technology, he was the main driver behind the acquisition. The Tandem purchase was a clear sign of Compaq renewing her enterprise’s customer focus. Her obvious plan was to take on IBM.

For that to be successful, her CEO needed a consulting arm offering IT-integration services. In a surprise move, he made an offer for ailing Digital Equipment Corporation (DEC). My old friend John Rose, having joined Compaq several years earlier, was the driving force behind that deal—stunning me. The ’92 departure of Ken Olsen, DEC’s admired founder, caused by her first quarterly loss, had left that company polarized and with no clear direction. Her new CEO, the capable Robert Palmer, one of the founders of Mostek, had since then struggled to turn the ailing ship around. Despite successfully launching an advanced minicomputer line and executing massive layoffs, he failed. After consuming the deal, Compaq’s management had a tough task ahead. DEC was a wallowing, wasteful company, and her reputation with customers had begun to break down. A situation comparable or worse to what Gerstner had found when taking over IBM.

Evaluating Compaq’s acquisitions, Bill and I thought Pfeiffer had bought anchors, not sails. By early ’99, merging the three companies ran into tremendous difficulties. When an earning crisis developed, dropping Compaq’s stock price 20 percent, Pfeiffer got ousted. Chairman Ben Rosen took the title of interim CEO. Replacing him four months later was a lackluster insider, Michael Capellas, who tried his luck to fuse the floundering wreck into a coherent and meaningful competitor to IBM. During this turbulent time, Steve Jobs—still mad at Bill for not liking the iMac design—attempted to upset the MS-Compaq relationship by offering Compaq a license to the Mac OS. Fortunately, her management rejected the idea and stayed loyal, though it again showed how vulnerable MS remained.

Eventually, Hewlett-Packard (HP) came to the rescue by buying Compaq through a stock swap worth around $25 billion. The deal was completed in ’02 against the objections of Walter Hewlett, HP’s major shareholders and director. From thereon out, the combined company was the undisputed PC king. Carly Fiorina, HP’s CEO and chairwoman, tried for another long four years to restore and revitalize the shipwreck, forgetting that in a wickedly competitive environment, the scent of blood travels fast in the high-speed winds aloft. This time to the east! Carly’s failure allowed Dell to seize the opportunity and erode HP’s market share deeply enough to lead to her ouster. The appointment of Mike Hurd managed to put HP back on track, restoring some of her old glory. A genuinely astonishing achievement! By ’04, the consolidation in the industry left HP and Dell with a combined 40 percent of WW PC volume, a concentration of power never experienced when I was still running the OEM group.

FORGING AHEAD

My last remarks have ranged well beyond my time with MS, so let’s get back to early ’99. Despite his promotion to president, my boss’s relationship with Compaq never completely recovered from earlier mishaps. Whenever Steve visited the company’s execs, Gary Stimac, Compaq’s SVP of engineering, stood a life-size cardboard cutout in the conference room, in lieu of him attending personally—an insult poorly taken by Steve. Observing the struggle Compaq meanwhile experienced was the last motivation he needed to embark on a mission to acquire new friends by cultivating her competitors. Concerned about a promising pursuit of the enterprise server and workstation business, he fostered a rapport with Dell’s president Kevin Rollins, future CEO and Michael Dell’s right hand. The marketing money to seal the envisioned pact, greasing the tracks, and forging a cooperative spirit came directly out of my budget. Unbudgeted. Looking back, it turned out to be a good decision. I did not resent striking the deal, though I was deeply hurt by the way it was forced on me impulsively in a meeting with no advanced warning or prior analysis.

With Steve firmly in command, I recognized another change in the company, one I personally had never wanted to witness. The meetings where decisions were supposed to be made swelled into teeming crowds involving all manners of logistical impossibilities. Anyone who remotely had something to learn, and most of the time nothing to contribute, would now be invited. The presentation folders distributed grew into Manhattan phone books. The PowerPoint presentations labored on ad infinitum
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The review meetings I now had to attend often ran for days, at twelve hours per. Ironically labeled team-building exercises! McKinsey and the whiz kids were casting their long dark shadows. Nobody was allowed to step on anybody’s toes any longer or display the normal MS style—raucous at times. Drawing strength out of healthy disagreements was suddenly a lost art. Right or wrong, one company, one team! As practiced, the resulting charade suppressed true opinions, maverick passions, and controversy—attributes that in the past had led to impressive progress and breakthroughs fanning a healthy competitive spirit. The earlier culture suffered. Forgiveness was favored over accountability. Being a friend of Steve was becoming important. He was making an effort to keep his temper under control; I never thought that day would ever arrive. The company was drifting into a decision-by-committee organization. I often did not possess enough
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to endure these never-ending sessions and began finding excuses.

As the decision-making style in the company shifted, I refused to be party to spreading the cancer. Once, after calling for an operational review with my logistic group, nearly fifty people showed up for a meeting scheduled for three hours. I looked at my business manager with astonishment and said, “I am going back to my office, and when I return, I want four people in this room. If there are any more, I will start firing the rest until we get down to exactly that number.” I barely finished issuing my instructions as a mad scramble for the door drowned out the last part of my final phrase. After we were down to the quintessential group, we finished the agenda in less than fifteen minutes. I had to repeat the same exercise again during a marketing review. From then on, decision-contributing gatherings never exceeded six to eight people; all others needing to know were later informed by e-mail.

I was nearly at the end of the rainbow. Steve must had sensed this when he expressed his desire to build his own leadership team and wanted to know if he could count on me. What inspired me to stay was twofold: first, the desire for an orderly and smooth transition, and second, my loyalty to the nearly five hundred people working for me. The trial was not over yet, and I firmly believed that an experienced hand was needed to steer the group through the turmoil of the aftermath.