Cash from Chaos: inside Microsoft

When Bill Gates turned up at VisiCorp's stand at Comdex, Las Vegas, November 1982, he was struck like Saul on the road to Damascus. On the computer screen before him, the old, artless DOS-based C:> prompt that Microsoft had standardised on IBM PCs was nowhere to be seen.

In its place was a revolutionary graphical interface called VisiOn.

With the use of a mouse, users could execute commands by pulling down menus or clicking icons. And Gates knew that with such a product as VisiOn, personal computing could leap into the mainstream. VisiCorp was encroaching on Microsoft's bread and butter business - operating systems.

If VisiOn proved a success in the marketplace, VisiCorp would be positioned to set a revolutionary new computing standard for PC operating systems.

Of course, that was the role Gates had staked out for his own company.

After he saw VisiCorp's demonstration, Gates rushed back to Bellevue.

He began canvassing Microsoft's in-house programming talent, seeking out the programmers best suited to duplicate VisiOn and exploit its attributes.

Dan McCabe and Rao Remala, who had come to the US in 1979 from an Indian village without electricity, were his men.

Remala and McCabe studied Xerox PARC's Star system, which Gates had purchased for Microsoft to reverse engineer. The two developers spent the next several months writing code at a gruelling pace until, by April 1983, the two had put together a prototype of a windowing system that mimicked VisiOn's.

They called this new software the Interface Manager (IM). Remala created a demonstration showing overlapping windows that looked like sheets of paper stacked on top of each other - just how they would look on a desk.

However, underneath those stacks of paper was nothing more than the set of instructions that put those graphics on the screen. It was a smoke and mirrors demonstration - not real working code.

Remala needed help, and it came from Steve Wood, a blunt, six-foot-two no-apologies programming legend from Yale. Wood was notorious for his elegant, meticulously clean code, which he wrote with blinding speed and accuracy.

He was also fastidious to an extreme, so much so that when Kellogg's changed the colour of the frosting on their raspberry Pop-Tarts from white to red, he dropped them, turning instead to Rice Krispy Treats.

At once he began to sense the chaos. 'We don't have a manager who cares about what we're doing,' Wood told Remala. 'We don't really have a clue as to what we're doing from a strategic standpoint.'

The two programmers took their concerns to Steve Ballmer, Gates' dorm-mate at college and now chief confidant.

'If you guys want to do something with a windowing package like VisiOn's, then you need somebody running the group who knows about it,' said Wood.

About this time, Gates learned that Scott McGregor, the then 26-year-old graphics guru from Xerox PARC who had written Xerox's windowing system, might be looking for another job. Gates quickly flew down to Palo Alto to wine and dine McGregor.

McGregor would later say that one of the things that impressed him most was Gates' seemingly insatiable quest for knowledge. McGregor found that if he knew more than Gates on a particular topic, instead of being put off, Chairman Bill would go out and bone up on the subject. The next time McGregor saw his future boss, Gates not only remembered verbatim their previous conversation, he proceeded to dazzle McGregor with his expert knowledge on topics that a week before had stumped him.

Once McGregor came on board in the autumn of 1983, Gates reorganised.

He pulled the graphics groups away from Greg Whitten, one of Microsoft's earliest hires, and appointed McGregor to manage the new graphics project dubbed the 'Interface Manager'.

Marlin Eller, who had been working in Whitten's graphics group, joined Remala and Wood, rounding out the core of the Windows team. Eller, a mathematician and former Williams College instructor, had been hired in 1982 to write a translator for Microsoft's Basic programming language, but he quickly became sidetracked when he started playing with the boxy white IBM PC, introduced a year earlier, and still a novelty at Microsoft.

Using a simple three-line piece of code, Eller drew a round digital clock on the computer screen. It looked too plain. Using an instruction known as a flood-fill algorithm, he tried to fill in the background with colour, but it didn't work.Eller flipped through the manual, trying to figure out if he had done something wrong. He called his boss.

'Why isn't the flood-fill working, Greg?'

'Must be a bug in your code, Marlin.'

'No, I've already been over my code. There aren't any bugs.'

'Not in your code,' Whitten said. 'In the Basic code.'

'You mean we ship our Basic with bugs in it?' Eller asked, somewhat incredulously.

'That's right.' And with that, Whitten walked out of the room.

Slightly disgusted that he had just joined a company that was shipping defective software, Eller decided to take matters into his own hands, taking two weeks to hack out a new flood-fill algorithm.

Whitten was less than thrilled. The two weeks on the flood-fill were at the expense of the translator he was supposed to be writing. Undaunted, Eller set out to let others in on the flaw he had discovered and how he had fixed it. He even pulled in Chairman Gates, whose office was just down the hall.

'Bill, check this out,' Eller said, pointing to his computer screen.

'I mean ... who was the jerk who wrote this brain-dead piece of code?'

Gates stared at the screen.

'See, that's what I call a design flaw,' Eller said. 'Now check out my new version. Pretty cool, eh?'

Gates nodded, pushing his glasses up the bridge of his nose. Gates told Eller his program was nice, then turned and walked back to his office.

After Gates left, Whitten walked into Eller's office. He had heard the entire conversation.

'Do you know who wrote the original flood-fill algorithm?' he said, shaking his head.

'Ahhh, nope,' Eller replied. 'I don't believe I do.'

Whitten paused, rubbed his finger on his left temple, and shook his head again. 'Bill wrote it,' he said. 'Bill was the jerk who wrote this brain dead piece of code!'

The task of the Windows team was to create something 'cool' that was also visually stimulating. Their goal was to create a virtual software layer that would unite the hardware and software marketplace on a single standard once again controlled by Microsoft.

But the challenges were enormous. For every piece of hardware and software on the market, Microsoft would have to write drivers, little chunks of code that let the computer know what it was running.

In 1983, the Windows group had fewer than 10 people. It would be impossible for the team to write all of the drivers themselves, especially given their tight deadline, which was just months away. What they had to do was convince the hardware and software vendors to do the work for them.

Even though the Windows team was far from achieving its goal of an operating system-driven, graphical user interface, they had to have Windows endorsements from the hardware and software development communities.

Gates and McGregor went on several trips together, trying to convince both the hardware and software makers to jump on the Windows bandwagon.

They always flew coach and often took 'red eyes', and McGregor was taken aback by Gates' and Microsoft's hardball methods.

Asked to describe the process years later, McGregor remembered it this way: 'Bill would go to a very senior person at these other OEMs, DEC or Tandy or Compaq or whoever, and yell at them or tell them it had to be this way, or if you don't do this we'll make sure our software doesn't run on your box. What do you do if you're one of these OEM guys? You're screwed. You can't have Microsoft not support your hardware, so you better do what they say.'

Ironically, McGregor also remembered the remarkable transformation of William Gates III in front of IBM.

'Bill was very humble and would speak softer (with IBM). There was a definite difference in the tone of his voice. You'd go in the meeting and it was just a fascinating contrast to see Bill at IBM versus Bill at any of the other companies.'

In late 1982, Gates embarked on creating what would become Microsoft's most marketable product: its image.

In the autumn of 1982 Pam Edstrom, a diminutive woman with piercing blue eyes, was recruited by Microsoft. Even though she was, at 36, one of the oldest employees at Microsoft, Edstrom would have to work hard to earn the respect of her fellow employees, the then mostly male programmers.

In the eyes of Microsoft's jaded programmers, Edstrom and her breed were a necessary evil to be tolerated at best. What they couldn't know at the time was that Edstrom, along with a few other key hires on the marketing side, were about to change Microsoft forever.

Not long after Edstrom signed on, she was joined by Rowland Hanson, the former vice president of marketing for Neutrogena Corporation, a maker of soap and cosmetics.

Good-looking, well-dressed, and a computer virgin, Hanson, a die-hard surfer and beach lover, came from a world of fragrant packaged goods where appearances were everything.

Until 1983, the computer industry was still so arrogant that it had no idea what a beginner it was when it came to packaging and pitching products for consumers. Gates, in the early 1980s, was the epitome of this clueless arrogance, but he and Microsoft were about to receive a face-lift.

Hanson hadn't fancied himself much in the nerdy world of computers, nor was he eager to trade in southern California sunshine for rain. But as a favour to the tenacious headhunter Gates had hired , or merely to get him off his back, Hanson agreed to fly up on a Sunday morning to meet with the nerdy software guy. He boarded the plane to Seattle with every intention of saying no.

Ballmer, who had earlier spent a brief stint at consumer-goods giant Proctor & Gamble, picked up Hanson at the airport. The two hit it off immediately, talking football on the drive to Bellevue. A husky six-foot-one, 225lbs, Ballmer had once been student manager of the Harvard football team.

When they got to Gates' office, the young chairman immediately launched into sales mode, rocking back and forth with excitement as he explained his vision of computing. It was all Greek to Hanson, but then a light went off in his head - in Microsoft he saw a marketing 'Pygmalion', with Gates as Eliza Doolittle.

'I'm starting to get what you're talking about here,' Hanson said. 'But I have no idea why you're interested in me. I don't know anything about computers, I don't own one. I know nothing about software. Why are you even talking to me?'

Gates looked puzzled. 'I thought you understood,' he said.

Hanson shook his head.

'What's the difference between a dollar-per-ounce moisturiser and hundred-dollar-an-ounce moisturiser?'

'Technically there is no difference. Vaseline may even be more effective.'

'So what's the difference?' Gates asked.

'Well, it's in the brand. The image you create around the brand.'

'That's why I need you in this company,' Gates said. 'Because nobody in this company, or in this industry, really understands that. And if we can have the perception, I can create the reality. With the combination of the reality and the perception, nobody will ever beat us.'

Hanson joined Microsoft in early 1983. As vice president of corporate communications, he was responsible for advertising, public relations, and anything having to do with retail promotions and the public.

Hanson's goal was to position the company as the industry leader in software.

But to get there, they would need to establish certain fundamentals. Microsoft was an environment in transition, dominated entirely by developers. Procedures didn't exist. Hanson liked the challenge.

Hanson's goal was to position Microsoft as the 'safe buy, the quality buy,' i.e. the next IBM. But he first had to understand what people thought about the company.

He proposed spending $50,000 (#30,000) on the first awareness and attitude study in the computer industry. The research would evaluate not only the general awareness and perceptions of Microsoft, but also what features Microsoft should be including in its products.

'This is insane,' was Gates' reaction to Hanson's plan. 'We're not going to do it,' he shouted.

Hanson pressed on. 'I need to proceed with this research,' he said.

'We're not going to get it done in time, and I have ad schedules to make. A lot of this is going to be used.'

Right then, in front of everybody, Gates reversed his position.

'You're right,' Gates said. 'Let's do it.'

'That's why Gates was so successful,' Hanson would later reflect. 'His ability to turn on a dime, and to listen to the smart people he surrounded himself with.'

The survey provided some pretty compelling, if not damning evidence.

People said they wouldn't buy Microsoft's software because they couldn't understand the packaging - pure techno-babble.

The results told Hanson how people viewed each company, and enabled him to define exactly what message it would take for people to perceive Microsoft as the industry leader.

It was a very disciplined, systematic approach - something totally alien to the boys' club of techies who relished their Animal House ways.

Developers were also sceptical about Hanson's decision to change the manuals and the packaging based on consumer feedback. If the consumer was too stupid to understand the manual, they probably shouldn't be using the product in the first place, they thought.

Hanson ignored this arrogance. For him and for Microsoft, the research was proving invaluable. As their study showed, other leading companies had the same problem of consumers not making the association between a company and its products. Almost everyone knew the premier word processor at the time, WordStar, yet no one knew MicroPro made the software.

The key to Hanson's and Microsoft's success was to have a naming strategy for Microsoft products: instead of 'Word' for the word processor, it would be 'Microsoft Word.' Multiplan, Microsoft's spreadsheet, would be 'Microsoft Excel'.

Hanson ran into an uproar with the developers. They still wanted to call their new windowing system the Interface Manager. That was a name they had come up with and it was the flag they were carrying. But from a marketing standpoint the name sucked - big time. Consistently, the press was calling this new thing a windowing shell, a windowing manager, or a windowing system. If Microsoft wanted to set a de facto standard in the industry, the logical generic name to call the new product was 'Windows'.

The developers held on to Interface Manager. Gates didn't want to get involved. He insisted that Hanson convince the others that the name should be Windows.

Frustrated, Hanson went back to Gates. 'I've given everybody the logic on this and nobody is buying it,' he said.

'You have to make the decision. I can't convince them. We've got a naming strategy, which is based on our branding strategy. Our branding strategy is based on how we want to position Microsoft.

'Now we've got this 'thing' that fits within our naming strategy, and the only logical thing to call it, if we believe in all this crap we've been talking about, is 'Windows'. There is no other name.'

Just before the Windows documentation was to be printed, Gates the oracle spoke. Then the developers lined up behind him.

So now they had a name, but Hanson and Edstrom still weren't sure if Microsoft was ready to make an announcement. A technical neophyte, Hanson had no idea what was realistic timing on the product side. Edstrom, coming out of Tektronix, was technically more savvy, and she provided Hanson with wisdom born of experience.

'Big problem,' she'd explain. 'This stuff isn't going to be ready.'

Hanson remained unconcerned. From a communications standpoint, everything seemed to be in order. But Edstrom knew better.

Gates, who should have known better, gave the go-ahead for Windows' launch, and he sanctioned not one, but two announcements, a spectacular coming-out party for Microsoft as well as for Windows.

The first would take place in New York. Microsoft had successfully romanced 24 different computer manufacturers who would publicly pledge their support for Windows.

The beautiful part of the New York event was the 24 manufacturers, which Microsoft had recruited to the Windows bandwagon, all on stage together.

Many of these companies were blood rivals who normally wouldn't be within spitting distance of each other. Yet Microsoft was able to pull them all together.

The second phase - the piece de resistance - would take place in Las Vegas, at Comdex, the computer industry's biggest trade show.

By 1983, Comdex had become a huge phenomenon. Vegas was booked solid and with all the ballyhoo, it was very difficult for any company, much less a small upstart such a Microsoft, to be noticed.

Hanson called Bob Lorsch, a marketing mastermind, with a Los Angeles-based sales promotion agency whom Hanson had used in crisis mode at Neutrogena.

Hanson said: 'I need to own Las Vegas during this event. I don't care what the rules are. We need to rise above the clutter.'

Then Hanson warned his team. 'We're never going to get this done through the normal channels. The normal channels are all taken. I mean, this is an insane launch plan. I need to bring in somebody who can make the impossible happen. And you need to trust me. This guy is going to scare you because he is a little bit off the wall.'

When people showed up in Las Vegas, they were awestruck. There wasn't a taxi on the Strip not promoting Windows. Stickers were all over the backseats of cabs; the drivers wore Windows buttons.

Lorsch was a magician who believed anything was possible and simply wouldn't take no for an answer. He managed to get Windows 1.0 pillowcases in 20,000 Las Vegas hotel rooms. When half-asleep Comdex attendees turned down their beds at night, they were astonished to find their pillows instructing them to stop by Microsoft's booth.

'You'd be amazed by the power held by doormen, head maids, housekeepers, and security guards.' Hanson said. 'As well as the leads limo drivers can give you.'

In total, Microsoft would spend $450,000. After that, Comdex put policies in place requiring that companies go through the proper channels if they wanted paraphernalia in hotel rooms.

At Gates' keynote speech, the lights dimmed, and a spotlight followed him to centre stage in front of a standing-room-only audience. His fingerprint-smudged glasses reflected the light. He looked like central casting's idea of a technical genius, which was, of course, all part of the image being marketed.

So when Gates stood there and promised that Microsoft would ship Windows in the spring of 1984, people believed him. The company had just spent hundreds of thousands of dollars to launch it, so of course it would ship.

However, the developers actually doing the work back in Bellevue knew different. Eller, Wood, and Remala, especially, knew the product would never ship by April 1984, because Windows was the true, original archetype of 'vaporware'.

Gates' Comdex demo was little more than a videotape that flashed graphics on the screen in different windows. It barely contained any code, but it looked better than VisiOn's demo, and that's what counted. When Hanson's team conducted their exit polls, public perception and awareness for Microsoft and Windows had grown from 10% to 90% in one week.

The company received its first television coverage, and people held off on VisiOn, waiting instead for Windows 1.0 - the safe, quality buy. Developers started calling VisiCorp 'VisiCorpse'. The Soft would emerge as a completely different company, not based on its technical merit, but on its marketing prowess.

Gates would emerge a different person as well. He was on his way to pop-icon status.

But a casualty of this change would be the attention he could pay to the actual development of Windows. Never had the programmer/chief executive been less involved in his company's programming, and this lack of involvement would wreak havoc during the entire two-year period it would take to get Windows out the door.

Next week: Windows - behind closed doors!

THE MOMENT MICROSOFT MISSED THE NET BOAT

Marlin Eller had been at Microsoft for more than a decade. He had spent three years in the 'death march' to develop the Windows graphics subsystem, GDI, the graphics still used in Windows 95 today.

But by 1993, Eller was now fighting to save his Remote Information Protocol (RIP) project - a battle Microsoft would later wish he had won.

At this moment, Netscape didn't even exist, but Eller was finally in a position to build what he had always wanted - an interpreted object-oriented scripting language. But the language was only one part of the project. RIP encompassed a number of Internet technologies including a browser, such as Netscape's Navigator, compression and decompression technologies, and encryption.

One day, Nathan Myhrvold, Microsoft's chief technology officer, caught Eller in the hall to discuss their progress. Talking to Myhrvold was a little like smoking dope. It could give you 'insights', but in the light of day those insights often didn't make any sense. Eller walked out of Myhrvold's office reeling and dizzy and looking for food.

How could Gates put this guy in such a powerful position? It's not that Myhrvold wasn't smart - he was exceedingly smart. But Myhrvold was a cosmologist.

Among experimental physicists, cosmologists were known to be flakes: while the experimental guys were rounding things out to the 13th decimal, cosmologists were talking about wormholes and what happenend in the first nanosecond.

'The last thing this company needs is another language,' Myhrvold had said.

Gates wanted all of the languages to be the same - BASIC. After all, Gates had written it. But despite Chairman Bill's monument to code, the computer world needed to move on.

Eller knew the only way to keep RIP alive was to take it straight to Bill. A recruit party was coming up at the Seattle Museum of History and Industry. Once upon a time, a recruit party consisted of a case of beer and pizzas in cardboard boxes. But even now, with old-timers and acne-faced kids chumming up over prawns and Chardonnay, Eller still knew that, once the caterers started cleaning up, it would be an opportune time to talk to the boss.

After Eller's new hires had gone, he walked up to Gates. Gates was standing at the buffet chewing on a shrimp the size of Manhattan.

'Hey, Bill,' Eller said.

Gates nodded.

'I think we've got a good group here,' Eller went on. 'Especially that new kid who's gonna work with me on RIP.'

Gates nodded again, but the richest man in America seemed otherwise engaged.

'You know,' Eller said. 'I don't think you're giving enough attention to low bandwidth.'

Gates continued chewing, and Eller picked up a shrimp himself. Gates looked at him and pushed the bridge of his glasses back up onto his nose.

'We have low bandwidth today,' Eller continued. 'Everybody has a modem.

People can exchange information at 9600 baud. This way it's an evolution where everyone keeps their existing software and computers. We should do that now.'

A long silence hung suspended between the two. Eller knew Gates had heard him. But Gates gazed off in the distance, seemingly oblivious.

'Uh huh,' Gates muttered.

And at that moment, Microsoft missed the technology boat.

Millions of future web surfers bearing the Microsoft logo simply turned and paddled back out to sea. In the early days, Gates would have been all over the issues, saying: 'Why will this be more important than that? Is this really the right thing?'

Now Microsoft had become so big that Gates could no longer focus. But Eller was tired of fighting, tired of persuading, tired of convincing.

He walked away from the party disillusioned, but also realising that this moment of blindness was not really so unusual. Working for Chairman Bill had been like white-water rafting, not ocean cruising. There were so many near misses and episodes of dumb luck that the public and investors never knew about. The company had become just another lumbering giant, like IBM.

MEET THE MICROSOFT INSIDERS...

Marlin Eller

I started as a programmer when Microsoft employed barely a hundred people.

I stayed with it as a software developer and manager for the next 13 years, as it evolved and grew. When I left the company in 1995, it was about 20,000 strong and still growing, its influence continuing to expand. During that time I watched public perception of Microsoft go from ignorance, to admiration for the fleet little upstart, to fear and loathing of a seemingly unstoppable corporate juggernaut.

I do hope no-one will mistake this book for a balanced historical account, for indeed, items have been chosen primarily for contrast with the commonly-held perceptions of Microsoft.

Jennifer Edstrom

I first met Marlin Eller back in 1994 while I was writing an article on video compression. Microsoft public relations arranged for me to interview Marlin, and shortly after, he said he wanted to write a book telling his inside story. The rest is history. Like Marlin, I too am somewhat of a Microsoft insider. My mother joined Microsoft in 1982 to handle the company's public relations. From the age of 13, I grew up entrenched in Microsoft.

But unlike Marlin, I was exposed to the upper echelon of executives. I've been to countless functions, from wedding receptions to product launches, to dinner with Gates. The view from the trenches is refreshingly different.

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