Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence Page 10
Novell’s buyout of DRI that year was a serious and potent threat. Raymond Noorda, Novell’s CEO since ’83, allegedly coined the word co-competition in describing the PC software industry. It suggested that even rivals enjoy a natural concordance to attain ultimate successes. His company originally sold servers. Novell’s breakthrough came when she developed a network interface card for PCs and corresponding software. The software, later called NetWare, enabled PC servers to easily connect to each other. During the ’80s, Novell transformed herself from a mostly hardware company into a pure software company, an impressive accomplishment. Until then, other server and network card providers regarded Novell as a competitor. Dropping the server hardware from her sales portfolio, Novell succeeded in making NetWare the leading PC network operating system. By ’91, NetWare’s lead appeared unassailable with MS-LAN-Manager and several UNIX versions together having less than 10 percent market share.
Thanks to my group limiting DRI’s success as an OS supplier and after the failed buyout, her CEO, short of cash, looked for a suitor. As a perfect merger candidate, Novell had the money and her CEO the zeal to make MS’s life harder. When I heard about Novell’s purchase of DRI, Bill and I were profoundly alert. Ray’s famous vindictiveness toward MS accompanied by Novell’s cash hoard and her much larger sales force strongly suggested a prolonged and more vicious firefight, for DOS market share was about to commence. In selling NetWare to our OEMs, Novell already had existing relationships with a lot of my customers. I feared her sales force could easily leverage these and prove plenty successful selling DRI’s product line in unison. Bill agreed.
As the merger unfolded, I was urging the MS-DOS group to finally deliver a version that could be embedded and function in read-only memory (ROM). DRI had successfully sold one for a long time. I considered this product segment her last bastion to fall. Not needing a hard disk to function, it had found its ways into the industrial controller market and emerging handheld devices. Not a huge segment then, but with the accelerating miniaturization of electronic components, its expansion was a foregone conclusion. The reason why I eagerly wanted to create a foothold, establish our brand, and take business away from DRI. I convinced Bill that this was an urgent, exciting, and obtainable opportunity, and with his help, the product group eventually delivered.
Luckily, my nightmares did not become reality right away. I never fully understood why Novell did not hammer the holy hell out of us. The machinations of executing the merger were undoubtedly one reason for her failure. Novell’s core business had mostly retail focus. A smaller amount was done through enterprise-focused OEMs. DRI had hardly any retail presence and sold directly to smaller non-brand-name OEMs. The salespeople in Novell and DRI had different skills and served different distribution channels. The grand tactical error: her sales management missed the opportunity to create synergies between them.
As we attacked Novell/DRI in her last stronghold, we found scant resistance. One and a half years later, despite—or because of—the merger, we had neatly swept a significant portion of the embedded business away from under her. No serious effort was made to stop us. No discounts, no marketing, nothing. It was too easy, I thought. Frankly, I was disappointed, having expected a bloody battle.
No attack on Windows either. No taking out a license, as IBM had done, from Apple to get over the patent hurdle. No cloning attempt of Windows either. Novell certainly had the resources and the skills to attempt such a feat. She could have succeeded in launching an alternative and nicely polished Windows-like product. Did Ray Noorda have other motivation for acquiring DRI?
As we were entering 1992, a stand-alone DOS for PCs without Windows-like features was no longer in popular demand. The weight had undoubtedly shifted. With Novell/DRI seemingly out of the race, any serious competition for Windows would have to come either from OS/2, UNIX, or Apple’s Mac platform. And last but not least, the software pirates were still threatening the high seas of success for all of us.
DISRUPTIONS
UPS AND DOWNS
Finally, in mid ’90, the Federal Trade Commission (FTC) notified us of the secret probe her commissioners had started months earlier—by now solely focused on OEM business practices. A fishing expedition as I thought. The commission muzzled us, swearing us to secrecy. Over the next year, requests for information piled up on our attorneys desks. With the FTC refusing to fully disclose what and why it was investigating and restraining MS from sharing details, the nation’s highest law enforcers of the Department of Justice (DOJ) filled the void. Apparently, there were different rules for them. The leaks they provided fueled speculation, impacted our stock price, and were just a forbearer of what type of damage ill-informed press people and slimy informants are able to cause.
Steve and Bill concluded that the Bush 41 administration had gotten us into the mess. The upcoming ’91 election presented a golden opportunity to get us out of it. So our top honchos set out and openly promoted Democratic contender Bill Clinton. With the country sinking into recession, they considered a personal engagement pretty low risk. One of Clinton’s advisers neatly defined the moment in history with “It’s the economy, stupid!” when describing what primarily motivates an electorate to lean toward a presidential candidate.19
It was not just a pocketbook choice. The two candidates portrayed rather distinct differences. The leadership style of 41 was perceived old-fashioned despite liberating Kuwait and witnessing the fall of the Berlin Wall and the Soviet Union under his watch. Bill Clinton, in contrast, gave voters hope for a more financially sound future, exuding a deft decisiveness accompanied by well-received folksy humor, optimism, and plenty of promises. A generational shift was about to occur in American politics, and an older-style incumbent helplessly watched as history was made.
Steve went on an overt crusade enlisting CEOs from other IT Companies. Bill joined him—MS employees watching with astonishment two avowed capitalists showing flag for a Democratic contender, short of a probusiness agenda. After Clinton’s election, the hope of the top guys evaporated. The government continued pursuing the case against MS unabated. The assumption of a Democratic administration dropping antitrust allegations, odd and not too promising from the beginning, had not panned out.
The resignation of Mike Hallman in ’92 after a brief two years’ stint as president came as no surprise. With his prescriptive management style, he had failed to see eye to eye with tech-trajectory and direction-centric Bill. Not replacing him with a single person, the board created an Office of the President. The following people were named to help Bill run the company: Frank Gaudette, Mike Maples, and Steve Ballmer, signaling a major shift in leadership. Mike was assigned management of all development groups, Steve was appointed head of worldwide sales and marketing, and Frank, the current chief financial officer, continued his responsibility for finance and administration. Steve moving to the top position in sales and marketing impacted me directly.
Effective immediately, I reported to the man I’d tried to get fired a couple of years ago. With awkward feelings, I looked forward to our next meeting. In view of his normal style, I assumed he would give me a hard time; Steve did not disappoint. Preemptively sharp as always, he did not summon me to his office; he showed up one day in mine unannounced and rather early. After accepting my congratulation, I asked him point-blank how he viewed the overall performance of the OEM group, and mine in particular. Smart or not, I genuinely wanted to know where I stood. In typical Ballmer style, he didn’t miss a beat, roaring out a swift, straightforward answer. “I consider your performance barely a 3.0!” In MS’s culture, his remark amounted to nothing short of an insult, period. Let me explain why.
Twice each year, MS employees convened with their superiors to discuss job performance. Normally, the employee was asked to write a review in advance listing achievements and failures. In response, management graded job performance on a scale of 1–5. The ultimate 5.0 grade meant you walked on water; a 3.0, on the other hand, was the lowest acc
eptable rating—anything below meant you were about to be shown the exit. Having constantly achieved ratings at or above 4.0, Steve’s off-the-cuff assessment was nothing short of “Take notice, you are not bulletproof.” I could have asked why such tepid ranking; in its place, I laughed it off with a cocky reply of “If you think so!”
He grasped immediately I was not taking his from-the-hip comment to heart. In the ensuing discussion, he brought up my former recommendation to fire him. No reason to look for any other motive. At fourteen years his senior, I intuitively knew my former actions had wounded him. With loyalty a most coveted priority when he evaluated employee performance, I had stepped over the line, and in a nutshell, he was still pissed.
Ignoring smoldering emotions as much as possible, I launched into an in-depth discussion of the OEM business. Ironically, we were in total agreement on how it should be run and what goals and objectives needed to be accomplished. I had expected nothing else. Otherwise, knowing his influence with Bill, I would have been fired long ago. Arrogant though it might sound, deep inside I suspected he had no intent to unseat me. His mediocre performance comment was a random volley, intended to commandeer at last my attention and respect. It undoubtedly did—without me offering any apology for past behavior.
My intuitive conclusion: any type of cowering at such pivotal moment would have backfired. The man was testing my core and unwavering attitude. In an instant, we had renewed our basis in how to work with each other for the next nine years. He actually never formally graded my performance again. In future performance reviews, we analyzed my business in close detail and established top priorities and objectives. Without exception, our powwows were respectful exchanges from which we each came away having learned a great deal. Had I tamed the tiger in him early on? In hindsight, I conclude we came to value each other’s judgments, though not without—as in a healthy executive relationship—agreeing to disagree a few times. Respectful disagreements, which strengthened our relationship and advanced how we proceeded with the business at hand.
From then on I never experienced the rants and tirades Steve sometimes leveled on people. He was, in general, supportive of my management style, and any criticism was posited constructively and in a professional manner. His cooperation and praise, often expressed publically, made it much easier for me to manage my group and left second-guessing of my decisions to the lesser informed. To this day, I own a mostly positive memory of our working relationship. Steve, if you happen to disagree, please drop me an e-mail!
Steve, always profoundly aware of distribution deficiencies, asked me to take another look at our lingering system-builder business. As the market was shifting toward Windows, our old agreement with Phoenix had become obsolescent. Commencing, I tasked my marketing group to investigate if hardware-component distributors would be interested in broadening their product line by selling OSs to this community. They responded positively. Encouraged, I gave the green light to hire a new breed of sales reps. We made them responsible for helping our newly selected distribution partners to promote and sell OSs through establishing relationships and creating demand with system builders.
After logging experience in the United States, we expanded our business horizon internationally. We were at once off to an imposing start. Adding system-builder conferences, direct mailings, and later, e-mail campaigns to our marketing arsenal accelerated and manifested our feat. But a fresh set of unanticipated challenges kept popping up. Several subsidiaries outside the United States complained that we were diverting portions of their current retail business into the OEM bucket. They failed to note that our packages were not sold to end users but to low-volume hardware manufacturers. The OEM group was responsible for this market segment. Instead of closing license agreements via signature, we had expanded our business into selling licenses in boxes.
Considering the bigger picture, the subsidiary managers should have simply shut up. In talking to them further, I learned their real desire was to control the pricing of these OEM products locally. I considered abandoning central price control a foolish move. Through a single WW price list, equal treatment was guaranteed for all OEMs around the globe. Local price control for OEM products made no sense to me. It would inevitably lead to price shopping and uncontrollable discounting and enable local favoritism. I ignored the arguments.
As time went on, a kind of subsidiary coup arose—a chorus of voices pleading to take the low-volume OEM business away from my group. Simple greed for my taste! By nurturing the low-end market segment, it had become the fastest growing portion of my business. Our centralized management and unified marketing was an essential component in cultivating it. With no new directions coming forth—from either Bill or Steve—there was no need to cave in to emotional pleas from people with little or no understanding of the intrinsic nuances of this business. By offering no concessions, my popularity with subsidiary management did not exactly flourish. As the lobbying went on, Steve got annoyed and eventually tried to convince me to give in: “Be a nice guy.” My answer to him: “Let’s continue with what makes the most sense to ensure success. I am not running this business to win a popularity contest!” I carried on.
In ’92, the day for my first court depositions had arrived. I never thought this would ever become part of the deal. Our lawyers and I spent endless hours to prepare for this methodically, page by careful page, combing through each and every document. Ad infinitum, valuable workdays disappearing forever amid the mindless dry riffling of paper! At first I resented the long, tedious hours. Later I came to appreciate them as useful and clever exercises helping me remember events from the past, put them in context, and sharpen the logic behind my later arguments. Amazingly, most issues we covered did in fact come into play during my depositions. These attorneys were real pros. After my first testimony, they grew in stature for having engaged me in mock battles to learn the cat and mouse game opposing lawyers would eventually engross me in. I grew a mantle of radar, sensitized to the blindsidings and the character-ambush attempts.
During the FTC deposition, the government lawyer chased me through our written policies and procedures, the standard OEM contracts, and our price guideline. His main game was to introduce e-mails or documents and asked me to interpret the intent of the originator. My approach for handling the situation was to not engage in second-guessing or trying to get into others people’s heads years after the fact. In time I grew a little overconfident. I began noticing my counterpart was badly prepared. He had not logged enough time understanding the OEM business or PC technology. I soon became bored and began playing mischievous games with him, trying to take him off his envisioned path. In the process, I tossed him a prize, a real windfall, inadvertently volunteering information he would never have gathered on his own. At the first recess, one of my attorneys took me aside and insisted I change my behavior, to answer the most unsophisticated questions with patient robotic restraint; playing mind games was not what he approved of. I was thankful for the reprimand, and the deposition continued with me being more disciplined.
I quickly learned: whatever somebody wrote can be located even if the originator purposely didn’t keep it, and secondly, all of it could be used against you. Well-intended, complex, and hard-won policies could be misinterpreted by an opposing lawyer, turned against you to make you look like a miserable fool. E-mails you had completely forgotten might be archived by other people for no apparent reason. Years later you remember hardly any of the contexts they were derived from. Count on a federal investigator to dig them up. Be aware he will put words in your mouth to prove fictional evil intent, and you will be required to defend yourself. You will be made to appear flummoxed and dumbfounded, devious and inept. Sullied and ill-sorted and scandalous! The list of things to watch for in my interrogation was a long and a dirty one, a snake-infested labyrinth of trapdoors and snares. After two long nine-hour days, the ordeal ended with me exhausted and delighted to return to my familiar business. One down!
I had no clear i
dea why I was being deposed in the still-simmering Apple patent lawsuit. I was not privy to the peculiarities of the patents MS allegedly was infringing upon. What I remember from the otherwise boring and utterly meaningless deposition was how it began. When I entered the conference room where I was scheduled to appear, I first noticed a high-end video camera Apple’s legal crew had positioned opposite my chair. The camera rolled as soon as the deposition started. The system was equipped with blindingly bright lamps. As soon as the light hit my eyes, I reached for my sunglasses—yes, even in Seattle. The opposing attorney at once decried my reaction. During the ensuing recess, I assured my lawyers that staring in these lights would soon cause severe headaches for me. The other side needed to put them out. It took nearly thirty minutes to resolve the situation. In the end, the other side relented. The camera was used—sans lumière. Curtains were opened, allowing sunlight to illuminate the scene. It mattered little—the interview ended abruptly. Both sides considered my short deposition a waste of time.
What I learned from both experiences was to reduce mail stored on my PC. From now on, my e-mails were archived after four weeks max only. I made certain my filing cabinets contained no information older than six months (OEM contracts were never stored in my office, in case the reader wonders). I asked my managers to follow my example. Unfortunately, not all of them did. Reducing what we kept was smart. The company would have been miles ahead if management had made my personal habit a shop-wide policy.
FRONT LINE PARTNERSHIP
In his new job, Steve at once began beefing up MS’s enterprise sales force. Over the next few years, he increased the size of this group at a staggering rate and made certain our consulting organization worked in unison with it. As that group was tasked to create increasing demand for our server and office productivity products, it continued to be decentralized and regionally driven. Marketing, on the other hand, got streamlined, and strategic initiatives were now designed centrally for impactful worldwide executions. Was my boss learning from how I had organized OEM?