Bill Gates' Legacy: Outmaneuvering The Competition

George Washington. Babe Ruth. Gandhi. Bill Gates? Say what you will about that bloated operating system Gates has been hawking for the past 25 years, history will show that Microsoft's cofounder and chairman belongs among the world's great champions and leaders. As he moves beyond Microsoft to throw his energies into philanthropy, Gates will be remembered as an inspiring technologist and brilliant businessman who jump-started the commercial software market and populated the world with nearly a half-billion PCs, unleashing a wave of personal creativity and productivity on a scale never before seen. Gates' postretirement biography will have its share of ugliness, too--a decade-long spat with the open source community, monopolistic business practices that culminated in a U.S. government-led antitrust trial, buggy software that was easily exploited--but those will be footnotes when all is said and done. The good that has flowed from Gates' Windows, Office, and hundreds of other software products far outweighs the bad. "He's done so many things to change people's lives," observes Bill McDermott, CEO of partner and sometimes rival SAP America. The PC revolution, a direct result of software standardization, was Bill Gates' doing. That paved the way for business adoption of not just Windows PCs, but also Windows-based servers, bringing the benefits of hardware commoditization and integrated software--e-mail, databases, Web servers--to departments and data centers. Gates didn't create the Internet or even the first browser (he'll never live that one down), but he did make Internet Explorer a freebie with every copy of Windows that shipped, with the result that PC computing and Web browsing became part of the same experience. Google is indebted to him for it. Does it seem premature in mid-2007 to analyze what Gates' lasting contribution to the computer industry will be? Gates thinks so, declining InformationWeek's request for an interview. But Gates himself put the wheels for this kind of retrospective in motion on June 15, 2006, when he revealed that, effective immediately, he was turning over his day-to-day responsibilities to Ray Ozzie and Craig Mundie, then departed on an extended vacation. Gates hasn't left the company completely--he'll keep working until July 2008, after which he will stay on as chairman and advise on key projects--but he has one foot out the door. In 2003, Gates said he would be in his job for another 10 years, until 2013; he's heading for the exit five years early. Gates' early retirement comes at a critical time, as Microsoft hustles to adapt to a world where competing open source and Web application software can be had for little to no cost, undercutting the company's lucrative licensing model. One question history will have to answer is whether Gates dropped the ball in preparing Microsoft for this new age of Web software. He bobbled it, but, so far, that ball hasn't hit the ground. Microsoft already has more applications on the Web than many people realize--blogging software, maps, Hotmail, Office Live, to name a few. For Microsoft, it's less a question of technical feasibility than of business-model adaptability. If Microsoft Word were offered as a free word processor on the Web tomorrow, how would the company justify charging $229 for an out-of-the-box license? Gates is leaving that problem to Ozzie and CEO Steve Ballmer to figure out. If developing integrated software is half of the Gates legacy, making money at it is the other half. As a moppy-headed 20-year-old, Gates challenged computer "hobbyists"--we call them users today--to pay for the software they used. "As the majority of hobbyists must be aware, most of you steal your software," Gates charged in an infamous letter published in February 1976, setting the stage for an intellectual property battle that's raging 31 years later against Linux developers and vendors. Gates, of course, was successful--wildly so--in getting most computer users to pay for their software, and thousands of other commercial software companies have followed. Today, the worldwide software market exceeds $240 billion annually. "He built the first software company before anybody in our industry knew what a software company was," Apple CEO Steve Jobs said last month in a public appearance with Gates. "That was huge. And the business model they ended up pursuing turned out to be the one that worked really well for the industry." All along the way, Gates has walked a fine line between business savvy and hard-nosed opportunism, and his company sometimes went too far. "There was a period when its tactics were over the line," says Mitchell Kertzman, a partner with venture capital firm Hummer Winblad who, as CEO of Powersoft, then Sybase, then Liberate Technologies, had his share of run-ins with Microsoft. In 2002, Kertzman testified against what he calls Microsoft's "bullying tactics" when several states dissented following the settlement reached in Microsoft's antitrust case. Yet for every company that has struggled to survive against Microsoft, others have sprouted and thrived. Attend any Microsoft conference, and you'll see a mosh pit of developers looking for the best ways to plug into Microsoft's expansive software environment. It's called the Windows ecosystem, and Gates has masterfully tended to it, speaking to coders in their techno-jargon and handing out beta code to keep them hooked. "We can't have a 32-bit driver with 32-bit pointers able to put information anywhere in a 64-bit address space," he lectured attendees at Microsoft's Windows Hardware Engineering Conference in Los Angeles last month, urging them to upgrade their device drivers for the new world of 64-bit computing. Gates has guided the PC industry through two mega architectural shifts--from 16-bit Windows 3.0 in the early days of PC computing to 32-bit Windows NT, and more recently to 64-bit Windows x64. There have been breathtaking advances in computer science under his watch, and while Gates himself wasn't the brains behind these shifts, he was a steady hand at the wheel, and that more than anything is what the industry needed. Software engineering gurus are a dime a dozen, and tech execs with "vision" are nearly as plentiful. Gates has been unique in his ability to combine the two roles--developing a product road map that leads to a future of converged devices and applications, while conveying the big picture in such a way that developers and customers have stayed on for the ride.

Staying Power
The first time I met Gates was at Computer Associates' CA World trade show in the New Orleans Convention Center in 1997. He was there to talk up a partnership that promised a new level of interoperability between CA's industry-leading systems management platform, Unicenter, and Microsoft's own systems management tools. Seated next to him was CA's smooth-talking founder and CEO, Charles Wang. What happened in the interim speaks to Gates' staying power. In the 10 years that have passed, New Orleans was nearly destroyed by Hurricane Katrina, and Wang retired as CA's CEO in 2000, then as chairman in 2002, as questions were raised about the company's accounting practices, eventually resulting in a government probe and the prosecution of several senior executives, though Wang escaped the mess. At Microsoft, meanwhile, revenue ($44.3 billion in fiscal 2006) and net earnings ($12.6 billion in fiscal 2006) have grown more than five times. Gates' self-serving tendencies--glad-handing with tech CEOs, luring talent from competitors, mimicking technical innovation created elsewhere--give fodder to critics who say he capitalizes on the ideas of others, charges too much, and underdelivers. Another way to look at it: He has outsmarted and outpaced the competition. Gates could be considered lucky if he did that just once, with his original PC operating system, but he's done so repeatedly. He beat Apple in PCs, Lotus in spreadsheets and e-mail, Novell in departmental networks, Netscape in browsers, and the old-guard Unix vendors in business servers. "He was able to take on every one of those guys and beat them at their own game, and he beat each one in a different way," says Rich Powers, director of advanced technologies and architecture with FMC, who began his career as an IT professional in 1977, just two years after Microsoft was founded. "The place you don't want to be is on the other side of where he wants to go." For the past few years, Gates has been focused on competing against Linux. In November 2003, I asked him whether Microsoft might do something more to improve compatibilities between Windows and Linux. "Tell me any area we're not doing enough," he snapped. "I mean, seriously, what area do you think we could do more in?"More recently, however, Microsoft has struck a series of agreements with Linux vendors, including Novell and Linspire, designed in part to improve Windows-Linux interoperability. What changed? Microsoft is wielding its patent portfolio to force Linux vendors to play by its rules, extending its influence, yet again, to a new part of the market. Microsoft's ever-expanding reach also will be part of Gates' legacy. The company has branched from PC software to server software, business applications, mobile devices, home entertainment, and, of course, the Web. Gates has made sure that the various pieces have a deep vein of common software, APIs, and protocols running through them. It took awhile--say, 20 years--for Gates & Co. to figure out the business technology market. "He struggled to understand the enterprise, and it really bugged me," says Ralph Szygenda, group VP and CIO of General Motors, who met recently with Gates to map out the software needs of the auto manufacturer's 130,000 Windows users over the next few years. In the early days of working with Microsoft, Szygenda says, it was "like talking two different languages." But Gates came to appreciate the needs of large businesses as his own company grew. "Later on, he understood," Szygenda says. "They listened." Today, Microsoft's business division, with $4.8 billion in revenue in the quarter ended March 31, is second only to the company's client software business in size.

The Push Continues
It all started with Windows, a product that SAP America's McDermott calls, despite its many shortcomings, "one of the real masterpieces in IT." Microsoft is attempting to push a stripped-down, low-cost version of Windows into India, China, and other developing markets. If successful, Gates' software reach will be measured in billions of people. Indeed, for all that he's already accomplished, many people think Gates' greatest contributions to society are still ahead of him in the form of the Bill & Melinda Gates Foundation, which is applying an endowment of $33.4 billion--much of it from Gates' personal fortune--toward fighting disease, improving health, and reducing poverty around the world. It's "stunningly admirable behavior," says one-time competitor Kertzman. The stories of Gates and the company he co-founded are far from over. There will be more software patches and exploits, more probing by the European Union, more complaints about Microsoft's strategy of using patents against the open source community. In short, there will be many more opportunities to question and criticize Gates for all that he has brought to bear. Yet, if new kinds of collaboration take place over Windows-based smartphones and computers, if workers become more productive and students better educated, if impoverished people get computers and vaccines against malaria, if the standard of living improves for the world's poor, Bill Gates' shortcomings will be put in perspective. Let's hope he succeeds, for everyone's benefit even more than his own. Continue to the story: Bill Gates' Legacy: Winning Through Intimidation View the timeline: Bill Gates' Legacy