Copyright (C) Playboy Enterprises, Inc. 1994
A candid conversation with the sultan of software about outsmarting his rivals
"The Wallet PC is a futuristic device. Instead of having tickets to the theater, your Wallet PC will digitally prove that you paid. It's our vision of the small, portable PC of, say, five years from now."
"If we weren't still hiring great people and pushing ahead, it would be easy to fall behind and become a mediocre company. Fear should guide you, but it should be latent. I consider failure on a regular basis."
"We bet the company on Windows and we deserve to benefit. It was a risk that's paid off immensely. In retrospect, committing to the graphics interface seems so obvious that now it's hard to keep a straight face."
A youngish man who looks like a graduate student sits on the door of his unpretentious dorm-like room, spooning Thai noodles from a plastic container. His glasses are smudged, his clothes are wrinkled, his hair is tousled like a boy's. But, when he talks, people listen. Certainly no person on the campus can talk about the future, as he does, with the riveting authority of someone who not only knows what's in store for tomorrow but is a major force in shaping that future as well.
Yet this is an office, not a dorm room. And, while everyone calls the complex of 25 buildings a campus, it's not a college or university. It's the sprawling Microsoft headquarters in Redmond, Washington. And the speaker is no grad student. He's William H. Gates III, chief executive and co-founder of the largest software company in the world, which made $953 million last year on sales of $3.75 billion. As Microsoft's largest stockholder, he's worth nearly $6.1 billion, making him this country's second wealthiest man and, at 38, its youngest self-made billionaire. (Gates pal, investor Warren Buffett, is first, though they occasionally trade places depending on stock prices.)
Microsoft's wealth and power just grow and grow, asserts Fortune magazine. CEO Bill Gates could buy out an entire years production of his 99 nearest competitors, burn it, and still be worth more than Rupert Murdoch or Ted Turner. Microsoft's $25 billion market value tops that of Ford, General Motors, 3M, Boeing, RJR Nabisco, General Mills, Anheuser-Busch or Eastman Kodak.
With size comes power. Microsoft dominates the PC market with its MS-DOS operating system, the basic software that lets the computer understand your commands and carry them out. MS-DOS runs on 90 percent of the worlds IBM and IBM-clone computers. Microsoft has extended that presence with Windows, a graphics interface environment that runs on top of MS-DOS and will, according to Gates, replace DOS in future versions. Microsoft also supplies about 50 percent of the worlds software applications: programs such as Excel (spreadsheets), Microsoft Word (word processing) and Access (data bases). It is also in the business of networking. And multimedia. And CD-ROMs. And books. And as an early supporter of the Macintosh computer, Microsoft virtually owns the Mac application market.
The future looks equally promising. Gates recently announced that Microsoft and McCaw Cellular Communications will form a joint 840-satellite global communications network. At the same time, Gates also acknowledged that he was in high-level negotiations with AT&T about a series of ventures that could include interactive television, on-line computer services and software. This is in addition to a previously announced joint venture with Nippon Telegraph and Telephone, the worlds second-largest phone company, and with cable giant John Malone and his Tele-Communications, Inc. aimed at launching a digital cable TV network for computer users. Viewers would be able to interact with programs, download software and shop for products and services. Other partnerships loom as well, including ones with publishing companies and Hollywood studios.
Gates insists that Microsoft has to keep running full speed just to stay in place. But that hasn't stopped his enemies from engaging in constant Bill-bashing. His competitors accuse Microsoft of unfair business practices, and his allies consider themselves fortunate to be on his good side. Given the fluidity of partnerships and strategic alliances in the computer industries, today's friends could easily become tomorrows foes and vice versa, if Gates thinks it advantageous.
Nor is Gates immune from official attack, as evidenced by a three-year Federal Trade Commission investigation into possible monopolistic tendencies stemming in part from the success of Windows over IBMs OS/2 created in tandem with Microsoft. The FTC dropped the case but, uncharacteristically, it was picked up again, this time by the Justice Department. Gates insists "the hard-core truth is that we've done nothing wrong." But the investigation continues, and Gates has other problems as well. Microsoft recently lost a $120 million lawsuit led by Stac Electronics and is planning an appeal. Stac claimed Microsoft's Doublespace hard disk compression utility infringed on its patents for Stacker, the compression utility Microsoft had originally wanted to include with its new versions of MS-DOS. (Its worth noting, though, that Stac also had to pay Microsoft $13 million in damages for misappropriated trade secrets.)
Gates is part scientist, part businessman and he's surprisingly good at both roles. If he's not flying off somewhere (he often travels coach despite his wealth), his day is an endless series of meetings. Gates cruises the Microsoft campus at a breakneck pace to check on the progress of his young, idealistic and fiercely competitive programming jocks: Wired magazine calls them Microserfs. He listens to presentations, praises some ideas and criticizes others as "the stupidest thing I've ever heard".
Since founding Microsoft in 1975 with Harvard pal Paul Allen, Gates has been described as everything from a capitalist brainiac to a plain old nerd. The New Yorker wrote: To many people, the rise of Bill Gates marks the revenge of the nerd. Actually, Gates probably represents the end of the word nerd as we know it. Maybe that's why a software competitor and friend once called him one part Albert Einstein, one part John McEnroe and one part General Patton. (Must be somebody who likes me, mused Gates.)
Bill Gates was born into a well-to-do Seattle family. His father, William H. Gates II, is a prominent attorney. His mother, Mary, is a University of Washington regent and a director of First Interstate Bank. Hoping to alter young Bills rebellious streak, his parents put him into Lakeside, an academically rigorous private school in Seattle. It was there that he met eventual business partner Paul Allen and discovered computers. Soon Gates was programming in his spare time and making money at it. He was in the eighth grade.
Gates entered Harvard in 1973, and dropped out two years later when he and Allen wrote a version of BASIC computer language that worked on the new Altair computer. He and Allen moved to Albuquerque, where the Altair was built, and started Micro-soft. In 1979, Gates and Allen moved the company, but not the hyphen, to Seattle. In 1980, when IBM turned to Microsoft in its search for an operating system, the modern PC era began in earnest.
Allen left the company a few years later when he was diagnosed with Hodgkins disease, but he has since recovered and re-emerged. With his own Microsoft billions, Allen now owns the Portland Trailblazers basketball team, his own software company (Asymetrics), Ticketmaster and a large chunk of the America Online service.
We sent Contributing Editor David Rensin to Redmond to speak with Gates. Rensin, who wrote our Bill Gates profile in 1991, reports:
"A couple of years ago you checked in at Microsoft simply by giving your name to the receptionist. Now you type your name and destination into a Compaq notebook computer at the front desk and it prints out your building pass."
"However, not much had changed inside Gates' office since my last visit. A poster for the Russian version of DOS 4.01 had been replaced by a poster of Intel's Pentium chip. His coffee table had been cleaned up and the computer and monitor were different. Gates uses a Compaq 486/25 Lite notebook (he has docking stations at the office and at home) and is looking forward to getting a Compaq Concerto notebook. Otherwise, Gates doesn't have lots of time to tinker with the newest computer hot rods."
"When Bill is talking about computers, technology, business strategy, biotechnology, or his vision of the future, you're amazed at the amount of information in his head, and at his facility at sifting through it and drawing surprising conclusions. On his personal life, he can be somewhat defensive, reluctantly talking about his parents, his recent marriage to co-worker Melinda French and his life away from the campus."
"True to his reputation, Bill would rock furiously at times. Other times he would stand and pace or stare out the window. Once, as we were talking about his problems with IBM, he picked up a heavy ruler some kind of paperweight or award and slapped it repeatedly into his hand."
"I decided, at least for that moment, to stick with less controversial questions."
PLAYBOY: Let's start small. Explain the future.
GATES: OK. [Laughs] Today, the PC is used as a primary tool for creating documents of many types; word processing, spreadsheets, presentations. But by and large, when you want to find a document, archive it or transmit it, you don't really use the electronic form. You get it out on paper and send it. In the coming information age, access to documents, broadly defined, will be done electronically, just by traveling across a network that people now call an information highway. It's also called digital convergence, a term popularized by John Sculley, and information at your fingertips, a term I use a lot. I'm quite content this will happen. I could be wrong about how quickly.
PLAYBOY: How soon?
GATES: Optimists think three years. Others think ten. I'm a convert. I'm spending almost $100 million a year to build the kind of software that will help make this thing work, make it easy to use, protect privacy in the right way. I think it's possible that in three or four years we'll have millions of people hooked up.
PLAYBOY: Coming soon: a nation of couch potatoes?
GATES: You can already stay glued to the box. But this box is a facilitator. It can save time, which you can then put into the things you want to do. For a lot of people that will mean getting away from the box.