She sat down on the couch and I pulled out a GO prototype computer from my briefcase. “I’d like you to try out a new application,” I said. She looked askance at me and pressed the on button.
The screen came to life with what looked like the cover of a comic book. Across the top it read “The Cheerleader and the Nerd: An Interactive Hyperstory.” The screen was divided down the middle, with a drawing of a pompom girl on the left and a programmer at his computer on the right. The characters’ features were clearly recognizable. “Tap on the people with the pen,” I explained.
When she touched the pen to the cheerleader, a cartoon balloon appeared above her head: “Will I ever find Mr. Right?” When she touched the nerd, his balloon said, “Will I find leftover eggrolls in the fridge?” Layne giggled with delight.
The next twelve screens parodied scenes from our time together, painting a whimsical picture of how our lives had grown intertwined. One frame was titled “Layne Takes Jerry to the Opera.” The nerd said, “Jeez, this is a lot longer than Tommy!” The cheerleader responded, “Psst! I brought your Nintendo Gameboy!”
Another screen showed us mooning over a computer, combining our hard disks. “We’ll use COM1 for your mouse and COM2 for my modem,” said the nerd. “We’ll run DOS from one partition and Unix from another,” said the cheerleader.
Still another screen was labeled “Layne Teaches Jerry about Xmas,” in which we were decorating a tree. My character said, “Uh, Christ died 2,000 years ago, so we put a dead tree in the living room?” Hers explained, “It’s like an IPO for peace on earth and good will to all.”
Finally there was a drawing of me saying, “She’s really wonderful! How can I show her how much I care? All I know about is computers.” In the next screen I’m on one knee, holding the GO pen computer toward her. The caption reads, “Layne, will you marry me? Please write your answer here on the computer.”
The real Layne took the electronic pen in her hand and with tears in her eyes wrote “yes” in the space indicated on the screen.
The last panel showed the two of us kissing, surrounded by hearts and birds. My character’s left hand was pointing up to the top of the computer, toward the slot where a modem could be inserted.
Layne opened the slot. Inside was an engagement ring.
As a welcome counterpoint to the huge scale of COMDEX, there are a number of smaller computer conferences that attract particular segments of the industry. One of these is the PC Forum, put on each spring by Esther Dyson for five hundred or so of her closest friends and subscribers to her widely read trade publication, Release 1.0.
Esther is the eldest daughter of the renowned physicist Freeman Dyson, from whom she inherited great intelligence and an inclination toward the eccentric. After graduating from Harvard, Esther became a journalist and Wall Street analyst, eventually apprenticing herself to the publisher of an electronics industry newsletter. In short order the publisher decided to quit so he could focus his efforts on the venture capital business, and sold the newsletter to Esther. This person was Ben Rosen, who later backed Mitchell Kapor at Lotus.
Short and unassuming, with the cropped brown hair of an Olympic swimmer, Esther eschews the usual female vanities of makeup and fancy jewelry. A warm and wonderful woman, she is unceasingly loyal and thoughtful toward the wide circle of professional friends she has made.
Despite the best efforts of her friends, Esther never developed a normal home life. To this day, she lives like a sort of modern nomad, traveling around the world in a perpetual quest to feed her insatiable intellectual curiosity. For the past several years, she has taken an interest in the former eastern bloc countries, where she has befriended computer entrepreneurs throughout Russia and Poland. She arranges for several of them to attend her conferences, where they follow her around like baby chicks behind a mother hen.
As the theme of her 1991 conference, Esther chose “Beyond the Desktop: Networks, Notepads, and Legacies.” She rented an entire resort in the foothills outside Tucson, Arizona, to accommodate the attendees. By mid-February, she was calling around for final confirmations of her speakers. Being a regular on her panels, I was one of the last ones she called to discuss the content of my talk.
“Jerry,” Esther said, “I would like you and Robert to show PenPoint to the whole crowd this year.”
“No problem. Thanks for the opportunity.”
“But I want you to know that I’ve also asked Microsoft to demonstrate. You can go first if you want.”
“That’d be great.” I couldn’t wait to see what they had.
Even during the conference, Esther likes to get up at six A.M. and swim for an hour while everyone else struggles out of bed in time for the start of the eight o’clock morning session. Normally, people linger over the well-stocked breakfast buffet just outside the main hall. But on the morning of my presentation, the hall was packed in anticipation of the dueling demos. In order to get a good look, several people had dispensed with decorum and sat down on the floor between the stage and the first row of tables.
The gooseneck microphone squawked loudly when she pulled it toward her mouth. She introduced me, and I went to the podium.
“I’m going to be brief, because the best thing for you to do is see our system in action. We’re here to answer just one question. Why a new operating environment like Penpoint? Let me state the obvious. Portable pen computers are different and will appeal to a new class of users. Penpoint delivers a radically simpler, more compelling interface that doesn’t inherit the complexities of desktop systems. I want to turn over the session to Robert Carr, our vice president of software, who’s going to give you a demonstration.”
Robert walked to a table on the stage, where he plugged his computer into a cord that led to a large display above his head. By this point, the floor in front of him was crowded with people sitting cross-legged. “This looks like kindergarten,” he said. “I want you all to hold hands. We’re going to sing ‘Kumbaya.’” The crowd broke into laughter, and Robert launched into his demo.
He was brilliant, as usual. He walked the audience through the notebook user interface, explaining how each document appeared on a page. Then he filled out a “property appraisal form,” which included an area for sketching a building lot, and added a signature at the bottom. He showed an architect’s floor plan for an office, in which he moved a table by tapping on it with the pen and dragging it to a new location.
He concluded by explaining the difficulties of creating a generic “layer” on top of a keyboard-and-mouse application which could do these sorts of things—that to tap the true potential of the pen market, a fresh approach was required. To demonstrate his point, he drew three circles and showed how Penpoint interpreted each one. The first circle was in an open space on the screen, where it snapped instantly into a perfectly round shape. Next he circled a word, and it popped into an “edit pad.” Then he wrote the letter 0 in an area where it was translated into typed text and inserted into the word. “The same shape—three times in twenty seconds—and they have three very different meanings. They are all intuitive to the user and are only possible if the applications are rewritten.” The crowd applauded enthusiastically as we collected our gear.
Esther returned to the podium and invited the speakers from Microsoft to the stage. Robert and I sat down on the floor in front, ready to take notes. Robert was fumbling in the semidarkness to find a blank page in his notebook as I watched the next speakers set up.
“Robert,” I whispered. “It looks like Jeff Raikes, the guy who signed the confidential cooperation agreement with us, is going to make the presentation.”
He looked up, then shook his head. “But that’s not the worst of it. Look who’s doing the demo.”
Sitting in front of us, about to demonstrate Microsoft’s competitive entry into the pen-computing market, was Lloyd Frink, the aggressive young engineer who had visited us under the cooperation agreement to study our work in detail.
“So much fo
r their Chinese wall,” I said.
“They didn’t need to breach the Chinese wall. It looks like they just went ahead and did the work in the applications division,” Robert said. He was right. Just because we thought of Penpoint as operating systems software didn’t mean Microsoft couldn’t think of its competitive response as an application.
I looked around the room and noticed that Bill Gates was sitting at a table several rows behind us. He rocked back and forth with eyes narrowed, intensely focused, like a lead wolf watching his pack stalk some hapless prey.
Raikes began his talk. “I’m a vice president at Microsoft. Given all you have read in the press about the FTC and about the perception of Microsoft as dominating the industry, you might think that being a vice president at Microsoft is like being a field general for the Evil Empire, but I don’t really think that’s the case.” Raikes was referring to recent reports that Microsoft was being investigated for monopolistic practices in the PC market by the Federal Trade Commission. Despite this tepid disclaimer, and after complimentary remarks about Robert’s demo, he chose his point of assault.
“I’d like to find out where the audience is positioned relative to investing in Windows today. If you’re in the hardware business . . . or are building peripherals . . . if you’re a software developer . . . in the sales channels . . . raise your hands if you’re involved with one or more of those Windows markets.” He looked around the room at a sea of hands. “Basically the whole audience. OK. There is a large investment right now in standard Windows, and this is an opportunity to leverage the investment that you’re already making. At Microsoft we had to decide whether to start fresh and do a whole new operating environment or to leverage an existing operating environment. In reading Stewart Alsop’s newsletter, I noticed that if we had done this [created a new operating system], it would have been the eighteenth PC operating environment, which I think is also a problem. We found that we could build on the success of Windows.”
I leaned over to Robert. “He’s trying to position us as just another PC operating system.”
Then Frink launched into the demo. He brought up an application that he called Notebook, which looked extremely similar to an early version of our interface.
Robert was trying to stay cool. He whispered through clenched teeth, “They ripped off our stuff!”
But this was only the beginning. Microsoft had used many of the same “gestures” as Penpoint, but they were just different enough to avoid a copyright-infringement suit. Raikes narrated a story about an insurance agent while Frink made an entry in a calendar, in electronic ink, before filling out a form. Then they demonstrated that you could draw a circle or a square and have it snap into a seamless shape—a concept we had discussed with Frink when he visited GO years before.
Robert was livid. “I’m just glad we showed Lloyd our ideas so long ago, so he could only copy our earlier stuff.”
Raikes finished up by returning to the theme of leveraging existing investments in Windows. “We have twenty-one [hardware vendors] that have announced their support for Pen Windows. That’s going to mean a lot of sockets for people to plug their work into. We expect to have kanji, French, German, Italian available.” He glanced approvingly at Gates as he spoke. “OK, you’ve had a chance to see why Pen Windows can be a great platform for compelling applications, and you’ve had the opportunity to rethink compatibility and how it can be leveraged without compromise to the user. Thank you very much.”
Raikes was executing the classic IBM strategy of introducing fear, uncertainty, and doubt into the minds of its regular customers, causing them to wait and see before committing themselves to a competitor’s product.
The audience applauded politely. They knew that the incredible similarity between our demo and Microsoft’s couldn’t be a coincidence. It had to be a premeditated attack. But virtually all of them depended on Microsoft in some way for their business, and they weren’t about to endanger themselves by being the first ones to cry foul. I later learned that this problem even affected the FTC, which had trouble finding people willing to speak out against Microsoft’s tactics for fear of retaliation. After the show, in private, some colleagues were more open about their feelings.
“You got fucked, plain and simple,” said Michael Baum of Pensoft. “They just figure you don’t have the wherewithal to go after them.”
“Why would they think that?” I was putting up a strong front, but we both knew why. Corporate law is designed for large companies—it protects only those with deep enough pockets to finance a protracted legal battle. Compared with Microsoft, GO could barely afford the carfare to the courthouse. A lawsuit could tie us up forever, with “discovery” requests, endless depositions, and baseless counterclaims. If we so much as threatened to sue, it would rain lawyers on our office like the plagues of Egypt.
Although no one in the industry would speak out publicly about this disgrace, the press was another matter. They could smell blood, and blood sells newspapers. The first to break the story was Andy Pollack, a technology reporter for the New York Times. Just two days after the demos, he ran a piece in the business section calling into question the legality of Microsoft’s competitive practices. GO was mentioned in the lead. I was quoted as saying that people should think twice before showing their confidential ideas to Microsoft, but was careful to say that I did not know specifically whether Microsoft broke any laws. Soon after this piece ran, I got a call from Gary Kaye of ABC News. He told me that the FTC had just gotten permission to widen their probe of Microsoft, and wanted to know if I was prepared to comment on the subject on camera. I declined.
But after hanging up the phone, I realized that although I wasn’t inclined to go after Microsoft in court, getting the FTC to do it for me was another matter entirely. The problem was that I couldn’t just call up someone at a federal agency and tell him to get on the case.
Fortunately, I didn’t have to.
Exactly four weeks after the demos at Esther Dyson’s conference, John Croll, our in-house attorney, bounded into my office. A short man with bright eyes and a blooming bald spot, he had the temperament of a bantamweight prizefighter. He was winded from running down the hall.
“We got the call!” he shouted.
“What call?”
“The FTC. They told me they’re looking into allegations that Microsoft is using its dominant position in operating systems to take over the applications business.”
“John, sit down,” I said. “You’re hyperventilating.” But he was too excited to pay attention to my picayune concerns. Corporate lawyers spend most of their time on boring matters like letters of intent, licenses, and contracts, and this was a chance to do something exciting.
He reluctantly took a seat, then popped up again. “Anyway, they want us to fly to Washington and testify next week—in secret.”
From then on, John spent virtually all his waking hours preparing for the trip. He collected every shred of documentation that might bear on the matter—e-mail messages, engineers’ notebooks, correspondence—and organized them into a carefully indexed chronological account of our dealings with Microsoft.
Two days before our trip, I was sitting in a meeting with a senior executive of one of the smaller Korean computer manufacturers. This was to be a routine dog-and-pony, where we would give him a demo and pitch him on building a pen computer that could run Penpoint. But I learned that this company was different from the other hardware manufacturers who were parading through our offices two or three times a week: it was not yet in the business of building DOS-based PCs. When the conversation turned to Microsoft, the executive grew more animated.
“I don’t want to do business with them,” he said matter-of-factly.
I was surprised, to say the least. “Why is that?”
“I don’t like their pricing arrangements. To get the best price on their operating systems—one that would allow me to compete with other manufacturers—they want me to pay a royalty on every Intel-co
mpatible CPU that I ship, whether or not I put their software on it.”
He looked so angry, I wasn’t sure I understood him correctly. “You mean if you license Penpoint from us and put it on a computer that contains an Intel chip, you would have to pay Microsoft a license fee as well as paying us, even though you were only selling our software?”
“That’s correct. So I don’t want to do it. That’s why I’m here, to see if you have an alternative I can use.”
“But that’s outrageous. It means that the customer has to pay twice for our software.” Microsoft had such strong control over their operating-system customers that it had, in effect, found a way to levy a 100 percent tax on Penpoint, which went right into their pocket. “Surely, this is illegal,” I said.
“It’s illegal if you tie the sale of one of your products to another of your products,” he said. “But Microsoft is tying its products to the sale of Intel’s products.”
I was still doubtful. “Look, we’ve pitched Penpoint to lots of manufacturers, and no one has mentioned this to us.”
“That’s because they probably already have such a license with Microsoft, and the deal requires them to keep the pricing structure confidential.”
Suddenly everything fell into place. In reasonable volumes, both Pen Windows and Penpoint should cost manufacturers about $50. But I had recently seen one of our licensees’ price list for its upcoming pen computer product, and the company had inexplicably priced Penpoint at almost twice as much as Pen Windows. We assumed that this was some sort of mistake, and our marketing staff was in the process of trying to straighten it out. This wasn’t a problem for IBM, because it already had rights to most of Microsoft’s operating-system products. Other manufacturers had expressed a high degree of interest in Penpoint, but the plain fact was that other than IBM, NCR, and Grid, none had signed a license with us yet.
Startup Page 21
