Hard Drive - Bill Gates and the making of the Microsoft Empire 6

In my reading of the Hard Drive – Bill Gates and the making of the Microsoft Empire by James Wallace and Jim Erickson, the authors accounted the early deals and business practices of the fledging Microsoft company.

Gates spent much of his time farming the OEM market. At page 118 – “, An OEM, or original manufacturer, is the brand name under which a product is sold. When a car buyer purchases a General Motors car with Goodyear tires, General Motors is the OEM because it buys the tires to use on equipment General Motors sells. In the case of the computer industry, an OEM would buy a computer from another manufacturer, build it into their own equipment and then sell the complete package, ready to run. Many OEMs, for example, made high-tech computer equipment for hospitals such as imaging systems. Others specialized in graphics or robotics. But they all needed a high-level language such as BASIC or FORTRAN for their machines. It was a very lucrative market, and Microsoft received a substantial portion of its early revenues from contracts with OEMs.

Gates managed most of the aspects of the company in the early stages, from its technical developments, sales, and even some of its legal matters. At page 119 – “”I always focused on new ideas and creating new technology,” Allen said. “Bill would occasionally jump in and get involved in that, but he was always more focused on the business side, more attracted to the business relationship side of things.” At Harvard, Gates had read business books like other male students read Playboy. He wanted to know everything he could about running a company, from managing people, to marketing products. He even checked out books on corporate law. He put his studies to good use at Microsoft. He not only negotiated the deals, he also wrote the contracts, as Wood found out one day when he met with Gates to discuss a nondisclosure licensing agreement for FORTRAN, for which Wood had written the code. Gates quickly drafted the agreement. According to Wood, Gates seemed to know more than the lawyers did. Not only did Gates understand what needed to be done, but he was able to do a lot of the contract writing himself, saving Microsoft expensive expert legal advice. “Bill did it all,” said one of the programmers. “He was the salesman, the technical leader, the lawyer, the businessman…You could go on and on.” Gates did get legal help on some of the company’s big-money contracts. One such contract was the one Gates closed with Tandy. Around the Fort Worth area in Texas, the Tandy Corporation was known as the “McDonald’s of the Electronic World.”

I was wondering how businessmen draft up the various contracts necessary for the operation of their businesses, especially when contract documents can be complicated with many technical clauses on how the contract should work. I wonder whether business school teaches business students how to draft up contracts, or whether they are told to delegate that aspect of business operation to lawyers. But from what I heard, contract drafting is pretty much a copy and paste procedure based on the available templates already drafted up by other law professionals. There are books with standard clauses that one can use to come up with boilerplate contracts. I have also heard that in Singapore, business owners are supplied with contract templates by some business association organization which they can use for the various business purposes.

I have also heard about how there can be a knowledge divide between the business aspect and legal aspect of a company’s operation. An account I heard from a friend who works in an IT company was how the lawyers at the company reproduce contract templates from other business models which were not suited to the business model of the IT industry, leading to certain inconveniences for the IT professionals when dealing with their customers. Moreover, according to this friend of mine, the IT industry suffers from a lack of local lawyers who are adept at knowledge of how the IT industry works and the legal expertise that should be tailored to it.

Gates’ business philosophy was to capture the market share by introducing his products early, even at the possible expense of defects in the product released. At page 120 – “Not only did Microsoft hook up with Tandy in 1977, but the company also licensed BASIC 6502 to Apple for the Apple II computer. Microsoft had begun to set the industry standard with its software. And that’s exactly what Gates had wanted, what he pushed for in meetings with his programming team. “We Set the Standard” became the company’s motto in Albuqueque. It represented Gates’ basic business philosophy. Of course, trying to be first out the gate with a new software product just to create an industry standard sometimes caused problems. Too often, Gates set unrealistic goals for product development. Deadlines were missed, products weren’t always well-designed, and contracts had to be revised due to unforeseen obstacles or delays.”

I suppose the decision to release a product onto the market is a decision that requires a balancing between the criteria of being early in product release onto the market with the quality of the product released. And sometimes, it is better to release an inferiorly made product ahead of time in order to seize the market share, and then slowly improve on it by releasing updates onto the market.

Gates also decide to jump at the Japanese market, seeing it both as an opportunity for further expansion of the company’s growth, as well as a future potential threat to be dealt with. At page 122 – “”Gates began to go aggressively after the Japanese market in 1977 and got a huge jump on the competition. “I went into Japan only two years after I started Microsoft knowing that in terms of working with hardware companies, that was a great place to be,” he said. “A lot of great research goes on there. And also, it was the most likely source of competition other than the U.S itself. I didn’t want to leave that market so that companies would grow up using the domestic market and then come and be that much stronger to compete with us on a worldwide basis. (Today, Japan is Microsoft’s second largest market, after the U.S.)”

I was wondering whether the Japanese who are known for their innovation of existing products invented by the western countries would have developed their own improved version of the operating system. Indeed, there is a Japanese operating system named Tron. And the interesting point made in the Wikipedia article is how Tron has met with opposition by the United States because of Microsoft’s lobbying against it, which is not really much of a surprise considering what I have read so far about how Gates view Japan as a potential threat.