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MICROSOFTBill Gates's Baby Is on Top of the World. Can It Stay There?Five thousand Microsoft Corp. employees gather in Seattle's cavernous Kingdome. As the houselights dim, a spotlight follows a red Corvette with the word ''Windows'' written across its door. Microsoft Executive Vice-President Steven A. Ballmer steps out from behind the wheel, pumps his fist into the air, and leads the crowd in a chant: ''Windows, Windows, Windows, Windows.'' Next, the spotlight jumps to an Edsel making its way into the arena. It's emblazoned with ''OS/2,'' the name of IBM's competing software. Then, as the song Leader of the Pack blares from the loudspeakers, 10 leather-clad bikers roar in on Harleys. The lead biker: lanky, owl-eyed William H. Gates III. The crowd roars, as it would for a rock star. Leader of the pack, indeed. This employee meeting-cum-pep rally is pure Gates: part adolescent mischief, part marketing genius, lots of energy, vision, and above all, drive. After his rollicking entrance, the 36-year-old chairman took the dais that October afternoon to sketch out his view of the computer market and Microsoft for 1992 and beyond. In the span of four hours, he raced through market analyses, product demos, and predictions--all in a nasal drone peppered with his trademark nerdisms such as ''supercool'' and ''high bandwidth'' and ''totally random.'' With this crowd, the effect is electrifying. Microsoft is, in a word, ''Bill,'' says Jeff Raikes, an 11-year veteran and now a senior vice-president. Like its founder, the company is ''high horsepower, high energy,'' he says. That combination of energy, intellect, and nerve has made Gates the richest man in America and has kept the Redmond (Wash.) software maker on a gravity-defying trajectory. Despite recession and a slowdown in personal-computer sales, Microsoft revenues shot up 56%, to $1.8 billion, in 1991, thanks largely to the stupendous acceptance of Windows, a program that gives IBM PCs a graphical ''look and feel'' similar to that of Apple Macintosh. In 20 months, 9 million copies have been sold, creating a $1 billion business in Windows and related programs. For fiscal 1992, ending this June, analysts expect Microsoft earnings to hit $700 million, on $2.7 billion in revenues. That has thrust its stock as high as 130 in recent weeks, giving it a market value higher than that of General Motors Corp. (chart). POINTED GUNS. Clearly, Bill Gates and Microsoft are, at least in business terms, on top of the world. But the billionaire seven times over, who still works 15-hour days, zigzags the country in coach class, and obsesses about details that other chief executives would ignore, isn't letting up. Sure, Microsoft has Windows and 90% of the market for personal-computer operating systems, the basic software that runs 80 million PCs. But there are new worlds to conquer. For example, the company is still trying to catch up in the crucial market for networking software, now dominated by Novell Inc. And later this year, it's expected to bring out Cirrus, its long-overdue entry into data-base software, a market dominated by Borland International Inc. The question now is whether the unique Gates-inspired style that put Microsoft on top can keep it there. Simply managing its current growth would be challenge enough. Microsoft's payroll, which had jumped from 4,000 in 1989 to 8,200 by the end of fiscal 1991 last June, has now passed 10,000 and is growing by 70 fresh recruits each week. Just to house the 4,000 headquarters employees, the company's suburban Seattle campus has spread to 22 low-rise buildings. Employees now drive, rather than walk, across the 260-acre site. But there are external challenges as well (table, page 64 38 ). A half dozen companies--ranging from IBM and Apple to Sun Microsystems and NeXT--are trying to reduce Microsoft's dominance in PC operating systems, the basis of the company's market power. Software makers everywhere are angling for a chunk of the Windows market, which Microsoft has had mostly to itself. And then there are legal issues: Apple Computer Inc.'s four-year-old copyright suit and an ongoing Federal Trade Commission investigation. An economist hired by Apple says Windows has caused Apple damages exceeding $4 billion, but Apple won't say how much it will actually seek. ''This time, all guns are pointing at Microsoft,'' says analyst David Readerman of Shearson Lehman Brothers Inc. In typical fashion, Gates scoffs at the challenges. ''I want to meet the guy who doesn't think we're gaining market share every day,'' he says. ''That guy's not awake.'' What of IBM's new version of OS/2, which is getting good reviews from corporate testers? ''We're golden,'' he says, ''because OS/2 is a really humorous way to run Windows applications.'' What of the FTC probe, inspired by rivals who claim Microsoft used unfair practices to dominate the Windows market? ''The worst that could come of this is I could fall down on the steps of the FTC [building], hit my head, and kill myself,'' says Gates sarcastically. 'THROW THEM IN.' Gates has more than bluster going for him. In the 17 years since he launched Microsoft, he has followed a simple rule: ''I hire smart people that are pretty high bandwidth, and I challenge them to think. I ask them to be pretty committed and to work pretty hard.'' New recruits usually accept a salary cut and 60- to 80-hour workweeks. And there's minimal training. Says Pete Higgins, a vice-president: ''The training we do is on-the-job. Throw them in, and good luck.'' In return, recruits aren't saddled with a lot of rules and bureaucracy. Those who can't hack it are asked to find another job within the company, or they're gone within two years. That's true no matter how high the rank. Michael R. Hallman found that out. In March, 1990, Hallman, a high-level Boeing Co. computer executive, became Microsoft's president after a four-month search. But on Feb. 3, Gates fired Hallman and split his job among three longtime Microsoft executives: Ballmer, Michael J. Maples, and Francis J. Gaudette. Gates's explanation: ''I didn't see him [Hallman] as a match for what the job had grown to. I expect a lot of new thinking.'' Insiders say it's typical Gates. ''Hallman just didn't have enough bandwidth,'' says one executive. But those who fit the bill are rewarded handsomely. Thomas Dimitri, a novice programmer who turned down a higher-paying job to join Microsoft last year, has already made a paper profit of $150,000 on options he can exercise in 1995. He is also eligible for a performance bonus of up to 15% of his salary every six months. Microsoft's stock has made more than 100 employees millionaires, some of whom take the money and run. After 10 years, Scott Oki, a top marketing executive, retired at age 43 on Jan. 27, with $40 million in stock. But a surprising number stay. At less than 6%, Microsoft's turnover is low by industry standards. Like their boss, the ideal Microsoft employees value winning more than the rewards. To find the right people, recruiters blanket universities. Personnel scours 10,000 resumes a month, looking for raw talent rather than lengthy work experience. And forget about dressing for success. The tone is set by the rumpled chairman. ''We shy away from hiring people who wear expensive jewelry and fancy suits,'' says John Neilson, head of Microsoft's New York sales office. An applicant is more likely to be asked a brain-twister that reveals how he thinks (page 65) than to recite his knowledge of, say, object-oriented programming. BILL'S INQUISITION. Microsoft is clearly not for everybody. Veterans of large corporations often experience culture shock. During his first week on the job, Richard I. Segal, a marketing manager, encountered a group of programmers in bathing suits discussing software bugs over a game of volleyball in the hallway. In eight years at Aetna Life & Casualty, he had never seen anything like that. ''Microsoft's biggest growth issue is getting people who have worked in a cubicle all their lives to function in this environment,'' he says. It's also not a place for those who are thin-skinned or easily intimidated. Employees speak knowingly of ''Bill meetings,'' which sound only slightly better than the Spanish Inquisition. Gates peppers his workers with technical questions. He challenges, he makes judgments, he finds flaws--whether it's a faulty algorithm or a poorly targeted marketing plan. Employees have been known to crib for weeks, even holding practice meetings, for one 60-minute session with Gates. ''These meetings work,'' says software developer Neil Konzon. ''He focuses in on the negative. He beats the living hell out of you. At the end he says: 'Hey, you're doing good.''' ''I'm the biggest single influence in the corporate culture here,'' Gates acknowledges. Yet he doesn't expect everybody to match his workaholic pace. His Lexus, littered with fast-food wrappers, rolls into the parking lot at 9 a.m. and is usually there until midnight. When he gets home, Gates writes memos for another two hours on his home computer. Bachelor Gates is not interested in mundane details such as haircuts and fashion. His wardrobe is strictly off-the-rack, usually easily matched shades of beige. That frees Gates, a Harvard University dropout, to dive headlong into intellectual pursuits. To prepare himself for the Apple suit, he became an expert on intellectual-property law. When he became interested in Napoleon, he didn't read one biography but 12. And he devoured the lengthy Making of the Atomic Bomb. The common theme? People and developments that have had ''a dramatic impact,'' says Gates. He shuns vacations. But when he finally acquiesces, he turns them into ''think weeks.'' Sequestered in the woods with cans of tomato soup and SpaghettiOs, he reads stacks of books and magazines and ponders Microsoft's future. The company almost always seems to come first. Even his $10 million, 46,000-square-foot dream house--now under construction--has Microsoft written all over it. Oh, sure, it will have racquetball courts and its own salmon run, but it also will be loaded with high-tech gadgetry so Gates can test his theories. Rooms will be lined with high-definition screens to view constantly changing digitized art works, electronic books, and architectural designs. SMALL GROUPS. Wherever he is, Gates keeps up with his empire via electronic mail. Available to all employees, the system is ''the lifeblood of the company,'' says one executive. All Microsoftians are encouraged to log on and share ideas and information--even to send ideas to Gates without going through their supervisors. One recent Monday morning, Neilson of the New York office found a personal message from Gates flashing on his PC screen. The boss wanted some facts on the Wall Street market. ''You can get mail from Bill G. at any time,'' says Neilson. ''If you're intimidated by that, Microsoft is not for you.'' Keeping that sense of connectedness gets more difficult as Microsoft swells. But the company, by far the world's largest independent software maker, is determined to avoid typical big-company pitfalls. Says Maples: ''We spend a lot of energy thinking about how to keep the place feeling small.'' One way is by sticking to small groups, a lesson Gates admits was lifted from Hewlett-Packard Co. Whether in programming or in marketing, no group is larger than 200. And each has subgroups so that tasks remain manageable, each person feels he or she can make a difference, and everyone is accountable. This tack is critical, Gates believes, in creating high-quality software. The group designing the forthcoming NT, or New Technology, operating system has only 100 programmers--not many considering that the finished product will require 2 million lines of computer code. DISTRUST. Much is riding on their work. Due out at the end of 1992, NT is one of several operating systems, including OS/2 and various forms of American Telephone & Telegraph Co.'s Unix, that are vying to replace Microsoft's MS-DOS in a new generation of PCs. These machines, linked by the hundreds in networks, are expected to pervade computing by the end of the decade. ''If Microsoft can pull off NT, it will totally dominate,'' predicts Joe Freitas, director of investment-banking systems for Merrill Lynch & Co., which is testing a preliminary version. Given such high stakes, it's no wonder Gates inspires fear and envy among competitors and, sometimes, distrust among customers. Much of the reaction stems from the company's flip-flop on OS/2, which it helped create with IBM. Software developers--a dozen of whom have been questioned by the FTC--say Microsoft misled the industry by publicly pushing OS/2 while it was more quietly plotting a strategy for Windows, a competing method for giving PCs Mac-like capabilities. Thus, they say, Microsoft gave itself a huge headstart in writing applications programs such as spreadsheets for Windows. The result: Microsoft sells 55% of all Windows applications packages. Microsoft executives deny that they misled anybody or had an unfair advantage. ''There is always this implication that if you're successful, it's because you cheat,'' complains Maples. Whether the criticism is justified or not, Microsoft's dominance has made it the bete noire for almost everybody else in the software industry. The ever-hyperbolic Philippe Kahn, Borland's president, compares Microsoft's power to that of Nazi Germany. ''He seems like he has everything. But guys with a lot of guts and courage, they checked Germany,'' he says. Both Borland and Lotus Development Corp. are taking aim at Microsoft Excel, until recently the only spreadsheet for Windows. And WordPerfect Corp., the leader in word-processing software, is taking on Microsoft's Word for Windows. Microsoft is redoubling its marketing defenses. It's spending $8 million on TV ads for Windows--the company's first video campaign. That's in addition to a blizzard of print advertisements, pamphlets, and sales seminars. Now, Microsoft plans a blitz of shopping malls, with computers running its programs next to those of the competition--a high-tech Pepsi Challenge. The marketing is intense because the market is huge: There are 9 million PCs running Windows, and there will be an estimated 9 million more by yearend. To take advantage of Windows, they need new applications programs. Inevitably, Microsoft's huge share of the Windows applications market will be reduced by competition. That's only natural. What Microsoft executives worry about most is what they consider unnatural (or, in Microspeak, ''totally random'') possibilities. At the top of that list is action by the FTC or a major loss in the Apple copyright-infringement suit. All evidence is due by Feb. 29, and both sides are preparing for a summer trial. Apple alleges that Windows infringes its Macintosh copyrights, specifically one covering the display of overlapping on-screen windows. Apple is favored to win and collect damages that independent analysts say could hit several hundred million dollars. ''I'll move to Canada if the judge decides something like that,'' says Ballmer. ''I think it's so crazy I don't want to talk about it.'' But, Ballmer and Gates insist, they're not even mildly distracted by such dire possibilities. Their focus is on the long-range plan. After all, when they showed the first, primitive version of Windows in 1985, the doubters told them to forget it--they'd never come close to Macintosh. But Microsoft's programmers persisted, and Gates plowed $100 million into Windows. Now, he's sitting on a billion-dollar business. So, he's making a similar commitment--$40 million since 1986--in the emerging technology of multimedia computing. And Gates says he has just begun to develop the Windows market. Lately, he has been promoting a concept called ''information at your fingertips.'' The idea is to spread Windows software all the way from handheld PCs to mainframes--to make finding and using computerized information far easier than it is now. Competitors see it as another sinister plot. ''Microsoft is intent on taking over the world,'' says Pete Peterson, executive vice-president of WordPerfect. That's a bit extreme, but it's easy to see how rivals might be confused. Certainly, Bill Gates, with the dominant company in software and a $7 billion fortune, is on top of the world--even if he doesn't actually own it.
Kathy Rebello in Redmond, Wash., with Evan I. Schwartz in New York and bureau reports
WHERE MIGHTY MICROSOFT IS VULNERABLEOPERATING SYSTEMS MS-DOS is still used on 90% of IBM PC-compatibles. But DR DOS is doing better since Digital Research was bought by Novell. IBM's OS/2, aimed at high-end applications, is expected to get to market many months before Microsoft's own top-end New Technology package
WORD PROCESSING
LEGAL PROBLEMS
NETWORKING
SPREADSHEETS
DATA BASES
DATA: INTERNATIONAL DATA CORP., BW |
Updated Aug. 25, 1997 by bwwebmaster
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