Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence
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RESOLVE AND FORTITUDE
Microsoft’s ‘’SECRET POWER BROKER’’ breaks his silence
JOACHIM KEMPIN
Copyright © 2012 by Joachim Kempin.
Library of Congress Control Number:
2012919149
ISBN:
Hardcover
978-1-4797-3201-2
Softcover
978-1-4797-3200-5
Ebook
978-1-4797-3202-9
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Indexed by Reginald Raymund Caturza
Copyedited and reviewed by Fatimah Imam
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TABLE OF CONTENTS
PREFACE
GETTING MY FEET WET
THE BUSINESS
INSIGHT THE POWER NEXUS
CLEANING HOUSE
RENEWING CUSTOMER FOCUS
DEAD ON ARRIVAL
FLYING HIGH
THE WORLD BELONGS TO ME
HISTORICAL CUSTOMER VISITS
GETTING OUT OF BONDAGE
TURBULENCE
ÉTUDE IN F-MOLL
A SERIOUS WAKE-UP CALL
CRISIS IN THE FAR EAST
PIRATES OF THE WORLD
FALLING BEHIND
AIMING
ASSIGNMENTS AND THREATS
DISRUPTIONS
UPS AND DOWNS
FRONT LINE PARTNERSHIP
RESCUING LITTLE CRITTERS
MONOPOLY ACCUSATIONS
PATENT HORRORS
THE SAGA OF BIG BLUE
A SWEETHEART DEAL
IN THE SHADOW OF CHICAGO
ALLIANCE ROUND TWO
TRUST AND VERIFY
START ME UP
MICROSOFT NEARLY MISSED IT
HURDLES BEFORE LAUNCH
ON STAGE AND BEYOND
BUSINESS “AS USUAL”
OF OPPORTUNITIES AND THREATS
RUN BY COMMITTEE
COMPAQ GOING ASTRAY
A STRONGHEADED RESPONSE
INTERNET EXPLORER TO WIN
PRELUDE IN THE SENATE
ANOTHER ALLIANCE ATTEMPT
IN THE SHADOW OF THE FEDS
THE ONLY MAN BILL GATES MAY FEAR
BACK IN JACKSON’S COURT
INTERNAL POLITICS
THE BUSINESS MUST GO ON
WINDOWS 98, FINALLY
SOFTWARE MINUTEMEN
PRICE WARS
PIRACY IN CHINA
NOBODY IS IMMUNE TO FAILURE
FORGING AHEAD
JUSTICE ON THE BLOCK
TRIAL SETUP AND STRATEGIES
WITNESS PARADE
IN THE LION’S CAGE
BETRAYAL OF JUSTICE
REBUTTAL
MONOPOLY POWER
VERDICT
MY LAST HURRAH
A NEW CEO
XBOX
LATE CHALLENGES
SEARCHING FOR A SUCCESSOR
APPELLATE COURT RESPONSE
PARTING
A STATE OF DISORDER
WHAT L’AUDACE?
PC DOWN SPIRAL
A COOL RENAISSANCE TO BE RECKONED WITH!
A LAST WORD
APPENDIX:
HOW MICROSOFT GOT HER STRIPES
AND HOW I EARNED MINE
ACKNOWLEDGMENTS
GLOSSARY
REFERENCES
PREFACE
“Join us and run Microsoft’s German subsidiary!”
The trip from Paris to Seattle had not been wasted. They wanted me! About time somebody recognized this German guy can do more than manage Apple’s small European software-marketing team. It took Bill Gates, co-founder and CEO of Microsoft, the better. The only thing left was to say “Yes, for the right amount” and take the challenge head-on.
Onward I went, and more than thirty years later, let me now share with you what happened after I sealed the deal. It did not stop with running Microsoft Germany successfully. Headquarters called on me a second time and offered me a promotion, and off I went to emerge into Microsoft’s power nexus from where I managed—for over fourteen years—her dealings with personal computer (PC) manufacturers.1 In doing so, I achieved senior vice president status long before I left the company in 2002 to retire happily.
Being trusted with that job was the unforeseen highlight of my career. The primary objective of the group I managed was to sell operating systems—the software code which makes computers tick—to PC manufacturers. The most important software we offered, Windows, defines Microsoft’s heart and soul. Its success made the company the number one juggernaut in the information technology universe. When this book will be published, at version 8, Windows will have experienced much iteration since I had left. It still dominates the PC world, but Microsoft has struggled to get a foothold in the tablet and smartphone market with its derivatives—a humbling experience for a company that once reigned so supreme! Antitrust concerns, internal turf wars, and certain unwillingness to forcefully defeat competitors or boldly conquer new grounds are the main reasons for failing to keep the once-uncatchable, seeming-frontrunner position.
Aptly, my story converges on how the company fought and won operating system wars—how major triumphs and breakthroughs were achieved and how my group contributed to foment Microsoft’s lead. As long as Microsoft was the hardworking underdog aiming for the coveted number one spot in the information technology industry, the press and the public showered her with admiration. Eventually, her exorbitant success bred jealousy and spite, echoing volleys of gunfire from competitors and regulators alike—tremendously changing the public perception of the company.
My group’s actions and the inner machinations of Microsoft landed crosshairs dead center in the middle of two major Department of Justice headline trials. Intimately involved, I sweat through all of them. Not necessarily what I had signed up to when I said yes to Germany.
A journalist once wrote that like an “enforcer,” I “wielded the pricing sword” for Microsoft’s operating systems. Others called me “Microsoft’s secret power broker.” Not needing monikers, I kept them guessing—a game I loved to play. Then, the public had no right to know! Yet the time has come to reveal what went on behind the scenes and lastly unearth the bold-faced truth and intimate details I lived through and contributed to. The turmoil, the challenges, the victories, and the defeats. Occurrences I undeniably and irrefutably put my mark on as I cherished every moment of being part of the by-now historic PC revolution.
Let’s warm up in Germany and follow the path my group took to win the operating system wars. Let the voyage continue with a critical review of Microsoft’s antitrust trial. I invite you to examine from a key witness’s perspective what economic theories and legal tactics our pursuers harnessed to ultimately get the company condemned and partially regulated. Following this, I will issue a report card for the company’s current management and investigate how her lead got eroded by computing paradigm shifts, emerging competitors, and the failure to respond timely and vigorously. After examining the impact of Windows version 8 in regard to serving an increasingly mobile and socially active computing crowd and its potential to reverse Microsoft’s fortune,
I will finish by challenging Microsoft’s’ board and leadership team to restructure the company. I firmly believe that drastic changes are needed so Microsoft can conjure some future magic and impress the investment community anew.
An educational, revelatory, and exhilarating trip is waiting. Illuminated and put into perspective by my thirty years of work experience in the information technology industry. My views being controversial, disagreements will be abounding. Let the debate begin!
Joachim Kempin, October 26, 2012, Seattle WA, USA
PS: For readers less familiar with some of the technology mentioned in the book, the state of the personal computer market from the late 1970s to the mid-1980s, or my biography, please study the appendix in more detail.
GETTING MY FEET WET
“Sacrifice for the cause and you will prove your worth!”
Words spoken by my new boss, Scott Oki, still ring in my ears! That third-generation Japanese American preached what he practiced. Highly disciplined, energetic, and intelligent, Scott had gained the trust of Microsoft’s founder, Bill Gates, through hard work and superior management skills. He shared Bill’s dream of dominating the personal computer software industry and made sure the crew he managed worked feverishly to make this vision come true. High ethical work standards made him a tough boss. He communicated his intents unambiguously and made clear that only success would earn you a longer leach. Scott—he kept his word. As the German subsidiary grew from zero to $15 million during his three years as my boss, he entrusted me to coordinate the retail aspect of our business for all of Europe.
I maintain the utmost respect for Scott and regretted his departure in ’86 to take over Microsoft’s ailing US retail business. All country managers chipped in and gave him a symbolic farewell present: a glass replica of Caesar’s thumb. No doubt he had us under his, but performing well, I never felt uncomfortable. We learned from each other. His appreciation of my performance later caused him to again influence my career by recommending me to take over the OEM sales and marketing group.
Life as subsidiary manager was quite different from my earlier work assignments. The buck stopped with me. Microsoft (MS) was a company on the frontiers of technology, sizzling with ambition, innovative passion, and the white heat urgency of the desire to succeed. My job was to create a crew who shared the company’s goals passionately and to find a way to let our results stand out. The mother ship created winning products; the subsidiary established effective distribution systems and worked the local PR channels.
Geographically I was responsible for doing commerce in Germany, Austria, Switzerland, and all Eastern-bloc countries. Our retail business targeted Apple and IBM PC users. We reached them through distributors in merchant outlets. The products we sold in that fashion were PC programming languages, application software, and a few PC hardware add-ons. To promote these, we used creative print advertising and means of public relations.
The most exciting part of our business was dealing with local PC manufacturers, conducting what consisted of selling MS Disk Operating System software (MS-DOS) and early versions of MS Windows to local PC manufacturers. Most of them simply purchased DOS licenses from us. Others, like Siemens, had piled on behind Windows early and enthusiastically. In Triumph-Adler and Siemens we acquired two customers for our Xenix operating system—an MS proprietary UNIX2 version.
One aspect helping us win was our ability to produce localized product versions well ahead of competition. In the spreadsheet category, having a German version of Multiplan available propelled us right past our competitors Lotus and VisiCalc. Soon our sales in Germany surpassed the nearly unrivaled US product leader Lotus 1-2-3, resulting in the early dismissal of Lotus’s first subsidiary manager. In the word processor category, it took a bit longer to beat the entrenched WordStar competition, but eventually we succeeded there as well. A German version of MS-DOS gave our main operating system (OS) competitor Digital Research Inc. (DRI) a huge headache while awarding us the edge in dominating the local OEM market.
We fought hard for these gains, pursuing our missions vigorously and with immense focus. I submerged in and was so inspired by MS’s culture that I made the company my second home. My family accused me of being married to her; somehow I was and it paid off. Germany was soon MS’s largest subsidiary in Europe, generating 10 percent of corporate revenue. Our success created some jealousy and rivalry. My French colleague Bernard Verges could not stomach our premier position and, in a more or less friendly way, challenged our sales results every month. With a larger market potential and a dedicated team on my side, he never surpassed us. Thank you, old crew!
Having zero experience running a subsidiary and considering the daunting challenges we faced, I was forced to learn quickly on the job. To accomplish our goals, I encouraged employees to experiment boldly when exploring new opportunities. I solicited unorthodox ideas and solutions, and after careful critique, we courageously applied them to the contests at hand. It was a golden and compelling time to work for this entrepreneurial enterprise! We all enjoyed the abundance of freedom we had serving customers. If bad decisions were made, people just learned from their mistakes! As long as the offense was inspired by an honest objective to improve the company’s performance and services, forgiveness trumped.
I experienced this when we started selling directly to large enterprises. Assuming that bypassing our distribution partners would cause retaliation and bad blood, my boss was not supportive and recommended against it. Convinced we had to try, we did it anyway! Three months later, our success made all other European subsidiaries jump on the bandwagon. Taboos existed only to be broken—I never got a reprimand. I intuitively realized that my boss, like myself, wanted empowered and impassioned employees who perceived their jobs as vital missions and pursued them with unrelenting energy. In the true spirit of the early American pioneers, instead of winning the West, we set out to dominate the information technology (IT) world.
Lessons learned during my German military service and in former management training sessions helped me master my new assignment. As I observed how the company was run at the corporate level, an unmistakable metric of parallels surfaced. Her leadership was definitely based on the principle of Auftragstaktik—a mission-oriented command philosophy that establishes a leadership style3 based on general guidance as opposed to prescriptive supervision. It endorses soldiers’ (or, in this case, employees’) initiatives and encourages independent decision making at all levels. Yes, I know Germany lost two world wars, so on the face of it, her military practices can’t be superior. Yet the core elements of this empowerment philosophy are easily applied not only to the military but to reengineer an enterprise as well.4
The premise of this mission-oriented command philosophy has its roots in the early nineteenth century after the Prussian army experienced painful losses during the Napoleonic wars. Her generals were forced to analyze the reasons behind the multiple defeats, starting by questioning the petrified command structure of the army hierarchy they had created and lived under. They were shocked by what they found. Despite nearly exponential increases in battle complexity and the number of troops deployed, commanders were leading, in centuries-old custom, from behind. At a time when the scope of engagements made all-encompassing real-time observations no longer feasible, they had to rely on an ancient messenger system—on foot or on horseback—to obtain information needed to direct and deploy their troops. With this system being unreliable and lacking speed, commanders could therefore neither maintain sufficient situational awareness nor react fast enough to changing battlefield conditions.
To make things worse, fighting men—per army doctrine of that time—weren’t empowered to deviate from previously giving orders. You risked your life if you did not follow them unabatedly. When battleground conditions changed and communication failed, soldiers consequently dared not to react except to bolt for their lives. Judging the engineering of their carefully crafted battle strategies as Prussian thorough, the investigators
deducted that, by allowing situation-conscious subcommanders not enough autonomy to operate independently, failure, from cumbersome rigidity, was a built in inevitability.
Over the next fifty years, the elite of the Prussian generals—Scharnhorst, Gneisenau, Moltke the Elder and Clausewitz—set out to elevate command behavior to the demands of modern combat. In peacetime, when their armies were bound by a system of strict discipline, management was effective. In wartime when leadership beyond was required, the system broke down. In a 1990 Harvard Review article, John P. Kotter correctly points out that management deals primarily with complexity, while leadership first and foremost addresses change. The Prussian army, with its deeply layered structure and proven regulations, was highly capable at dealing with the former. Generals, like a lot of corporate executives, excelled in complex managerial tasks such as planning, budgeting, organizing, staffing, and controlling cost. Yet most were ill equipped to align and inspire people toward a common goal and trust them enough to adjust independently in the heat of a battle without taking their eyes off the desired objective.
To change such a deeply entrenched command system was a formidable task. Nobody wanted to endanger the basic disciplinary structure an army (or a corporation) requires to function. Firm belief in a religiously fixed, hierarchically command discipline—working well in peacetime—lay squarely in the way of modernization. Even for these powerful Prussian figures, mastering the desired behavioral makeover presented a daunting balancing act. They never let go! Two generations went by before their work paid off and laid the foundation for winning the Austro-Prussian War of 1866 and the Franco-German War in 1870–71. Later their doctrine enabled the successful Blitzkrieg campaigns during the early phase of WWII.
Only in the late twentieth century, following the collapse of the Soviet Union, did the Anglo-American army officially, yet hesitantly, adopt an Auftragstaktik-like leadership style. With the marine corps being ahead of other branches in the US military as it historically relied on the commander’s intent as a guiding principle for carrying out orders, specifying the desired result while leaving open the method of execution. Nevertheless, exemplary, forward-looking generals—Patton for instance—already studied and applied the concept extensively during WWII, contributing both to his success and to the controversy of his legend.