Overdrive, page 29
Schmidt had to be in Aspen for it talk he was supposed to deliver the next morning, the same day Gates was to make his speech, so that afternoon, he drove to the San Francisco Airport to catch the 4:00 p.m. United flight to Denver, with a connecting flight to Aspen. As he was walking through the airport, his cell phone rang. It was Paul Maritz at Microsoft, wanting to verify that some language Microsoft wanted remained in the contract. “At this point,” said Schmidt, “we had given up trying to get any kind of press release ready for Bill’s announcement the next morning. We were just trying to get an agreement signed.”
Schmidt’s plan, once in Aspen, was to go immediately to Bill Joy’s house, where he could use a fax machine to get the final draft of the contract from Microsoft. But when Schmidt arrived in Denver, he learned that his connecting flight to Aspen had been delayed. At about 9:00 p.m. Denver time, 8:00 p.m. in Seattle, he frantically phoned Heinen in Redmond to tell him that he didn’t have access to a fax machine and had no way to get the final draft of the contract for review. Just when Schmidt had decided to take a van to Aspen—a five-hour trip—the plane was repaired. Schmidt arrived in Aspen about 11:00 p.m. and went directly to Joy’s home.
Schmidt and Heinen exchanged a few more drafts of the contract by fax, each side making minor wording changes. The agreement was finally signed at midnight, Aspen time, and Schmidt immediately phoned McNealy from Joy’s house. “We did it!” he shouted. “It’s signed. They’re going to announce it tomorrow morning.” “Great,” said McNealy. “Now I want to go back to sleep.” It was 2:00 a.m. in New York.
The next morning, Schmidt called Jim Barksdale at Netscape to inform him that Sun had licensed Java to Microsoft. Barksdale would tell reporters later that day that he was pleased, since it was an endorsement of Netscape’s Internet strategy. Schmidt next called Steve Case, president of America Online. Case had been talking to Sun about licensing Java, too. “I wanted him to know this did not make Java any less valuable for AOL said Schmidt.
“It had been a very special week for Sun,” said Schmidt. “This was a very big deal for us We knew what we were getting ourselves into. We understood that we were dealing with Microsoft. We had had some experience with them in the past that had not been very good. But I felt confident we had made the right decision. On the downside, Microsoft was clearly behind, which was an opportunity for other companies to get ahead. By enabling Microsoft to better compete, we had effectively closed that window of opportunity for those other companies. We gave Microsoft some very important keys to the castle. But in our defense, we saw this as good for Java. It was better to work with Microsoft than not. And eventually they would have built a Java clone. We had heard rumors that one was already in the works.”
For much of the two weeks before what was being billed as Microsoft’s Internet Strategy Workshop on December 7, Bill Gates had been on a book tour for The Road Ahead, which had been published in late November, a year behind schedule. On the cover was a picture of Gates, hands in pockets, standing on an unfinished two-lane highway that stretched into the distance behind him. The picture was taken by celebrity photographer Annie Leibovitz on an unfinished section of highway near the remote eastern Washington town of Connell. Gates and Leibovitz were flown to the site by helicopter one day in the summer of 1994. Stripes had been painted down the middle of the highway just for the photo shoot.
One of Gates’s first stops on the book tour was New York, where he appeared on Late Night with David Letterman. Gates drew huge crowds wherever he spoke on his tour. At Georgetown University, demand was so great that students had to enter a ruffle for the 700 or so available scats. The National Press Club, too, was sold out, lor the first time since the actress Sharon Stone appeared there.
On Tuesday, December 5, just two days before his talk in Seattle, the book tour took Gates to San Francisco, where he engaged reporters in a lively discussion about the Internet. “It’s kind of a neat thing to have the Internet exploding, and to have this gold rush atmosphere,” said Gates. But he bristled when someone suggested that Microsoft had been late arriving at the Internet party. “Who knew on this date that the Internet would be as big as it is?” retorted Gates. “If you can find him, crown him.”
From San Francisco, Gates returned to Seattle to begin final preparations for his speech. At 8:00 p.m. Wednesday, he and other executives gathered at an auditorium at the Seattle Center in the shadow of Seattle’s landmark Space Needle for a dress rehearsal. Gates would later tell a reporter that it was an eight-cheeseburger night.
The next morning, after only a couple of hours of sleep, Gates climbed out of bed, showered, put on his customary slacks and open-neck shirt, got into his Lexus, and headed across the Lake Washington floating bridge to the Seattle Center. There had been no time for breakfast. It was time to answer the critics. No one kicked sand in Gates’s face and got away with it. After all, he had the biggest, most powerful, and most feared software company on the planet, and it was now ready to join the fray, powered by unlimited resources and talent.
As he took the stage on that morning of December 7 before hundreds of industry analysts and reporters, Gates wasted no time making sure that everyone in the audience knew the significance of that date in history. He recalled the famous words of Admiral Yamamoto after the Japanese Imperial Navy launched its surprise Sunday morning attack on Pearl Harbor, sinking 21 American ships, destroying 185 planes, and killing more than 200 servicemen: “I’m afraid all we have done is to awaken a sleeping giant.” Microsoft and the computer industry, Gates said, had entered a second PC revolution—this one to be fought over the Internet.
Microsoft, he promised, would immediately begin a major push to win a larger share of the browser market. He revealed that the company had completed a new licensing agreement with Spyglass and would develop a browser for Windows 3.1 and the Mac, and that it had also licensed its browser to CompuServe. The audience stirred noticeably when he said that Microsoft’s browser would be given away for free. Eventually, he said, it would be incorporated into the Windows operating system. He also said that the Microsoft Network would be redesigned as a Web site, rather than a stand-alone service, something James Allard had recommended a year earlier.
The speech/workshop lasted seven hours, with Gates and other company executives delivering a point-by-point presentation of how they were going to remake the company and set it and its nearly 20,000 workers on a new direction. The outline of the comprehensive overhaul of the most successful software company of all time surprised many in the audience. “I wasn’t expecting them to come out so aggressively,” said Craig McCallum, vice president of finance and business development for CompuServe. But Chris LeTocq, an analyst for the Dataquest market research firm, spoke for many when he told a reporter, “Somebody has been playing in the pit bull’s backyard, and guess what? The pit bull has teeth.”
During the lunch break, Microsoft treasurer Greg Mafifei, a cell phone up to his ear, had walked up to Paul Maritz and told him, “Netscape’s down $30.” “Good,” replied Maritz, a sly smile spreading across his face. A few seats away, another Microsoft executive who had overheard Mafifei murmured, “That’s not good enough.”
By the end of the day on Wall Street, Netscape’s stock had dropped $28.75, to close at $132.50. Microsoft’s stock had dropped 12.5 cents, closing at $90.50.
On the stage with Gates while he was making his opening address were Mike Tyrrell and Tim Krauskopf of Spyglass, sitting between Brad Silverberg and John Ludwig. Spyglass had gone public earlier in the year. The announcement that Microsoft had completed another licensing agreement with Spyglass was a significant event for Spyglass. Then Gates dropped his bombshell that Microsoft would give away its browser. “Oh my God!” Tyrrell said to himself. He leaned forward in his chair and exchanged shocked looks with Krauskopf.
“I’m sitting there and I literally take the contract with Microsoft out of my briefcase and I’m reading sections of it between my legs and Bill is talking,” said Tyrrell. “I instantly had this fear of what it all meant. We had never thought about Microsoft giving [the browser] away for free. What did that mean for Spyglass? It really didn’t mean anything, but it was a very, very, very complicated contract with all sorts of definitions for different types of distribution, and I needed to make sure that, given all the money we had paid our lawyers,... we had a contract that would protect our interest no matter what Microsoft did.”
No wonder Tyrrell didn’t know anything about it: Gates and Maritz had decided only that morning to go along with a recommendation from the browser development group to give away Microsoft Explorer for free, said a source. It had been discussed for days, but the final decision had not been made until that morning. Sitting there on the stage, it suddenly made much more sense to Tyrrell why Microsoft, during the waning days of negotiations with Spyglass, had insisted on a royalty cap.
The next morning, as he drove to the Seattle-Tacoma International Airport for his flight back to Boston, Tyrrell was pumped over what he had heard the day before. “We had been fully immersed in the Internet for the last two years—living, breathing, sleeping, eating the Internet, and the Web, 24 hours a day, 10 days a week,” he said. “After hearing Gates lay out their strategy and showing this incredible corporate commitment to the Internet, I was a true believer. This was a war Microsoft was going to win.” Tyrrell picked up his cell phone, called his broker, and placed a sizable order for Microsoft stock.
Epilogue
It was all very hush-hush. No one was supposed to know that the very pregnant woman who quietly checked into Bellevue’s Overlake Hospital under an assumed name in late April 1996 was the wife of the richest person in the world.
William Henry Gates III was about to become a father, and this was one event that he did not want the world to know about.
Days earlier, some of the security people who guarded the Gates’s home had met with security officers at Overlake Hospital to work out procedures for Melinda Gates’s stay in the hospital, from the moment she arrived until she left. She would of course have a private room, with only one nurse to monitor her before delivery and another to take care of her afterward. Both were sworn to secrecy. No one else was to know, not even the nursing supervisors in the maternity ward. “I worked three shifts before I ever learned Melinda was in the hospital. That’s how tight security was,” said one nursing supervisor. Although she never saw any security people, they were there, out of sight.
At 6:11 p.m. on Friday, April 26, with her husband at her side, Melinda French Gates gave birth to their first child, a girl. They had already picked out a name: Jennifer Katharine Gates. It would be three days before Microsoft officially acknowledged the birth via a short news release. By then, Melinda was home and Gates was back to work at Microsoft. Some in the computer industry wondered what kind of lather the hard-driving Gates would make—with good reason. When Gates was dating Ann Winblad, she had wanted to settle down, get married, and start a family. Hoping to plant the marriage seed in Bill’s mind during one of his visits to her cottage on the Outer Banks of North Carolina, Winblad invited Lotus founder Mitch Kapor, his wife, and their year-old baby for a visit. Gates totally ignored the child, preferring to keep his nose in a biography of Henry Ford instead. A few years later, after a personal computer forum in Tucson, Arizona, Gates was having a beer with some industry acquaintances in the lobby of the Westin Hotel when the conversation turned to the number of people in the computer industry who were starting families. Gates was quiet for some time, then suddenly said, “Kids are a problem.” Several minutes later, after additional reflection, Gates added another curt assessment: “Babies are a subset,” invoking a term used in computer programming.
But he changed his tune when he finally became a father. A few months after his daughter Jennifer was born, he told a New York Times reporter that it had been “much more of a thrill than I expected. I thought, ‘Well, when the kid starts talking, we’ll do things together.’ But even a kid who doesn’t talk has little triumphs and a personality.” Gates would later joke at a Microsoft sales conference that there was something besides Netscape keeping him up at night.
But anyone in the computer industry who for a moment believed that fatherhood would diminish the fire and intensity that Gates had displayed on December 7 when he issued Microsoft’s call to arms was badly mistaken. By mid-1996, an army of more than 600 programmers had been shifted to Microsoft’s various browser development efforts. The company’s Internet Platform and Tools Division, which Gates had created in February under the direction of Brad Silverberg, had swelled to more than 2,500 employees. When Microsoft released its Internet Explorer 3.0 in August 1996, many said it was as good as if not better than the latest version of the Netscape Navigator. And it was free.
Netscape, meanwhile, was asking for help from an old Microsoft foe: the United States Department of Justice. In August, Silicon Valley lawyer Gary Reback, now representing Netscape, filed papers with the department asking to begin an investigation of some of Microsoft’s Net-related business practices. Among the complaints was that Microsoft was offering a discount to computer manufacturers who installed Internet Explorer rather than competing browsers. The department later announced that it was investigating the complaint and began asking for documents. That probe was still under way in early 1997, though without Anne Bingaman, who had left for private practice in the fall.
On November 6, 1996, one day after the U.S. presidential election, Microsoft’s stock hit a record $144 a share. That put Gates’s net worth over the $20 billion milestone. Six days later, Microsoft announced a 2-for-l stock split, meaning that someone who had purchased $1,000 worth of Microsoft stock in 1986 when the company went public would have a nice little nest egg worth more than $123,000.
By the end of 1996, CompuServe, America Online, and Prodigy had all selected Microsoft’s Internet Explorer as the browser of choice for their combined 15 million customers. Netscape still had a commanding lead in market share over Microsoft, though Microsoft was gaining. In February 1997, Jupiter Communications, a research firm, said that Netscape had 58 percent of the browser market, while Microsoft had 38 percent. By the end of the year, the firm predicted that Microsoft’s browser would surpass Netscape in market share. But other market research firms said that Netscape would continue to hold a commanding lead over Microsoft.
As analysts began to look more closely at Netscape’s future, they saw that its stock had taken a bumpy ride during much of 1996 and had ended the year down more than 50 points.
Microsoft’s stock, on the other hand, rose more than 90 percent in 1996. And Gates’s personal wealth at the end of the year stood at $23.6 billion.
The Internet World conference held in New York in December 1996 reflected just how much the industry had changed in two years. In 1994, when the conference was held in Washington, D.C., Microsoft was hardly a presence. Netscape and Spyglass were the hot companies then. At the 1996 convention, Microsoft’s 32,000-square-foot booth was far bigger than that of any other company.
Although the so-called browser war between Microsoft and Netscape captured the public’s imagination during 1996, a potentially much more significant battle ensued over Internet- based computer networks known as intranets. In this corporate market, Microsoft faced serious challenges not only from Netscape but also from its more established foes, Sun and Oracle.
In fact, Sun was emerging from the pack as Microsoft’s most formidable competitor. “There are two camps,” Sun CEO Scott McNealy told writer Steven Levy for an article in Time in late 1996, “those in Redmond, who live on the Death Star, and the rest of us, the rebel forces.”
Back in 1990, Bill Joy, one of Sun’s founders, had predicted that by 1997 a wonderful new technology would transform the computer industry, and that it would be the undoing of Microsoft’s dominance. Joy was right about the technology, but wrong about Microsoft. The company born of the personal computer revolution, had executed in amazing turnabout in response to the next great upheaval—the Internet. Like IBM before it, Microsoft could have been left behind. But driven by Bill Gates, whose burning desire to win and fear of failure compel him not only to beat his competitors, but to destroy them, Microsoft’s dominance seems secure for a long time to come.
~END~
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James Wallace, Overdrive
