The Code

by Margaret O'Mara

  Lerach was furious as well. He decided to stop this government steamroller in its tracks at the state level, bankrolling a fall 1996 state ballot initiative to circumvent the new federal limitations entirely. California Proposition 211 was Silicon Valley’s worst nightmare. Not only did it further lower the threshold for bringing a shareholder lawsuit; it also would make company officers and board members personally responsible for any damages owed to plaintiffs. Lerach’s pitch was that this was a noble maneuver to save retiree nest eggs from the hustle of high-tech stocks. Silicon Valley saw it as a declaration of war.22

  John Doerr had learned from the disaster of Clinton’s veto that the Valley needed to move fast, and he took it on himself to lead the army. In the 1980s, Ed Zschau had been Silicon Valley’s Congressman, crusading on the industry’s behalf on trade and tax and everything in between. Bob Noyce and Steve Jobs had been the charismatic CEO-ambassadors trolling Washington’s corridors of power. Dave Packard had been the gray eminence in the background, his career an inspiration for a younger generation. Now, only a few years into his journey as the wizard of the Kleiner keiretsu, Doerr became the Valley’s premier policy entrepreneur, a Zschau and Noyce and Jobs and Packard all rolled up into one.

  Thanks to Doerr, the fight against 211 became Silicon Valley’s obsession for most of 1996. He bent ears, raised money, and turned Kleiner Perkins into a campaign headquarters, with a giant banner reading “NO on 211” draped over its facade. Doerr’s forces eventually raised $38 million to fight 211, nearly twice as much as what each of the major-party presidential campaigns spent in California that year. The price tag reflected the toughness of the fight. The idea of standing up for shareholder rights was very popular among voters, and California’s labor unions and senior-citizen advocates were vocal supporters. The campaign took up “about fifteen percent of my day time,” Doerr remembered, “but most of my sleepless nights. I was worried. I didn’t think we were going to win.”23

  One thing Doerr had going for him, however, was the fact that the president was up for reelection. Clinton and Gore had just spent the past four years talking about how important Silicon Valley was to the national economy. Here was a ballot measure that threatened to send the Valley off the rails. We don’t weigh in on state issues, Clinton’s staff protested. This isn’t any ordinary state issue, the Silicon Valley people replied, and we aren’t any ordinary constituency.

  Headlines started popping up in the Mercury News about the growing political rift. Clinton got defensive. “What do they mean, I’m against the tech industry?” the president sputtered to Larry Stone. “If you’ll just talk about it with us,” Stone pleaded with Clinton, “we’ll explain why it’s so important.” A few days later, Stone got a phone call: the president would do a meeting. Keep it small, Stone was told. Clinton was coming to a San Jose school for another event, so they’d shoehorn it in. As soon as he got off the line with the White House, Stone called Regis McKenna. Can you help me get the right people there? McKenna’s next call was to Gordon Moore. Then, John Doerr.

  And so it came to pass, sitting uncomfortably around a middle school lunchroom table on a swelteringly hot late August day, the President of the United States told some of the most powerful tech leaders in America that he’d support them in their fight against Proposition 211. “We flipped him!” Doerr’s staff rejoiced. “I think that position will earn him tremendous support throughout the country and certainly in this state,” Doerr said afterward. When it came to Clinton’s own bid for reelection, “I was undecided until I heard Clinton’s position on it. Now I’m supporting him.”24

  Three weeks later, the president got his reward. Doerr organized an effusive endorsement from seventy-five of Silicon Valley’s boldface names, who joined Clinton and Gore on a phone call to praise the administration’s economic record—and pat themselves on the back for all they’d done to make it happen. “This administration really gets it,” Doerr declared in his opening remarks. The Clinton era had been good for Silicon Valley, and the Valley had been good for Clinton and Gore. “I think it’s notable,” he added “that the California companies that are endorsing you today have created over 28,000 jobs in their companies over the last four years.”

  A resurgent Steve Jobs, on the cusp of being wooed back to Apple after his decade of banishment, sounded a similar note. “The past four years have been the best Silicon Valley has ever seen,” he said. “Silicon Valley doesn’t traditionally look for handouts, doesn’t look for tax credits,” said the man who’d lobbied so hard for those things fifteen years before. “I hope we see four more years.” For all his travails over the previous decade, Steve Jobs remained the voice of the Valley, and he had given his blessing.25

  Not everyone in the Valley was wild about Clinton and Gore, of course. Floyd Kvamme took on the organizing duties for a less splashy endorsement of Republican nominee Bob Dole a few weeks afterward. Most who joined him had been around since the early days of the microchip, trying to sustain Dave Packard’s Republican legacy even as the Valley lurched toward the Democrats. There was Jerry Sanders, quotable as ever: “We can choose between competition, which is exemplified by the Dole/Kemp ticket, or confiscation, which is exemplified by Clinton.” Kvamme added, “We don’t want a bridge to the twenty-first century constructed in Washington, because we’re afraid it just might be a toll bridge.”26

  And many Valley people opted for “none of the above.” Ever more disillusioned with the GOP, Ed Zschau endorsed his friend Dick Lamm, a former Democratic governor of Colorado, who was running an underdog campaign against Ross Perot to become the standard-bearer of the Reform Party. By midsummer, Zschau had agreed to join Lamm on the ticket as vice presidential nominee. Cypress Semiconductor’s T. J. Rodgers remained adamant that the Valley should have as little to do with D.C. politics as possible. “What does Washington really offer Silicon Valley?” he asked. “We cannot and do not want to win at their game.”27

  While not everyone agreed on who should be president, everyone agreed that Proposition 211 would be terrible for the tech industry. By October, the money, endorsements, and propulsive force of Doerr’s commitment had created a formidable coalition. “Proposition 211,” said Doerr’s friend and mentor Andy Grove, “has mobilized this industry to an extent that nothing else has since the Japanese threat of the mid-1980s.” Doerr was still nervous, but delighted. “Everyone is aligned on this issue. The only one missing is Mother Teresa.”28

  On Election Day, Lerach’s proposition lost by a 3-to-1 margin throughout California—and a 4-to-1 margin in Santa Clara County. Clinton won California and reelection. The political operatives who had gotten to know John Doerr on the campaign were thoroughly impressed. “I’ve learned in politics that you cling to rich donors, great spokespeople, and people who get shit done,” said one veteran Democratic operative. “Doerr is all three.”29

  And John Doerr already had started looking five years ahead. Silicon Valley had gotten so big, so wealthy, and so integral to the economy that it no longer could sit on the political sidelines. The battle against 211 had been a costly, uphill fight because they had started from square one. If the industry already had an organization in place, then it would be ready for the next Bill Lerach, or the next Clipper Chip, or whatever Washington or Sacramento might throw its way. Not to mention mighty Microsoft, the Death Star up in Seattle. To work, the organization should be a nonpartisan platform for a diverse set of companies and issues—a political variation of the Kleiner keiretsu. It was more than just a lobbying group. It was going to communicate a vision. “We need a new framework of law and thinking to help us govern in the new economy,” Doerr explained. “I, and many others, will help form that new network.”30

  By early 1997, the organization had a name: TechNet. It had a staff and a multimillion-dollar budget. Longtime kingmakers like Regis McKenna and Floyd Kvamme agreed to join in, as did many other big-name Valley CEOs. The goal of staying out of partisan fu
ndraising didn’t last; within the year TechNet had established Republican and Democratic political action committees, which turned into gushing cash machines for visiting politicians. But TechNet also staged regular “graduate seminars on the new economy” so that lawmakers could better understand what was happening—and how they could best help Silicon Valley grow. It was a persuasive bipartisan pitch. “We’ve been able to get stuff through Congress at a time that it is hard to do that,” observed Marc Andreessen; with the Valley humming, it was hard for policymakers “to be anti–high tech.”31

  John Doerr’s TechNet became one conduit for younger new-economy companies—and their Gen X founders—to engage with Washington. A second was Al Gore. Few things delighted the Veep more than an opportunity to sit in a room with smart technologists, talking policy. With Doerr’s help, Gore’s policy aides began holding regular “Gore-Tech” meetings in California and in Washington, where awed thirtysomething Internet moguls would be seated amid the polished mahogany and gilt trim of the Vice President’s ceremonial office at the White House. It was a long way from drab tilt-ups and Homebrew swap meets and all-nighters in the PARC beanbag chairs. With the Internet boom, the men and women of Silicon Valley had become establishment power players like never before.

  CHAPTER 22

  Don’t Be Evil

  As TechNet mobilized and Gore-Tech meetings proliferated, Microsoft was conspicuously absent. Awash in revenue from its total saturation of the PC platform, Bill Gates’s company didn’t have the same regulatory worries as the Silicon Valley crowd, and it was so large that it was a political force all on its own. Gates didn’t visit the vice president’s office; he made the Veep come to him.

  One of the splashiest of these visits came in May 1997, when Gates threw the first of what became an annual CEO summit, bringing partners and rivals alike to Seattle for a chummy and luxe experience that underscored his position as the king of them all. Gore stayed up half the night working on his keynote speech, then joined the tech titan and other boldface names on a sunset yacht ride across Lake Washington to Gates’s new, $60 million home on the eastern shore. Clocking in at 20,000 very high-tech square feet, the dazzling pile brimmed with high-definition video screens and featured a reception hall big enough to seat hundreds.

  As Gore and the CEOs dined on fiddlehead fern bisque and wild salmon, topped off with chocolate soufflé and generous pours of local wines, talk turned to the extraordinary economic moment that America was experiencing, thanks in great part to tech: productivity had spiked, Wall Street soared, Internet retail seemed like it was here to stay. In his speech earlier that day, Gore had urged the tech leaders to tap into their social conscience, to think more about ways to give back and apply their know-how to the nation’s broader challenges. Gates had started to think about those things, too, and he and his wife, Melinda, were in the early stages of planning how they might give away their fortune. The well-fed and self-satisfied guests nodded at Gore’s message, but it was difficult to shift away from business as usual. The Internet might be surging in 1997, but Microsoft was still the richest and most powerful tech company on earth, and everyone else was hustling not to get squashed.1

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  By 1992, nine of ten PCs in the world ran Microsoft. The company surpassed IBM in market value the following year. “It’s the Standard Oil of our era,” said one analyst. Even at the white-hot peak of the NASDAQ, Microsoft towered over them all, with a market capitalization ten times that of Sun Microsystems and more than 100 times that of Netscape. When Microsoft gave $10 million to schools in its home state of Washington, Clinton flew three thousand miles west and made the joint announcement with Gates a centerpiece of a presidential visit. When Gates had a one-on-one dinner with newly installed House Speaker Newt Gingrich, it made headlines.2

  It was mostly a one-way love affair, however. Bill Gates didn’t make splashy campaign endorsements, and he generally considered Washington machinations irrelevant to his business. As Microsoft had swelled to market dominance in 1990, the Federal Trade Commission began to sniff around for possible antitrust violations. Gates had responded with open disdain. “The worst that could come of this is that I could fall down on the steps of the FTC, hit my head, and kill myself,” Gates scoffed to a BusinessWeek reporter in early 1992. The billionaire had softened a bit in the years since—age, marriage, and the gentle prodding of his civic-minded parents had made him more conscientiously philanthropic—but he remained generally uninterested in what happened inside the Beltway. Microsoft didn’t have its own Washington lobbying office until 1995, when the original antitrust investigation left it operating under a consent decree.3

  Anyway, Bill Gates was too busy sparring with Silicon Valley to pay much attention to D.C. Despite the lovable-geek image so carefully cultivated by his PR team, Bill Gates remained the most competitive person on the planet when it came to matters involving his company. Steve Ballmer came in at number two. “At Microsoft,” marketing chief Jean Richardson remembered, “the whole idea was that we would put people under.” Their scorched-earth dominance of the software market had left competitors whimpering and dissuaded new entrants, contributing to Silicon Valley’s wholehearted embrace of the Internet in the first place. “My firm’s policy is never to back a venture that competes directly with Microsoft,” John Doerr quipped. “Only damned fools stand in the way of oncoming trains.”4

  Only Sun Microsystems’ comparably combative Scott McNealy dared scrap with Microsoft, fighting back when Gates & Co. tried to enter the workstation market, counterpunching with the PC-slaying programming language Java, and dropping acerbic one-liners all along the way. Microsoft’s leadership was “Ballmer and Butt-head”; its operating systems were “a giant hairball.” McNealy’s pugnaciousness seemed reasonable, given the very real risk that Microsoft might eat Sun’s lunch. “You’re not going to beat Bill Gates by being conciliatory or compromising,” remarked one Sun veteran.5

  BROWSER WARS

  The competition became a firestorm as the dot-com boom hit with full force. It wasn’t as if the team in Redmond hadn’t been paying attention to the Internet—Microsoft started pouring money into online networks in the spring of 1994, mere months after Clark and Andreessen started Netscape—but the velocity of the Web’s growth outpaced anything Bill Gates expected. “We didn’t expect,” he wrote in the summer of 1996, “that within two years the Internet would captivate the whole industry and the public’s imagination.” By the time Java and Netscape Navigator entered the market in short order in the spring of 1995, Gates and his colleagues had realized that not only would the Internet world grow large, but it might consume Microsoft’s core business altogether. Marc Andreessen was another Bill Gates: he didn’t just want to build a piece of software; he wanted to create an entirely new platform that would make Microsoft’s OS irrelevant. And like 1980-vintage Bill Gates, 1995-vintage Marc Andreessen wasn’t subtle about his sweeping ambitions to pummel Windows so thoroughly that the market behemoth would be little more than “a poorly debugged set of device drivers.”6

  Gates decided it was time to write a memo to his senior staff explaining what Microsoft must do. He titled it “The Internet Tidal Wave,” and by the time it landed on their desks in late May 1995, Microsoft already had its own Netscape-challenging browser in the works. “The Internet is the most important single development to come along since the IBM PC was introduced in 1981,” Gates wrote. And unlike the pricey, data-stingy computer networks of the earlier era, connecting into the Internet on-ramp opened up a world of information for a flat fee. “The marginal cost of extra usage,” he explained, is “essentially zero.”

  Although later brandished in court as evidence of Microsoft’s monopolistic practices, the memorandum showed Gates at his visionary, aggressive best. He singled out up-and-coming start-ups building out video and voice capabilities; he talked about a future Internet that would stream television shows and feature c
ustomer-service chatbots. But, he wrote, “browsing the Web, you find almost no Microsoft file formats.” This had to change. “I want every product plan to try and go overboard on Internet features,” he told them. And the way to spread the use of these newly jazzed products would be to bundle them into the Windows operating system. Netscape already had a 70 percent share of the browser market, and Microsoft needed to get a toehold, fast. Gates knew Andreessen was right. Netscape had been the gateway drug for millions to become hooked on the Web. Now Netscape was on the cusp of becoming more than just a browser. It could set the standards for the entire Internet computing environment just as MS-DOS had done for the PC, with similarly market-eating results. Netscape was too dangerous to remain a direct competitor; Microsoft needed it as a partner.7

  Less than a month after the Gates memo, a delegation flew down from Redmond to Netscape’s offices, offering the Valley’s hottest start-up a deal. Suspicious of their motives, Andreessen took copious notes. Microsoft was going to build its own browser, Internet Explorer (or IE). But it was willing to share. Netscape could still rule the roost on Mac, Unix, and older versions of Windows. Microsoft would get the rest, i.e., most of the market. Netscape didn’t bite. Instead, Jim Clark called his lawyer: Wilson Sonsini partner Gary Reback.

  A Civil War history buff with the swaggery bluster of a Union general, Reback was already a veteran of several seminal Redmond versus Silicon Valley battles. He’d been on Apple’s side in the 1988 lawsuit over the graphical user interface, and he spent the first half of the 1990s nagging the FTC and the Justice Department to take a closer look at Microsoft’s competitive practices in the PC market. Microsoft was operating under a consent decree, but Gates and Ballmer had bargained and battled to make sure that the language wouldn’t limit new Windows features—and IE was a feature. The DOJ was still watching, but Microsoft wasn’t worried. “This antitrust thing will blow over,” Gates told a group of Intel executives shortly after the decree went down. “We haven’t changed our business practices at all.” They were right. For all Reback’s pleading, the DOJ didn’t stop the browser bundling plan from going forward. And in the next two years Microsoft proceeded to eat Netscape alive.8