Overdrive, page 9
Glaser was born in Yonkers, New York. His father owned a small printing company, and his mother was a psychiatric social worker. By the time Glaser graduated from the Ethical Culture high school in Manhattan, he had already become an activist, helping to leaflet New York City during the United Farm Workers boycott. At Yale University, Glaser was involved in several anti-Reagan causes, including the Campaign against Militarism. He organized. He rallied. He helped out in soup kitchens and at homeless shelters. During the summer of 1981, he divided his time between working for IBM and the antinuke group Sane Freeze. The next year, he was in charge of fund-raising during a massive antinuke rally in Central Park. Somehow, Glaser still found time to study, earning a bachelor of science in computer science and a master’s in economics) all within four years at Yale. When Microsoft recruiters came calling in 1983, Glaser was considering a $10-a-week job in California with the United Farm Workers. Instead, the friendly and unassuming young man from Yonkers headed for Redmond, not because of the money but because he was so impressed with the intelligence of the Microsoft people who recruited him. They asked good questions, off-the-wall brainteasers designed to test a potential employee’s problem-solving ability, regardless of the answer he or she came up with. Why are manhole covers round? How many gas stations are there in the United States? If you were to put artificial turf on all the Major League ballfields, how many square yards would you need? If you were a product, how would you position yourself? Why do vending machines and jukeboxes have both letters and numbers?
When he left Microsoft 10 years later, Glaser had a few questions of his own, mostly about the future of interactive television. Would it ever amount to anything? Would interactive multimedia develop off the PC? Would the TV win by becoming intelligent, or would the PC win by adding video?
“I spent a lot of time thinking about this,” Glaser said. “Okay, if PCs are going to be multimedia devices, now what? Would the multimedia revolution happen through cable boxes, or set-top boxes, or Sega machines? Or will it happen through PCs? And what will the bootstrap be? I mean, that was to me always the most interesting thing to ask in a new technology area. You get the vision of what could happen; how do you actually make it happen? And that’s what I’ve always endeavored to focus on, and tried to be ahead of the curve on.”
But it was the Internet, not interactive television, that soon caught Glaser’s interest after he took his leave from Microsoft. Someone on the EFF board had mentioned to Glaser a “cool” new thing called Mosaic, so he set up an account to have direct access to the Net and downloaded Mosaic.
“I then joined the cult, drinking the Kool-Aid,” said Glaser. “I really wanted to understand the phenomenon in much more detail. I spent all of my time thinking about the Internet.” He also began thinking seriously about starting an Internet company and did a detailed analysis of the Net’s business prospects. But Kapor, who had been there, gave Glaser a few words of advice about starting a company: “Don’t jump back into the fray until you know what you want to do, and how. Once things start, they happen fast.”
It was about this time, in mid-September 1991, that Gates phoned, and the two met at Gates’s office to talk about Glaser doing some consulting work on the Marvel project headed by Siegelman. Gates said the work would be only for a few months and no more than 10 to 15 hours a week. Glaser accepted the assignment, even though at the time he was busy preparing a business plan for his own company. He had helped recruit the strong-willed Siegelman to Microsoft and respected his intelligence.
“I knew Russ well, and I thought highly of him, and I thought it would be fun to work with him on this project, particularly because I was already thinking about those issues anyway,” said Glaser. “This was something I was very interested in.”
But Gates had another assignment for Glaser in addition to the consulting work on what would become the Microsoft Network. He wanted Glaser to work directly for him, helping evaluate whether Microsoft should create an alliance with cable-TV titans Time Warner and Tele-Communications Inc. The high-stakes negotiations involved the formation of a company tentatively called Cablesoft, which would bring interactive television to millions of homes across the country, with Microsoft supplying the software. When they had formed Microsoft in 1975, Gates and Paul Allen had dreamed of the day when there would be computers in every home, all running Microsoft software. Now, Gates’s vision of Microsoft’s dominance included the home television using Microsoft's software, too. He wanted it all.
“There was a concrete business proposal on the table, but the deal was extremely complicated,” said Glaser. “It was going to be a very, very sweeping relationship, and Bill wanted somebody who was not directly trying to close the deal to analyze whether it would make sense. Bill wanted an objective, independent assessment. He wanted me to help him understand the details of this alliance with Time Warner and TCI and make recommendations, based on my understanding of the agreement itself, and based on my analysis of the market dynamics, whether it made sense for Microsoft to do it.”
Some 15 million or more computer users were roaming around the Net with Rob Glaser in the fall of 1993. Once the private, arcane world of scientists, engineers, computer programmers, hackers, and military planners holed up in the dusty bowels of the Pentagon, the Internet had exploded into the mainstream. It was now being used by the masses to send and receive e-mail, to search vast databases, and as the world’s biggest bulletin board. At the National Center for Supercomputing Applications in Champaign, Illinois, the birthplace of Mosaic, a new service had been set up to answer queries to the World Wide Web, and it was getting upward of 400,000 hits a day by October, up from 100,000 just a few months before. The center was considering diverting one of its $15 million supercomputers from scientific-research duties just to handle the growing volume of World Wide Web requests.
But other than an occasional story that usually ended up being buried inside the local paper, the national media in 1993 took little notice of the Internet. Like Gates, the media were focused on the information highway, interactive television, and the much ballyhooed prospect of 500-channel cable systems.
There was so much hype that the information highway had become hyperactive.
For its April 12, 1993, issue, Time ran a cover story on the information highway. The subtitle on the cover read: “Coming Soon to Your TV Screen.” Not to be outdone, Newsweek ran a cover story the following month was about interactive television and the zillion-dollar industry that would change the way we shop, play, and learn. Both the New York Times Magazine and the Los Angeles Times Magazine also ran cover stories in May about the information highway. According to the reports, millions of Americans would soon be sitting in their La-Z-Boy recliners, pointing a remote control at a box on top of the television and being transported along the information highway at the speed of light into a brave new world where they could order movies or music CDs, tap into on-line information, make travel plans, play video games, watch sports events or concerts, pay bills, make a deposit at their bank, or just watch television the old-fashioned way. The unbounded optimism ran fast and deep, as did the hyperbole and euphoria.
“All this talk about interactive TV—I really think right now it’s a triumph of technological hype over good sense,” Sheelagh Whittaker, president of Cancom, a Canadian national satellite communications company, told the Toronto Star in July 1993. Microsoft’s advanced technology guru Nathan Myhrvold told USA Today: “The level of hype is truly astounding.”
With the exception of a few technology beat writers like John Markoff of the New York Times, it would be well into 1994 before the media discovered the Internet, and the feeding frenzy shifted from the information highway. Microsoft, meanwhile, had its engines going at warp speed to stay ahead of the curve in developing futuristic technology for the information highway. It could not afford not to. If Microsoft hoped to maintain its industry dominance and its phenomenal double-digit growth, the company had to look beyond the desktop, where the revenue stream would eventually dry up. It had to keep pushing its software business into the leading edge of technology, and that was the information highway. Whoever controlled the pipelines through which the digital future flowed along the information highway would be rich, very rich.
Even though Microsoft’s Myhrvold didn’t much care for all the hype, he certainly understood the importance of the information highway to Microsoft’s future. Later in 1993, he told Fortune writer Alan Deutschman: “We believe the notion of the information highway is the future of Microsoft. It’s the future of computing. It’s the future of communications. And it’s the future of software, because software will bind computing and communications together.... It is very important to us.”
And to others. Hardly a week went by in 1993 without a giant merger or technological advance being announced. It was a modern-day gold rush, with cable, software, media, telephone, and telecommunication companies all scurrying to stake their claims. Even Hollywood movie studios had joined the stampede. This made for a cast of characters different from the usual computer industry roundup. Strange alliances formed in order to cash in on the information highway. In early 1993, appearing for a conference on interactivity in California were Gates, John Malone of TCI, Barry Diller of QVC, and John Sculley of Apple.
Diller had visited Gates at Redmond a couple of times before he hooked up with QVC. Gates was impressed with his smarts and the questions that he asked. “Not everyone loves him, but they all respect the hell out of him,” Gates said in an interview with Playboy. “Apparently he’s a tough manager.”
Throughout 1993, Gates would meet with Diller, Malone, Fox owner Rupert Murdoch, and Gerald Levin of Time Warner. And after the first secret meeting he also had a lot of dinners with superagent Michael Ovitz. During his Hollywood visits with Ovitz, Gates met several movie stars, including Barbra Streisand and Kevin Costner. He also spent time with writer Michael Crichton. But Gates was more famous than most of the stars he met, so he was not impressed. “Bill found most Hollywood celebrities to be rather boring,” said a Microsoft executive. In other words, movie stars did not have the high- bandwidth intelligence that Gates most prized in those he liked and got along with.
A more interesting outcome of the possibility of forming new partnerships in the coming digital revolution was that Gates visited an old friend turned adversary—IBM. In late May 1993, Gates met with new Chairman Lou Gerstner at IBM headquarters. This was more than an opportunity to discuss detente between the two powerful rivals. IBM had recently announced a joint deal with Blockbuster Entertainment to produce customized video, music, and multimedia on demand with a “jukebox” mechanism. The companies would develop the technology to transmit recorded music over optical fibers to retail stores, where CDs would be manufactured on the spot.
When Gates showed up at IBM headquarters, he was greeted by a woman who obviously didn’t know him. “Thanks for coming, Mr. Manzi,” she said. The reference was to then Lotus Chairman Jim Manzi, a bitter rival. Gates was somewhat taken aback by the remark. But the meeting with Gerstner went well, even though the new chairman insisted on showing Gates the famous Thomas Watson Library. Gates had been in the library before, but he kept his patience and said nothing as Gerstner told him the history that he knew better than Gerstner. Eventually, the two men got down to business. Gerstner chided Gates about having talked to the IBM board during the search for a new CEO, but the two seemed to get along, though no deals were struck.
Earlier that month, John Malone, chairman of Telecommunications Inc., had announced that his company would spend $2 billion to build a nationwide fiber-optic network for interactive television in 37 states over the next lour years. Microsoft was only a software company. It was not going to dig up streets and put down fiber-optic cable. But it had to work with the companies that did.
Gates, the most powerful man in the computer industry, had been meeting as often as twice a month with Malone, the most powerful man in the cable industry. Gates respected Malone. They had similar backgrounds; both understood both business and the technology. TCI’s employees were a lot like those at Microsoft. They came to work in jeans and didn’t worry about titles.
A gifted science student, Malone had started working for AT&T at its prestigious Bell Labs in 1963. He later earned a master’s in industrial management from Johns Hopkins and a doctorate from the same university in operations research. Malone, often called Dr. Malone by his employees, was comfortable talking either business or the bits and bytes of computers. Like Gates, he was fiercely driven, blunt, and ruthless. He had built his company from next to nothing. A few years earlier, before Gates and Malone hooked up, Congressman Al Gore had called Malone “Darth Vader, the godfather of the cable industry.” It was a description that could just as easily have been applied to Gates in the computer industry.
It was Malone who had inadvertently coined the term “500 channels” that the media had fixed on and repeated with each story about interactive television and the information highway. In an announcement by Malone on December 2,1992, to reveal that TCI was going to build digital-compression technology into its cable operations, Malone had picked the hypothetical number out of thin air. But it was a good round number and it stuck.
All the talking between Gates and Malone had proved productive. Microsoft and TCI were considering several interactive ventures, including an unprecedented and eye-opening alliance with Time Warner that could dramatically alter the digital landscape. It was this joint venture, called Cablesoft, which would set the industry standard for interactive television, that Gates asked Rob Glaser to analyze later in 1993 to determine whether it made good business sense for Microsoft.
On paper, at least, the deal seemed to make sense. TCI, based in Englewood, Colorado, was the nation’s biggest cable company. Time Warner, based in New York, was second. Together they provided service to 30 percent of the nation’s 57 million households. TCI had 10 million customers in 49 states, and Time Warner had 7 million customers in 36 states. Time Warner also had a vast film library that could be transmitted to homes through interactive television. And the company’s cable and entertainment divisions were already involved in the ambitious interactive project in Orlando, Florida.
The project was known as the Full Service Network, and its goal was to test the system with about 4,000 customers in the Orlando area by late 1994 or early 1995. Those involved in the pilot project would be able to order movies, shop from home, or choose from a full range of services simply by pointing a remote control device at the set-top box and pushing buttons on the remote. Time Warner had announced in May 1993 that Silicon Graphics would supply the hardware and software for the Orlando project.
The Silicon Valley company had been founded in 1982 by Jim Clark to make 3-D graphics for computer workstations used by engineers and scientists. But the movie industry’s special effects folks had also discovered Silicon Graphics and had used the company’s technology to make the water creature in the movie The Abyss and the morphing cop in Terminator 2. The company’s big break came in 1993 with the release of Jurassic Park. Clark would leave the company in early 1994 to team up with Marc Andreessen for a new venture—Netscape.
For the Orlando project, Silicon Graphics was providing a $2 million supercomputer system and video servers—multi- media libraries that store, retrieve, and manage several forms of information. AT&T would supply the switching devices needed for the Full Service Network. The set-top boxes would come from Scientific-Atlanta. Customers would be able to make their interactive selections from a three-dimensional onscreen menu.
None of this came cheap. The cable, media, telephone, and software companies that had decided to embark on the information highway into an uncertain future were prepared to spend billions of dollars for a payday that could be years away. The potential consumer market was estimated at a trillion dollars a year.
There were no fewer than five dozen other experiments under way by mid-1993 to test consumer interest in various services that would be available on the information highway. In Sacramento, California, some 150 households were testing a system that allowed viewers to play along with quiz shows such as Jeopardy and Wheel of Fortune using small computer terminals.
But the question was, how many people really wanted to interact with their television beyond the usual channel surfing? In Cerritos, California, in mid-1993, GTE was offering airline reservations, bill paying, stock quotes, business news, an encyclopedia, children’s stories and games, and other services in a pioneering interactive TV project. But out of 7,200 cable TV customers, only 350 had signed up for this two-way TV service, which was called Main Street.
At Microsoft, Gates was making a significant bet that the information highway would become a major growth sector for the company, and he had approved spending more than $100 million in 1993 on research and development of technology that would give it control of that pipeline through which digital information would flow.
“At Microsoft, we have hundreds of people whose job it is to create the software that will make the information highway an idea worth having,” Gates said in an interview in the summer of 1993. “The way in which you find and interact with information will change. It’s not going to change tomorrow. It takes time. ... But when that day comes, we will be a major player in delivering the software that makes it go.”
In five years, Gates said, it would be hard to recognize Microsoft because of the revolutionary technological changes that were coming as the planet rushed toward the twenty-first century along the information highway. Microsoft, he said, would either be different or it would be out of business. Gates was clearly counting on the former. And the person he was most counting on at Microsoft to make that difference was his intellectual sidekick Nathan Myhrvold, Microsoft’s number- one propeller head with the wire-rim glasses, frizzy beard, wild curly hair, and exuberant laugh, who was constantly cooking up futuristic business opportunities for the boss.
