Hard Drive - Bill Gates and the making of the Microsoft Empire 10

I finished reading Hard Drive – Bill Gates and the Making of the Microsoft Empire by James Wallace and Jim Erickson. What stuck out to me in my reading was how Bill Gates directed Microsoft in trouncing his various opponents in the computer industry. It is quite a feat for what was once a small company with less than a hundred employees that dealt only with computer languages to dominate entire markets in other areas of the computer industry. In my last post on the book, Bill Gates came to control the market on operating system by beating a competitor to a successful joint venture with IBM to develop the personal computer. In my further reading of the book, Bill Gates subsequently came to seize markets that lied initially within the dominance of other companies.

1. The author wrote about the project at Microsoft to develop Multiplan, the predecessor Microsoft spreadsheet application to its current day Excel. This was in competition to a rival application named VisiCalc developed for the Apple II. There were some improvement features that Gates added to Multiplan which resembles the features of the Excel spreadsheet that we use today.

At page 221 – “Gates did not like the way the VisiCalc spreadsheet worked, and he intended to improve not only on its performance but its looks. A spreadsheet is made of many different “cells,” and in VisiCalc these cells were referred to by a coordinate, such as “A10”. Gates wanted to use English names for Multiplan’s cells, such as “Sales.June.” Simonyi made further enhancements to Multiplan. Drawing from his work at PARC, he incorporated user-friendly menus into the product.”

However, it was not Microsoft’s Multiplan that knocked out Visicalc, but another competitor’s spreadsheet product. Lotus’ 1-2-3 spreadsheet appealed to the market for its faster processing speed than any of the other spreadsheet applications available on the market. The plan to wrest control over from Lotus for the spreadsheet market was an unscrupulous one.

At page 233 – “According to one Microsoft programmer, the problems encountered by Lotus were not unexpected. A few of the key people working on DOS 2.0, he claimed, had a saying at the time that “DOS isn’t done until Lotus won’t run.” They managed to code a few hidden bugs into DOS 2.0 that caused Lotus 1-2-3 to break down when it was loaded. “There were as few as three or four people who knew this was being done,” he said. He felt the highly competitive Gates was the ringleader.

There was subsequently a branding strategy to make Microsoft identifiable with its products. At page 244- “Hanson wanted to make Microsoft the Sara Lee of the software industry. Everyone knew the Sara Lee brand, regardless of whether they were shopping for apple pie or pound cake…Gates immediately saw the logic of Hanson’s argument. As a result of Hanson’s efforts, the Multi-Tool names were thrown out. Taking their place were Microsoft Word, Microsoft Plan, Microsoft Chart, and Microsoft File.

I didn’t find anything in the book about how Microsoft and these other software companies were able to develop their spreadsheet application without contravening some copyright law. But there is this writing by Dan Bricklin, who came up with the idea for VisiCalc, explaining that he was not able to obtain a patent back in those days – “In 1979, when VisiCalc was shown to the public for the first time, patents for software inventions were infrequently granted. Programs were thought to be mere mathematical algorithms, and mathematical algorithms, as laws of nature, were not patentable.”

In fact, there were allegations that Tim Paterson who developed the QDOS operating system for Microsoft stole the concept for his operating system from Gary Kildall’s CP/M. I do think that it would be a chilling effect on further innovation in an industry if people are getting ripped off their ideas without being paid or credited. I am looking forward to studying intellectual property law in university to examine whether the current laws on copyright are adequate.

2. The authors detailed Microsoft’s recruitment strategy for its firm. At page 259 – “Crisp thinking and a high IQ were essential to landing a technical job at Microsoft. Except in very rare cases, Gates wanted young people right out of college with a background in science, math, or computers. Usually, candidates were interviewed on campus and later flown out to Microsoft for a brief visit. Though the company did not pay well, Microsoft usually was able to hire anyone it really wanted by promising generous stock options and a chance to work in a free-spirited environment…Microsoft’s favourite recruiting grounds were Harvard, Yale, Massachusetts Institute of Technology, Carnegie Mellon, and a little college near Toronto named the University of Waterloo.”

As a law student, I don’t think it is going to be within my objective in life to work for a tech company like Microsoft. But I believe that the sentiment for computer engineering or computer science graduates is that Microsoft is one of the big firms to aspire to work for. I wonder what would be the local equivalent of a big tech company that graduates want to work for.

What do I think about entrepreneurship after reading the biography of Bill Gates? It intimidates me. It does take quite some tenacity to compete. I don’t think I share that same competitive drive as Bill Gates to want to drive out all his competitors out of business. And it also takes business intelligence as well to know how to go about seizing the market. And I am not sure how feasible being an entrepreneur in Singapore is. Do we have the talent pool to drive an industry? I suppose there are limitations to what field what one can be an entrepreneur in, and it also depends on the discipline or field that the government wants to develop by educating its talent pool. I guess I should read up more on what these disciplines or fields are.

Hard Drive - Bill Gates and the making of the Microsoft Empire 9

My reading of the Hard Drive today takes me to one of the pivotal moments of Microsoft’s history where Microsoft seized the deal to supply the operating system for its project with IBM to develop the personal computer. It was a feat as they had to beat Gary Kildall from Digital Research, a competitor who was then the market leader of the operating system with his CP/M, and how Microsoft managed to do it was nothing short of an entrepreneurial sleight of hand. This deal cemented Microsoft’s dominance in the operating system market that we see today and in the process, made Bill Gates the richest man in the world.

The representative from IBM, Jack Sams, had met up with Gates to talk about the operating system for the new PC. IBM wanted Microsoft to supply it with not only BASIC but also languages such as FORTRAN, COBOL, and Pascal. Stand-alone BASIC could function without an operating system, but Microsoft’s other languages could not. IBM had initially desired to deal only with Bill Gates, but in the end decided that they needed the 16-bit CP/M and arranged for an appointment with Gary Kidall of Digital Research whose firmed owned the CP/M which was the dominant operating system in the market at that time.

The book describes the background history of the business relationship between Bill Gates and Gary Kildall, which started off well but soured. Initially the business relationship between Bill Gates’ Microsoft and Gary Kidall’s Digital Research was synergistic and cooperative in nature. Microsoft started off as a language company, and supporting different microcomputer operating systems was a business nightmare. Each operating system had its own way of doing things, such as managing memory and file systems. If Microsoft’s programmers could write software for the same operating system on each computer, all they would have to do was modify their code slightly for whatever specific devices a customer’s computer might have. Gates hence supported Kildall’s CP/M to become the industry standard, and would refer hardware customers who wanted to run BASIC or any of their products to go licence CP/M and get that up on their machines so that Microsoft’s stuff would run on it. And Gary would do likewise. If someone went to him to licence CP/M and they were looking for languages, he would refer people to Microsoft.

At page 176 - “In fact, there was an unwritten agreement between Gates and Kildall that Microsoft would stay out of the operating system end of the business, and Kildall would not get into microcomputer languages.”

But in the late 1979, the synergistic relationship between Microsoft and Digital began to unravel after Kildall packaged his operating system with a BASIC that had been developed by Gordon Eubanks, one of his students at the Naval Postgraduate School. Eubanks’ CBASIC had been on the market for about two years, and it represented the only real alternative to the BASIC offered by Microsoft.

Gates was not happy. In reaction, he went to AT&T and licensed its UNIX operating system, which Microsoft sold at a discount under the name XENIX.

At page 178 – “Such was the state of affairs between Microsoft and Digital Research in September of 1980 when Gates picked up the phone and called Kildall. Once again, he was sending business to someone he now considered a competitor, but now he had no choice. IBM wanted CP/M as an operating system for its first personal computer.

The popular tale amongst the computer industry that has become the stuff of legends is how Kildall squandered his chance by flying in his twin-engine plane while the men in blue suits from IBM were waiting on the ground. At page 182 – “Regardless of what really happened that day, most of those in the computer industry believe Kildall’s actions helped make Microsoft the software giant it is today.”

Moreover, the IBM personnels were not pleased with Gary Kildall’s lack of ability to develop the operating system according to their tight schedule. Jack Sams of IBM says that he and others at IBM could not get Kildall to agree to spend money to develop a 16-bit version of CP/M in the tight schedule IBM required. They thus threw the operating systems problem in Gates’ lap.

At page 182 – “Luck once again would shine on Bill gates. An operating system for the 16-bit Intel chips had just been developed by Tim Paterson at Seattle Computer Products, not more than a twenty-minute drive from Microsoft.” Gates bought Paterson's program, called QDOS, for $50,000, renamed it DOS, improved it, and licensed it to IBM for a low per-copy royalty fee. And the rest was history.

In this businessweek article here, there is an interesting inquiry into the counterfactual about how the computer industry could have been if Gary Kildall had succeed instead.

“Would history have taken a different path if Kildall triumphed in those early days? "I'm convinced," says John Wharton, a tech consultant and Kildall pal. He believes the industry would have been more collegial and innovative if Kildall rather than Gates sat at the crossroads of computing. But others say Kildall didn't have what it took to lead an industry. "Bill succeeded because he was a tenacious businessman," says lawyer Davis. "Gary was not tenacious."”

Hard Drive - Bill Gates and the making of the Microsoft Empire 8

For my write-up from my reading of Hard Drive – Bill Gates and the making of the Microsoft Empire by James Wallace and Jim Erickson, I shall write about the following points in the book.

1. Microsoft was eager to leverage on the growth of the burgeoning Apple company from the sales of its newly developed computer, the Apple II, which had taken off, especially since it was the only computer licensed to run the extremely popular VisiCalc application program. The Apple II, however, had its own unique chip, the 6502,, and a proprietary operating system. Apple didn’t want anyone else to “clone” its computer. Microsoft faced a dilemma. Most of its programs and languages, comprising more than a quarter of a million bytes of code, had been developed for Intel’s 8080 chip and the CP/M operating system of Digital Research. Programs and applications written for CP/M, which had become an industry standard, would not work on the Apple operating system.

At page 158 – “Gates badly wanted a slice of the rapidly growing Apple software market. But it would be a major effort to translate all of Microsoft’s 8080 code into 6502 code. One day, while sitting in the back of a pickup truck in the company’s parking lot, Allen, brainstorming with Gates about the Apple problem, came up with an idea. Why not try a hardware solution to the software problem? His ingenious suggestion was to design an expansion card that could be plugged into the Apple to run programs and applications written for CP/M. With this card, Apple II users could run any of Microsoft’s programs written for the 8080 chip and Gary Kildall’s operating system.”

Microsoft decided to call the new product the SoftCard. The SoftCard was released in the summer of 1980. Allen had hoped Microsoft could sell 5,000 of the cards. It sold that many in a couple of months. By the end of the year, more than 25,000 had been snatched up by Apple II owners. In all, more than 100,000 were sold.

2. Gates turned to a friend for a key management job in the company when the Steve Wood decided to leave the company. In June 1980, he brought in Steve Ballmer as assistant to the president. Unlike the other professionals at Microsoft, Steve Ballmer knew a lot about business and not much about computers.

The son of Swiss immigrants, Ballmer grew up in Detroit, where his father worked for the Ford Motor Company. After getting his applied mathematics degree from Harvard, Ballmer worked for a couple years as assistant products manager at Proctor & Gamble before heading off to Standford’s business school. He had been there about a year when Gates called.

At Proctor & Gamble, Ballmer had become known for redesigning the company’s Duncan Hines cake mix box so that it sat on store shelves horizontally rather than vertically to grab more shelf space. Ballmer would later say that’s what he wanted to do at Microsoft – help Gates squeeze out the competition.

3. IBM wanted to create a personal computer to compete with the existing Apple II in the market. Lowe, director of the Boca Raton lab, was sent back to Florida with orders to do what ever had to be done to develop IBM’s own personal computer. He was to assemble a task force and bring back a prototype of IBM’s “Apple” in 30 days.

The task force agreed the new computer should be an “open architecture” system. In other words, critical components of the machines, such as the microprocessor, would come from existing technology in the market place and would not be proprietary like components in the Apple. It was decided that the machine’s software, including the vital operating system, would also come from an outside vendor. In the late July 1980, Jack Sams of IBM plced a call to Microsoft and asked to speak with Bill Gates.

At the second meeting, Gates and his team were asked to sign the non-disclosuree agreement, and after this formality they were then told what they already suspected: IBM had a top secret project underway to develop a personal computer.

It was there that Gates leveraged on the 16-bit 8086 chip that his company had developed which was faster than the 8-bit 8080 chip in the market to convince IBM to base its machines on the newer and faster chip. At the end of this meeting, Sams and his group returned to Boca Raton with a proposal for the development of a low-end, 16-bit business workstation. The venture was named Project Chess.

IBM has a different account on how the idea to use a 16-bit chip came about. Jack Sams says that the IBM group had already decided to use a 16-bit chip before Gates was contacted. But he said Gates was not told this at the second meeting, because of the IBM secrecy protocol, so Gates may well have believed he was making a recommendation that IBM acted on.

Hard Drive - Bill Gates and the making of the Microsoft Empire 7

For my reading of Hard Drive – Bill Gates and the Making of the Microsoft Empire by James Wallace and Jim Erickson today, the authors accounted the prelude to the joint venture between IBM and Microsoft; How Microsoft positioned itself to seize the opportunity of being in a joint venture with IBM, and how it came to target the WordProcessing and Spreadsheet Program market.

Microsoft saw the potential of a better processing chip to become the industry standard for the personal computer. At Page 142 – “He[Bill Gates] and Paul Allen had strategically positioned Microsoft so that it was in the right place at the right time when IBM broke with tradition and went looking for a software vendor for its entry into the personal computer market. They made one of these strategic moves early in 1979, soon after Microsoft set up shop on the eight floor of the Old National Bank building in Bellevue. Intel had recently released a new chip called the 8086, and although some in the trade press suggested it would never become an industry standard like the 8080 chip, Gates and Allen believed otherwise. They were certain this new chip would become the engine for the next generation of personal computers. As a result, they asked Bob O’Rear to begin work immediately on a BASIC for the 8086. It had been four years since the Altair appeared on the cover of Popular Electronics. The 8080 chip had indeed become a standard, and the industry had invested heavily in programs that ran only on that chip. But it was never intended to supply the brain power for the advanced needs of microcomputers. Its makers at Intel had envisioned the 8080 chip going into such things as traffic light controllers. With the 8086, however, Intel’s engineers had designed a microprocessor especially for the personal computer. Technically speaking, the 8086 chip represented 16-bit architecture, rather than the 8-bit architecture of the 8080 chip. This meant it could process packages of information of up to a million characters at a time, while the 8080 chip was limited to 64,000 characters. Intel’s new chip could run rings around the old chip. Not only was the new chip many times faster, but it could run much more sophisticated software programs.

While displaying their 8086 chip model at the National Computer Conference and marketing it to business executives there, the Microsoft crew came across products being sold by other tech firms which caught their attention. At page 145 - 146 – “Microsoft’s 8086 BASIC drew a lot of attention at the National Computer Conference in New York City that June of 1979, but not nearly as much as a slick electronic spread sheet program that was unveiled on an Apple II computer….About the same time VisiCalc hit the market in the fall of 1979, a company called MicroPro began selling a word processing program called WordStad. Application products such as VisiCalc and WordStar represented a potentially vast and lucrative new market for software developers.

Steve Smith, Microsoft’s first marketing director and genuine business manager saw the need for Microsoft to move into those software markets. At page 147 - “What we realized at that time was we had a lot of products, we dominated the languages business, but the only product that really made a lot of money for us was BASIC. That’s because you had to have a copy of BASIC on every computer to make the applications run. And then we saw WordStar, and realized that MicroPro was a one product company. And then we saw VisiCalc. Now we had no intention of being a one product company. What we realized was we needed to be in those markets.”

It transforms to what we see today as the Microsoft Words and the Microsoft Excel as the standard software application used in most computers of today. I wonder though how Microsoft developed their own version of these applications without running afoul of intellectual property laws, and would be interested in reading about this aspect further in the book

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.