BREAKING WINDOWS
How Bill Gates Fumbled the Future of Microsoft
By David Bank
Free Press 287pp $25
To the outside world, and especially to Microsoft Corp.'s archrivals, William H. Gates III is as cold-blooded as he is hard-charging. Almost on his own, the mythology goes, he sparked the PC revolution and managed to steamroll any competitors that got in Microsoft's way. That steely demeanor rarely softens. But for a brief moment in 1998, it crumbled.
Microsoft (MSFT
) was being fiercely challenged by contenders such as Sun Microsystems Inc. (SUNW
) and Oracle Corp. (ORCL
) In addition, the federal government was beginning to slip its antitrust noose around the company's neck. Internally, Microsoft executives were sparring as never before over the future of the company. During a January board meeting that year, the usually unflappable Gates broke down, according to a new book by David Bank, a reporter for The Wall Street Journal.
The most powerful man in technology descended into self-pity, telling the board he was losing sleep and suffering stomach aches. Gates lost his composure and took several minutes to recover. "It was a plea for help," board member David Marquardt told Bank. Six months later, Gates handed off his responsibilities as company president to Steven A. Ballmer.
Scores of such previously untold anecdotes make Breaking Windows the most definitive account yet of Microsoft's step into the Internet Age. Sifting through thousands of internal e-mail messages released during the company's legal battles with trustbusters and competitors, and adding provocative reporting, Bank details the battles that raged inside Microsoft from 1997 to 2000. He argues persuasively that those internal fights destabilized Microsoft far more than the wars the company fought in various courtrooms across the country. Along the way, he shatters any notion that Microsoft is a monolith marching in lockstep with Gates.
As compelling as the cast of characters is, the star of the story is the rich trove of e-mail that they wrote. Bank strings together the strands of Microsoft executives' private messages to recreate the internal drama. "I am convinced we have to use Windows. This is the one thing they don't have," wrote Group Vice-President James E. Allchin, referring to Microsoft's battle with Web browser pioneer Netscape Communications Corp. "For some reason, we are in heavy copy mode against Netscape.... It is not a long-term winning strategy." And while government lawyers made hay of the unvarnished threats in those missives, Bank shows that the legal import of the e-mail pales in comparison with the strategic showdown erupting on Microsoft's campus.
The central drama in Breaking Windows is Microsoft's heated debate over its future. On one side were the "Windows hawks," led by Allchin, the Windows boss who was determined to protect and extend Microsoft's operating-system monopoly at all costs. Facing off against them were the "Internet doves," led by former Group Vice-President Brad A. Silverberg, who believed Microsoft was losing its relevance by dawdling on a Web strategy. The doves wanted Gates to develop a product--even if it competed with Windows--that would work as a platform to get on the Web.
Microsoft chose not to explain the internal struggle--the true context of the e-mail--during the trial, since it would have laid bare the company's strategic ambivalence. And of course, the government was loath to bring up the issue, since it would have undermined the power of the e-mail messages as evidence. The e-mail was sent in the context of a raging turf war inside Microsoft, during which some executives raised the specter of losing ground to Netscape. But the government portrayed the e-mail exchanges as the blood lust of a rapacious monopolist. "This odd and self-serving complicity between defendant and plaintiff prevented one of the most important threads of the Microsoft story from being aired in the trial," says Bank.
For most of the past five years, Gates has had to take sides. On almost every occasion, he has stuck by Allchin. It wasn't that Gates turned his back on the Web: He just couldn't accept a product that would cannibalize Microsoft's cash cow, Windows. Instead, Chairman Gates pushed for an Internet strategy that would allow him to leverage Microsoft's Windows monopoly. "He hated the suggestion that he had to choose between the two," writes Bank. "He was open to proposals that promised to give him everything."
To Bank, that was Gates's biggest mistake. Waiting for the technical whizzes to come up with the software bits that would marry the two worlds set Microsoft adrift. Infighting took the place of innovation, and the company's relevance began to fade far more than many outsiders realized. What's more, the strategy put the company in the direct line of fire of federal trustbusters, who successfully sued over Microsoft's attempt to use its monopoly to jump into new businesses. "Bill Gates had taken the company down the wrong road," Bank writes.
It's an interesting argument, but events of the past few months undermine Bank's thesis. Short of a court-ordered breakup, Microsoft is likely to thrive in the future precisely because of Gates's decision to hold off the Internet insurgents. By 2000, Gates had finally latched on to an Internet strategy that he could love. While pieces of that strategy, called .Net, are still emerging, it offers the have-your-cake-and-eat-it-too scenario that Gates demanded. .Net promises to let unrelated Web sites talk to one another--and to other programs on a consumer's PC. For example, .Net would allow a user to purchase stock, transfer funds for the purchase, and update personal-finance software with just one click. But the key for Gates is that it will work best on Windows. At first, back in 1997, Gates's intransigence destabilized the company and put it on a collision course with the Justice Dept. But as foes wither in the sour economy and as Microsoft regains its strength, it seems that Gates's bet is paying off.
Bank also argues that the Internet doves won, even if most have left the company. The author believes that, in today's computer business, winning products are those that "interoperate"--not those that lock customers into proprietary technology. But in bringing out Windows XP--the version of the system due out on Oct. 25--lawmakers and rivals have accused Microsoft of using its monopoly to lock customers into other products, such as its instant messaging and digital music software.
That's why it's hard to swallow Bank's contention that U.S. vs. Microsoft has curbed Microsoft's worst transgressions. "The antitrust trial served as a kind of remedy for Microsoft's monopoly power, tying the company's hands while competitors and, importantly, open standards and open-source software established deeper roots," he writes. But since Bank finished reporting his book in early 2001, Microsoft has gained share in the server, database, and handheld-computer markets--businesses where competitors seemed to have dug their deepest roots.
Despite such missteps, the book lays out in vivid detail the infighting at Microsoft as never before. And unlike most other such books, Breaking Windows shows true insight into how the company works. Credit Bank's four years on the Microsoft beat. It's easy to find holes in his arguments, but if you're interested in understanding the workings of one of the most important companies of the past generation, Breaking Windows is an eye-opening read.
Greene is Seattle bureau chief.
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Copyright 2001, Bloomberg L.P.
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