Bill Gates (5 page)

By the time Windows 95 came out in August of 1995, Netscape was sufficiently well established that it has been able to remain a major player in the browser market. But by turning his company around in a single year to take advantage of the Internet phenomenon, Bill Gates was able to see to it that his company did not miss out entirely on this important turn in the road. Gates himself has become one of the foremost promoters of the Internet, more than making up for his initial lack of focus with a broad vision of the Internet’s place in the future development of computer technology. Indeed, in a step that nicely completed the circle, Microsoft made a sizable but undisclosed investment in July 1997 in another Seattle area company, Progressive Networks. The company specializes in enabling software for Web-based audio presentations and very low-speed video. The company was founded by and is headed by none other than Ron Glaser, the former Microsoft executive who worked so diligently to make Microsoft executives fully aware of the importance of the Internet.

No one in the business world can become as successful and as powerful as Bill Gates has without acquiring enemies. And Gates has many enemies. Few of them seem to care all that much about his enormous wealth; most of them have made fortunes themselves and have, like Gates, started giving money away. They do not begrudge Gates his success in the usual envious terms, either. What makes some of them very angry is that they believe Microsoft, because of its market dominance in operating software, which began with MS-DOS and became even greater with the Windows series, is able to squeeze companies with better systems into a marginal position and put them out of business entirely. It is, ultimately, the power to do that which creates the anger.

It is hardly surprising when competitors in any field of business bad-mouth one another’s products. The kind of negative attack ads that have become so common in politics aren’t allowed in industry, by law, but there are subtle ways for a crack advertising company to make invidious comparisons (for example, we see them all the time in the “cola wars”). But there’s nothing to prevent one chief executive from running down another company’s products in interviews with the press. And if a company gets angry enough, and its lawyers think a case can be made, complaints can be filed with the Federal Trade Commission. That’s what began to happen in the computer world in the early 1990s. There were a number of competitors making complaints about Microsoft’s business practices, but the two best known are Phillipe Kahn, the French-born founder of Borland International, and Raymond Noorda of Novell Data Systems.

Kahn was already thirty when he arrived in California in 1982. He was late getting into the computer field, but
he had been trained as a mathematician, and his technical wizardry soon made the tiny company he founded over an auto repair shop in Scott’s Valley near San Jose into the third biggest software company behind Microsoft and Novell. Within a year he had introduced an inexpensive computer programming language called Turbo Pascal. As the
New York Times
reported, “He sold his programming language mail order at a fraction of the price charged by larger rivals like IBM and Digital Research.” He followed that with Sidekick, which would become the most popular scheduling and information manager software for personal computers.

Despite the respect Kahn had as a technical genius, he also had a reputation as a wild character. He even styled himself as a “barbarian,” drove cars at speeds that brought him endless tickets, spent a lot of time sailing yachts, and played the saxophone, recording two albums with well-known jazz professionals—paid for by his company. He and Gates loathed one another. Kahn said that Microsoft was run like “Nazi Germany,” and Gates told
Time
, “Phillipe Kahn is good at playing the saxophone and sailing, but he’s not good at making money.” According to James Wallace in
Overdrive
, one group at Microsoft had T-shirts made up that read “Delete Phillipe.” And that’s exactly what Gates set about doing, by buying one of Borland’s chief rivals for database products, Fox Software. The deal went through in early 1992 for one hundred seventy-three million dollars; Microsoft used its sales force to push its FoxPro from ten percent to fifteen percent of the market in a few months. In December of that year, Microsoft introduced its own database product, Access, and sold it at a steep discount to undercut Borland. Borland began posting losses, and Kahn had to keep reducing the number of the
company’s employees as he made mistakes of his own and fell behind in delivering new products. The personal animosity Khan felt toward Gates was hardly eased when his former wife started dating the Microsoft founder.

The antipathy between Raymond Noorda and Gates was more straightforward, growing out of tough Microsoft business stances. Noorda was not a technical person, but he was a frugal manager, and had turned around a struggling Novell when he was brought in to run it in 1982, at the age of fifty-eight. Gates had managed to block Novell’s attempt to purchase another software company, Aston-Tate, in 1988 (Aston-Tate was later bought by Borland International, in a disastrous deal that ran up Borland’s debt). Still, Noorda had been willing to talk when Gates had approached him about a possible merger between the two companies in 1991. Novell was the top dog in the business of producing networking software to link computers to one another, an area that was a real weakness for Microsoft, but one that Gates had great interest in and would continue to move forward on. But the deal with Novell was called off by Microsoft, and Noorda came away from the experience convinced that Gates had only been interested in getting a look at Novell’s inside workings and information.

Kahn and Noorda were thus both delighted to assist the Federal Trade Commission in its investigation of Microsoft’s business practices during the first half of the 1990s. The FTC’s interest had originally been aroused by the IBM/Microsoft agreement to develop OS/2 together, which immediately got antitrust noses twitching. When that agreement ultimately fell apart, the FTC had so much information on Microsoft and had received so many complaints about the way it operated from competitors that it kept right on investigating. Antitrust cases are always extremely
complex, and, in a new field like computers, the law is often only vaguely applicable. But there were two main areas that the FTC was looking at. The first had to do with Microsoft’s agreements with the computer manufacturers, which gave them large discounts on the use of Microsoft DOS, provided a royalty was paid to Microsoft on every computer, regardless of whether it had DOS installed on it. Why, the question was asked, would a PC maker ever install an operating system from a competitor when it was already paying for DOS? The second main area of concern stemmed from complaints from competitors that, contrary to regulations, they did not receive the information they needed from Microsoft on new operating systems in a timely fashion that would allow them to develop their own applications systems that work with, for example, DOS for Windows. There was a suspicion that the Microsoft applications division was getting such information first, giving it a head start, despite the fact that regulations required competitors to receive it at the same time.

Raymond Noorda was leading the charge against Microsoft, with as many as seven lawyers active in the case, but Borland and several other companies also tried to sway the FTC commissioners to take action against Microsoft. Although the general public was largely unaware of what was going on—FTC investigations are far too complicated for the sound-bite reporting of the evening news programs, and get reported only when a case comes to a head—the
Wall Street Journal
and the business pages of other leading newspapers followed the case closely. James Wallace gives a lengthy after-the-fact treatment of the matter in
Overdrive
, but it became a story with an anticlimactic ending. On February 5, 1993, the five FTC commissioners met to take a vote on whether action should be taken against Microsoft,
and with one commissioner recusing himself because of a conflict of interest, the remaining four split evenly. The matter was taken up again, after further study, on July 21, 1993, with the same result. The Justice Department’s Antitrust Division then took the unusual step of getting involved.

The Justice Department case, led by Anne Bingaman, who had been appointed head of the Antitrust Division by President Clinton, went on for another year, and was finally settled with a consent agreement approved by Bill Gates. It essentially changed the kind of licensing agreement Microsoft could demand from computer makers; from now on they could send out computers that had other companies’ operating systems without still having to pay a fee to Microsoft. This was claimed to “level the playing field,” but the press took the view that Gates had just been given a slap on the wrist.

All consent decrees have to be approved by a federal judge, who is assigned cases by lottery. The judge in this case was Stanley Sporkin, who also thought the consent decree was a slap on the wrist, and threw it out on February 14, 1994, infuriating not only Bill Gates but also Anne Bingaman. On appeal, with Microsoft and the Justice Department now on the same side, Sporkin’s decision was overturned by a three-judge appeals panel, and Sporkin was chastised for having overstepped his authority. The case came to an end three days before the launch of Windows 95 on August 24, 1995.

Not only was Bill Gates temporarily free of government interference and about to present the world with what would become the most successful computer software ever devised, but the two men who had been his greatest enemies were gone from Borland and Novell. Phillipe Kahn
resigned—or was forced to resign by the board of directors—as head of the company he had founded a dozen years earlier, leaving on January 11, 1995. Kahn even showed up at the Windows 95 launch celebration; he had started a new company and needed to mend fences with Microsoft. As for Raymond Noorda, he had been gone from Novell for a year, retiring at the age of seventy, his memory failing.

Of course there were still plenty of competitors who disliked Bill Gates and regarded Microsoft as a dangerous gorilla of a company. The three who came to the fore to challenge Gates most openly were Jim Barksdale, the new CEO of Netscape, Scott McNealy of Sun Microsystems, and Larry Ellison of Oracle Systems Corporation. Barksdale is the most diplomatic of these competitors, and he can afford to be—Netscape beat Microsoft to the punch with an Internet browser, which still outsells Microsoft’s version more than two to one. Ellison had said that “everybody hates Microsoft,” but that is clearly wishful thinking. Scott McNealy is the most outspoken. He told
Newsweek
, “There’s two camps, those in Redmond, who live on the Death Star, and the rest of us, the rebel forces.” This is what McNealy told
Newsweek
in May of 1997. Of course, back in December of 1995, he had agreed to license Java—a computer language developed by his company that would become the standard for creating visual and audio effects on Internet web pages—to Microsoft. That was just good business. It would help establish Java as the standard, bring in plenty of cash, and prevent Microsoft from developing a rival language.

While such agreements between rivals—even personal enemies—occur in other fields, they are particularly common in the computer business, for several reasons. It has
been fifty years since ENIAC’s components could fill an entire railroad boxcar. Thanks to the microchip, computers in that time have become small enough so that a machine that can be held in one hand can do more calculations more quickly than ENIAC could. Yet, as anyone in the field will tell you, computers are still in their infancy. Thus computer businesses, whether they produce hardware, software, or both, have a vested interest in the kind of cross-fertilization that creates further new developments. The vast possibilities that still lie in the future certainly create intense competition, but they also require that competitors quite often cooperate with one another in order to move the entire industry to a higher level. It is doubtful, in fact, if there has ever been another field in which the phrase “good for the industry” has been used so often.