by Forbes Staff
Microsoft’s Success
Microsoft is a weird case. We had a product strategy, we stuck to that strategy and 17 years later we’re still on the same strategy with the same key people.
Technology Leads To Perfect Markets
Markets today are very imperfect. To find all the sellers and all the buyers and all the information is very hard. Technology provides a better way—it improves capitalism. There are a lot more goods you can trade in if you’re in touch with the value.
IQ Allocation
Should the smartest kids in America go to manage the grease of the system, or should they go to design products and run companies? In recruiting, when we compete with guys going to Wall Street, we can’t—at least in terms of salary, or at least at one time a sort of coolness and immediacy—compete with being a grease guy.
There’s something screwed up about IQ allocation in this country. But technology will become the new grease and mediate the IQ market better.
Example?
Take a professional woman who works at a company. She’s doing an incredible job, she’s on the fast track, but then she has a child and chooses to work part time. How well-mediated is the market for her—her expertise and the 20 hours a week she’s chosen to make available? Somebody like her is such an underused resource. Technology, cutting across geographical boundaries, makes this woman a more fungible asset.
Why I’m Optimistic
As technology improves feedback mechanisms, you can have these very impressive results. That’s why I have this fundamental optimism. When I walk into a grocery store and look at all the products you can choose, I say, “My God!” No king ever had anything like I have in my grocery store today.
Innovation
Pessimists never account for innovation. It is interesting that men of science have gone through periods where they felt they had enumerated all phenomena and ways of exploiting those phenomena. Think about physics at the turn of the century. Einstein was obscure, but he had published a few papers. There was this little thing about radiation, but as soon as smart folks cleared up that little loose end, everything would be known.
The fact that there are so many phenomena like lasers or superconduction—it’s amazing the richness of phenomena that can be exploited. It’s wild!
Why Microsoft Likes Young People
Partial knowledge is youth’s greatest advantage. When you have partial knowledge, you make wild analogies to fill in.
Bill’s Historical Hero
[Carl Friedrich] Gauss was a genius when he was young. He was confused about some things until he was about 23, and then he started to just kick ass after that.
What Puts Friend Warren Buffett At The End Of The Bell Curve?
He’s got a real focus. He knows his circle of competence. He has a good job. He spends five or six hours a day sitting in his office reading. I just envy him so much—God! He uses public data, believe me. And he thinks about it a long time. He sticks to his principles.
And You?
Probably nothing. Remember, I’m in the field where because you have the microprocessor enabling new things, I ended up doing a job that’s a mix of skills. I didn’t get to see what my pure coding ability would be if I just kept doing that or what my pure design or architecture ability would be … or lawyer or economist. I have a mixed job that’s a mix of technology and leadership and management. If I’m good it’s because I can manage that blend.
Programmer Envy
I sometimes envy the people at Microsoft and other places who get to do a pure activity, like write code. But that’s very brief; I don’t waste much time ruing the past. I made my decision, and the way to do it best is, once you made it, you just don’t waver at all. You don’t think, “Gosh, what a doctor I would’ve been, what a tennis player, playboy, poker player I could’ve been.” Being hardcore and forward-looking about what you do is a necessary element of doing it well.
On Seattle Colleague Craig McCaw
I’m surprised at how well Craig’s done. I’m sure it’s frightening to him when he looks at me too. I mean, we sit around—shocked!—on his boat!
Did AT&T Overpay For McCaw?
Assume that supply of bandwidth will continue to go up dramatically. You have to have a deep understanding of the elasticity of demand to know whether it’s an industry that shrinks or grows as costs of bandwidth go down. In the case of computers, of course, the demand elasticity is unbelievable.
Every time I read about optic fibers or wireless, I say to myself, “Wow, that sounds like radial tires.” When they got radial tires did people drive four times as much just because the tires last longer? No, the industry shrank.
Have You Been Lucky?
No, my success just proves that life is chaotic. … Some butterfly did the right thing for me.
Is Microsoft Rapacious?
Oh, come on! Our vision was right: the idea that microprocessors would make software the key asset. Now it’s just this commonplace view, but it’s not like we hid that secret from anyone. We told everybody what we were doing. There was no stealth involved in our strategy. When we bet on Windows applications there wasn’t one iota of stealth involved in that strategy.
Thoughts On The Forbes 400
I think markets are pretty goddamn efficient. So the fact that somebody can accumulate that much money is a nice footnote that, hey, sometimes they’re not that efficient. Every once in a while somebody does something with intellectual property. Sometimes a guy can just outsmart the market.
The fact that a formula business like Wal-Mart could have gotten to that size—it blows my mind! Say the guy was down in the Southeast, doing very well. Now, why wasn’t there some guy who owned a few retail stores up in the Northwest saying, “Holy smokes, this guy has a formula! I’m going to just take his bloody formula, hire three or four of his guys and pay them big bucks. And when he comes here he’ll find he ain’t gonna get a scale of economics because we have already done it!” Why didn’t somebody just do that? It’s an amazing thing.
Random Notes On billg
1. During our five-day tour, we saw four sides of the public Bill Gates:
• The Brat: Alternately hyperactive and petulant, this billg has the body language of a preteen and behaves like your smarter younger brother. Likes to pick intellectual fights for amusement and respects you only for standing up to it. A strange trait for a CEO, but liberating for billg and fun for the prepared observer.
• The Student: Insatiably curious and disciplined, this billg is a glutton for learning, reading voraciously, often until the wee hours. Gates gets huge psychic satisfaction from his ability to discern patterns amid apparent chaos—thus his fascination with software, biotech and economic theory. Though underreported, we saw billg spend more time in this mode than any other.
• The Politician: Polished and charming, here is William H. III, the son of prominent Seattle residents, lawyer William H. II and ubiquitous civic and board volunteer Mary. This billg speaks convincingly for capitalism and free trade, but also preaches for public investment in schools and science.
• The Field General: Hard-nosed, shockingly blunt (though never cruel or manipulative like his famous contemporary Steve Jobs), combative and profane, this billg paces a room, chin thrust forward, arm stabbing the air, exhorting his Microsoft army, damning the enemy.
2. Gates’ success is not accidental. We think he is the best CEO of the Information Age, with strengths broad and deep. Example: Frank Gaudette, Microsoft’s CFO until his death last summer, admitted that billg ran circles around him on finance. Also true of product development, marketing, etc.
3. Einstein once said the most noble human trait was “the ability to rise above mere existence by sacrificing one’s self through the years for a goal.” Gates possesses this trait. To a degree rare among other large company CEOs, he is remarkably indifferent to whether he is eating hamburger or steak, flying coach or first class, taking cabs or limos, staying in an ordinary room or a p
residential suite, sitting on a cheap plastic seat or richly stuffed leather, being fawned over or not. What turns on billg is learning, competing and Microsoft.
HE WANTS YOUR EYEBALLS
By Damon Darlin
June 1997
SIDE BY SIDE with the sandals-and-blue-jeans-wearing software types in Redmond, Wash., these days are some 300 people from an older trade, journalism. They help man MSNBC, Microsoft’s joint venture with General Electric’s NBC, to provide news over the Internet and via cable. Other scribes are sprinkled through the rest of Microsoft’s expanding Internet empire, the Microsoft Network. They write material that MSN hopes will attract cyberbrowsers to Sidewalk or to other MSN media efforts, including Microsoft Investor and Expedia, its online travel agency.
If any media mavens still think Bill Gates isn’t after their lunch, they had better wake up. No, he doesn’t necessarily want to own a newspaper, but he’s after some of the time and attention that people spend reading them, and he’s after some of those advertising dollars that keep the presses rolling.
It’s easy to scoff at Bill Gates’ media efforts. Microsoft has stumbled a few times in this unfamiliar business. The software needed to reach MSN, a proprietary network akin to America Online or CompuServe, takes about an hour to load onto your hard drive and then gobbles up more precious storage than does Microsoft’s large Office suite of programs, more than 50 megabytes. The email service is unreliable and has been out of operation for several days at a time. Gates created a media buzz by picking former New Republic editor Michael Kinsley to start Slate, an online opinion magazine. But the buzz hasn’t translated into much of a paying audience. Slate has about 45,000 regulars who get the online version free. Kinsley is trying to sell a print version for $70 a year.
Entertainment? Hollywood can hardly contain its glee. MSN’s entertainment programming—a dismal soap opera about life in suburban New York and a boring cartoon show—is weak. In March Microsoft canceled half its entertainment programs, admitting that few people watched them. It fired many of its temporary contract employees working on the shows. Its current lineup includes a show on UFOs and another giving guitar lessons. “If you are going for pure entertainment, it’s not there yet,” concedes John Neilson, Microsoft’s vice president of the interactive service media division.
No threat, clearly, to TV. Newspapers, more directly threatened by Microsoft’s city guides, have fought back with websites of their own and with online real estate and classified advertising.
So snicker if you will at Gates’ media flops, but don’t relax, yet. The man and the company don’t give up when they want something, and they want to capture a major share of the eyeballs of America. With $9 billion in Microsoft cash and a cash flow of $2 billion, they will hardly miss the cost.
Gates likes to emphasize that his is a patient company as well as a wealthy one. Its early versions of Word, the word processing software, and spreadsheet-creator Excel were hardly world-beaters, but money and patience made them so. Today those products dominate the market with about 90% market share. Netscape Communications’ Internet browser was the overwhelming favorite of Web surfers, but Microsoft’s copycat, Explorer, has already whittled off nearly 30% of that early lead.
Sometimes Microsoft sounds ambivalent about media. Running MSN is Laura Jennings, 35, vice president of MSN and the marketer who helped lead Office suite to dominance over Lotus Development Corp.’s office suite product. She denies that MSN wants to invade other people’s turf, pointing out that MSN works with the Village Voice, the Seattle Times and other publications for its Sidewalk city guides.
If we had to bet, we’d say that Bill Gates and his crew are being a bit disingenuous when they say they want the existing media as partners. Microsoft’s history suggests it is a company that takes in partners to learn from them before competing with them.
This much is clear: Microsoft rejects the better-mousetrap theory of marketing. It does not believe that by building a better website you will get the bigger share of the business. “That’s not happening,” Laura Jennings notes. “The idea that people know what they want is wrong. They need to be pulled through the Web.”
To pull them, Jennings counts on Microsoft’s software. What software can do that ordinary print and broadcast media can’t is figure out what the customer wants and who he or she is.
An example: You like jazz. You go to MSN on your computer and visit the Rifff music site. Your computer remembers that you like jazz, so later, when you tune into the news, a promotion flashes telling you about the new Sidewalk city guide for New Orleans. (It’s coming soon.) Get it—New Orleans—jazz. There may be a flash on your screen, a notice that Mungo Park, the Microsoft online travel magazine, has an article on New Orleans jazz.
Hey, why not book a flight and a hotel room through Microsoft’s Expedia travel agency site?
Cars? Show an interest in cars and the software will identify you as a prospect for car ads and car sites. If Microsoft delivers a prospect to a seller, there’s a commission in it. Investing? Maybe you’d like to open an account with Charles Schwab. Click here for an application.
What Microsoft can do, so can Netscape, but Microsoft has this advantage: Whereas Netscape can identify you for other people’s sites, Microsoft can often steer you to a Microsoft site. Think of this in retailing terms. Don’t most merchants prefer to sell you a house brand rather than someone else’s brand?
The cable television news service, MSNBC, which is expected to reach 35 million subscribers this year, will direct many people into the MSNBC Internet site with constant cross promotion.
Merrill Brown, MSNBC’s editor-in-chief, calls this pushing information.
Interested in an overseas news feature on Thailand? After you click on the gateway at the MSNBC site, up pops a message suggesting you also try Mungo Park, a linked site that includes offbeat travel stories by famous writers. In a recent installment, Tama Janowitz, chronicler of Manhattan mores, searched for whales in a kayak.
What better prospect for a travel service than a consumer who browses for travel articles? If it lands a customer for the hotel or airline, Microsoft gets a 5% to 10% commission. Open since October, Expedia travel service makes $1 million in bookings for its 350,000 customers each week. That’s about 7% of the $705 million in tickets selling online.
Cross promotions steer viewers into CarPoint, packed with articles and pictures of cars. MSNBC business news leads viewers to Investor, which will track your portfolio and, for an extra $10 a month, give you access to analysts’ opinions and other market research. That site in turn directs viewers to online brokers. “We get them when they are ready to buy,” says Microsoft’s Neilson. “What better time is there than that?”
Considering all this, is there any doubt that Microsoft is after a big chunk of the money the travel industry spends on advertising or what the travel agents take in?
Microsoft plans online Sidewalk guides to restaurants and cultural events for about 10 major cities including San Francisco, Boston and Sydney, Australia, site of the next Summer Olympic Games.
Seattle’s site was the first one opened. Here you can find the latest No Doubt concert schedule or peruse the menu for Garage, a hip eatery in an old downtown Seattle parking structure.
The Seattle Sidewalk site has nifty little features like a camera aimed at the jammed Floating Bridge across Seattle’s Lake Washington and a little program that calculates how long it will take to get from one freeway exit to another based on current congestion. It also has ads from restaurants and local businesses, like futon shops.
At the World Economic Forum in Davos, Switzerland in January, Bill Gates said that MSN “could eventually account for at least $2 billion in annual revenue.” That didn’t sound very threatening, given that television alone got $37.8 billion in revenues last year, the newspaper industry $36.3 billion and radio $11.3 billion. But note the “at least.” Anyone who thinks Bill Gates will be satisfied with $2 billion in advertising re
venues hasn’t studied the man.
BILL GATES AND THE BILLOPHOBES
By Julie Pitta
September 1997
FARZAD DIBACHI, the 33-year-old founder of Diba, Inc., had it made. Only 15 months after he started the Menlo Park, Calif. firm to make software for Internet appliances, Microsoft was knocking on his door. In February the Redmond, Wash. giant broached the idea of an acquisition.
Dibachi rejected the buyout. He says he would rather be a rival to Bill Gates than be a cog in the Gates machinery.
He soon learned that the Microsoft juggernaut, once rolling toward an objective, isn’t easily deflected. Two months after being rebuffed by Dibachi, Microsoft agreed to purchase Diba’s rival, WebTV, for an extremely generous $425 million. This for a firm that, like Dibachi’s, had nominal revenue. After the WebTV/Microsoft deal, Dibachi got a personal taste of Microsoft’s power. Hitachi, which had been interested in manufacturing Internet terminals using Diba’s software, shunned Diba in favor of Microsoft-backed WebTV. Other PC vendors were likely to follow suit. A desperate Dibachi cast about for a rescuer. In August he sold his company to Sun Microsystems, Inc. for less than $100 million. That’s probably far less than Microsoft would have offered.
It was a financial comedown, but now Dibachi had an ally in Scott McNealy, the cofounder and chief executive of Sun. McNealy is one of Gates’ most outspoken critics.
What should a self-respecting entrepreneur do when Microsoft comes to call? Embrace Microsoft? After a decade and a half of rivalry, and at one point, bitter litigation, Apple Computer did. Steven Jobs just accepted a $150 million welfare payment from Microsoft to help keep his company alive.
Not Sun. It will get chummy with Microsoft over Scott McNealy’s dead body.
McNealy stubbornly refuses to equip his network servers with Microsoft’s Windows NT. That means telling Sun’s customers that they either have to use Unix, an operating system that Microsoft does not control, or go elsewhere. Which is just what some of them do. Hewlett-Packard is happy to sell servers equipped with Windows NT and is stealing away Sun’s customers. NT recently overtook Unix in new server installations.