How the Internet Happened

by Brian McCullough

  At a strategic retreat for upper-level Microsoft management on April 7, 1994 (two days before Net­scape was officially founded), Gates began to entertain the possibilities of the Internet in a more serious way. “Everywhere I go, people ask me about how Microsoft will be on the Internet,”14 Gates said to launch the retreat. But did this mean simply enabling Internet tools within the forthcoming Windows 95? To Gates’s mind, the biggest question of all was how Microsoft could make money on the Internet. Seemingly everything on the Internet was free. This was not a small point to overlook. Gates could see how Microsoft could make money on the information superhighway, by serving as the gatekeeper and toll collector. But the freeware, ungoverned, unsettled Internet didn’t seem to offer a similar opportunity.

  Allard and Sinofsky were ready to argue these points. Sinofsky had put together a comprehensive 300-page catalog of Internet items he had collected, designed to show the breadth of what was already out there.15 These curios included sites that were beginning to host not just images but also streaming and downloadable music and video. Allard followed up by evangelizing for incorporating the Internet into everything Microsoft would be doing for Windows 95.

  Two weeks after the executive retreat, Gates issued a memo summarizing key talking points. Gates wrote: “We want to, and will, invest resources to be a leader [in] Internet support, fully understanding that if we are wrong about this it will have been a mistake.”16 But at least they would be covering their bases.

  In short order, a couple of related events would further evolve Gates’s thinking. As a part of dipping its toe in the Internet waters, the idea of a Microsoft web browser was discussed in earnest, spearheaded by a young Microsoft engineer named Ben Slivka. In August 1994, Slivka began “cataloging” key Mosaic interface features as a way of determining the basics Microsoft would need to master in order to launch a competitive browser.17 At the same time, Microsoft started shopping around for existing solutions and entered talks with a small software company called BookLink Technologies, which had a Windows-based browser called Internetworks. Suddenly, in November 1994, BookLink announced that the entire company had been acquired for $30 million. The buyer was none other than America Online, the online service that MSN was intending to supplant.

  Thirty million dollars for a browser? “That woke us up,” said Brad Silverberg, one of the executives in charge of Windows 95 development. “We had to be a lot more aggressive, a lot more lively. Time was ticking faster in this new world.”18

  Moving to plan B, Microsoft tentatively reached out to Net­scape to learn about their Navigator browser; maybe that could be licensed for Windows 95. Here Microsoft received another shock. Net­scape rebuffed Microsoft’s overtures completely, and somewhat rudely. Net­scape did not have any intention of doing business with Microsoft.

  Who were these Net­scape guys and what did they have against Microsoft? Why weren’t they willing to do business? It was puzzling.

  And then of course came the release of Net­scape Navigator itself. Suddenly, all the pieces fell into place. With the launch of Navigator came the millions and millions of downloads and all the attendant media attention. As Fast Company put it, “Virtually overnight, Net­scape was perceived as the defining company of the Age of the Web.”19 Much of the related hype Net­scape received came with those pointed barbs that seemed to be aimed squarely at Microsoft. All those headlines suggesting Marc Andreessen as the next Bill Gates? That couldn’t help but turn Gates’s head.

  Nothing got under Gates’s skin like discovering a software market he did not have dominant control of. Net­scape had proven that web browsers were an enormous market. Furthermore, lots of people inside and outside of Net­scape were already seeing what Marc Andreessen had seen: the browser could be a software platform capable of supplanting traditional operating systems like Windows. If, in the future, people could live their lives and do their work entirely online, then what would be the need for a desktop OS?

  Yet another memo, this time from Slivka, still agitating for the browser project. Slivka’s missive cut right to the greatest threat that the Internet posed to Bill Gates’s vaunted business model. Its title read simply “The Web Is the Next Platform.”

  On May 26, 1995, Gates wrote his own memo to senior Microsoft executives, entitled “The Internet Tidal Wave.” It would become one of the most famous documents of the Internet Era. In it Gates announced that the number-one priority for Microsoft, in every facet of its business, was now the Internet. Every product manager should stop what they were previously doing and start considering how the Internet could affect their products, or how their products could make an impact on the Internet.

  Gates was not afraid to acknowledge his past reticence. But he made clear those days were over:

  I have gone through several stages of increasing my views of its importance. Now I assign the Internet the highest level of importance. In this memo I want to make clear that our focus on the Internet is crucial to every part of our business. The Internet is the most important single development to come along since the IBM PC was introduced in 1981.

  And Gates made clear who the first target would be as Microsoft now changed direction.

  A new competitor “born” on the Internet is Net­scape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. They are pursuing a multi-platform strategy. . . . We have to match and beat their offerings.

  Microsoft would jump on the Internet in a big way, and Net­scape was enemy number one. Many of the young guns inside the company who had been banging on the Internet drum for a while, wondered if it might be too little, too late. “It kind of felt like, it’s great that Bill is now finally lending support to the Internet,” recalled Brad Silverberg. “But at the same time it felt like he was the last executive in the company to come around.”20 Better late than never, Internet capabilities were hastily added to the already delayed Windows 95. An extra $1.5 billion was set aside for web research and development.21 And the crash program to develop a Microsoft web browser, the key goal of Slivka’s agitation, was given the highest priority.

  But with this browser project, Microsoft would have to confront, both culturally and structurally, the ways that Net­scape and “Internet Time” had changed the rules of the game. Microsoft was very much used to the old methods of multiyear product development schedules. Development of what would become Windows 95 had begun way back in 1991. The program was originally to be called Windows 93, in fact. To be sure, a full operating system was a more complicated thing to develop than a web browser, but Microsoft was notorious for spending four years on a project with multiple delays. This sort of thing simply wouldn’t fly if Microsoft had any hope of challenging Net­scape in the browser market.

  So, Microsoft did what it had to do: it cut corners. Having lost BookLink to AOL and having been rebuffed so arrogantly by Net­scape, Microsoft was forced to turn to the most logical remaining choice: Spyglass, Inc., the company approved by the University of Illinois to commercialize the original Mosaic web browser. Microsoft signed a $2 million licensing agreement with Spyglass to use Mosaic code for Windows 95. Irony of ironies, the code that would be the basis for Microsoft’s web browser (and the weapon Microsoft would soon wield against Net­scape) was a descendant of the same code written by Marc Andreessen and Eric Bina a few years before at the NCSA.

  The original Internet Explorer team was a commando unit of five or six programmers, including Slivka, and led by Silverberg. Their orders were to get the browser done, quick and dirty if necessary. They would follow the traditional Microsoft game plan: the first version would be a copycat product that didn’t have to be great; it just had to be good enough. Subsequent versions would be better. “We needed to get something into market quickly as a placeholder,” Silverberg recalled later.22 Once they put their stake in the ground, Microsoft would revert to form and throw everything it had at the problem until a Microsoft browser could be truly comp
etitive.

  Bill Gates had one more favorite trick up his sleeve to level the playing field quickly. On its release in August 1995, Microsoft announced that Internet Explorer would be free. Not kinda-sorta free, wink-wink free, like Navigator was. But 100% free to anyone and everyone, even corporate users. As Gates himself admitted, “One thing to remember about Microsoft, we don’t need to make any revenue from Internet software.”23 The intention was to bundle Internet Explorer as a component of Windows 95. Microsoft wanted users to think of Internet Explorer as a core function of Windows. It would be a routine part of the OS, just like screen savers or disc compression utilities or file managers. Internet Explorer would sit prominently on every Windows machine, a smiling blue “e” icon on every desktop that ran Windows.

  This was not a small consideration. When Windows 95 finally launched on August 24, 1995 (two weeks after the Net­scape IPO), it was possibly the largest product launch in history. Computer stores around the world opened at midnight and lines of eager customers queued up to be the first to nab a copy of the program. Comedian Jay Leno joined Bill Gates onstage to emcee the official launch event. (“To give you an idea of how powerful Windows 95 is,” Leno joked, “it is able to keep track of all of O.J.’s alibis at once.”)24 In New York, the Empire State Building was lit up in the colors of the Windows 95 logo. And famously, the Rolling Stones were paid a reported $14 million for the use of their song “Start Me Up” in Windows 95 commercials. All in all, Microsoft spent around $300 million making sure that Windows 95 was a blockbuster.

  Having Internet Explorer piggyback on Windows 95 was therefore a powerful strategic move. The Internet was still very young, and plenty of users would encounter it for the first time via Windows 95. The first versions of Internet Explorer were not very well reviewed, and compared poorly to Net­scape Navigator when it came to features and performance. But Internet Explorer was right there automatically on every Windows machine. To get a copy of Navigator, conversely, you had to search it out and download and install it yourself—not an easy feat for Internet newbies.

  After joining battle with Net­scape, Microsoft copied its foe and began to iterate relentlessly. Versions 2 and 3 of Internet Explorer were developed concurrently. By Internet Explorer 3.0, reviewers were beginning to say that Microsoft had at least a competitive browser. This all had a gradual but accumulative effect on Net­scape. At first, Net­scape Navigator’s share of the browser market remained dominant, but Internet Explorer started making inroads, increasing from virtually nothing in 1995 to 20% in 1996 and 40% in 1997. There was little Net­scape could do in the face of the Microsoft onslaught. Sentiment in the industry and on Wall Street began to turn. “Microsoft may still be No. 2 in the Internet race, but it’s rapidly closing the gap,” PC Week declared.25

  Net­scape’s entire Get Big Fast strategy had been predicated on making the Navigator browser the de facto standard before competitors like Microsoft noticed. The hope was that they could achieve a market share and a mind share that would be impossible to dislodge. But within eighteen months of setting off the big bang that announced the coming of the Internet Era, it looked as though even the head start Net­scape had managed to earn might not be enough to fend off Microsoft’s muscle. “People aren’t asking anymore if Microsoft will be killed by the Internet but whether Microsoft will dominate the Internet,” a market researcher from Gartner Group told Newsweek.26 Steve Jobs told Wired in 1996, “If you don’t cross the finish line [if competitors couldn’t outmaneuver Microsoft] in the next two years, Microsoft will own the Web. And that will be the end of it.”27

  3

  AMERICA, ONLINE

  AOL and the Early Online Services

  The way that Microsoft leveraged its platform was not exactly subtle. If you bought a computer in 1995, there was a 90% likelihood you purchased a computer with a Microsoft operating system preloaded on it. If you were a web neophyte in 1995 and you wanted to give this “web thing” a try, chances were very good that you clicked on the bright blue Internet Explorer “e” icon to do so.

  Net­scape recognized the value of the preloaded icon on a Windows 95 desktop and tried to cut deals to get Navigator preloaded on various computers. Compaq was one such manufacturer that began replacing Internet Explorer with Navigator on some of the models it sold; or, at least, it offered consumers a choice of preloaded browsers. But in June 1996, Compaq received a “Notice of Intent to Terminate” from the Microsoft legal team. In no uncertain terms, Microsoft threatened to cancel Compaq’s Windows 95 license unless the company returned the Internet Explorer icon to the Windows 95 desktop on all computers it shipped.

  Compaq, of course, backed down.

  Net­scape wasn’t the only major player in 1995–96 that felt disadvantaged by Microsoft’s, shall we say, political decisions vis-à-vis the desktop real estate on Windows 95. Before a user could even select a browser to surf the web with, she first needed to engage a service that would allow her to “log on” to the Internet. She needed an Internet service provider, or ISP. It just so happened that Microsoft provided a strategic default solution for that as well: the Microsoft Network.

  MSN had been developed to compete with existing online services such as Prodigy, CompuServe, and especially AOL. But along with the great pivot toward Internet Religion, MSN had been quickly reconfigured as an online service–ISP hybrid. Then on March 12, 1996, a curious thing happened. AOL—that online service competitor that MSN had been designed to vanquish—announced that it would make Internet Explorer the default web browser for its service. No money changed hands, but as part of the “partnership,” an AOL icon would be placed in a new folder on all Windows desktops called “Online Services.”

  The quid pro quo was implicit, if not explicit. Microsoft would grant AOL the desktop real estate it was fighting tooth and nail to deny to Net­scape. It turned out that Microsoft saw the battle for the browser as the key strategic war it was fighting in this dawning Internet Era. Bill Gates felt it was imperative to grow Internet Explorer’s market share and surpass Net­scape’s Navigator. He made this decision despite the fact that Microsoft had already spent hundreds of millions of dollars to develop and market MSN. Gates doubled down on software at the expense of online services. He made the calculation that the browser wars were more important to win than the scramble to connect people to the Internet. Subsequently, Microsoft struck similar deals with CompuServe, the number-two online service, as well as AT&T’s Worldnet Internet service and NETCOM, a leading independent ISP. All of these new partners got icons in the “Online Services” folder. Net­scape Navigator remained something you had to download yourself.

  In the coming years, MSN would always be seen as an also-ran behind the eventual online service leader, AOL. Later in the nineties, as the browser wars faded into memory—and especially near the turn of the century, as America Online grew to become the one truly dominant player on the Internet that had the muscle to go toe-to-toe with mighty Microsoft—many in the industry would wonder if Gates might have picked the wrong strategic horse to champion.

  ■

  ONLINE SERVICES HAD a long history that predated the World Wide Web. In the 1980s, when PCs were still struggling to find a “killer” use case that would justify their entry into Americans’ lives, online services were dreamed up as “something else to do” with computers once you brought them home. Online services promised games, unique content from trusted media properties, software downloads, databases and vague concepts of real-world utility like online banking. PC manufacturers started bundling these services with their machines as an extra selling point to entice consumers. The fact that consumers would have to cough up hourly fees to “dial in” and use these services (fees that were shared with the PC manufacturers) didn’t hurt either.

  The granddaddy of the online services was CompuServe, which was born in 1969 as the Compu-Serv Network. Compu-Serv began life as a time-sharing computer service, allowing businesses to rent computing time from remote ma
inframes during business hours. The tax preparation company H&R Block purchased the company in 1980, and the focus on consumer online services expanded. Renamed CompuServe, the service developed a suite of prepackaged features like newsfeeds, databases and one of the world’s first online chat applications, called the CB Simulator. These features became the basic template for what an online service could provide users. Consequently, CompuServe became the home of many online firsts. The first recorded online wedding took place in 1983 between two users who met on the CB Simulator and thought it fitting to say their vows in the medium that brought them together.1 Compu­Serve became the first online service to offer Internet connectivity in 1989, when it allowed its proprietary email service to send messages to outside email accounts. CompuServe also pioneered online commerce with what it dubbed an “Electronic Mall.” Even the humble .gif graphics file format, still popular on the web today, was developed in-house at CompuServe. But the main feature of CompuServe throughout its life was its forums, hundreds of moderated special-interest sites catering to almost every interest and niche imaginable. CompuServe gained a reputation as the geek and hobbyist’s playground, with forums catering to everything from stamp collecting to Star Trek.

  Other companies copied CompuServe’s model, launching with a varying mix of email, forums, bulletin boards, software libraries for download, and chat. They all had one thing in common: they assumed that a user would be somewhat computer-savvy. Another early online service, Prodigy, assumed the exact opposite. It was designed from the very beginning to attract mainstream users. Formed in 1984 as a joint venture between IBM and Sears (another partner, CBS, dropped out in 1986), Prodigy launched in September of 1990 on the back of a nationwide advertising blitz. Prodigy had vector-based graphics, which were primitive and cartoon-like, but were interesting and colorful compared to CompuServe’s all-text environment. Newspapers and magazines repurposed some of their content for Prodigy, and big-name media personalities such as Howard Cosell and Liz Smith wrote columns exclusively for the service.