Hard Drive: Bill Gates and the Making of the Microsoft Empire (43 page)

Tim Paterson, the programmer who developed DOS, expressed what others at Microsoft felt—that it was good to be rid of IBM, which had become a millstone around Microsoft’s neck. Perhaps some of that so-called Blue Magic would now rub off on Apple. “Look at the three biggest bombs Microsoft has had— Windows 1.0, DOS 4.0 and OS/2. And who was our partner on two of those? IBM. Have we ever done anything with IBM that wasn’t a bomb? No.”

Many Apple employees, particularly software engineers, shared Gates’ sentiment that the company had given away its birthright in joining IBM. An early meeting between about 100 IBM people and 50 Apple employees reportedly went badly because of the cultural differences. Jokes were soon making the rounds on both sides of the country. At Apple the grim question was, “What do you get when you cross Apple and IBM?” Answer: “IBM.”

It was not until early October that Apple and IBM finally signed the papers officially creating their historic alliance. More than 500 people attended the news conference in San Francisco, where the twoi'companies spelled out details of their technology- sharing agreement. They announced they would work with Motorola in developing RISC chip technology to be used in future Apple and IBM personal computers. But the big news was that IBM and Apple were establishing two joint venture companies, one called Taligent and the other Kaleida. Taligent was to develop an advanced operating system based on the Pink project Apple had been working on. Kaleida was to create multimedia computers that combine sound, text, and video on the screen.

Sculley predicted at the news conference that the joint venture would make the heyday of the personal computer revolution in the 1980s seem tame by comparison. The alliance, he said, “will launch a renaissance in technical innovation.”

But several months later, Apple and IBM were still mired down over the makeup of the two jointly owned companies. Corporate boards and CEOs had yet to be picked. “If it’s taking them this long to figure out who’s president, what’s going to happen when they disagree on an interface icon?” asked Nancy McSharry, program director of International Data Corporation, a market research firm.

At the same time the alliance between Apple and IBM was being put together, there were several other alliances in place or in the works that had the potential to reshape the personal computer landscape. Borland International acquired AshtonTate, the leading database maker, strengthening Borland’s position as the number three software company, behind Lotus and Microsoft. Novell, the leader in office networking, acquired Digital Research, which produced DR-DOS, the only industry clone of Microsoft’s operating system. And IBM also agreed to market software under license from Lotus, Microsoft’s fiercest rival. Microsoft and Digital Equipment Corporation, too, announced a broad alliance to make Windows available on Digital’s vast computer networks.

It will take time, perhaps years, to know how these new alliances will change the balance of power in the personal computer industry. Other battles were far less distant.

At the fall Comdex in Las Vegas, IBM staged a glitzy show to formally introduce its beleaguered version of OS/2. It had earlier promised the operating system would be ready to ship by the end of the year, a boast which prompted Microsoft’s Steve Ballmer to say he would eat a floppy disk if IBM met that deadline. IBM announced at Comdex that OS/2, as Ballmer had predicted, was delayed, and would not be out before early spring of 1992. Microsoft planned to release another version of Windows to hit the market about the same time, backed with an $8 million television advertising campaign.

There were many in the industry who believed IBM had made a serious blunder by sticking with OS/2. When IBM Chairman John Akers announced in late 1991 a top-to-bottom reorganization of the monolithic computer giant into independent business units, the move was seen by many as an attempt to catch up with mistakes like OS/2. IBM had poured more than a billion dollars into its development, even though the industry seemed to support Microsoft’s Windows. OS/2’s future was further clouded by the IBM/Apple joint announcement that they would eventually develop a new operation system.

“This has to be the greatest disaster in IBM’s history,” George Colony, president of the consulting firm Forrester Research, told the
Wall Street Journal
in a front page story on the OS/2 debacle. “The reverberations will be felt throughout the decade.”

At the end of 1991, IBM reported a loss of $2.8 billion, its first annual deficit ever. Revenues fell 6.1 percent from 1990 to $64.8 billion.

Microsoft, on the other hand, reported profits were up fifty- five percent and its revenues were up forty-eight percent during the last three months of 1991. While almost every other major software company, including Lotus, was laying people off in 1991, Microsoft had been adding as many as 70 new workers a week. By the end of the year, employment had reached 10,000. Shuttle buses now carried employees around the sprawling 260 acre campus, where several more buildings were under construction. Microsoft had overtaken the Boeing Company as the largest Northwestern business in terms of market value. Microsoft, worth an estimated $21.9 billion at year’s end, had even surpassed General Motors in market value. The company’s stock had risen a staggering 1,200 percent since it went public in 1986. Figuring in several stock splits, someone who invested $1,000 in Microsoft when the company went public would have made about $30,000 by 1992.

As Microsoft’s stock shot up to record highs, so did the stupendous wealth of the company’s top executives. Microsoft had the unique distinction of having produced three billionaires—Bill Gates, Paul Allen, and Steve Ballmer. Filings with the Securities and Exchange Commission showed at least 16 Microsoft executives were multimillionaires. Former president Jon Shirley led the pack with $112 million; Scott Oki, who had started the International Division, and retired in January of 1992 at age 43, had $28 million; Jeff Raikes, who came over from Apple was worth $23 million; Bill Neukom, the former partner in the law firm of Gates’ father, $21 million; Frank Gaudette, who took Microsoft public, $7 million; and Mike Maples $3.5 million. There are believed to be over
2000
Microsoft employees who had reached the magical status of “millionaire” by 1992. Chris Larson, Gates’ schoolmate from Lakeside and Microsoft’s first programmer, had enough money in 1992 to come forward with a group of investors, including the owners of Nintendo, with a $100 million offer to buy the Seattle Mariners baseball team.

Bill Gates, the man who made it all happen, had steadily closed in on the top spot of the
Forbes
Four Hundred list of richest people in America. In the magazine’s October 1991 issue, Gates was ranked second behind entertainment mogul John Werner Kluge.
Forbes
estimated Gates’ worth at $4.8 billion, and Kluge’s at $5.9 billion. On the first day of trading on Wall Street in 1992, Microsoft’s stock closed at $114. The stock had split 3 for 2 several months earlier, and it was higher than before the split. Gates was now worth an estimated $7 billion. On paper, at least, the former Lakeside hacker who had a dream of a computer in every house was now the richest person in America.

Bill Gates sometimes has to be reminded that he is one of the world’s richest men.

“He clearly has no pretenses about being rich, anymore than he did when he was young,” said Dan Bricklin, who has known and competed against Gates for many years. “I know people an awful lot poorer than him who flaunt it. He doesn’t.” Vem Raburn recalled meeting Gates not that long ago at the airport in Phoenix, Arizona. Gates was dressed in slacks and a casual shirt open at the neck. Raburn was struck by how little his friend has changed. “Here’s like the fifth richest man in the world, ” said Raburn. “There’s no entourage, and he’s just loping along, saying ‘Hey how are you? Let’s go get a hot dog.’ ” Gates, who still flies coach rather than first class, explained to
Playboy
magazine in 1991 why he does not indulge himself in perks such as limousines and chauffeurs and private jets enjoyed by other Fortune 500 executives. “It sets a bad example. I think eventually you get used to those things, then you’re just abnormal. I’m afraid I’d get used to it.”

Much has been made recently about American CEOs helping themselves to huge salaries and hefty bonuses at a time when the revenue and profits of their companies are declining. Eyebrows and voices were raised, for example, by the salaries of the group of U.S. auto company executives who accompanied President Bush to Japan in early 1992 on a trade mission. Lee Iacocca, CEO of Chrysler, had made $4.5 million in salary and bonuses in 1990, the last year such information was made public. Harold Poling, CEO of Ford, was paid $1.8 million in salary and bonuses. And Robert Stempel, CEO of General Motors, received $5.2 million in salary and bonuses.

Based on Microsoft’s performance, Bill Gates should be one of the highest-paid CEOs in the country. But Gates receives a very modest salary. In 1991, he earned $274,966 in salary and bonuses, according to Microsoft’s latest proxy statement, making Gates only the fifth highest paid executive in his company. (Michael Hallman, Microsoft’s former president who was fired in early 1992, was the company’s highest-paid executive in 1991 with a salary and bonus totalling $604,290.)

Gates has said any number of times that he doesn’t care about the money, nor does he bother to follow the stock market.

Money, he has said, is not a distraction from work, nor will it become one.

Examples abound that show just how conservative Gates is when it comes to spending money. Friend Heidi Roizen recalled driving into Seattle with Gates for a meeting at the downtown Sheraton Hotel, looking for a place to park. They were running late, and Roizen suggested the hotel’s valet parking.

“Yeah, but it’s $12 and that’s not good value,” Gates told

her.

“I’ll pay the $12,” Roizen said.

That s not the point,” Gates replied. “They overcharge for parking.”

Said Roizen of the incident, “That’s really indicative of Bill. But he is not cheap, she added. “I’ve never known him to be cheap about picking up the dinner tab or something.”

Despite his disdain for a flashy lifestyle, Gates hardly lives a Spartan existence. He does indulge himself with a few luxuries. He has a taste for expensive champagne and keeps his refrigerator at home stocked with a half-dozen or more bottles of Dom Perignon. And he has never outgrown his love of fast cars. Although Gates drives a Lexus to work and still owns the Mustang he had in high school, he recently bought a $100,000 Ferrari 348. Two years ago, Gates and Paul Allen each bought one of the fastest production cars in the world—a 1988 Porsche 959, with an estimated top speed of more than 200 miles per hour. (The cars sit side by side, gathering dust in a U.S. Customs warehouse in San Francisco. Porsche built only 29 for the American market. The cars, which do not meet U.S. safety and pollution standards, were to have been imported under a legal loophole, but the EPA closed the loophole. To pass crash safety tests, at least four would have to be destroyed. At $320,000 a vehicle, it would be a pretty expensive demolition derby. Each car now would probably fetch about $1 million. Gates proposed a crash test by computer simulation, but the Department of Transportation has recommended the cars be shipped out of the country.)

Most of Gate’s wealth, of course, remains in Microsoft stock and thus is susceptible to the vagaries of Wall Street. This helps to explain Gates’ attitude toward his fortune—he is leery of counting paper assets as wealth. At the end of 1991, Gates owned about 57 million shares of Microsoft stock, representing about thirty-three percent of the company’s total shares. While he has not diversified much of his wealth, he has cashed in a lot of stock over the years. According to The Invest/Net Group, a company in Fort Lauderdale, Florida that tracks insider trading, Gates has sold nearly $300 million worth of stock since Microsoft went public in 1986. In October of 1991, for example, he sold about one percent of his holdings for $67.5 million. Earlier in the year, he collected about $50 million in cash when he sold 500,000 shares on the open market. No one knows what Gates is doing with all this cash. But some of it is going to finance his new home, which the local media jokingly refer to as San Simeon North, a reference to the William Randolph Hearst castle in San Simeon, California. The most oft-quoted price tag for this high- tech Xanadu is $10 million, but that’s only a guess. No one really knows but Chairman Bill, and he isn’t talking.

As far back as 1984, Gates told a reporter about the kind of home he envisioned, with advanced displays in rooms that could be commanded to call up images and music by remote control. Gates said back then that his home of the future would be overseen by a computer a little like HAL—the run-amok computer in
2001: A Space Odyssey.

Thanks to his wealth, Gates’ vision is fast becoming a reality. Under construction for more than a year, the house is located on the other side of Lake Washington from where Gates lives now, in the community known as Medina, which has the highest per capita income in the state. In 1988, Gates began buying up seven lots on nearly four acres for $4 million. The property includes 415 feet of waterfront. Trying to be sensitive to his neighbors, and because the property is situated on a steep hillside, Gates designed about eighty percent of his home below ground. From the water, the house will resemble a small neighborhood, with five different structures, or pavilions, above ground. None is higher than two stories. All the major structures will be connected under ground. With enough living space to cover a football field, it is supposed to be finished by 1993. There will be three kitchens, a 60-foot-long swimming pool, a 20-seat movie theater, two elevators, a manmade stream, a dock, a beach and lagoon, a meeting hall big enough to accommodate 100 people, offices, a computer center, an underground garage for as many as 28 cars, a 14,000-book library, an exercise room with a trampoline, and a game room.

In addition, the public rooms will have high-definition television screens mounted on the walls. Guests will be able to call up images from a vast electronic library, a computer databank containing great works of art and photography. The digitized images will be stored on computer disks similar to CDs. In one room, these TV screens will show the view from the top of Mount Everest at any time of day and in any weather condition. The system will incorporate music, sound, and video into computer programs that can be manipulated by the guest with the wave of a “magic wand.” Gates has made a point of saying he’s not just building a home, but a computer conference center exploring the limits of today’s—and tomorrow’s—home computer technology.