Between December of ’96 and February of ’97, the account team and I received several remedy promises. Nothing happened. Our relationship, our contract, and our copyright were all being neatly eclipsed by third-party bounties. With no change of heart in sight, I was left with no option but to send Compaq a cease and desist notice. The notice would give Celeste thirty days to comply and indicated we would revoke Compaq’s Windows license in the event she chose not to abide by our unambiguous contractual terms and reinstall our icons. We did not ask, ever, to remove the others! As a last resort, I warned the Compaq team a legal missile would be incoming. My shot across the bow was ignored.
In March, I followed through, documenting the violation officially. After trying to solve the situation amicably for nine months, I believed we had exhibited plenty of patience. Now mine had finally run out. My letter had the desired and immediate impact. The situation was promptly resolved, and the person responsible was removed from her post. If I would have let Compaq continue to screw around, other OEMs would have followed suit. AOL and Netscape would have made sure of it. I had no intention of hurting Compaq, but like any other customer, she needed to respect our copyright, and from thereon out, she did. I made sure we kissed and made up, and again we forged ahead in support of one another, as demonstrated shortly thereafter by extending our Front Line Partnership for another five years.
A STRONGHEADED RESPONSE
One of the toughest internal battles I had to fight two months later concerned the alternative Windows shells OEMs still had not given up on and the liberties they had taken in regard to Windows boot sequences. Mistakenly, I had let both issues slide when I first encountered them. They nonetheless agitated Bill far more than I could have ever imagined. He therefore ordered the product group to buy a variety of PCs from different manufacturers and called a meeting. Confronting its attendants, he demonstrated how alternative shells bypassed the Windows desktop. He was adamant about stopping this nuisance. Claiming our programmers were proud of their creations, he insisted in their work not being trashed or rendered invisible. He lectured his boardroom audience, venting, “Like artists developers are proud of their creations. Nobody should be allowed to alter their handiwork!” It was absolute for him that OEMs had a legal obligation to change neither the Windows code nor its visual appearance.
Considering that you could find the engraved signatures of each member of the original development team inside the early Macs back in ’84, Bill’s argument was not that far-fetched. If our software engineers would have done something similar, his argument might have been even more compelling. Right away, the attending attorneys and product-group managers unanimously agreed with him. I was the lone wolf in the pack, trying to put a positive spin on what my customers were doing. In response, I was lectured that OEMs should be focusing on hardware and not rivaling our well-designed and copyright-protected software. I agreed with the assembled group on one point: bypassing our Windows desktop and hiding it from end users was undesirable behavior and should not be tolerated. Ever the deal maker, I cautioned the group against overreacting.
During the demonstrations, we discovered how various OEMs encouraged Internet service provider sign-ups through advertisements during the Windows boot sequence. We further observed that outsized icons had been placed on the Windows desktop—three to five times larger than ours. With most poorly constructed, they lacked graphical-display resolution and aesthetic value. I didn’t appreciate their appearance, but I didn’t find them overly offensive either. Bill, on the other hand, was getting worked up. For him, they degraded the appearance of our nicely presented, visually astute Windows desktop images. He adamantly repeated his insistence on precisely preserving its look and feel for end users. A red-faced raging bull he was.
Properly proportioned icons being added to the desktop were not of his concern. He understood that they provided OEMs with additional revenue and competitors with visibility—not an issue. He insisted that added icons should not overpower ours, demanding self-same size for all. He had a point, yet I was not too keen about having that argument with my customers.
Not interrupting the Windows boot process by any advertising was his next contention. A fairly heated discussion developed about this alleged infractions. To my great irritation, Bill took all of this way too personally.
My firm belief: the shells, a novelty now, would disappear over time. OEMs would lose interest and finally stop funding them. Our superior standard desktop would gain the popularity it deserved and win out. The rest was not too terribly alarming. Let the OEMs have certain freedom and make money through advertising and placements. Why argue about artistry and taste?
My urgings to exercise patience and restraint fell on deaf ears. The pride of the product design team, together with the legal arguments regarding our copyright and clear-cut agreements, gained traction. No turning back, we were inching toward escalation!
For the boot-up process, we found a reasonable compromise. Booting a PC consisted of two stages. During its first, BIOS software, not written by us, was loaded into memory. Then, in the second round, our Windows code was inserted. As long as OEMs used the BIOS boot sequence for advertising, we had no valid reasons to object. However, at Bill’s insistence, the group decided on disallowing any interruption of our Windows boot sequence: explainable by pointing out contract and copyright violations and potentially rendering Windows less functional if engineered poorly. I took it with pain.
The most sensitive part of the discussion centered on allowing OEM shells to bypass the Windows desktop altogether. I proposed an educational approach for changing behavior and design. My proposal made no impression. Bill, growing increasingly annoyed about my arguments, gave me an emphatic lecture about copyright laws and the binding content of our agreements. I was painted too stupid to understand and too timid to enforce these. Though not enjoying his outbursts, the attorneys nodded with complicity. The discussion escalated to a fiery personal level. Bill in attack mode and me losing all my respect as I pushed back hard!
After we both calmed down, I reluctantly agreed to take a look at our current agreements with an eye toward clarifying and specifying the rights to modifications. The attorneys promised to come up with revised legal language, which I would take to Bill for approval. Again, at Bill’s sole insistence, it would include explicit legal instructions disallowing the removal of icons and demand any added ones being same sized as ours.
I tried one last time to caution Bill. The Feds might scrutinize our new requirements to death and find another angle to invoke yet another investigation. Haranguing him about potential antitrust consequences broke the camel’s back. He exploded with fury. Raising his voice, he shot back, citing our ironclad legal position again and going out of his way to make me look foolish and reckless. How could I, with zero legal education, even mention the name antitrust? He had not completed his either, but as usual, the wannabes are the most vicious and dangerous. In my gut, I knew I was on the right track with my comments, but no one else in the room had the audacity to come to my aid. Our self-anointed master ruled supreme.
This was the first time I experienced such a significant change in the valence and tempo of Bill’s leadership style. In working with him all these years, he had mostly provided directional guidance, taxing me to solve the details, the often tsunami of minutiae within the tectonic-shifting macro, to accomplish well-defined goals. Suddenly he had shifted into a prescriptive command style. He obviously did not trust me to step up to this challenge and left no room to adjust terms and conditions. From now on and for the first time in my MS career, I had to operate with my hands tied behind my back. I sure despised it!
We could have easily achieved the self-same results by verbally educating our customers. Should that have failed, nothing prevented us from revisiting the matter with an eye to a sterner approach. In its place, the lawyers went to work to clarify our restrictive requirements. As I was leaving the room, Bill Neukom took me aside and confided tha
t he was proud I had stood up to Bill. Where was he when I needed him? He found our compromise reasonable and vowed not to go overboard with the ordered adjustments. Knowing the verbose proclivities of lawyers and the CEO’s determination, however, I took his comment with not just a grain of salt.
Our memorable meeting happened on late Friday afternoon. Looking Bill N. straight in the face, I replied, “Maybe I was courageous, but come Monday, I might no longer be with the company.” My behavior toward Bill had for sure not been gentlemanlike, and I was uncertain of how, in retrospect, he would frame my counterpunches. I did not get fired, however. In fact, over the weekend, Bill sent me an apologetic e-mail. His personal attacks were unwarranted. I apologized in return. The heat of the moment had gotten the better of us. Reluctantly, I carried out the task assigned to me. I reviewed the legal text with our attorney for antitrust Dave Heiner and met with Bill, who approved our handiwork. My meeting with Bill took less than fifteen minutes. Returning to Dave that fast, he was curious how I had received Bill’s buy-in so fast. He joked by saying he would call on me next time he had to get a legal text approved by him. I just smiled, deed done. My smile, though, did not last long.
As suspected, I was soon to learn that my customers, to put it mildly, resented the adjustments Bill had uncompromisingly pushed for. They desired extra freedom to modify Windows so they could extract additional bounties and increase advertising revenues. Some of their requests were so far-reaching that I considered them truly unreasonable. I still believe the true intent of our clarifications was to preserve Windows, and as product creator, we should have had the unrestrained right to do just that.
Our OEM customers were in many ways our partners in arms when it came to expanding the PC market and win against other platforms like Apple’s Macs, IBM’s PPCs, and game consoles to name a few. They served a useful distributor function, and I believed we were on strong footing, demanding they remain loyal to their voluntary agreements. Their attorneys disagreed. Asserting they had no viable alternative to Windows, they therefore did not consider licensing Windows a voluntary act. Massive trouble with Feds was brewing if their assertions prevailed.
A few OEMs complained to the press after receiving the new legal text, and the Garry Reback gang made sure the Feds stayed well briefed about our contractual perseverance. The fight over the right to Windows desktop alterations soon developed into a crazy situation for all of us. As long as Bill was unwilling to relax the rules, OEMs would simply have to follow them. I did not, however, relish the amount of time wasted on arguing our position with smart-ass lawyers employed by our customers, who eagerly flourished harebrained abstractions of already overworked controversial opinions. Once their executives embraced these with passion, it tended to lead to bruised egos on both sides of the fence. This was, what I believe, happened to our relatively smooth relationship with Gateway. As soon as her calls for additional freedom were denied, Gateway joined the chorus of others and sang “woe is me” to the Feds. I felt trapped and forced to defend and enforce our unpopular regulations.
INTERNET EXPLORER TO WIN
At the beginning of ’97, most market observers agreed that OS/2 was on its last leg and Windows had won the battle for customers’ hearts and minds. It was easy to use, now had a reasonable Internet browser, and carried a relatively low sticker price. Windows application programs were being steadily improved, and new ones were published almost daily. The latter was not true for OS/2 but remained definitive for the Apple MAC. With Steve Jobs back at Apple’s helm, our two companies had finally settled their differences. MS took an equity position in Apple and agreed to continue writing Office productivity applications for her platform. Our new alliance was announced in August of ’97 and was there to last to this day.
With IE version 4.0 on deck for shipping in the fall of ’97, I went on a tour accompanied by Jusef Medhi, one of our brilliant product-marketing managers. Our goal was to visit ten US customers in just four and a half days and convince them to invest in our latest IE technology. A blitz to finally win the browser war!
Our persuasion campaign focused on a newly incorporated design element called Active Desktop. The important feature for OEMs to recognize was the so-called channel bar. It displayed the names of some of our partners. If end users chose to click on one of them, they were instantly connected to that partner’s website without having to know its exact name. Making navigating that convenient was not a bad idea, considering users at that juncture were still inexperienced with exploring the Internet. We were already in beta test when my group’s lobbying effort convinced the product guys to allocate one entry exclusively to OEMs distributing Windows. The ensuing direct communication link promised OEMs to reduce support costs, advertise add-ons or new products, and increase site advertising revenues. Our pitch: if you take advantage of this feature, we are prepared to offer development assistance and funding.
I chartered a Learjet so we could visit all customers in one week. Our presentation was just one hour long, followed by a one-hour timeslot for discussion. The trip went off without a hitch, and nine of ten customers joined and began the required development effort two weeks later. To my surprise, IBM was one of them. When Steve, however, heard I had chartered a jet for the blitz, he called me out on the carpet, reprimanding me that I should have asked for his permission beforehand. Not MS style. Aye, aye, sir! Next time. How had he found it? A person in the controller’s office who had shared a leg of the trip had told her boss, who had nothing better to do than tell Steve. There was no rule ever expressed or written against chartering a jet, and considering the tight schedule we operated under, there was no other way to accomplish our objective in the allotted time. Micromanagement at its best. Nevertheless, we got the ball energetically rolling and were well on our way for a terrific launch. With nothing comparable to offer, Netscape found out too late and was left in the dust.
IE 4.0 provided another unexpected headache for me. AOL had meanwhile conquered about 30 percent of the online-services mountain. She was still running a proprietary network but felt the urge to transition to the Internet to stay competitive. To move faster, she needed an AOL-specific browser. Not wanting to start from scratch, she simultaneously entered into secret negotiations with MS and Netscape to acquire browser code. Both companies made attractive offers, with both solutions offering unique advantages. Winning the deal was fiercely contested, understanding the tremendous customer base AOL presented and the usage share the winner would gain. At last, Netscape was announced the winner, only to be recanted twenty-four hours later. There was a sound technical reason for AOL to go with us. In contrast to Netscape’s, our browser design was modular and therefore easier to pick apart and adapt. After unexpectedly losing the bid in the second round, Netscape cried foul. Posturing and ranting in public about MS pulling imaginary evil strings yet never admitting we possessed indeed an unequivocal technical edge.
To close the complex deal, we consented to a last-minute sweetener by allowing AOL to promote her services in all Windows packages, including the ones OEMs inserted in their PC boxes. I understood our desire to win but objected right away to how far we had gone. With OEMs desiring to extract money for such favors, I knew my customers would be extremely unhappy with our arrangement. As I waded into the uproar, I discovered the deal was ironclad, and we had to honor it. As can be expected, our ill-guided promise added to the already rapidly growing pandemonium. Who had the right to desktop or boot-sequence modifications had now morphed into what OEMs needed to insert into their Windows packages! Hands tied again, I endured new complaints. Having made an exclusive deal with a different Internet service provider, Dell was the first to raise a stink, followed by Gateway, who had started her own online services. I fully shared their objections, unable to provide relief.
PRELUDE IN THE SENATE
Earlier that year, politicians got back in the ring after competitors like Netscape, Novell, Sun, IBM, and Oracle raised public and behind-the-scenes complaints about
MS business practices to an unprecedented crescendo. As the head of the Senate Judiciary Committee, Utah’s Senator Orrin Hatch felt obliged to schedule a hearing, inviting Sun’s CEO, Netscape’s CEOs, RealNetworks’s CEO, Dell’s CEO, Bill Gates, and other computer-industry executives to wash some dirty laundry in congress.
Representing the state of Utah—where Caldera, Novell, and WordPerfect were headquartered—he should have recused himself or refrained from scheduling the hearing at all. All three companies had supposedly contributed generously to his election campaigns, and he now felt obliged to dress down a competitor of theirs—potentially greasing the skids for future donations. I still believe he abused his position, and I considered his behavior bold-faced sleaze in full and open public display, never noted by the free press or criticized by any of his colleagues.
His views on antitrust enforcement were well documented in a speech published in “Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Marketplace.” According to him, antitrust enforcement needed to focus on paradigm shifts in the IT industry and in particular regulate successful market leaders who supposedly exploited their market power in preventing start-ups to introduce disruptive technologies. Start in Utah, Senator! He theorized that such behavior would inhibit innovation and harm consumers. What a contradiction! Truly disruptive technology does not need protection from regulators regardless of how aggressively an already-entrenched market leader defends its turf. In particular, as a Republican senator, he was just plain wrong in recommending to artificially protect start-ups and crush the taxpaying establishment. There were no laws on the books to intelligently corroborate any of his awkwardly antagonistic policies.
Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence Page 18
