Hard Drive: Bill Gates and the Making of the Microsoft Empire (23 page)

about it,” Sculley told his interviewer. “We have all learned a lot.”

The IBM PC soon eclipsed the Apple II and every other machine on the market, thanks in part to a clever television ad campaign featuring Charlie Chaplin’s adorable “Little Tramp” typing away on one of the ivory-colored machines. The Tramp, with his ever-present red rose, made the PC seem like a friendly and easy-to-use machine. The market targeted for the PC was not the home but the work place, where IBM had long established its reputation. As it turned out, the company underestimated preliminary sales by as much as 800 percent. Its Boca Raton facility could not turn out PCs fast enough to meet the market demand, and this resulted in a huge backlog of orders. From August through December of 1981, IBM sold 13,533 personal computers, which accounted for $43 million in revenues. By the end of 1983, it had sold more than a half million PCs.

Toward the end of 1981, Microsoft went to work on an updated version of its new operating system. Tim Paterson did all the coding for this first upgrade, which was called DOS 1.1. It allowed information to be written on both sides of a diskette, thus doubling the disk capacity of the IBM machine from 160K to 320K.

When the DOS 1.1 upgrade was finished in March of 1982, Gates and Paterson went on the road to show off Microsoft’s operating system running on the PC. Presentations to hardware companies and individuals on both coasts were usually made in hotel rooms. It was reminiscent of the song-and-dance trip Gates made in the MITS-mobile back in 1975 to demonstrate BASIC running on the Altair.

Although the road show was a success, Paterson quit Microsoft at the end of March and went back to work for Rod Brock at Seattle Computer Products. Thanks to the deal with Gates that allowed Brock to package DOS and Microsoft’s programming languages with Seattle Computer’s hardware, Seattle Computer would have its best year in 1982, reaping more than a million dollars in profit on about $4 million in revenues.

Later, Microsoft began work on DOS 2.0, the next version of Microsoft’s operating system for the IBM PC/XT (“XT” stood for Extended Technology), the first personal computer to store data on a hard disk instead of floppy diskettes. DOS 2.0 was to be a much more sophisticated program than DOS 1.0. It had

20,000
lines of code, compared to about 4,000 lines for the first version of the operating system.

The PC/XT was officially announced by IBM in New York City in March of 1983. Priced at $4,995, it featured a 10-megabyte hard disk as well as a 360K floppy disk drive. The computer also had 128K of random access memory, or twice as much as the original PC.

Joe Sarubbi, who had been put in charge of the IBM XT team in Boca Raton, worked closely with Gates and Microsoft on the project for much of 1982. “Bill was arrogant but technically astute,” said Sarubbi, now retired and living in Florida. “He liked to test your technical knowledge. He also would take exception to me because I was kind of hard on his team about making the fixes. He would say, ‘Well, I’m going to be with Don Estridge on Friday,’ and I’d say, ‘Bill, I don’t give a shit who you are going to be with or where you are going to be. I’m the program manager and you are going to get the job done through me or you are not going to get it done at all.’ ” More than 500 fixes had to be made in DOS 2.0 before it was ready to work on the PC/XT.

In his relentless drive to dominate the personal computer software industry, Gates’ battle plan was always to try to establish the industry standard.

“We Set the Standard” had long been the Microsoft motto, and it was preached by Gates as gospel until it had been burned into his company’s psyche. Microsoft won control of the market in languages and operating systems by using this standard-setting strategy. But BASIC and MS-DOS didn’t only become industry standards. They became cash cows that provided a steady flow of money to finance the company’s breakneck growth. When Gates finally turned his attention to the growing retail market for application software in 1982, he wanted Microsoft to become the standard setter there, too. He intended to take the lucrative consumer market by storm, but it would prove a more formidable battle than he ever imagined.

As a newcomer in applications, Microsoft faced stiff competition, going up against entrenched industry veterans like MicroPro and VisiCorp. Gates would later acknowledge that he “blundered” by not getting into applications sooner.

In 1982, VisiCorp’s old warhorse, VisiCalc, was still the best-selling spreadsheet on the market. It had been running at the head of the pack, pretty much unchallenged since being introduced three years earlier at the National Computer Conference in New York City. Gates decided that VisiCorp would be Microsoft’s first target. Gates had had his eyes on VisiCorp ever since he and Vern Raburn had tried unsuccessfully to buy half the company from Dan Fylstra in 1979.

Gates planned to overtake VisiCorp with Microsoft’s first application product, a spreadsheet called Multiplan. In the spring of 1982, while one group of programmers at Microsoft worked on DOS 2.0, another group, led by Charles Simonyi, was putting the final touches on Multiplan. In development for a couple of years, Multiplan was to be the first of perhaps a dozen so-called Multi-Tool applications that Gates wanted Simonyi and his team to develop over the next two years.

Simonyi had quit his job at Xerox PARC, one of the top computer research centers in the country, to work for Gates. They shared the same vision of creating software that would make computers easier to use than ever before. Gates wanted applications to become more important to Microsoft than its operating system and Simonyi was the programming genius he picked to make that happen. He would become one of Gates’ most loyal and trusted lieutenants, a member of Microsoft’s inner power circle who always had the chairman’s ear. They were very much alike, except for their backgrounds. Charles Simonyi was the kind of character who could have come from the pages of a Horatio Alger story, a boy who started with nothing and ended up with his own Lear jet.

Born in Budapest, Hungary, three years after the end of World War II, Simonyi had been a teenager when he saw his first computer, a room-sized, Russian-made machine with a couple thousand vacuum, tubes called the Ural II. At the time, it was one of the few computers in Hungary. Simonyi’s father, a professor of electrical engineering, had arranged for his son to assist an engineer who was working with the computer. The Ural II had 4K of memory, about as much as the Altair.

“The excitement I experienced with the Ural II in 1964 was the same kind of excitement that Bill Gates experienced with the Altair in 1974,” Simonyi would tell author Susan Lam- mers. (It was actually 1975 when Gates developed BASIC for the Altair.)

His first professional program was a high-level language that he sold to the state. During a trade fair in Budapest, Simonyi presented a Danish computer trade delegation with a demonstration program he had written and told them to take his program back to Denmark and show it to someone “in charge.” They did, and Simonyi was contacted about a job. At age 16, he said goodbye to his family and defected to the West and the wide-open, high-tech frontier of computers.

Simonyi worked for a year as a programmer in Denmark, saving enough money to enroll at the University of California at Berkeley. In 1972 he was recruited to work at PARC, Xerox’s computer research center which had opened in Palo Alto, California, near Stanford University. Simonyi worked at PARC while getting his doctorate from Stanford, and wrote his doctoral thesis on his own method of writing code. (When Simonyi went to work for Microsoft, his programming style would come to be known as the “Hungarian method.”)

With financial backing from Xerox, PARC quickly became one of the top research and development facilities in the country. It was PARC that designed the experimental Alto computer-several times more powerful than the Altair. Its visionary work would inspire Steve Jobs to develop the Macintosh for Apple Computer and Bill Gates to develop Windows. Research scientists at PARC, expanding on work done at the Stanford Research Center, also pioneered a technology known as GUI, or graphical user interface, developing a revolutionary advanced language program for the Alto called Smalltalk, which worked like an early version of Windows. Smalltalk displayed menus on a screen and used point-and-click technology known as a “mouse,” which had been developed by the Stanford Research Institute.

In 1981, Xerox introduced the Star, a computer developed at PARC that took GUI software technology a step further. To accomplish a specific task, the user pointed to icons, small symbols on the computer screen, instead of typing complicated commands. To erase a file, for example, the mouse was used to place a pointer on the icon representing a trash can. With a simple click of the mouse, the file disappeared.

The Star could have been released much sooner, but either Xerox was uninterested in the commercial potential of the work being done at PARC, or it was too slow to react in the market place. As a result, PARC began to lose some of its best people to less sluggish companies like Apple and Microsoft.

“I lost faith in Xerox’s ability to do anything,” recalled Simonyi.

Shortly after he decided
t
o start looking for a new job in late 1980, Simonyi had lunch with a former PARC colleague, Bob Metcalfe, who had recently founded his own software company, 3Com. Metcalfe gave Simonyi a list of industry people to contact about a job. At the top of the list was the name Bill Gates.

“I called Bill and Steve Ballmer and told ’em they should jump at the chance to get Simonyi,” said Metcalfe. “And of course they did.”

“We had a fantastic meeting,” Simonyi said of his initial visit to Microsoft for the interview with Gates and Ballmer. I was incredibly impressed. . . . Bill had an incredible grasp of the future. It was not something I expected from an operation that, compared to Xerox, was a fly-by-night outfit. We were kind of snobbish at Xerox. We thought the Apple II was kind of a joke.” Simonyi was also impressed that Gates knew so much about programming. “People talk about how lucky Bill is, or how nice his parents are. But when I came here I wasn’t betting on his nice family. I was betting on his ability to understand the business and his vision of the future, which has turned out to be right.”

After hiring Simonyi, Gates spent $100,000 on a Xerox Star and laser printer, making Microsoft one of the first companies to buy the computer. Gates was laying the foundation for Microsoft’s development of Windows, as well as applications for Apple’s Macintosh computer, which would incorporate a graphical user interface in its design.

“The Star wasn’t a real popular machine, but it was there to play with if you wanted to learn something about the user interface principals,” recalled programmer Bob Wallace.

Although Apple’s Macintosh was not publicly announced until early 1984, its secret development was already underway in Cupertino by 1981. In fact, Gates had been given a sneak peek at the first prototype and when additional prototypes were available in early 1982, Apple quietly delivered them to Microsoft. Apple wanted Microsoft to develop software for the Macintosh and to have it ready to ship with the first computers. Microsoft had as many people working on Macintosh software as Steve Jobs had on the project at Apple.

There were prototype machines from other companies strewn about Microsoft as well, most of them in rooms with paper covering the glass walls so no one could look inside. Computer manufacturers often furnished Microsoft with a prototype months before their computer was due to be released so systems software could be installed. Although the corporate atmosphere around Microsoft was still very informal, with programmers working in jeans and T-shirts, there was a lot more security than in the early days in Albuquerque.

“Before the serious work started with IBM, everything was out in the open, on tables,” said Wallace, who left Microsoft to start his own software company in early 1983. “In Albuquerque, we had a large table and you could see maybe twenty different personal computers on that table that were due out the next year. Everything that was going to happen in the personal computer world was on that table. There was no real secrecy and nobody thought much about that. But then IBM imposed a lot of secrecy. And that was true of the Macintosh work. It got to the point where you knew there was going to be an industry announcement about a new computer. ... Some of the offices were covered with computer paper on the inside, so you couldn't look in them, and you knew there was a private project in there. Then you would read in the newspaper that a new computer had been announced, and you would walk down the corridor and all the paper had come down on one of the offices, and there was the new machine.”

Virtually the only programmers at Microsoft not working under strict secrecy requirements imposed by either Apple, IBM, or other computer manufacturers were those developing Multiplan.

With Multiplan, Charles Simonyi had inherited a project that had been underway for more than a year. In 1980, when work began on the project, Gates hired an outside consultant to thoroughly examine VisiCalc and make a report on how it could be improved. Gates did not like the way the VisiCalc spreadsheet worked, and he intended to improve not only on its performance but its looks. A spreadsheet is made of many different “cells,” and in VisiCalc these cells were referred to by a coordinate, such as “A10.” Gates wanted to use English names for Multiplan’s cells, such as “Sales. June.” Simonyi made further enhancements to Multiplan. Drawing from his work at PARC, he incorporated user-friendly menus into the product.

Multiplan was finished in 1981, but extensive beta testing delayed its release. (In a beta test, the product is given free of charge to selected customers who use it for a period of time. In this way, bugs not found during the development stage can be discovered and eliminated before the product is officially marketed.) The release of Multiplan was also held up while Microsoft perfected software tools allowing easy adaption of its spreadsheet to other computer platforms. Though Microsoft had developed the operating system for the IBM personal computer, not even Gates believed the machine or his DOS would become as successful as they did, eventually dominating the market. So a key Microsoft goal for Multiplan was portability. Multiplan was to be an application that could be run on different machines and different operating systems; it was eventually tailored to run on more than 80 different computer platforms.

“Everybody was guessing about how the personal computer market would develop,” said Jeff Raikes. “To be honest we guessed wrong. We thought there would be dozens and dozens of platforms, maybe even hundreds.”

Multiplan was officially introduced in the summer of 1982 to general praise throughout the industry.
Software Review
said Multiplan was easy to use and rated it “excellent” in every category tested, adding that “Multiplan seems to have been designed with the sole objective of taking VisiCalc’s place as market leader.” At the time, VisiCalc had sold nearly 400,000 copies since its introduction in 1979.

Gates believed Microsoft now had the spreadsheet that would become the industry standard. As it turned out, he was wrong. VisiCalc would eventually be knocked down for the count, but it would not be Microsoft that threw the punch.