I have often thought that the picture of the employees of the Microsoft Corporation taken in 1978 is one of the most iconic images of corporate life I have ever seen.
It’s not because something that began so small grew into something so big, as that applies to every large company, but that it happened so quickly. In just 30 years Microsoft has gone from being a company of just 11 people to having sales in excess of $60bn per year and a market value of around $233bn.
During that period Bill Gates has had a huge influence on shaping the direction of the computer industry and has been treated as a guru by corporate leaders and heads of state alike. But what is Bill’s legacy and was he really the guru he is made out to be?
Gates was born in 1955, the second of three children in a prominent Seattle family. His father was a partner at one of the city's law firms, while his late mother was an active charity fundraiser.
He was introduced to computers at the exclusive Lakeside Preparatory School, where he began programming in BASIC on a primitive ASR-33 Teletype unit.
It was at Lakeside that Gates met fellow pupil Paul Allen, now Chief Executive of Microsoft.
After leaving school Gates went on to Harvard University but ‘dropped out’ in 1975 to start Microsoft.
At that time most computers were hugely expensive mainframes, but a few new companies such as Apple were beginning to make microcomputers which were much smaller and more affordable.
Gates’ big break came in 1980 when IBM decided to enter the personal computer market. They had the hardware but were looking for an operating system to run on it. Recognising the opportunity, Gates bid for the business. It is a little known fact that Microsoft did not have an appropriate offering, so they took the risk of buying DOS off another company and proposing that.
In one of worst negotiating decisions of all time, IBM did not think to insist on exclusivity. The result was that a whole new industry was created; that of IBM-compatible PC’s, all of which ran the DOS operating system. And that’s how it all began.
Later, when IBM wanted to develop a multi-tasking and multi-user operating system, it again turned to Microsoft. This time the relationship broke down and IBM went it alone to develop OS2, while Microsoft developed Windows NT by, in one fell swoop, recruiting the entire operating system development team from Digital Equipment Corporation (DEC).
Meanwhile, Microsoft was missing out on the market for application software. Products such as WordPerfect and Lotus 1-2-3 were ‘must-have’ products on every PC. It therefore made some strategic acquisitions and developed the Office suite of products. Even today the fact that products such as Word, PowerPoint and Excel were developed from different starting points is evident in the way the user interface differs, even in obvious areas such as printing.
Having moved into the server market with Windows NT, Microsoft was now seen as a threat to the Oracle Corporation in California, who were the dominant provider of databases in the server market.
Larry Ellison, Oracle’s founder and CEO, therefore teamed up with the CEO of Sun Microsystems (the rumour was that they regularly played golf together) to fight Microsoft. The result was, what came to be known as, ‘thin-client’ technology – i.e. PC-like products that did not need a local disk or storage as applications were downloaded directly from the server.
It was around that time that I visited Sun Microsystems head office in California and was told by Scott McNealy, Sun’s Co-founder and CEO, that in the future applications would be developed that would compete with Microsoft but which would be free.
This prediction came true with the release of OpenOffice, which is a product that can be downloaded free of charge. You will not however be surprised to learn that OpenOffice was derived from a product developed by a company called StarDivision which Sun acquired in 1999.
It always amused me that the industry analysts used to give expensive seminars and briefings on the direction of new technology, while all along the real drivers in the IT industry were the egos of Scott and Larry and their desire to undermine the dominance and success of Microsoft.
In the early 1990’s the Internet was just beginning to come of age, yet Microsoft was doing nothing about it. It was not until companies such as AOL and Netgear had established dominant positions that Microsoft realised the enormity of its oversight. In an attempt to recover the situation it developed its own browser ‘Internet Explorer’ and launched MSN. With Windows now running 90% of the world’s PC’s, Microsoft decided to bundle its browser free of charge with the operating system, a move which resulted in Netgear disappearing and in Microsoft enduring years of antitrust litigation.
More recently Microsoft entered the games console market with the XBox and the mobile computing market with its Windows Mobile offering; but Microsoft remains a follower in technology rather than a leader.
Despite turnover continuing to grow at around 18% per year, Microsoft is not without its challenges:
Where its competitors are beginning to provide application software for free and paying with it through advertising, Microsoft still sells software in boxes and charges a premium price.
Microsoft still lags behind Google and Yahoo in third place in the online search market and therefore cannot generate the same advertising revenues as either of them.
Its XBox division reputedly still loses money on ever XBox sold as it fights to compete with Sony and Nintendo.
And, while the market is gradually moving towards a greater reliance on mobile computing devices, Apple has launched its ultra-cool iPhone while Microsoft looks like a bit-player in the mobile computing arena.
So Steve Ballmer is taking over as CEO at a difficult time, but as history shows, Microsoft is a copier and acquirer of new technologies, not an innovator or inventor. And with over $23bn in cash and short-term investment reserves and annual profits of around $14bn, Microsoft remains a force to be reckoned with.
So what is Bill’s legacy? In my opinion it is the democratisation of computing. Before the release of Windows, computers were things that cost a fortune and needed IT departments to look after them and keep them running. After the release of Windows, computers became things that we had on our desks at work and also in our homes.
Apart from computing becoming all pervasive, the other great benefit is that the power of the IT departments was dramatically reduced. Now, when IT professionals say that something can’t be done there is always someone who pops up to say that they can do it on their home PC. In the past, if the IT department said it couldn’t be done, you simply had to accept it.
The second great legacy is wealth. Not the wealth he generated for himself but the fortunes he created for the numerous shareholders in Microsoft, many of who were Microsoft employees.
Microsoft’s stock option scheme was so successful that is the early days of its growth virtually every employee had the potential to become a millionaire. I believe that this created the model for many other start-up computer companies that could not afford to pay high wages, but instead offered employees a share of the company. The result was that for a generation, the best minds and the high-fliers from the business schools focused their talents on the IT sector, developing many of the solutions and technologies that today we take for granted.
Finally, does Gates deserve his guru status? In my opinion no. But he should be credited with building one of the most successful organisations of all time, for not taking himself too seriously and for retiring from commercial life while he is still young enough to devote his considerable talents and wealth to charitable causes.Happy retirement Bill.