Every year at the company meeting, Bill would say the same thing. He would repeat it at periodic strategy meetings. "We are betting the company on Windows." Three years later: "We are betting the company on the Internet."

Very few companies are willing to bet their futures unless they have no choice. Even though Microsoft doesn't need to bet the company, it chooses to do so and truly does, year in and year out.

KILLING THE CASH COW. Microsoft used to be called the "House That DOS Built." MS-DOS was an incredible cash cow for all of the early years. MS-DOS held 80% to 90% of the PC market. It required virtually no advertising and minimal development costs. It was basically pure profit.

MS-DOS is no longer being sold. Who killed Microsoft's bread and butter? Microsoft did -- intentionally -- with Windows. Microsoft tries to kill its own products for two strategic reasons. First, if it doesn't do it, someone else will. It is very aware that every time there has been a major paradigm shift in the software industry, every major company except Microsoft has lost its position. The companies leading a paradigm shift are the ones that will dominate in the new market. The large, established players that wait out the shift and then try to change are destined to fail because they cannot change fast enough.

The second reason Microsoft tries to kill its own products is to force a paradigm shift. This creates confusion, and in confusion, there is opportunity. The shift from DOS to Windows allowed Microsoft to take the word-processing and spreadsheet markets. The shift from mainframes to client-servers allowed Microsoft to take the low-end database market.

CHANGING COURSE. One day, the Internet appeared on the radar. The Internet had existed for 20 years, and the Web had been around for a while by this time. The company has always lived on E-mail -- so the Internet was not new or unknown. Suddenly, the Web was starting to explode. Non-techies were using it. Netscape appeared on the scene. The Internet threatened Microsoft's core monopoly, Windows, by moving much of computing from the desktop to the Web server.

How would most companies react to this? By vigorously defending the status quo. We see this today in the telecommunications industry as the Baby Bells try to slow down change by manipulating the regulatory process and steadfastly refusing to compete against each other. To many people, defending the status quo would have been the smart thing for Microsoft to do. After all, Microsoft was actually behind Netscape and others in the Internet game.

Bill looked at the Internet and saw what was coming. The marching orders went out: The future of the company was now the Internet. What about all the strategic plans for the next several years? The designs, projects, marketing campaigns, etc.? All canceled, wherever they conflicted with the new direction. The past plans and direction were thrown out with nary a second glance. So what was the result? In nine months, Microsoft went from having no Internet strategy to being an Internet-focused company. Could any other Fortune 500 company change course 180 degrees in nine months? Or even in nine years? Because Microsoft could, it was not only able to compete with Netscape, but is well on the way to dominating the Internet after a late start.

OUT OF CONTROL. Several years ago, Bill and other Microsoft executives realized that growth was out of control. Staff was increasing at 40% per year, and the controls weren't sufficient to manage the number of people Microsoft now had. In addition, because Microsoft made money in almost every market it went into and had such incredible profits, there was no financial brake on the growth of the company. The only real limit was office space.

Microsoft was on the verge of becoming the typical large corporation, with each division operating as its own fiefdom. It reacted by putting an absolute lid on hiring. Staff growth fell to under 5% per year. It was wrenching. The freeze hit everyone. Over a year, changes were made in how the company was managed, products in nonstrategic markets were dropped, and effective control was regained. That's how Microsoft was able to respond to the Internet.

What's the lesson here? Security is no longer an option. If you don't bet the company, if you don't fully exploit the paradigm shifts, then the competitor who does will take your market. Not betting is no longer the safe thing to do. Instead, it guarantees you will fail.

David Thielen worked at Microsoft for more than three years as a senior developer, programmer, and product manager.

Reprinted and excerpted with permission from
The 12 Simple Secrets of Microsoft Management
By David Thielen,
Copyright 1999, David Thielen
Published by The McGraw-Hill Companies.
Reprinted with permission of The McGraw-Hill Companies, Inc.
All rights reserved.
Available where books are sold.