by Forbes Staff
Bill Gates:
Behind Microsoft, Money, Malaria
Copyright 2015 Forbes. All rights reserved.
Cover Design: Uyen Cao
Edited by Annabel Lau, Miguel Morales and Jennifer Eum
CONTENTS
INTRODUCTION
WINDOWS ON THE WORLD
CAN ANYONE STOP BILL GATES?
MR. GATES AND MR. ALLEN BUILD THEIR DREAM HOUSES
ON THE ROAD WITH BILL GATES
HE WANTS YOUR EYEBALLS
BILL GATES AND THE BILLOPHOBES
PUTTING OUT FEELERS
TECHNOLOGY SUMMIT
WELCOME TO MY STORE
GATES UNPLUGGED
BILL GATES OVER THE YEARS
MAKING MICROSOFT MATTER
CHUTZPAH SCIENCE
BILL GATES’ INDIAN EDUCATION
THE POWER TO SAVE LIVES
POSTSCRIPT: THE THINKER AND THE SALESMAN
INTRODUCTION
By Annabel Lau
“Here are some names you are not likely ever to see in The Forbes 400: Franklin Lim. Gary Kildall. Bill Gates. John Kemeny. Ananda Chakrabarty. Alan Heeger. What do they all have in common? Each is an American inventor, responsible for a breakthrough technology. Each inventor is still alive and is young enough to enjoy the fruits of his labors. All can be said to have done moderately well; a few are even millionaires. Yet, for a variety of reasons, none of them, based on current form, is likely to transcend the $125 million mark in net worth.”
—From the Fall 1983 issue of Forbes
In 1983, Forbes predicted that Bill Gates would never become a billionaire. We humbly eat crow for that bold bet—$78.5 billion of it, by Gates’ latest net worth. Despite that failed prediction, we would have been remiss if we didn’t track one of the most prolific businessmen and visionaries history has seen.
In this book, we chronicle Gates’ career from Microsoft’s early days to his wild successes as the world’s wealthiest person. The Harvard dropout cofounded Microsoft in 1975 with Paul Allen, his buddy from private school; by 1991, Microsoft was the largest supplier of PC operating systems and application software, boasting a market value of $12 billion. As of this writing, Microsoft has a market cap of $351.6 billion.
Gates attributes his success to chaos, saying, “Some butterfly did the right thing for me,” but it’s clear from following his career that there’s much more to it than that. Gates is calculating, unwavering and canny. In addition to his excellent programming and leadership skills, Gates prides himself on his ability to detect patterns amidst the chaos—he has an uncanny knack for peering into the technological future. Gates predicted in 1998 that within the next five to 10 years, computers would be able to interact with its users: “You can talk to it. It can talk to you. … When you want to navigate the Web, you won’t give it URLs—you’ll just give it a sentence: I want to see the latest movies, the newest restaurants.”
But Gates didn’t stop after building his Microsoft empire; he has since directed his keen business acumen and problem-solving prowess to a new mission: eradicating malaria, measles, AIDS, hepatitis B and an array of other communicable diseases. Since 2000, Bill and his wife Melinda have given back much of their wealth through the Bill & Melinda Gates Foundation by funding efforts to combat disease throughout much of the developing world. It’s a large reason why Gates says he doesn’t want to leave too much of his money to his children: “I don’t think it would be good for them. You’d like to have a situation where they really feel like they really need to get out and work and contribute to society.”
According to The Chronicle of Philanthropy, Gates donated at least $1.5 billion through his foundation last year, earning him the title of 2014’s most generous American donor. But the Gateses don’t just dole out dollars. True to the Microsoft visionary’s nature, the foundation seeks to find innovative ways to solve the world’s problems—like creating its own malaria vaccines instead of simply buying them.
From PCs to vaccines, Forbes has followed Gates’ long, incredible career from the beginning, and the world’s richest problem solver doesn’t seem to be slowing down anytime soon. It’s a lesson many have learned over the years: Doubt Bill Gates at your own risk.
WINDOWS ON THE WORLD
By David Churbuck
December 1989
PAUL GRAYSON, the chief executive of Micrografx Inc., stood outside a Las Vegas conference room last month dishing out his reactions to the computer trade press about IBM and Microsoft’s just-concluded press conference. For a 39-year-old founder of a profitable $22 million (estimated 1989 sales) software developer, Grayson looked a little worried.
The reason for his concern and the press’ interest was the enigmatic declaration by IBM and Microsoft that they would shift their focus from a program called Windows to a new version, Presentation Manager. This shift is of more than passing significance to computer buyers, who use Windows to communicate with their machines. But it is of life-and-death consequence to many other vendors of software, like Micrografx. A product designed to patch into Windows simply won’t work on Presentation Manager, at least without some major adjustments.
Doing business in an industry dominated by the Redmond, Wash. software giant Microsoft is a great way to grow an ulcer. Microsoft—sometimes in consultation with IBM, often by itself—sets the rules in the software industry with its control of operating systems. If its rules favor your software firm, you get rich. If they don’t, you could be put out of business.
Paul Grayson and his brother George, 34, president, hitched their fortunes to Windows five years ago. They had a version of their Designer drawing package ready to hook into Windows even before Microsoft started selling Windows. Indeed, the cocky Texans upstaged Microsoft in 1985 by selling a crude test version of Windows while the world impatiently awaited the official one. Microsoft didn’t get its Windows out for another four months.
The bad blood between the Graysons and William Gates III, founder of Microsoft, seems to go back to Micrografx’s early days. Now the Richardson, Tex.-based firm has grown to 205 employees, and the feuding with Gates’ firm has escalated. The Graysons are saying that Microsoft, after inspecting a Micrografx product under a promise of confidentiality, unfairly copied innovations in it.
“It makes it very difficult to know if you can trust the things Microsoft says,” says George Grayson. Adds brother Paul: “He [Bill Gates] is the king and the pope. If he wants to change something, he does. He knows everything everyone is doing in this business.”
A Microsoft spokesman denies the accusation. George Grayson says that his company is negotiating a licensing agreement with Microsoft to smooth over ruffled feathers. But those negotiations have been drawn out and painful. “It’s like pulling teeth,” Grayson adds.
It’s a love-hate conflict inherent in software development. Developers of operating systems, like Microsoft, must work closely with developers of application programs, like Micrografx, so that the two programs are compatible. Either piece, in isolation, is worthless. No one will buy a new operating system unless there are practical applications that go with it. Nor will anyone buy an application if it uses an obsolete or unwanted operating system.
But this is not a marriage of equals. Microsoft, having grown fat on operating systems, is moving into application territory. It sells, for example, a popular word processing program, and is challenging Lotus Development in the spreadsheet market. Fifty times the size of Micrografx, Microsoft could squash the smaller firm by competing with it. But does it really want to? Micrografx and other applications developers are Microsoft’s best salesmen. The graphics artist who pays $695 to get Design
er, in order to create labels and brochures on a PC, first forks over $99 to $195 to get Windows.
Software for PCs has gotten rather complicated—all because the industry wants so badly to make computers look simple and easy to use. The most fundamental piece of software is the operating system. It controls the input and output of the machine and supervises the use of the hardware components. Microsoft’s DOS (disk operating system) has a near monopoly on operating systems for IBM-type personal computers. This is why Bill Gates is a billionaire.
If the operating system is the socket in the wall, the application is the appliance that plugs into it. Windows is an enhancement on the old DOS. Think of it as the adapter that plugs into the wall and recharges a cordless appliance. Now your application plugs into Windows rather than DOS.
Gates isn’t content to rest there. He aims to make his next billion by selling a new operating system, OS/2, with a new adapter, Presentation Manager. IBM is firmly behind him. The new, more powerful system demands a computer with the 80386 electronic brain, at least 4 megabytes of memory and 40 megabytes of hard disk storage. IBM wants to sell this next generation of hardware. But OS/2, announced in 1987, has been something of a flop. There aren’t many applications that plug into it.
Windows isn’t dead yet, and Micrografx can count on at least another two years of solid revenues before users begin to switch in any significant numbers to Presentation Manager. Microsoft still has one more version of Windows in the pipeline, even as it focuses on Presentation Manager.
The Graysons are ready with another defensive move: They have converted Designer and their other products from Windows compatibility to Presentation Manager compatibility. That might have been a tedious and expensive task, but Micrografx’s programmers came up with an ingenious translation tool that does most of the work automatically. The Graysons gloat that their firm produced the translator after Microsoft told them it was technically too difficult to do so. Triumphant, the Graysons returned to Microsoft with a copy of the translator in hand. They lent the software to Microsoft so Microsoft could translate its own Windows applications over to Presentation Manager, but, they claim, Microsoft proceeded to borrow some parts of the program in an effort to develop a rival translator.
Bill Gates isn’t about to let the Graysons intimidate him. But neither can he afford a pitched battle with these rivals. The PC industry has to cooperate long enough to sell its next generation of products.
CAN ANYONE STOP BILL GATES?
By Kathleen K. Wiegner and Julie Pitta
April 1991
QUIZ: WHO IS the largest supplier of operating systems for personal computers? That’s an easy one. Anybody in the computer business, and a lot of people who just use computers, know that the ubiquitous MS-DOS puts Microsoft way out in front.
OK, harder question: Who is the largest supplier of application software for personal computers? Some people might think of a developer of a word processor or a database program. A lot would guess Lotus Development Corp., which sells spreadsheets. All these answers are wrong. The largest vendor of application software is Microsoft. Headed by the intensely competitive William H. Gates, 35, Microsoft shows many signs of developing a near monopoly in the software business. So much so that the Federal Trade Commission has been moved to investigate. In the past several years Gates has leveraged his control over one vital part of the desktop computer business, the operating system for IBM-compatible machines, into a commanding presence in a related field, application software. While Microsoft is the leading developer of software for Apple computers, it is not yet a leader in any of the three big IBM PC applications: word processors, spreadsheets and databases. But no one doubts that it is only a matter of time before it gets there.
“Bill wants to have as much of the software industry as he can swallow,” says Gordon Eubanks, chief executive of Symantec, which makes database software. “And he’s got a very big appetite.” Adds Jim P. Manzi, chairman of Lotus: “‘You name the place and we’ll be there’ might be their motto.”
Every reader of the business press knows that Bill Gates has built a tremendous success. Founded only in 1975, Redmond, Wash.-based Microsoft will probably do $1.6 billion in revenues in the fiscal year ending June 30. It is the IBM of the software business, with a market valuation of about $12 billion. An investor who, at the 1986 initial offering, bought 100 shares of Microsoft for $2,100 would today have shares worth $40,000.
Microsoft is comfortably larger than the largest maker of software for mainframe computers, Computer Associates, and almost twice as large as Lotus, the next largest competitor in PC software. This year Microsoft will ship more than 10 million packages of diskettes encoded with its software. It will introduce a new product model—either an upgrade or first-time product—on average once every month. Multinational Microsoft has offices in 25 countries.
Profits? Commensurate with its success. With a 24% aftertax profit margin, debt-free Microsoft has accumulated $540 million in cash. Bolstered with this financial strength, Microsoft has gone gunning for its competitors. Take networking software. This year Microsoft will invest $40 million to $60 million in it, threatening Novell Inc., currently the leader in this business. Lotus, too, is in Bill Gates’ gunsights. Microsoft’s spreadsheet, Excel, is gaining on Lotus’ 1-2-3. In word processing software, Microsoft’s Word for Windows is within reach of market leader WordPerfect.
How did Gates get to be so powerful? The acronym tells the story. MS-DOS stands for “Microsoft disk operating system.” This system guides the inner workings of all but a tiny percentage of the 40 million IBM PCs and IBM-compatible personal computers in existence today. The only widely sold PCs outside Microsoft’s sphere of influence are made by Apple Computer, about 10% of the market. Apple, unlike IBM, chose to write its own operating system.
MS-DOS is standard for any PC; the manufacturer usually throws it in free and pays Microsoft a royalty. Those royalties provide a large but undisclosed stream of cash into Microsoft’s coffers. MS-DOS, however, is just a starting point for Bill Gates. Microsoft is also doing a lucrative business selling, for the most part directly to users, a DOS enhancement called Windows. Windows is highly profitable. Like car manufacturers who make a lot of their profits selling air conditioners and radios, Microsoft does well with this option, which is much in demand because it makes computers friendlier. A spruced-up version introduced last year became an overnight bestseller.
What does this mean to the company trying to sell an application program, such as Lotus with its spreadsheet?
At a minimum, the application must be able to communicate with DOS, or it is useless to the owners of IBM-style PCs. And if the software maker wants his product to sell well these days, he must make sure the program works smoothly with Windows. This creates problems for Lotus Development, which has yet to release a Windows version of its 1-2-3 spreadsheet.
Windows compatibility is so crucial that Lotus recently paid $65 million for the little-known Samna Corp., simply because Samna’s word processing program runs with Windows. Bill Gates, of course, did not have to pay a premium for Windows compatibility in a word processor.
Yet if Bill Gates is seeking deliberately to monopolize the software market, he gives every appearance of being fair. Software developers, including Lotus, Ashton-Tate and a dozen others, are invited frequently to Redmond for meetings with Microsoft’s operating systems experts. There, the outsiders are tipped off to coming changes in the operating systems so they can adapt their products in time. Gates has even assigned an executive to the post of ombudsman for the outsiders. Still, software makers are fearful that Microsoft could abuse its power. David Reed, chief scientist at Lotus, says that his application programmers are reluctant to trade notes with Microsoft’s operating system experts. “We don’t share product plans with them. Why risk it?” Reed says.
A century ago John D. Rockefeller gained control of the refinery business and oil pipelines, then leveraged that market power into control of oi
l production. So, in a way, is DOS a pipeline, and Microsoft owns it.
The products that Gates is selling downstream from his pipeline are exquisitely sensitive to changes in the operating system upstream. The slightest mismatch means that a printer won’t print or a file can’t be opened.
Then, too, users have sunk costs that act as a barrier to entry for new software. Any firm that wanted to produce a new operating system would have a tough sell: It would mean every user would have to throw out his application software and buy new versions. It would also mean a lot of retraining.
Microsoft has other built-in advantages. A personal computer operating system today is as complex as the operating system for IBM’s old 360 mainframe. Little companies cannot compete in operating systems. Nor will they be, as Gates is, a sought-after partner in new alliances with hardware makers. He reportedly has done a deal to create a custom operating system for a powerful new computer being designed by Compaq with microchips supplied by MIPS.
Finally, Bill Gates has the laws of economics stacked in his favor. He is selling items that have next to no marginal unit costs of production. The first copy of a program might cost $20 million; subsequent copies, $20 for the diskettes and manual. Should he have to in order to meet competition, Gates could give away $1 billion worth of word processing software and scarcely dip into his bank account. If Rockefeller wanted to knock out the competition by underselling them, he had, at least temporarily, to pay for the privilege.
To be sure, Gates does not like to compete on price. But the power is there, and he doesn’t hesitate to meet competition. Thus, upstarts can’t easily break into the business by discounting. Microsoft sells Excel for $495, the same price as Borland International’s Quattro Pro spreadsheet. When Borland started offering a special ($99 if you could show you used to use a competing product), Gates was quick to match it. Gates is also selling his $495 word processor for $129 to customers who can show they now use another brand.
