On Bill Gates and early Microsoft: Hard Drive

The Gates-Microsoft story is almost archetypal in tech: whizz kid is really good at programming (and pretty much everything), gets into a top college, drops out and founds a company, works insanely hard, and becomes a billionaire. (See also Zuckerberg and the Collisons.)

There’s a lot of truth to this story: Gates’ genius, competitive streak, extreme work ethic… but it also leaves out many details. Hard Drive: Bill Gates and the Making of the Microsoft Empire (1992), by Wallace and Erickson, helps fill those in. (H/t Tyler Cowen.)

Gates the individual

Gates wasn’t the best at math in Harvard; he met several who were significantly better than him. Said Gates: “It changed my view about going into math… It made the odds much longer that I could do some world-class thing…” This didn’t stop him from making a contribution to a particular problem on the frontier of math (See here and here.) He was peerless, however, in computer science. (Jeff Bezos was the same – not actually best in the class at Princeton, by his own admission).

Gates had an extreme work ethic, both in high school when he found bugs on a the timesharing computer of a Seattle firm, all the way through to his days at Microsoft. An awful lot in his life came second to his work: sleep, personal hygiene, friends, and various girlfriends.

Typically, he [Gates] would arrive at work mid-morning and not return home until well after midnight. He would then spend at least a couple of hours answering or writing E-Mail to his employees.

One girlfriend reported that “it was difficult to sustain a relationship with someone who could boast a ‘seven-hour’ turnaround–meaning from the time he left Microsoft to the time he returned in the morning was a mere seven hours.”

Gates told this girlfriend at one point that he wished she and Steve Ballmer, Gates’ right-hand man, would get together, so she could be close to Gates but he could still work.

This isn’t to say he only worked. The authors mention Gates’ time with family at Christmas, trips to the cinema, watersports, and high-speed late-night drives (to help him think, apparently). But Gates’ work was his number one concern, at least for the period the book covers.

Another asset for Gates was his ability to recognise his own weaknesses and find complementary talent. As Stewart Alsop, a computer newsletter writer, told the authors:

This is so rare… I can’t tell you how rare this is… Gates was told that as the founder of the company what he needed was a management guy, someone to organize the company. So he found [James] Towne… He realised [later] that Towne was not bad, but that he, Gates, had made a mistake, and Towne was not the right guy for the job. So Gates went out and hired John Shirley. And he was absolutely the right guy… The process of identifying the mistake, figuring out the problem and fixing it is what makes Bill Gates different. I’ve watched him do it over and over again.

This seems almost banal. Gates made a mistake then rectified it? But this requires clear-sightedness, and a large dose of humility. If you’re rich and successful, as well as reportedly obnoxious, those aren’t easy things to do.

Gates remained weaker on personnel management. He only had one mode when giving feedback — intense and angry. When he heard something he didn’t agree with, he would stop rocking back and forth in his chair and suddenly sit up straight, becoming visibly angry, often yelling and pounding the table with a fist:

‘At first Ruttenbur thought Gates was putting on an act. It was hard for him to believe a CEO could react so emotionally to every issue. But he soon realised this was no show; Gates simply reacted to things on an intense emotional level.’

He liked people who would fight back, but of course not everyone would. He didn’t have a way to encourage the kind of people who would be intimidated by these outbursts. 

Gates also tended towards micromanagement, and didn’t appreciate what it took to create a project at scale. One senior programmer told the authors:

He had typically worked on projects that were fairly small, and Microsoft then did almost no field testing. What Bill didn’t understand was that when you have large and complicated projects with a lot of documentation and a lot of people, the trivial change takes a lot of time. You have to factor it through, change the code, change the documentation and retest it, make sure the change works with all the other pieces of the program. If you made a change once every three months, you’d never ship the product… There was this very real conflict between Bill’s desire to make Windows better, and the need to have a plan to execute, to actually get the product out.

This contributed to management issues. Microsoft would hire young, selecting extremely technically capable people from top colleges, rather than MBAs. But this led to the Peter Principle, in which these people would rise through the company until they ended up in management. Ironically, this ended up being quite inefficient, with fights and the silent treatment hampering progress on products. (This is reminiscent of similar struggles at Google in the 2000s.)

By 1984, Gates’ and Microsoft’s ‘management by crisis’ was unsustainable. The company was reorganised into separate systems software and business applications divisions, and Gates no longer had direct management responsibilities. The further reason for this was the allegation that the systems people were giving the software people inside information, to the detriment of Microsoft’s competitors. (And it sounds like they were.)

What made Gates the force of nature he was? Perhaps it was fear of failure. One interviewee thought that the lack of failure in his life meant that he lacked a ‘certain humaneness’. A 1991 memo by Gates to his senior executives emphasised his fears of the competition:

Our nightmare — IBM “attacking” us in systems software, Novell “defeating” us in networking and more agile, lower cost structure, customer-oriented applications, competitors getting their Windows to act together is not a scenario, but a reality. 

Source: https://pastebin.com/raw/GXZ1xYuw

Or maybe he just lacked distractions. One of his industry competitors wished that Gates would get married and have kids, so he’d mellow out and not work so hard.

The economics and business of Microsoft

When Microsoft began, computers were typically the size of rooms. Gates and his co-founder Paul Allen got their start de-bugging such a computer at the afore-mentioned computer company in Seattle.

But it was the new ‘microcomputers’ that gave Gates his opportunity. These were small computers, no longer room-sized but desk-sized. Micro-Soft, as it was originally known, began by producing a version of the programming language BASIC for a new microcomputer, the Altair, in 1974. Soon they produced other kinds of languages for various microcomputer clients. Later, in line with Gates’ ambitions, it expanded into consumer-facing applications. (In contrast to, say, Apple, Microsoft was never really into hardware.)

A helpful way to visualise this is a stack. The operating system of the computer is at the bottom, where it interacts with the hardware. In the middle is BASIC, or another computer language. And then at the top, there’s the application layer (Microsoft Word, for instance).

Applications
Language
Operating system
Hardware

By focusing on an additional layer of the stack, Gates was vertically integrating and thus helping to cement Microsoft’s position in the burgeoning computer economy. He would also buy an operating system, 86-DOS, and eventually create the Windows operating system — all allowing Microsoft to integrate further ‘back’ in the stack. 

Gates said later that it was a mistake to get into applications so late. This is hard to imagine considering their later success, but it’s part of why the book is interesting — it’s written before the total dominance of Windows, Microsoft Office, and Internet Explorer. In the end, perhaps Microsoft enjoyed last-mover advantage, and could get stuck into a maturing market with significant capital behind them. Or perhaps the illicit advantages of vertical integration — insider tips between the operating system people and the application people — made the difference?

Vertical integration paid off for Gates: for instance, Microsoft sold an operating system license to IBM for a small sum, less than what it cost to produce it. But this locked IBM into needing Microsoft’s languages, like BASIC, to create programs for the operating system. The operating system was thus a loss leader

Gates and Allen were great at seeing where the industry was going; they got into the Japanese market early, in part thanks to their larger-than-life colleague Kay Nishi, who regularly flew across the Pacific to beat the drum for Microsoft. 

Coupled with this far-sightedness was incredible drive and ambition — which occasionally ran a bit ahead of their actual capabilities. Project durations were consistently underestimated, and deadlines were missed, but “we always got it done”, in the words of one employee  (Tesla, anyone?). This allowed them to self-fund in their early stages of growth.

Gates was obsessed with market share. The company’s motto since the Altair days was ‘We Set the Standard’ — the better to crush the competition. This urge was behind the ambitious deadlines, and price cuts in the face of rival bids for a contract.

Setting the industry standard had an important technical pay-off for Microsoft too. If DOS or Windows was the only operating system in town, then Microsoft’s languages and programs wouldn’t have to run on any other systems, saving programming time and ultimately money. This dovetailed with Gates’ aggressive pricing strategy with IBM on the operating system — get everyone in the industry on your operating system, and you’ll make money in the aftermath.

Gates’ company allegedly went beyond hard-core pricing strategies into more dubious territory. There were claims that Microsoft took meetings and signed initial agreements mainly so that they could get a look at the technology of other companies, even minnows. Then Microsoft would turn around and announce that — coincidentally — they had a product just like that one in development. Or they would make an agreement with a firm to sell some product, and then leave that firm to bear the brunt of any failures (citing the letter of their legal agreement, even if it violated what the aggrieved company felt was the spirit of the partnership).

The market share that resulted from all of these tactics made Microsoft into a multi-billion dollar company. But it also attracted the attention of the FTC, and the book concludes with warning lights flashing about possible antitrust action against the company, as well as a looming lawsuit from Apple.

The book was published in 1992, before any of those cases were decided. There isn’t any mention of the internet and the browser wars, nor the FTC’s eventual settlement with the company over Internet Explorer. It’s far from a complete assessment of Gates and Microsoft; he’d be in charge for another sixteen years before handing over to his deputy, Ballmer.

But it’s safe to say that few have the ambition and drive of Gates. He was (still is?) an ‘energetic alien’ among us

Further reading: Microsoft post-1991

The Apple Microsoft case and the antitrust case.

Ben Thompson of Stratechery on Microsoft’s reorganisation under Ballmer, and other posts (often from the Nadella era).

Inside Bill’s Brain, Netflix


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