Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence Page 9

  To my astonishment, our applications’ software competitors took several years to follow us. They lost revenue, market share, and product awareness. Over time, the product group seized her opposition and, in the end, like Steve, embraced our deals. Ted told me personally that the bundling had an exponential effect on GW’s growth and visibility. MS obviously benefitted by enlarging her market share on systems where our apps might otherwise not have landed on—at least not legally.

  Dell, GW’s fierce competitor, founded by Michael Dell in ’84, was now located in Austin, Texas. Like Ted, Michael had established his company from the committed belief of a direct-sales model being superior to retail. Dell was regarded as a low-end PC manufacturer until he refocused his company on producing PCs for enterprises. With a larger ego than Ted, Michael insisted on talking to Bill instead of his underlings. I met him several times and always admired his business sense but found him otherwise distant, impersonal, and not committed to MS’s range of products.

  With Dell gaining share with enterprise customers and Gateway and Packard Bell being successful with consumers, Compaq’s PC business in the US felt the crunch. While her server business was going gung-ho, her desktop PC sales slowed substantially. Only available at retail, she had missed the direct-sales wave. The struggle with competitors and her falling stock price caught the eye of chairman Ben Rosen, who was determined to turn the situation around. I was surprised when I received a phone call from Mike Clark, a Compaq VP, asking me if I would come to Houston, Texas, and offer the exec team my market perspective. As much as I wanted to help our “partner from birth”—as Ben Rosen characterized our relationship—the invitation made me uneasy. I was not sure if I could—or wanted to—compete with the in-depth perusals of her dedicated marketing pros and their presumably high-handedness. At the same time, I felt honored to be considered.

  To accomplish the task, I had to base my projections on our database of actual OEM reports. It served as the basis for our annual planning exercises. For manufacturers who licensed from competition, we obtained volume estimates: occasionally from them, their competitors, or independent marketing research. The piracy segment was more complicated to guesstimate. Whatever the source, our statistical data supplied us with accurate-enough info to plan our business quite well. Outside analysts, on the other hand, depended on less-accurate data often obtained directly from PC manufacturers. The desire to impress investors, brag to analysts, and leave competitors in the dark often diluted realities—up or down. Understanding this, I was cautiously optimistic of being able to address Compaq’s management diligently.

  The confidentiality of our database was the last obstacle. Customers providing data in good faith wanted it protected from falling into competitors’ hands. The solution was to combine several customers and present only calculated totals. So I set out to estimate WW PC shipments, including the screwdriver segment and the number of pirated systems. I then prepared a chart comparing the growth of directly selling OEMs with the ones going exclusively through retail channels. My analysis made Compaq’s WW market share appear considerably smaller than her own propagated estimates. Expecting a push back, I hoped the attendees would come open-minded!

  Admittedly, I was nervous and hoped any perceived controversy would lead to a lively debate. I was not to be disappointed. Entering the meeting room, I found five of Compaq’s top echelons: Garry Stimac, Mike Swavely, Mike Clark, Rod Canion, and surprise, surprise, Compaq’s European manager Eckhard Pfeiffer. I knew him from my time in Munich. Commencing with my presentation, I got interrupted multiple times. Several people in the room, most specifically Rod Canion, then Compaq’s CEO, attacked as expected my total-market-size assumptions. He further was skeptical about my growth analysis and conclusions regarding the fast-growing direct-sales channel. Mike Clark had told me the night before that I could, under no circumstances, turn the meeting into a “pitching Windows” event. My conflict: the sales data of the companies I had combined in my chart were all bundling Windows on most of their PCs. Sneaky maybe. The conclusion of my presentation did spark a Windows discussion, the one I had hoped for. Maybe I had been a bit too deliberate and hopeful in my selection, shooting for the so-far unobtainable. What else to expect from a sales guy? As I left the room, Mike thanked me for a job well done; Eckhard took the opportunity of doing the same in German. I was left in the dark on what I had accomplished and how much our discussion would influence our business.

  For one week, nothing happened. It was later confirmed that Ben Rosen, Compaq’s chairman, who did not attend the meeting, had gotten the information I had provided. I was not surprised when he shook up top management but astonished when he promoted Eckhard Pfeiffer to Compaq’s CEO post. I felt good having Eckhard at the helm. I had a personal relationship with him and hoped to influence our business relationship personally from then on. But Compaq’s management did not venture into the direct-sales channel and, most disappointing to me, did not license MS Windows as a result of my visit. Instead, the newly appointed CEO focused his immediate attention to improving supply-line management. While I may have been a factor in shaking up the old team with my global presentation, my hidden objective was unaccomplished. In confidence, Mike Clark told me a couple of days later, “Don’t worry, Windows will happen, just a little bit patience, please!” Me and patience. His reassurances sounded Chinese to me.

  Not going straight back to Seattle, I flew into Dayton, Ohio, to meet Bill for a memorable visit to the National Cash Register Company (NCR). We were hosted in the Wright brothers’ mansion, which had been converted into a guesthouse—on historic grounds as I thought. Meeting NCR’s flamboyant and outspoken CEO and chairman Charles Exley Jr. for the first time was an experience in itself. The over one-hundred-year-old company had roots in the cash-register business. By now her minicomputer-based banking and accounting systems as well as her ATMs and communication boxes made up the core of her business, nicely complemented by service revenue. In ’83 she had ventured into PCs. Her strength was not just in hardware but also in value-added accounting and banking software. She meanwhile was a solid Windows customer, and Chuck Exley had expressed interest in meeting Bill to receive an update on our future plans and to explore how to cooperate on NCR’s home turf.

  After a cooperative and in-depth information exchange, he invited us for dinner with his whole executive team in the marvelous dining room of this historic place. Right after, desert Cuban cigars were passed around, with Bill, to my astonishment, taking one of the large Churchills and Exley helping him to light up. Only once before had I seen him smoking cigars: during a dinner we hosted in ’86 for Scott Oki near Cannes, France, where we bid him farewell from his international job. Like everybody else in the room, he did not dare rebuff Exley’s personal invitation to enjoy a bad habit I still share.

  As the blue smoke and the aroma of the Cubans filled the partially candlelit dining room, the conversation, helped by a few well-aged cognacs, got increasingly animated. Exley suddenly stood up and, as he opened one of the curtains, made his voice heard by saying, “All my guys are making way too much money.” There was an immediate silence in the room. With a big grin on his face, pointing to the illuminated parking lot outside, he added, “Otherwise, they could not afford all these fancy Nazi cars.” We looked at each other in astonishment. Porsches, BMWs, and Mercedeses galore—only his visitors had arrived in American-made automobiles. He was quite a character. Unfortunately, one year later, NCR was bought by AT&T, with him leaving for good. NCR subsequently gave up building PCs.

  AIMING

  June of ’91 delivered a bombshell. Apple, IBM, and Motorola announced their AIM alliance. The intentions of the triumvirate, firmly AIMing at MS’s head, sent shockwaves through the PC industry, rattling its foundation. Bill’s earlier phobia, expressed after the OS/2 divorce, had been entirely warranted! The alliance was the brain child of Jack Kuehler, our old foe. It proposed a new computing platform incompatible with Intel’s and based on IBM’s br
and-new RISC CPU–christened PowerPC. Its advantage was supposedly its price, and Motorola announced that it would act as a second-source supplier. The PC, as the world knew it, seemed doomed. Fantasy or reality, the press was already convinced.

  The menacing aspect for MS was the coalition’s intent to create a brand-new OS—a cutting-edge object-based masterpiece. Obsoleting MS-DOS, Windows, OS/2, and NT all together! The maverick mouthpiece announcing—in his usual aggressive style—Apple’s side of the deal was Mike Spindler, my old boss and now Apple’s CEO. An exceptionally brilliant guy who did not always have his temper or his mouth under control! We had nicknamed him Dynamo. Not mincing words, his speech extolled the wholesome benefits of good old-fashioned, vigorous all-American competition principles at their best—AIMed, unfortunately, squarely at our core! How many times has history described this? Among the great, the greater the challenge, the loftier the response! Go ahead, Mike, wake a sleeping titan.

  The only real product the alliance had to show was IBM’s prototype, the not-ready-for-prime-time CPU. On the software front, there was no mock-up cardboard cutout, or even faint smoke and mirrors. The announced OS was the purest form of vaporware. A dream and a bet! MS announced MS-DOS version 5.0 with a six-month time horizon. The alliance announced hers twelve to eighteen months in advance. MS did not run whimpering to the Feds about a wildly premature, empty, and deceptive revelation, nor did any of IBM’s competitors or DRI. They applauded, and the press found nothing faulty to report.

  Soon thereafter, I joined, Bill, Paul Maritz, and Steve to assess the situation. We concurred at once about the announcement’s deadly intent, though we were of differing opinions on just how much true and dry gunpowder the newly formed alliance actually possessed. Paul expressed skepticism about its longevity. He did not believe in Apple and IBM being able to work with each other. We all agreed that the new RISC chip would probably see the light of day, and Apple would probably purchase the CPU for building a new generation of Macs.

  The ambitious OS pronouncement sparked a heated discussion. Based on his working experience with IBM, Paul did not believe that she and her enlisted software partner, Taligent, could deliver a viable OS in the projected time frame. As usual, Steve was diving for the panic button with Bill not far behind. These two still loved to create paranoia, yet it did not work in today’s closer quarters. Neither Paul nor I bought their arguments. The alliance had just too many divergent goals. What benefit would IBM receive from seriously altering the PC landscape? Wasn’t having Apple as future partner a cutthroat detriment? An Apple entry with an identical architecture would definitely hamper her already-thin margins further. Would Apple really buy an OS developed by IBM and give up her proprietary advantages? Dream on! Would this alliance be able to attract enough independent software vendors and lure them away from Windows? Possible—considering the resources of the three giants! I remained as skeptical as Paul, but crafting a tactical response was not, at this juncture, in my job description.

  Shortly thereafter, Bill covered our bets, announcing a special Windows NT version for IBM’s PowerPC platform. IBM strangely promised OS/2 and a UNIX version. Sun chimed in that her UNIX, nomen Solaris, would be available as well. While many people had begun accusing MS of being an unassailable monopoly, this event laid bare our unending vulnerability. The AIM alliance had the clear and immediate potential to stand the current PC world on its ears. With her meanwhile impressive one billion dollars in annual revenue, MS was a dwarf compared to the united powers of these three entrepreneurial monsters. Competition was vigorously alive and vitally well, absolutely threatening MS’s livelihood. The Federal Trade Commission’s investigation of MS simply continued. It quietly, powerfully, and malevolently swept through the MS campus, unbidden and beyond the reach of logic or reason, like a ghostly ground fog, unleashed by the futility of our competitors and our very government itself. Taxpayer funded. As if AIM were nonexistent.

  I took the public relations circus around the alliance with a grain of salt, and so did the always-pragmatic Paul. We had experienced plenty of other threatening announcements before; they did not necessarily translate into timely execution or genuinely competitive products! The paper they were written on was cheap and expendable.

  One year later, the alliance derailed when ambitious OS plans did not materialize and Apple couldn’t agree with IBM on hardware specifications. The Power RISC chip did make it into the market in proprietary IBM and Apple systems. MS withdrew NT. IBM never finished an OS/2 version and focused solely on UNIX. Apple bought her CPUs only from Motorola. Mike Spindler lost his CEO post. No one ever heard from him again. Amen!

  The other company who announced an OS for the new architecture was Be Inc. She was run by Jean-Louis Gassée, Apple’s former French country manager, who had helped me contract Multiplan for Apple’s IIe European launch in early ’83. After leaving Apple, where he succeeded Steve Jobs as leader of the Mac division, he entered the OS fray. Eager to compete with and dethrone MS, he developed BeOS for IBM-compatible PCs. Unable to find sufficient customers for his baby, he blamed what else? My business practices. Jean-Louis, a smart man, should have recognized his core strength—great French showmanship. Not enough to pull his company through. Bill and I applauded him for his admirable efforts to gain a foothold. He earned a second chance, but IBM’s proprietary UNIX versions eventually ate his lunch.

  Still worried about the importance of IBM’s new architecture, Bill initiated, right after AIM blew up, several informal efforts exploring a renewed partnership with IBM. He was rejected. Tenacious Jack Kuehler made sure of that and responded, courting our competitors and forming hostile alliances with Lotus, Borland, and Novell. I felt bad for Bill, but IBM was by no means ready to give up on OS/2, and it showed. The wounds of her current management team were too deep and needed time to heal and, really, a new leader to arrive. The only good news: few of our OEMs reported serious demand for OS/2. Observing this, I noticed IBM’s close allies were betting on the wrong horse—ultimately destroying themselves.

  ASSIGNMENTS AND THREATS

  After my boss Jeremy Butler left the company in the fall of ’91, I again reported to the president. In addition to managing all non-US business, he had also been in charge of our product-localization group. The main task of this group was devoted to publishing rules and educating developers on how to write easily localizable code.

  To improve our localization efficiency and reduce delays, management wanted to reengineer the current process by integrating localization specialists back into the core-development groups. Jeremy did not finish the integration project before he left. Lucky me! I was the gifted soul the burden now fell upon. I shouldered the task as a thought-provoking challenge. Keeping my eyes on OEM, I delegated most of the gritty work to the group’s current management team and accomplished the integration in just six months, well ahead of the twelve-month goal.

  Soon thereafter, another strange assignment fell into my lap. Oddly, Steve asked me to visit with DRI’s executives, exploring a technology exchange. The idea was to obtain the rights to her allegedly superior DOS technology for use in future MS versions. Steve had reportedly met Dick Williams, DRI’s CEO, at a conference in the UK. He seemed open to pursue such an exchange. Promising to follow up on their conservation, he made me the point man. I considered my assignment an odd and unwanted mission. My attempt could be misconstrued as apparent collusion between competitors. In using DRI’s technology in future MS-DOS versions, antitrust lawyers might accuse us of eliminating a competitor. I did not understand why we wanted this technology in the first place, or why I was picked to consummate such a deal. With a lurking suspicion, I departed for Utah to visit the hyena’s den.

  As I arrived at DRI’s facilities, my doubts did not disappear. Dick Williams was present together with one of his attorneys. I was alone, and the right thing for me would have been to turn around and return with my own legal support. Instead I stayed on and made a vague proposal along the lines
I discussed above. I found out that the technology in question was available for $30–$40 million. Steve had instructed me that he would not pay DRI in cash. In its place, he was willing to extend DRI a reseller license for MS-DOS as payment in kind. The total trade-in value he envisioned was $5–10 million. Hinting that their asking price was roughly five times higher than I had expected brought laughter; the deal was off.

  I loathed the idea of having DRI as a trusted second source. Against all popular sentiment, I wanted her to be around and compete. DRI’s independent effort was the best insurance for my customers to receive constantly improving MS-DOS versions. A compelling reason to keep her alive and our development guys on their toes!

  Did Steve send the wrong guy? You bet he did. He should have gone himself. His intentions were only loosely communicated and had too many inherent shackles. In addition, I was biased about DRI ever becoming a reliable partner. My compromised initiative can be summarized as denying DRI a deal bordering disobedience. Allowed under the doctrine I was operating under, considering the ultimate edict voiced by Bill: beat DRI fair and square in the market—much easier to follow and fun to execute!

  I cannot exit ’91 without mentioning two other key events taking place. The expansion of American Online (AOL) is one; Novell buying DRI the other. AOL’s key contribution was to expand its online services everywhere, from serving the gaming community to enabling PC home users to exchange e-mails and access rich online information. Networks of this kind already existed, but most of them either were not as easily accessible or charged relatively high fees. Initially, we applauded AOL—just one additional reason to buy a PC. As reality set in, top management viewed AOL’s endeavor as a lost opportunity for cash-rich MS.