Bill Gates
Page 8
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Who should determine what’s in Windows? It’s what the consumers want. There is nothing else.
—BILL GATES, October 1997
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The current Justice Department challenge to Microsoft is unlikely to take such future developments into account, however. It will call upon the court to weigh the fact that Microsoft clearly twisted the arms of PC manufacturers, as shown in the Compaq situation, against the fact that Microsoft’s Internet Explorer is free anyway. It will also turn on the history of Microsoft’s development of its browser. Because Microsoft delayed the rollout of Windows 95 for nearly a year in order to change it in ways that would make it possible for users to also use the Internet Explorer, a case will certainly be made by Gates and his lawyers that the browser was thus integral to Windows even though it will not become a technically subsumed part of the operating system until the advent of Windows 98. At a deeper, but perhaps more important, level, the case will have to deal with the ever-changing nature of computers and computer software, and face the question of whether it makes good sense or good law to prohibit a company from continually enhancing its products to meet the needs of users in an increasingly computerized world. When it comes to that issue, even Microsoft’s bitterest rivals get nervous. They want to see Bill Gates and Microsoft controlled by the government (even damaged), but they don’t want a decision that will inhibit their own ability to create and sell ever more useful products.
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Are we allowed to continue to innovate in products, and in Windows itself?
—BILL GATES, on the real question, as he sees it, about integrating
Microsoft’s browser, October 1997
Microsoft is a great white shark that knows no boundaries. All it knows is its appetite. When it gets hungry, it eats.
—MICHAEL KERTZMAN, CEO of Sybase, giving the view of many
Microsoft competitors, October 1997
My style is, I am careful.
—JOEL KLEIN, head of the Justice Department Antitrust Division,
October 1997
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CHAPTER SIX
THE MICROSOFT/APPLE STORY
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It’s a great machine. It allows us to write software which is significantly easy to use…. There’s no way this group could have done any of this stuff without Jobs.
—BILL GATES, on the upcoming Macintosh and Steve Jobs’s part in developing it, to Steve Levy of Newsweek, 1983
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Although the importance of Bill Gates and Microsoft to the computer industry is evident in his relationship with collaborators like Andy Grove and detractors such as Scott McNealy, the extraordinary clout that Gates and his company have achieved is most clearly seen in the complex relationship between Microsoft and Apple. The two companies have been linked by far-reaching business agreements since the early 1980s, when both companies first broke out of the pack of fledgling enterprises that were attempting to shape the future of the personal computer industry. But despite these links, the two companies have also been seriously at odds with one another on many fronts. The ups and downs of their relationship reveal the degree to which interdependence can arise between rivals in the computer industry, creating a complex web of crisscrossing loyalties and oppositions that many experts say is like nothing ever seen before in an industrial or technological field.
In 1977, when Steve Jobs and Steve Wozniak unveiled the Apple I personal computer, Bill Gates and Paul Allen were still operating out of a strip mall in Albuquerque, New Mexico. By 1980, Apple II had become a big enough success to goad IBM into changing its tune about the future of the personal computer; it contacted Microsoft to develop an operating system for the PC it had in development. But at that point, few people outside the computer industry had any idea who Bill Gates was. It was Steve Jobs and Apple that were getting the cover stories. Apple became a public company in December 1980, selling 4.6 million shares of stock at the initial offering price of $22 per share. But nine months later, in September of 1981, IBM began shipping its PCs, and their new product quickly eclipsed the sales of the Apple II. Even the upgrade to the Apple IIe in 1983 wasn’t enough to stem the flood of IBM PCs and its clones.
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Microsoft bet the company on graphical interfaces…. It took much longer than I expected for the graphics interface to move into the mainstream, but today we can say that it is the dominant way that people use their personal computer. We can just look at the sales of DOS applications as compared to Windows applications and see that, over the last two and a half years, character-based applications have gone from being about eighty percent of the market to now less than twenty percent.
—BILL GATES, in a speech at Boston Computer Society,
October 1993
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Part of the problem was that Apple was developing both the hardware and the software for its personal computers. As IBM itself would subsequently discover after Microsoft pulled out of its relationship with IBM because of differences about the development of OS/2 operating software, when a single company is producing both software and hardware, especially in the fast-changing PC world, the hardware forces at the company tend to have the upper hand when it comes to disagreements about how to proceed. Thus when Jobs decided that the way to counter the IBM surge was to develop not simply a new computer but an entirely new kind of operating system, he sought out Bill Gates to share in the development of the software. What they produced together was a revolutionary approach. As Steve Levy wrote in Newsweek in August of 1997, “The antidote was Macintosh. People scarcely remember now, but the Mac was a drastic change from all previous PCs. Some people believed that its on-screen graphics made it too toylike to be a business tool; others vowed they would never use that strange device called a mouse.” But it was the future of PCs. Jobs was certain of it, and Gates, who at one point had more Microsoft programmers at work on Mac software than Apple itself, agreed. In fact, Gates had such a clear sense of the importance of the graphical interface that he set his own company on the path to developing a similar operating system that could be used on the PCs sold by IBM and the companies it had licensed to produce IBM clones. The Microsoft operating system would be called Windows.
By taking this step, Gates put Microsoft in the position of being both the chief supplier of Apple’s Macintosh software and, in time, the chief supplier of software to Apple’s hardware competitors. As Michael A. Cusumano and Richard W. Selby make clear in the appendix to their book, Microsoft Secrets, there is an enormous overlap between the Windows software and the software developed for Macintosh. For example, Microsoft’s two “flagship” application products, the spreadsheet Excel and the word processor Word, each of which accounts for a billion dollars a year in Microsoft sales, share “80 to 85 percent” of their code with products produced for Macintosh. Cusumano and Selby’s book is not only sympathetic to Microsoft (despite its somewhat sinister title) but it was also written with Microsoft’s blessing—the authors enjoyed unprecedented access to Microsoft personnel. Gates himself answered the author’s question, Why let us write this book? by saying, “It’s good for our corporate customers to know more about development because they do a lot of development. In aggregate, they have a lot more developers than the commercial software industry does. And so we want to remind them that we have some good ideas, and share those ideas with them. Maybe they’ll buy more PCs.”
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You have to remember when you talk about Macintosh, Microsoft still makes more money for every Macintosh that ships than for every PC that ships. We have a higher market share of Word and Excel on the Macintosh than we will ever have in the Windows environment. So the fact that the Mac is a machine that lots of people use in mixed environments is great news for us. We are an open company. We’re open to whatever desktop platforms are popular.
—BILL GATES, January 1993
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Behind these words lies Gates’s conviction t
hat there is nothing at all wrong with the fact that Microsoft’s products for Macintosh and for Windows share more than two-thirds of their code. Apple had of course agreed to allow Microsoft to use code developed for Macintosh in creating its own software for other PC manufacturers. After all, IBM had already done the same thing. And Gates, who always took the long view, would not collaborate under any other terms. It is worth noting that Apple had already become a publicly held company, with its initial stock offering of December 1980, before Microsoft even incorporated, which it did not do until 1981. What’s more, Microsoft was not listed on the New York Stock Exchange until 1986. It was not until Microsoft’s stock became a Wall Street favorite, outstripping Apple, that Apple began to seriously complain about the overlap between Windows and Macintosh software.
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Our most successful software is for the Macintosh. We have a much higher market share on the Mac than anywhere else. How does Apple help us? Well, they sue us in court. In the future, maybe our competitors will decide to become more competent.
—BILL GATES, June 1993
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In the meantime, Steve Jobs found himself ousted from Apple. His charisma, enthusiasm, and public relations genius had made Apple what it was, but he was not a financial expert, and in April of 1983 he persuaded the president of Pepsi-Cola, John Sculley, to become head of Apple. Their relationship proved combative, and when Apple posted its first quarterly loss in September of 1985 and Jobs failed in an attempt to force the board to get rid of Sculley, he left the company he had founded.
Jobs and Gates had understood one another, despite some differences. Sculley saw Gates as the enemy, even though Apple remained dependent on software produced by Microsoft. In 1988, Apple filed suit against Microsoft for copyright infringement, citing the newly released Windows 2.03 for making use of code that was Apple’s property. While Bill Gates has noted caustically that there are always several dozen suits pending against Microsoft, this new Apple challenge asked for $5 billion in damages and had to be treated with great seriousness.
The case involved both code and the use of the mouse to click on to a graphical user interface (GUI). In the course of developing the original Macintosh GUI, Microsoft developers, as Cusumano and Selby note, “became intimately familiar with the Mac’s user interface and internal workings.” The contract between Apple and Microsoft gave Apple only minimal protection against the possibility that Microsoft would develop its own GUI, preventing it from doing so for one year after the initial shipment of the Macintosh. After that, Macintosh was supposedly free to move ahead on its own. But Apple believed that Windows 2.03 emulated the “look and feel” of the Macintosh interface too closely.
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It’s only through volume that you can offer reasonable software at a low price…. I really shouldn’t say this, but in some ways it leads, in an individual product category, to a natural monopoly: where somebody properly documents, properly trains, properly promotes a particular package and through momentum, user loyalty, reputation, sales force, and prices builds a very strong position with that product.
—BILL GATES, staking out an early defense on the monopoly issue,
1981
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The suit was contested for four years, during which time Microsoft released Windows 3.0 (May 1990) and Apple unveiled its PowerBook laptop, both great successes for their respective companies. Microsoft finally got the Apple suit dismissed in April of 1992, in part by arguing that the graphical interface technology did not even belong to Apple but had been invented by the Xerox team at its Palo Alto Research Center, known as PARC. The PARC team had not been able to figure out how to make the technology commercially available, however. In dismissing Apple’s suit against Microsoft, the federal judge in the case, Vaughn Walker, ruled that Microsoft had already licensed some of the technology, and that other similarities could not be covered by copyright. As James Wallace puts it in Overdrive, “A ruling in favor of Apple’s claims, the judge said, would have ‘afforded too much protection and yielded too little competition.’ This not only vindicated Microsoft, it was also significant for the industry, clearing away doubts about the rights of software programmers to adapt aspects of other systems.” This legal victory had by that time cost Microsoft $9 million in legal fees.
The relationship between Apple and Microsoft had been further strained by another kind of problem. As far back as 1987, Microsoft had earned the everlasting enmity of many Macintosh users by producing a bug-ridden version of its Word 3.0 for Macintosh. Not only were there as many as seven hundred bugs but some of them were so serious that they crashed the program completely. Even though Microsoft spent a million dollars shipping an up grade two months later, the suspicion was planted in the minds of Macintosh users that Bill Gates regarded them as second-class citizens. That impression was furthered in 1993 when Mac Word 6.0 proved to be slow and cumbersome. Once again, an upgrade, in this case a trimmed-down one, had to be shipped. It was incidents of this kind that virtually assured the appearance on the Internet, as it developed in the mid-1990s, of virulent anti-Gates and anti-Microsoft web sites, which have always been much visited by Macintosh devotees.
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Some readers implore Microsoft to make its applications, such as Microsoft Word and Microsoft Excel, available on computing platforms such as Amiga and OS/2. Adapting applications to work on additional platforms is expensive. In the early years of OS/2, we created a lot of applications for it, and although we were the market leader, we didn’t sell very many and it wasn’t profitable. That’s why Microsoft, like almost all other successful software companies, focuses its resources on Windows and the Macintosh.
—BILL GATES, 1995
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The anti-Microsoft bias on the part of Macintosh users only grew in the mid-1990s as Microsoft extended its grip on the computer industry with Windows 95, while Apple encountered more and more difficulties. In 1993, Apple unveiled a new product, the handheld Newton computer, which was disparaged from the word go and was a complete commercial flop. In the wake of that disaster, John Sculley was deposed, and Michael Spindler was brought in as CEO. A German, he was nicknamed “the Deisel,” but as Newsweek reported, his “regime was more like a train wreck.” Among the other problems on his watch was a parts shortage for the new Power Macintosh of 1994, which created a billion dollars in back orders.
One positive step taken during Spindler’s term was to license the manufacture of Macintosh clones by other companies. This was a step that many industry analysts had been recommending for years; indeed, Gates had formally suggested it as far back as 1985, offering to assist in such a move. IBM had allowed such clones of its PC from the start and benefited greatly, but Apple had always had a strong resistance to surrendering what it saw as its unique identity. By the time the step was finally taken in 1994, many observers felt it was too late.
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The Mac is an excellent platform. Apple, like every high-technology company, must continue to innovate. If it does, it will do well—and we’ll do well selling applications software for the Mac.
—BILL GATES, 1995
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Apple losses were growing steadily when Spindler was replaced in February of 1996 by Gil Amelio, who had a reputation as a “turnaround” expert. A nervous board of directors tried to find a buyer for Apple, but such companies as IBM, AT&T, and Sun proved to be extremely skittish about such a deal. Apple had been promising a new, revolutionary operating system, but its development was in serious trouble. In order to get it jump-started, Amelio decided to purchase NeXT, a company that had been started by Steve Jobs after leaving Apple, and to integrate the NeXT technology with Apple’s. Jobs had become more interested in another company he owned, the computer animation firm Pixar, which had had a major hit with its new process in the movie Toy Story. Jobs thus agreed to sell NeXT for $430 million.
The acquisition of NeXT took place in December 1996, but the board soon after d
ecided that Amelio was not the right person for Apple, and he departed in July of 1997. While searching for a new CEO, the board turned to Steve Jobs to informally oversee Apple in the interim. Jobs insisted that he did not want to once again head the company he had founded, but he did take a strong hand in developing a new strategy. Despite the company’s financial and developmental problems, it still had a number of strengths. The user-friendly Macintosh remained the computer of choice in the world of education, not only among students but also with educators themselves. In the first quarter of 1997, according to figures compiled by Dataquest, Apple’s share of computer sales to the U.S. education market were 29.6 percent, three times that of its closest competitor, Dell, at 9.6 percent, with several other companies close behind. Its graphic software also remained the favorite among computer graphic designers, with its presentation software having a 51.6 percent market share and its drawing and painting software a 43.9 percent share, according to PC Data. Its share of overall desktop publishing software was even higher in these markets, at 62.4 percent.