Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence

by Joachim Kempin

  In lieu of rambling on at length about his verdict, allow me to reference just a single issue that will cast a clarifying light on his character. Admonished by the appellate court in regard to the IE/Windows tying argument and strongly cautioned not to engage in tech-product design, he audaciously contested the higher court’s earlier verdict. Bluntly, he questioned the legal test the appellate court judges had applied when deciding the prior case. To prove he was the better judicial thinker, Jackson pitted their logic against highly respected, nuanced, and cleanly defined Supreme Court decisions.51 The appellate court had instructed him not to put “a thumb on the scales” of computer design and innovations. Remembering that he naughtily countered with the childish admonition that MS had indeed put her thumb on the scales of competitors’ innovations. Therefore, he revisited the validity of MS’s plausibility claim, in regard to IE integration, and erroneously applied the Supreme Court’s conclusions in the aforementioned cases. According to him, it needed to be judged “upon proof of commercial reality, as opposed to what might appear to be reasonable” benefits users obtained through that integration. Explaining “the commercial reality is that consumers today perceive OSs and browsers as separate products, for which there is different demand.” Consequently, he found MS guilty of defending a monopoly through illegal tying, primarily because software can be “comingled in virtually infinite combination.” Let’s leave this for the appellate court to answer.

  MS’s reaction to Jackson’s verdict was predictably swift, despising his ruling and promising an appeal. By now Jackson was talking intensely on record to reporters while banning them from publishing his remarks until the case had been fully concluded. During several appearances, Bill and Steve boldly insisted on no wrongdoing. Not terribly smart or diplomatic, though certainly understandable. In Jackson’s view, these defiant public statements by our top commanders indicated we respected neither his judgment nor his intelligence, wading out into the dark, marshy terrain of character assassination. Touché!

  Meanwhile, a new administration had taken over Janet Reno’s department of questionable justice. Republican President Bush had been ushered in with the help of the Supreme Court after a much-contested election outcome in Florida and Boies losing contender Al Gore’s case in the Supreme Court. With the old staff still mostly in place and no change of heart forthcoming, the Feds marched on, asking Jackson to use the most drastic measure he had in his repertoire to remedy our perceived antitrust violations. Stunning the IT world, he swiftly complied and ordered the breakup of the company, denying us, as required by federal rules, an evidentiary hearing in regard to the harsh antidote.

  To evade a regular review by the abhorred appellate court, he made use of his privilege, which allows judges in antitrust cases to send a verdict straight up to the Supreme Court for confirmation. Rarely does this ever happen. With the Supreme Court being able to pick and choose a case, he hoped for the best. Most judges would have known that a case riddled with so much upended detail and blurred uncertainty had no chance in hell to get accepted. Simultaneously, and to our utter surprise, he softened his stance at MS’s request and, in last–minute, stay-off execution disbelief, suspended his breakup order. Our relief could be heard from sea to shining sea and certainly reverberated in Washington, DC. We remained, for now, one company. As expected by most legal experts, the Supreme Court declined to take the case, enabling us to file an immediate appeal. Let the final ballet of justice begin.

  MY LAST HURRAH

  A NEW CEO

  With calendar year ’99 coming to a close, we were getting ready for Windows Millennium (ME). Its primary new feature, the “system restore” aspect, finally compensated for badly written application programs. NT had further matured and was now called NT 2000 professional workstation. One year later, its underpinning would be used for all Windows versions. After eight years, we had finally unified its code base, naming the two Windows products appropriately: Home Edition and Professional Edition, targeting consumer and business users with different feature sets at different price points.

  This next version, called XP for eXPerience, was the last Windows version I helped to launch and sell—in itself a stable OS, but vulnerable to rampantly growing security attacks via the Internet. The Linux camp and the hacker community, especially, encroached on and slashed into it at will. We struggled mightily keeping it safe and protecting it from viruses through releasing a multitude of security upgrades. The good news: XP’s retail and OEM versions employed nearly bulletproof antipiracy measures through encrypted log-in sequences controlled via the Internet. Except for still less protected enterprise versions, a long arduous journey was winding down to a happy ending as my departure drew closer. Our developers and their management had finally enacted the right measures.

  With undiminished intensity and stamina, my group had grown to 550 employees while the company has exploded to around 50,000. Like in all other segments of MS, valuable employees had left, but nearly all of my managers had stayed on. People liked working in my group and being part of what they considered a focused, well–guided, and no-nonsense elite sales team reaching beyond $20 million annual sales revenues per rep. I had rotated my managers through varied assignments over the years, educating them to understand and accept different cultures and their unique business dealings. My management style had created a group of empowered and closely knit leaders who understood how the company wanted her OEM business to succeed. Yes, even then we sometimes had healthy disagreements. They enhanced how we pursued our cause. I wanted managers with strong egos and brimming ambitions, focusing their energies to move the business forward and not fight or blame each other as I had observed in other parts of the company.

  By the end of ’99 and in the spring of ’00, we conducted business as usual during a truly unusual time. After Jackson had issued his finding of facts, the sword of a potentially devastating verdict hung over our heads. Our policies had not changed one iota, except our moves were now watched not only by the outside world but also equally closely by our own legal department. Not a healthy environment to do business in even if you closed your eyes. There was nervousness in all parts of the company, and people showed signs of being palpably afraid. Auftragstaktik was being kissed good-bye! Receding slowly into the archival dustbin of MS’s legend. I made it my personal responsibility to ensure that the OEM group did not fall into this yawing pit of fear and loathing. In my group, the pillars of trust and empowerment were there to stay. My people knew how far they could go when they needed to reach, and I made sure they were never undercut. As far as I was concerned and regardless of what the judge had propagated, we were on solid grounds, and the company would eventually find her way out of the crisis.

  The only strange altercation I experienced was an internal one. Steve, putting his foot down, instructed me to share revenue recognition for the fast-growing system-builder business with the subs. He no longer wanted to endure their persistent and nagging complaints—another political move no doubt. With Bill distracted and growing moodier by days, there was no way to fight his edict. I swallowed my pride and agreed to the dreaded accounting changes. They did not improve the business one iota and fostered no friendships inside the company apart from saving time arguing. Going one step further, he suggested that by next fiscal year, I should give the subs sole control of that business. My passionate answer: “Over my dead body as long as I am running OEM!” The subs had gotten a hold of a little finger and were now looking for the rest of the hand. My group had done the brunt of the work, and now our fastest-growing segment was to be transferred to a bunch of managers eager to revel in its success, potentially destroying its structure, hard-won stability, and pricing integrity. My fervently presented arguments hit a nerve. Steve then tried to mollify me by promising that pricing would remain under my control. I told him, “Dream on!” I had no desire to play an internal policy enforcer role. In the end, he relented, leaving the business within my domain until I left my post.


  Steve could have easily avoided this conflict by identifying an alternative business goal he wanted me to pursue, such as doubling this business within two years. I might have concluded that this could only be achieved by handing the business responsibility over to the subs, and I would have done so immediately. Absent this, he insisted and settled upon an accounting change, which only served to artificially bolster subsidiary revenues. The command-and-control system I liked best was then for sure not his.

  Right after the judge published his finding of facts and threatened to break up the company, the board named Steve Ballmer CEO. Bill, still chairman, added the title chief software architect to his name, indicating he was from now on responsible for strategizing and planning the development and delivery of leading-edge software products. Having grown sick and tired of the persistent public humiliation, he was in full retreat. For the first time ever, a rift between him and Steve could be spotted. Not superobvious to outsiders, but the rumor mill had it nailed. In an angry aside, Steve told selected people he did not need Bill any longer to run the company! True to form. I was convinced he could manage her complexities, but could he lead and initiate meaningful change?

  From then on, he grew more eager than ever to build his own team, engaging me seriously into succession planning. He proposed promoting Jeff Raikes to head MS’s sales force and asked me how I felt about reporting to him. Surprised about his change of heart, I felt obligated to remind him of our understanding. I had not changed my mind about leaving OEM in ’01, but in good old Steve Ballmer style, he had gotten impatient, probably emboldened by his newly gained title. Jeff Raikes—one day to assume the reins of the Gates Foundation—had the two stamps I mentioned earlier on his forehead. His intellect and management skills were held in highest regard by Bill and Steve, and they both considered him a personal friend. Credentials in hand, he had methodically scaled the company ladder, performing reasonably well in his assignments. I had no reason to disrespect him but believed he lacked the adequate experience of running a large sales force. At heart he was a marketing executive, knowledgeable of and practiced at running a product group—so I objected.

  The concurrent Caldera antitrust lawsuit settlement, with MS coughing up nearly $300 million, did little to help my standing. I suspected the OEM group and maybe me personally were being blamed for the costly outcome. Undermined by the preliminary ruling in the current case, the sweetheart settlement Ray Noorda received was the result of a developing no-balls attitude and a weakening defense team.

  I sensed at times, with Bill being moved aside, that I had lost my key mentor and protector. After another pushy session with Steve, I wrote him a well-thought-out e-mail asking him to honor our agreed-upon deal and to respect what the old warrior had done for the company. Telling him point-blank I saw no benefit in reporting to Jeff—implicitly suggesting I was his senior. Underscoring, what Steve had admitted, managing me was not a lot of work for him. I proposed to leave the OEM group untouched. He, in turn, thanked me for my considered and thoughtful summary and patiently refrained from any changes. My trust in him was restored.

  My direct reports discovered Steve was from now on showing increased interest in the OEM business. No wonder—he knew I was likely leaving within the next eighteen months. The organization had always followed my directions, but straightaway I spotted a certain behavior shift among my senior managers. I had encouraged them to showcase their talents to Steve to better determine if they could succeed me. As a strange but plausible result, a few of my senior guys now wanted major decisions cleared by both of us. This ground fog of ambivalence appeared to be helped by the general uncertainty taking root in the company. In these tricky and ambiguous times, my crew was looking for additional reassurances. Arresting the trend early and with full authority stopped the nuisance. Even as Steve and I occasionally agreed to disagree, no second-guessing was needed. With few exceptions, I knew where my authority ended and how much elbow room I had. My crew interpreted this as me being bulletproof. I hadn’t been before, and I wasn’t then; everybody is replaceable, but as long as they thought so, I just laughed it off.

  By mid ’00, the search for my successor had started in earnest. There had always been a leading candidate in Richard Fade, who had just recently rejoined my group. He was well liked and generally respected by my people and, more importantly, by Steve and Bill. Richard, though, had encountered unfortunate health matters in his family, forcing him to take an extended leave of absence. I wasn’t sure about the level of commitment he would be capable of if he stepped into my shoes. Shortly after I took over from my predecessor, I had promoted him to supervisor. He excelled and had been instrumental in resolving our distribution challenges and addressing the tricky piracy issues. Consistently a devoted top performer, he owned a deep familiarity of the OEM business. I entrusted him with larger roles over time, until Steve lured him away to run the Far East region out of Tokyo. With his move came a then-rare VP title. I encouraged to him to jump at the opportunity. Back in the United States, as head of the consumer and desktop division, he had been instrumental in launching the successful and stable Office 97 product. I liked him a great deal as a person but sometimes believed he wasted time when trying a bit too hard to build consensus. I sincerely hoped the home front situation would not take a larger toll on him. I was aware that not all of my direct reports appreciated his management style as much as I did, but that’s business life, isn’t it? We had to expect and tolerate personal shifts and departures after I was gone. Wisdom and maturity required as much, and my group’s structure was healthy and solid enough to easily absorb a hit or two.

  For the first time ever, Steve asked me to attend with my crew the company’s worldwide sales meeting next year in Atlanta, Georgia, and forgo our distinct annual OEM summit. No friend of participating in such a monstrous event, I nevertheless reluctantly agreed. Expecting ten thousand participants, its format had to be rigidly structured just to move the crowd along. Typically, you could expect three days of training sessions punctuated by geography-specific meetings, reward ceremonies, and several all-attendee rallies, often in a sports stadium. Always featuring Steve as the frothy, cheerleading company whip followed by Bill as the rational and placate keynote speaker. Johnny Carson and Ed McMahon! With Steve reveling in the role of group orchestrator and augmenter, Bill had completely slipped in the role of regal software architect and elder statesman—a touch less aggressive and vibrant than in the past. I had witnessed several similar events before and often left with growing skepticism about the display of rabble-rousing righteousness and choreographed chest-thumping pedantry.

  The annual OEM sales summits had evolved quite differently. They were always held in June, allowing us a running start for a fiscal year starting July 1. For the first two days, I brought my sales and marketing team to Redmond for intense and intimate training sessions. Speakers from relevant business groups, customers, logistic experts, and as highlight, Steve and Bill addressed the assembled crew. Every speaker’s performance was measured on meaningful content and less on showmanship. Afterward, my troops precisely understood our product road map, our sales goals and marketing campaign objectives for the upcoming year, and our previous year’s failures and accomplishments. As a special bonus, we then embarked on the fun part of the gathering, each year full of surprises, adventures, and team-building exercises. The crescendo was the official naming of winners from last year’s contests during a gala dinner. Thanks to our fabulous admins and their extraordinary inventiveness and hard work, they grew into happenings highly envied by other parts of the company. People talked about them for years. So going to Atlanta in the hot, humid summer of ’00 in its place was not welcomed, and it sucked. Steve kept his word, letting me devise next year’s gathering in our proven and memorable format. My last one as I already knew it would be.

  The reason we organized our annual events differently from the rest of the company could be blamed squarely on me. The first two, after the one in Hood Can
al in ’89, had transpired at cushy resorts, featuring extended leisure and camaraderie. I hated them. I was managing a group of vital young professionals, yet we behaved like retirees lying on the beach and enjoying the easy nightlife. Too many people got drunk, and except for soaking up sunshine, there was nothing too terrific to report about. The third year I surprised my crew. We went into the Canadian Rockies, slept in unheated tents at below freezing, endured wild canoe races, and engaged in competitive games exploring the untamed wilderness. The spirit of the organization changed on a dime. No one, except my fellow German female sales reps, was the least disturbed when the hot water for their morning shower ran out before commencing on a tough sixteen-mile hike. People were exhausted yet inspired by the exhilaration of outdoor adventures combined with team-building fun. The traditional last-evening poker game did not materialize either—the day had been too grueling.

  Morale had never been better and from there on; expectations set, we geared up for extra adventures and team-building opportunities, inducing motivation and creating long-lasting memories. The outcome, my team felt rewarded for what it had accomplished and was less afraid of whatever lay ahead. In good old MS style, no words were minced—camaraderie triumphed. When the enthused and exhausted crew rejoined their coworkers in the subsidiaries around the globe, they truly had lofty adventures and lessons to extol.

  Unfortunately, for the first time since I had taken the reins, results for the FY year had been slightly off, missing our revenue budget by a whopping 2 percent. A considerably improved profit margin had still enabled the division to deliver the anticipated contribution to the corporation. Our growth was down to a mere 15 percent. The dot-com bubble had burst, and overall PC volume was gravely disappointing. The enterprise group had sold more Windows NT workstation copies than forecasted, resulting in lost revenue for us. Our absolute growth was nevertheless fabulous. Compared to the previous year, we had once again increased our revenue by approximately one billion dollars. No one was depressed, and no doom-and-gloom feelings set in despite our slight underperformance.