Mr. Software

Mr. Software

By Fred Moody
The New York Times

August 25, 1991

The small conference room is packed when Bill Gates, chairman of the Seattle-based Microsoft Corporation, strolls in and sits down at the head of the room's only table. On the wall behind him is a woodblock print depicting a single unarmed samurai pushing sword-bearing attackers off a scaffold surrounding a gigantic stone Buddha. Seated around the table, standing in corners and perched atop a credenza against one wall are 14 programmers ("computer geeks," in Microsoft parlance). All but one are male, and all are dressed more or less like Gates, who usually wears light-colored slacks and a long-sleeved shirt, sans tie.

Now 35, Gates looks and sounds like an aging Dennis the Menace. The lenses of his oversize eyeglasses are coated with grime. His is hardly the image one conjures up when picturing the world's leading software executive, with a personal net worth of $4.4 billion -- said to be the 23d-largest personal fortune in the world. Nor is it the likely image of one of America's most embattled industrialists, with the Federal Trade Commission investigating him, and the I.B.M. Corporation and Apple Computers ganging up on him in a desperate attempt to end his absolute rule of the personal-computer industry.

Gates is meeting with his software engineers to evaluate an emerging program to control laser printers from office computers. One of the programmers begins by inserting a transparency into an overhead projector and explaining that the new program will allow a user to see on the computer screen text, certain geometric shapes and straight lines exactly as they will be printed on paper. Almost immediately, he is interrupted by Gates, who sits bolt upright, points across at him and shouts: "No arcs? You've never seen any arcs?" From then on, the meeting is a constant interchange of shouted objections from Gates and nervous explanations from the targets of his wrath. Some programmers' voices are quavering; others are exerting obvious effort to keep from shouting back. Still others are trying to make themselves invisible. "What a brilliant insight!" Gates snorts at one point. He cuts off the next speaker with a shrieked, "That's just the most silly thing I've ever heard!"

For well over an hour, he carries on in this fashion. He is sneering like a playground bully or snidely flinging someone's words back at him. He is staring in exasperation at the ceiling or leaning forward menacingly with his hands pressed against the table or staring glumly down at his lap, all the while tossing out insults.

But when the meeting ends, his passion evaporates. "Those are smart guys," he says. "It turns out there were some good ideas, and some problems I had with it that they had actually thought through."

Gates's tantrums provoke more admiration than fear in his staff. "He has this laserlike ability to home in on the absolute right question to ask," says Brad Silverberg, vice president of Microsoft's Windows development program. "He'll know some intricate low-level detail about a program, and you wonder, 'How does he know that?' Some piece of code, or some other technology that Microsoft isn't even involved in."

Technological wizard or master strategist? The question mesmerizes Gates watchers. The answer may lie in what Gates himself describes as "the cleverness of youth," a trait he associates with one of his heroes, Holden Caulfield. How well that attribute will serve a business giant approaching middle age could determine the future of his industry.

The PC world has evolved from a playground whose players numbered fewer than 100 to a multibillion-dollar arena in which some 30,000 software companies are fighting fiercely for market share. The time is gone when Gates and his fellow adepts were dreaming up ground-breaking programs, many of which they freely swapped with one another.

Most of Gates's fellow explorers are gone as well. "There're so many early guys who did so much good stuff in this industry," he says, "but who just didn't have the drive or the commitment to either building a company or leading one." Nearly all of his late-70's contemporaries have either disappeared from the industry entirely or, unable to cope with the tremendous growth of their businesses, left them to found new enterprises more on the physical and psychological scale of the industry's salad days. Most notable among the quasi-dropouts are Steven P. Jobs, forced out at Apple, who now owns and operates Next; Mitchell D. Kapor, founder of Lotus Development Corporation, who now is founder of On Technology; and Microsoft co-founder Paul Allen (still on its board), now president of Asymetrix Software and owner of the N.B.A. team the Portland Trail Blazers. And Gates, once routinely feted as a lovable "whiz kid" and harmless "nerd," is now resented and constantly plotted against by his rivals, who are convinced that he wants to engulf the entire software industry.

Among the things that set Gates apart from those who started out with him is an ability to foresee the practical utility of distant technology. When studying future advances in computing, he always asks himself, "What will that create a demand for?" In 1975 -- six years before the first I.B.M. personal computer hit the market -- Gates and Allen wrote out a vision to inspire themselves: "A personal computer on every desk and in every home." Today, while the rest of the world is still coming to grips with that 16-year-old vision, Gates has already invested six years and hundreds of millions of dollars in "multimedia computing," which integrates sound, moving pictures, still pictures and text -- all in the personal computer. Gates envisions multimedia as the ultimate home reference source. If you are writing a term paper on film history, for instance, you will be able to call up scenes from particular films, or play voices of given actors from any roles they have ever played -- all the while reading text about the film's or the actor's place in film history.

Although Gates is only one among many in the computer industry who have purchased reproduction rights to published and recorded material, competitors are worried they will quickly be outmuscled by his powerful company. Gates, however, is unlikely to duplicate in multimedia the growth and power he achieved in personal computing. There, he was one of a few who got in on the ground floor of a revolution. Multimedia is an evolution -- a new use of existing technology. In some ways it is more of an advance in publishing than in computers, and Gates is only one competitor maneuvering among many for market share.

While many see Microsoft as the software market's Goliath, Gates and his brain trust see their company as a mere David in the marketplace of the future. They see a day when they will be "publishing" multimedia compact disks to be sold like books directly to consumers. (A dictionary that pronounces words, a book of quotations that has recordings of the authors reading their works, an encyclopedia and a study of Beethoven's Ninth Symphony all are scheduled to be released this fall.) Microsoft will be competing not in the relatively narrow PC market, but in a market potentially as big as that for television sets. "Our competitors," says Rob Glaser, multimedia systems general manager for Microsoft, "aren't companies like I.B.M. that sell three million computers a year. They are Japanese consumer-electronics companies whose volumes are far higher than I.B.M.'s. On the worldwide market to date, 100 million CD players have been sold, 250 million VCR's, probably over half a billion televisions. That's the league we're focusing on, and when you're in that league -- I mean, we're just pipsqueaks."

No matter how absorbed Gates is by a technological problem, he keeps one eye fixed on the bottom line. "I wonder," he asks a programmer one day about a refinement of Windows, one of Microsoft's most popular programs, "how much of a mission should we be on with this thing?" Unless the project will help Microsoft sell more copies of its current products, Gates is not interested in it. "How is it helpful for Microsoft to have done this?" he asks. "Is it gonna help Windows sell better than something? It's one of these projects like so many now where I think our business thinking is actually kind of weak."

Gates's business thinking has built his company into a powerhouse with revenues twice that of its nearest competitor, Lotus. With 8,100 employees, Microsoft is the world's largest supplier of personal-computer operating systems and applications software. (An operating system is a program that might be likened to a computer's consciousness, turning a set of chips and circuit boards into a working brain, able to respond to instructions. Applications software is put in after the operating system to make the computer perform specific tasks, like processing words, constructing spreadsheets, or doing income taxes.) The company, which generated $1.84 billion in revenues in this last fiscal year, and which hired 1,500 people last year alone, is growing so fast that its numbers have to be updated almost as soon as they are printed.

MS-DOS (Microsoft Disk Operating System), the operating system upon which Gates built his empire, drives nearly all of the world's 70 million I.B.M. and I.B.M.-compatible personal computers. Thus Gates controls 90 percent of the world operating-systems market. The other 10 percent is held by Apple, whose machines are driven by an Apple-written operating system. But even in that market, Gates is a leader: his company is the largest supplier of applications software to Apple.

Although Gates doesn't dominate in every software market segment -- Novell, for example, is far ahead of Microsoft in the emerging office software market -- industry observers expect Gates to keep expanding his reach everywhere in the software industry. His power is such that it has pushed Apple and I.B.M., once the bitterest of enemies, into an agreement to work together in an attempt to circumvent Microsoft.

That Gates is now the target of such an unlikely effort reflects both his ingenuity and success. By choosing to create software rather than hardware or a combination of software and hardware like I.B.M.'s or Apple's, he avoided the capital costs and competitive concerns of companies that must build and operate factories. "What huge plant equipment do you have in the software industry?" asks Scott Oki, senior vice president of sales, marketing and services. "You have a $4,000 personal computer. That's it." And in determining early on to dedicate himself to building a large business, Gates made himself the only software manufacturer capable of taking on big, deadline-driven projects.

From its beginnings, the personal-computer industry has been one in which technological advances -- larger memory, faster computer speed, mouse pointers, compact disks -- have come before uses could be found for them. To make new machines salable, companies needed new applications -- an easier-to-use word-processing program, a more versatile spreadsheet -- and in order to get them quickly, they almost always turned to Microsoft, which combined the resources of a big company with the agility of a small one.

So 10 years ago, when I.B.M. found itself unable to write its own operating system, it had only Gates to turn to. A few years later, when Apple came up with the revolutionary Macintosh, which used icons and a "mouse" to make personal computers less complicated, it was unmarketable because there were no word processing or other application programs for it. Apple, too, turned to Gates.

The I.B.M.-Apple alliance is the latest and most desperate anti-Gates move by the two companies. In 1988, when Microsoft introduced an updated Windows (an enhancement for MS-DOS that allows users of I.B.M.-compatible computers to eliminate typing cumbersome alphanumeric commands and instead point a mouse at pictures and icons, as Apple Macintosh users have been able to do for years), Apple sued, claiming that Windows was a direct copy of its Macintosh operating system. (The suit is still pending.) I.B.M. fell out with Gates over his championing of Windows/MS-DOS at the expense of another, directly competing, Microsoft product -- OS/2, an operating system, co-written with I.B.M., that the company had hoped would become the operating system of the future, supplanting MS-DOS.

But users have proved unwilling to change to the more powerful OS/2 because Windows is easier to use and has more applications. It is a testament to Gates's stature that I.B.M. could turn only to him to help produce OS/2. Now, having broken with Gates, I.B.M. is racing to improve OS/2 without his help, while Microsoft is at work on its own MS-DOS successor, Windows NT (New Technology).

While Gates can match his rivals in innovation, he also is able to view it as a commodity rather than an end in itself. "I see it from the supply side, the supply of computing power," he says. "And this is the miracle story of the microprocessor, where every two and a half years they can make a computer chip that's twice as fast. If you look at an industry where you have such a rapid increase in supply, usually that's pretty bad, like when radial tires were invented, people didn't start driving their cars a lot more, and so that means the need for production capacity went way down, and things got all messed up. The tire industry is still messed up."

Gates avoided many of those oversupply pitfalls by concentrating on software and by choosing carefully where to lead and where to follow. "You spend millions of dollars to write an application," he says. "There better be a lot of people that want to buy that thing. Say only 1 percent of the people who have computers are interested in your dental software. You hit that 1 percent penetration, you're only looking at something like five million machines.

"You have to know when to hold back," Gates continues. "If the takeoff curve in something is very gradual, then the early guys who pay extra money and take extra risk aren't protected."

With that in mind, Gates leaped quickly when given the opportunity to be the first to write Macintosh applications, which took off on a steep curve. However, in the smaller database market (database applications allow a user to cross-reference information in their personal computers), Microsoft has chosen to hold back. Although pioneering competitors already have database applications on the market, sales are slow enough to enable followers to pick up a pioneer's market share without having to pay a pioneer's research and development costs. Microsoft plans not to introduce its database applications for another year or two.

Gates has parlayed his operating-systems-and-applications business into a huge obstacle for younger competitors, whose chorus of complaints has moved the Federal Trade Commission to investigate Microsoft for possible antitrust violations. The F.T.C. is studying the argument that Gates's applications competitors are at an unfair disadvantage. In order for their software to be salable, it must work with Microsoft's systems software -- for which Microsoft has had a head start in making competing applications. (If the F.T.C. should decide against Gates, he would probably be forced to divide Microsoft Inc. into two parts -- an operating-systems company and an applications company -- and sell one.)

As are most captains of industry, Gates is widely reputed to be a ruthless competitor bent on crushing all comers. But seen up close, he is an unlikely robber baron. There is about him the air of a harmless eccentric. He is heavily freckled, with wide, lively eyes and thickish lips that keep contorting themselves into impossible shapes. His speech is laced with juvenile slang: "scary," "cool," "superneat," "hardcore," "jeez. . . . "

Gates is seldom seen in public. Most days, he drives himself in a Lexus to Microsoft from his Seattle home, arriving between 8 and 9 in the morning. Often, he lingers in his parked car for a half-hour or more, talking on a cellular phone. Once indoors, he devotes the bulk of his days to a series of meetings. He generally eats lunch (toasted cheese sandwiches, fries, soft drink, brought up from one of Microsoft's 14 cafeterias) at his desk. He works into the night, sustaining himself with takeout pizza -- the generic computer-geek dinner -- and returns home around midnight, where he stays up until 2 or 3, answering electronic mail.

Gates enforces his rigid discipline in part by depriving himself of a television set at home. "I doubt I'd finish The Economist every week if I had a TV sitting there!" he says.

Gates is intensely secretive about his private life. He admits to having a girlfriend, but resolutely refuses to identify her. There is little to indicate that he is romantic by inclination -- although four years ago, he became a vegetarian for the sake of a woman he was dating. His impetus for trying vegetarianism disappeared almost as soon as he began his experiment, which lasted three years. "I got into it because of the relationship," Gates says, laughing. "And almost as soon as I started, the relationship ended."

While Gates is on the board of the United Way of America and has donated to the Fred Hutchinson Cancer Research Center in Seattle, he feels philanthropy is something that should come later in his life.

"The focus of my life is my work, certainly in my 30's and probably in my 40's," he says. "I don't have time to figure out what charities make sense. And to the degree Microsoft can do well, it's just that much more to give later."

Talking to Gates can be disorienting. He has a maddening habit of rocking constantly. When confined to a chair, he sits leaning forward, elbows on thighs and arms crossed, rocking with unvarying rhythm, his feet beating out an exacting tap! . . . Tap! . . . Tap! . . . Occasionally, certain questions or topics so engage him that he stops suddenly, listening with feral alertness. Stop him while he's walking and he stands, arms crossed, one foot in front of the other, rocking like someone trying patiently and with minimal effort to get his trailing foot unstuck.

Even so, he is not the "nerd" he is reputed to be. He has a relaxed and friendly air, frequently breaking into smiles or soft laughter. When walking, he moves with an almost aristocratic leisure and grace. He is a decent athlete who swims and water-skis avidly.

Gates conforms so poorly to the nerd stereotype that at least one of his competitors regards it as a devious disguise. "I've always wondered how much Bill calculated that nerd image, because he is so sharp on contracts," says Philippe Kahn, of the software maker Borland International. "He's really not a technical guy. It's an image he's trying to put out."

Yet Microsoft employees insist that Gates's grasp of technical matters is limitless. Brad Silverberg is one among hundreds of programmers who have worked closely with Gates to profess awe at his ability to spot weaknesses in their scientific work.

Those two conflicting views of Gates have inspired a debate on whether he is a genuine innovator or simply a marketer of other people's ideas. Tom Corddry, of Microsoft's multimedia publishing division, probably comes closest to an accurate description of Gates's mind when he says: "I don't think his job gives him much opportunity to be a visionary in the sense of having totally new ideas. But he has an ability to extract thoughts from thinkers. He has a tremendous ability to understand relationships and see patterns and links." It all adds up to an ability to predict which ideas will catch on and which won't.

From his middle-school days to the present, Gates has shown the perspicacity of a great capitalist. He was so unusual, and at times so shrewd, that it is easy to see why "The Catcher in the Rye" by J. D. Salinger and "A Separate Peace" by John Knowles are his favorite books. But where most regard these novels as studies of adolescent angst, Gates sees another side. "They're sort of about being able to see things in a way that people don't understand," he says. "You have this model in your head of what's going on out there, and adults are sort of thinking that this guy's just a kid."

The middle child (Gates has two sisters) of William H. Gates Jr., one of Seattle's most prominent attorneys, and Mary Gates, a member of the University of Washington Board of Regents and of the board of United Way International, William H. Gates 3d was 14 when he founded his first two companies: one developed a computerized class-scheduling system for his school, Lakeside; the other, called Traf-O-Data, used a computer program to transcribe and analyze traffic counts taken by those hose-and-box arrangements strung across roadways. At 19, Gates dropped out of Harvard University, determined to try his hand at serious entrepreneurship. The impetus to quit school came from his boyhood friend Paul Allen, who had seen a picture in Popular Electronics of a newly invented microcomputer kit -- the Altair 8800 -- built by MITS. Impressive as the new machine was, its memory was so small that conventional operating-system languages, written for mainframe computers, took up all of the 8800's memory, leaving no room for it to do anything. Gates and Allen decided to write a version of Basic -- a mainframe computer language -- condensed to fit into a portion of the Altair's tiny memory, and licensed it to MITS.

Computer language, in which all operating systems and applications software is written, is a series of letters, numbers and other symbols that translates into computer activity. While you would tell an American, "Bring me the file," or a Frenchman "Allez chercher le dossier,"' you might tell a computer, "mov ax,3d00h/int 21h/ [ bx+8 ] ,ax." A computer program is made up of thousands of characters strung together in this "language." The programmer's goal is to string together the smallest number of characters into a command that will make a computer perform a specific function.

Programming, says Gates, "has this element of art. There are so many thousands of judgments people are applying, and they have an aesthetic about how much they care about their program being good. But there is in the end a test of 'Does it work, is it fast, is it small, does it get it done?' "

By 1980, Gates could see that the PC market would advance along "a positive feedback loop," in which leaps in chip technology, hardware and software would push each other along, and that software, with its relatively low production costs, would be the biggest moneymaker. "Once one thing gets ahead, then everybody works on stuff for that," he says, "and because people do that, then it gets ahead more." Gates got MS-DOS into that loop by observing that I.B.M. -- the world's biggest mainframe computer company -- was concentrating on building a personal computer. Gates predicted that with its resources, I.B.M. would beat its competition to the marketplace with what would become the world's standard PC. When Gates was approached by I.B.M. to write an operating system to launch its new PC, he remembered an operating system called 86-DOS, from tiny Seattle Computer Products, which he thought would work with I.B.M. In 1980, for $50,000, the opportunistic Gates bought 86-DOS, rewrote it, renamed it MS-DOS and licensed it to I.B.M. By adapting an existing program, he saved a year on development.

When the first I.B.M. PC, powered by MS-DOS, was unveiled in August 1981, Gates was on the brink of world domination. He had negotiated with I.B.M. to retain ownership of MS-DOS. So when I.B.M. made its hardware technology available to other producers, creating a vast clone industry, Microsoft was ready to supply everyone in it with operating-systems software. The I.B.M.-Microsoft surge inspired the software industry to devote most of its energies to writing applications for I.B.M.-compatible machines rather than for the scarcer Apple-manufactured ones. The more applications there were, the more salable were I.B.M. machines. That Apple survived at all is largely because of the popularity of its Macintosh PC -- a machine whose success ultimately was attributable to the applications Microsoft wrote for it.

In sharing its technology with other hardware companies, I.B.M. lost tremendous market share to smaller firms who could produce cheaper machines. And in keeping its technology to itself, Apple lost market share by being shut out of the industry's loop. Both, by virtue of being hardware manufacturers, must compete against foreign manufacturers with far lower production costs and both must underwrite factory facilities. So both companies are saddled with costs and competitive concerns that software manufacturers like Gates can ignore. Gates's only factory asset is the human imagination, and his only labor force is a group of people just like himself. (More than 6,000 of Microsoft's 8,100 employees are programmers, the balance being receptionists, software-manual writers, attorneys, accountants, salespeople and managers.)

As his company has grown, Gates has been careful to keep his design teams small. He realizes that the agility of a small company, combined with a working environment that fosters individual creativity, is what made cumbersome I.B.M. and Apple seek tiny Microsoft's help back in the dawn of the personal-computer era. "You can't just put more people onto a development project to get it done faster," he says. "You've got to pick a few people and really trust them." The secret at Microsoft, he says, has been to hire good programmers and leave them alone to work in small groups. "In programming," Gates says, "smallness is goodness."

While no one questions the success of Gates's approach so far, questions are increasingly raised about his ability to cope with the new challenges facing Microsoft. Gates's competitors insist that his ambition has outstripped his abilities, and that he is headed for a hubristic fall right out of classical tragedy.

Gates sends conflicting signals about the latest competitive threats against him. In a speech to computer consultants, he said the I.B.M.-Apple initiative would prove "good for the industry," as technological progress has been retarded by competition between the two. In private the next day he said the alliance was "scary." Another time, he dismissed the purported threat with a curt "in this industry everybody is always forming alliances."

When assessing Gates's chances, it is worth remembering his record. Charles Simonyi, a software architect at Microsoft, recalls in 1980 Gates's predicting to disbelieving listeners that the mouse and the laser printer -- neither of which had been perfected -- would direct the future of the software industry. When Microsoft introduced Windows in 1987, it was panned, but Gates updated it until the 1991 version took the computer world by storm. Six years ago, Microsoft's new multimedia division was considered a joke by many in the industry; now multimedia is widely regarded as a lucrative future marketplace.

On the other hand, predicting the future of anything in the computer industry is almost impossible. No industry in history has undergone such constant, high-speed change. So Gates -- half programmer, half tycoon -- is an anomaly in an anomalous industry. Wagering on his chances is less a business bet than a moral one: you may as well wager on the truth or falsehood of the proposition that pride goeth before the fall.

Gates certainly betrays no fears for the future in his plans for a life away from the Microsoft campus. He is constructing a 37,000-square-foot house on the east shore of Lake Washington. Though estimated to cost between $10 million and $20 million, the complex will be a combination dwelling, reception center and statement of Pacific Northwest values -- and a telling glimpse into Gates's soul.

Seen from the lake, the house will look more like a neighborhood of small homes than like a single mansion. It is to be very much a Northwesterner's home -- secluded and constructed with environmental considerations that would be unthinkable in most other parts of the country. The complex will be built largely from recycled wood from a dismantled lumber mill. At his architects' urging, he is restoring a portion of his shoreline to natural habitat, and has gone to great expense to avoid cutting down several trees on the construction site.

The most astonishing features will be invisible from the outside. The house will be packed with electronic wizardry, fitted throughout with huge flat video screens, connected by fiber-optic cable to a computer and manipulable by a cordless mouse. The screens will combine all the abilities of a personal computer with visual magic of high-resolution television.

"What I'm doing with the screens is an experiment," Gates says, "And I think it'll be very interesting and fun." He envisions the day some 8 to 10 years from now when the screen technology will be widely available, and the experiment in his own home will pay off handsomely. "Consumer-electronics companies, most of which are in Japan, are building these big flat screens, and the hardware to store the data just keeps getting cheaper and cheaper. I think it will create demand for high-quality still images that you can access in an easy way."

Gates plans art reproductions from museums to be part of an interactive information system, its contents retrievable in any imaginable arrangement. "You can say: 'What artists were in France during this time period? Was there any sculpture done in Italy before this date?' You can say, 'Show me all the pictures that have yellow birds in them.' And then you'll see if it's a picture in Rome or something painted 1,000 years ago."

Gates is meeting with his two architects now, late at night in one of Microsoft's board rooms. They are going over design changes. It is when the architects begin describing changes in a long arcade, referred to by one of them as "a video arcade," that the most apt analogy for Gates comes to mind. Anyone who has ever played a video game understands that players can never win outright -- they can only earn the right to ascend to the next level of competition. Gates in his game is no different. Each rise in the level and scale of competition serves only to egg him on. Asked why he keeps driving himself harder now than when he started out, Gates says flatly, "I want to win." Asked to define winning, he can't, saying instead: "I'm pretty confident of our success now, but that doesn't mean there aren't moments when I go: 'Jeez! How did we get into this?' This stuff we're in right now, this could be our biggest competition ever! This is scary stuff!" There is, however, not a hint of fear in his voice -- only pure, adrenaline-soaked exhilaration.