Most other people couldn’t take the heat. Gates is under attack from every major computer company and the federal government besides (box). Last week Apple Computer and IBM began talks about ways to circumvent Gates’s company’s virtual stranglehold on the personal-computer-software market by working together on the next generation of powerful workstations. IBM made Gates’s fortune. Now, he says, “our relationship with IBM is hard to characterize. There are elements of disagreement.” And the Federal Trade Commission has launched an investigation of Microsoft’s alleged domination of the computer-software market. But Gates talks as if these crises had hardly made a dent in his usual 70-hour workweek.
Don’t let the surface calm fool you. Gates is fighting all comers with the blend of technical and business savvy that launched his company in the first days of the personal-computer industry. When Gates dropped out of Harvard in 1975, his timing was perfect. IBM, seeing the profits that upstart Apple Computer was reaping with its fledgling Apple II, decided to launch its own personal computer. IBM asked embryonic Microsoft to make the operating system for the computer - software that controls basic functions such as memory storage and the disk drive. Now every IBM and IBM-compatible computer requires this MS-DOS software; think of it as having invented air. Last week Microsoft introduced its fifth version of MS-DOS, which makes older computers easier to use and could produce profits of at least $40 million over the next year.
Not that Gates needs the money. His share of the company is worth about $4 billion. During the ’80s, Microsoft diversified, expanding into application software, including word processing and spreadsheets for business. Most succeeded - some, such as the spreadsheet Excel, became hot sellers. Now Microsoft occupies acres of lush green territory northeast of Seattle, replete with par courses and ponds full of well-fed mallard ducks. The cafeterias offer everything from pizza to espresso and brown rice with tofu. Not every building has a cafeteria - an attempt to make programmers leave their computers from time to time and actually walk outdoors. Programmers get a free membership to a nearby health club. Employees are usually hired straight out of college and then schooled for two weeks in the ways of Microsoft.
Yet - food and exercise aside - times are not tranquil on the Microsoft campus. “Microsoft,” says industry analyst Esther Dyson, “is at a peak of being very successful and very hated.” That’s because Microsoft controls the dominant operating system for personal computers and also makes application software; critics of the company claim that this gives Microsoft the jump on the next generation of programs. Gates argues that this isn’t true; Microsoft’s Excel, for example, has been able to grab only about a quarter of the spreadsheet market. But appearance can be more important than market figures, says another industry analyst, Richard Shaffer, publisher of Computer Letter: “The bigger Microsoft gets, the more of a target it becomes.”
Some of Gates’s feuds go back several years. Onetime ally Apple sued Microsoft in 1988, accusing the Gates firm of copying its Macintosh software in its highly successful Windows software environment. (Apple also sued Hewlett-Packard, whose New Wave applications program is also graphics-heavy.) Both the Mac and Windows feature a “graphical interface,” which uses pictures and a handheld “mouse” to eliminate the need for arcane keyboard commands. Last week a federal judge in San Francisco inched the lawsuit closer to trial - expected sometime next year - when he linked the suit to the newer versions of Windows. Oblivious to the controversy, consumers have bought 3 million copies of the contested Windows operating system. Other challenges are brand new: last week Apple and IBM began talks in Armonk, N.Y., about sharing technology. This odd pairing is widely seen in the computer industry as a way to blunt Microsoft’s power, since both companies have been drubbed by the Seattle firm’s success.
Chairman Bill - as the autocratic Gates is often dubbed by competitors - remains cool, in the face of both industry criticism and federal scrutiny. It’s not clear where the Federal Trade Commission investigation, already a year old, will lead. (The FTC will not comment on investigations in progress.) Early reports on the case focused on the 1989 rollout of IBM’s high-end PC operating system, dubbed OS/2, when the firms announced they would split the market for computer-operating software between the two programs.
The investigation appears now to be much broader and could involve improper sharing of information between the two parts of Gates’s empire. Any new software for IBM-compatible machines has to be compatible with MS-DOS, so applications vendors routinely tell their secrets to Microsoft operating-systems officials under strict nondisclosure guidelines. Some critics suspect that the wall that supposedly separates the divisions is rather porous. Gates dismisses the charges and says they have more to do with business than law: “The FTC investigation was a lightning rod to bring computer people forward and say that it would be helpful if Microsoft was hobbled in some way.”
Gates believes his company will emerge unscathed. Yet should the FTC investigation go badly for Microsoft, Gates’s worst-case scenario is that the government would order Microsoft to break into two companies, one devoted to operating systems, the other to applications. It would be something analogous to the breakup of AT&T. “I don’t know where I’d go,” Gates says. “There’s no crisp boundary there.”
Microsoft’s legal woes could have a global impact. The United States remains the world leader in software, but competition is close at heel. “Most of the U.S. software companies are spoiled,” Gates says. “There’s this notion that the Japanese can’t write software, and it’s not true. They’re a first-class competitor.” Regardless, Microsoft is certain to survive - and thrive. “They’ve gotten where they are by doing a good job,” says Dyson. “Doing a good job isn’t illegal.” Analyst Shaffer agrees: “Just because they win in the market doesn’t mean they’re unfair. I haven’t seen any evidence of antitrust violations.” Corey Smith, president of Central Point Software, adds: “The worst thing that could happen is to take our most successful industry and burden it further. Why don’t we just take the software industry and give it to someone else?”
Gates, a bachelor, is building for the future - literally. He is starting construction on a vast new house near Seattle. Large video screens in most rooms allow users to call up everything from classic movies to contemporary art. It’s a live-in laboratory for what Gates views as the next big step in computers: the melding of audio, video and text. He has more than 100 engineers, funded to the tune of $10 million a year, working on computers that talk and show realistic animation, based on optical discs similar to audio compact discs.
Gates may be the old cliche: a victim of his own success. Superrich, extremely bright and relentlessly demanding. Along the road to power, he has lost some friends. One is his old chum and fellow wunderkind Steve Jobs of Apple and currently NeXT Inc., who is also working with IBM on next-generation computer interfaces. The range of emotions that Gates inspires within his industry recalls a passage from John Steinbeck’s novel “Cannery Row”: “The things we admire in men, kindness and generosity, openness, honesty, understanding and feeling are the concomitants of failure in our system. And those traits we detest, sharpness, greed, acquisitiveness, meanness, egotism and self-interest are the traits of success. And while men admire the quality of the first they love the produce of the second.” The American press talks incessantly about the need for globally competitive companies - and that’s what Microsoft is. It isn’t pretty, and it certainly isn’t polite. But it’s very, very successful.
Attempts to loosen Microsoft’s grip on the computer industry seem to be arising from all quarters - including rival IBM and the federal government:
An antitrust investigation could lead to an AT&T-style breakup lawsuit - though a split is unlikely.
The giant rivals are discussing a technology exchange that could shape the next generation of powerful workstations.
IBM has teamed up with software guru David Liddle and his Metaphor Computer Systems Inc. The goal: software that can work with any operating system, not just Microsoft’s MS-DOS.
IBM, covering all bases, has also licensed technology from Steve Jobs’s computer company that makes the popular-but-arcane UNIX operating system easier to use and to design programs for.
