BG (posted by request)

[Steve]

How Microsoft Wound Up In a Civil War Over Windows

David Bank
Wall Street Journal 2/1/99


REDMOND, Wash. -- In March 1997, Microsoft Corp.'s top managers
crowded into the conference room in headquarters building 27, anxious
to see how Chairman Bill Gates would resolve one of the most profound
internal conflicts in the company's history.

At issue was a growing threat to Mr. Gates's crown jewel, the Windows
operating system that runs 95% of the world's personal computers.
Archrivals Sun Microsystems Inc. and Netscape Communications Corp.
were combining Netscape's best-selling Web browser with Sun's new
Java software, which promised to allow software programs to run on
any kind of computing device. The aim was to create a new operating
system that ran software programs straight from the Web.

As disturbing to Mr. Gates as the competitive threat was an
ideological split among his own ranks. Unbeknownst to the rest of the
world, many of his best programmers had come to believe what plenty of
outsiders were already saying: The advent of Internet computing would
spell the end of Windows.

That a large and vocal insurgent group even existed inside Microsoft
is something of a revelation, given the monolithic image the company
presents to the outside world. The story of their campaign, and the
heated conflict it generated, has been pieced together from hundreds
of e-mail exchanges released in connection with Microsoft's various
court cases, as well as from interviews with a dozen Microsoft
officials. In the end, the conflict not only would affect the
business direction of Microsoft, but also would help fuel the huge
antitrust case the company is now fighting in federal court in
Washington, D.C.

The pro-Internet "doves" were led by the quiet but powerful senior
vice president Brad Silverberg, a bearded programming whiz who had
taken over Microsoft's Internet work after heading development of
Windows 95. Mr. Silverberg saw a way to expand one of his projects,
Microsoft's Internet Explorer browser, into the kind of software Sun
and Netscape were proposing: a "cross platform" system that could run
on Macintosh, Unix and other computers, as well as on Windows PCs.

Instead of cranking out new-and-improved PC operating systems,
Microsoft would beat its rivals in establishing the dominant platform
for Internet computing, Mr. Silverberg posited. The doves pointed to
the surging support for Java from software developers, Microsoft's
key constituency, who wanted to write applications that could run,
without change, on any kind of operating system. Interest was also
high among corporate customers, who sought freedom from the
complexity and cost of running different software on disparate
computer systems.

Two months before the March meeting, one of Mr. Silverberg's top
lieutenants, Ben Slivka, proposed the new strategy in a presentation
titled "Java Is Our Destiny." The group believed the only way for
Microsoft to survive was to execute what one team member called "a
graceful exit plan" from Windows.

To Windows loyalists, led by another powerful senior vice president,
Jim Allchin, such talk was heretical. A hard-core Windows "hawk" and
veteran developer in charge of Microsoft's most advanced operating
system, Windows NT, Mr. Allchin was a fierce protector of Windows. He
regarded advances that helped other operating systems as a distraction
and a mistake.

"In my opinion, Windows is in the process of being exterminated here
at Microsoft," Mr. Allchin fumed in an e-mail to Mr. Gates a month
before the meeting. "I consider this cross-platform issue a disease
within Microsoft."

By early 1997, Mr. Allchin was angling to take over development of
Internet Explorer from Mr. Silverberg and fold it into Windows. He
wanted to put a stop to Microsoft's campaign to push software
partners toward the company's new "Internet platform." As for Java,
he advocated the creation of a "polluted," noncompatible version that
would run well on Windows, but not on other operating systems.

For months, Mr. Gates let the two camps compete, a favorite tactic
when Microsoft confronts a new challenge. By the spring of 1997,
however, he had to make a decision. Microsoft's software customers, as
well as its own developers, were getting mixed messages about whether
to develop for the Web or for Windows, and competitors were gaining
crucial momentum.

For Mr. Gates, the March meeting was a moment of truth. On the one
hand, the doves' plan hewed to one of his core principles: If
customers want an innovation, Microsoft had better provide it, or
another company will. "Someone will execute on the above strategy,"
Mr. Slivka warned in his January presentation. "Windows becomes
irrelevant in bigger and bigger sections of the market."

Nonetheless, the key to Microsoft's great wealth and power had been
its ability to keep software developers tied as tightly as possible
to Windows. The more applications available only on Windows, the more
popular it became, thereby attracting even more developers and
completing what Microsoft calls "the virtuous circle." As Mr. Gates
saw it, according to several Microsoft executives, the Internet was
threatening to break the loop. Without the hooks between software
applications and Windows, he knew, Microsoft's software would be left
to compete solely on its merits and its pricing, putting at risk the
company's tremendous profits. The hawks' plan would protect
Microsoft's existing franchise by tying customers as much as possible
to Windows-only versions of the browser and Java technology.

Safe as that course seemed, Microsoft could lose everything if Sun or
another competitor succeeded in wooing away its customers with true
cross-platform software, because Microsoft had no such product.

Intelligence Work

Yet Mr. Gates was in possession of a crucial bit of intelligence: His
own programmers were having trouble getting cross-platform Java
software code to run well on different computers, company e-mails
show.

As part of his pro-Java campaign, Microsoft's Mr. Slivka had
persuaded two teams to use Java software to develop Microsoft's
Office suite of productivity applications and for a software tool
code-named Vegas. Both teams were "in effect betting that Windows ...
loses and Java wins," one of Mr. Slivka's programmers wrote to him in
February 1997. But the results were disappointing. Code written
specifically for Windows ran three times as fast or more, says one
top-ranking Microsoft executive.

If Microsoft's experts were struggling with Java, Mr. Gates had
reason to believe Sun's were, too. Sure enough, Sun's Java software
later proved slow and often broke down. That was a big plus for Mr.
Allchin's lobbying campaign.

It fell to Mr. Slivka, as the doves' head cheerleader, to present his
team's progress report at the March meeting. Showing up in his usual
Hawaiian shirt and shorts, he clicked up the first slide. There
wasn't any reference in it to Windows.

Mr. Gates pounced. "There's nothing about that slide I like," he
snapped, according to several executives' accounts of the meeting.
Mr. Slivka struggled to recoup, but Mr. Gates soon erupted.

"Why don't you just give up your options and join the Peace Corps?"
Mr. Gates is said to have thundered. "Hasn't anybody here ever heard
of Windows? Windows is what this company is about!" Microsoft declined
to make Mr. Gates available for comment for this article.

Flame Out

The normally brash Mr. Slivka was devastated. Mr. Gates was
"amazingly, unnecessarily rude to me," he complained in one April
e-mail to a colleague. "It is disappointing that Bill chooses to
flame like that without giving me a chance to educate him," he wrote
in another e-mail. "Bill is convinced my group is trying to kill
Windows."

But the die was cast. In no uncertain terms, Mr. Gates had decided to
protect Windows at all cost. "Having cross-platform not be successful
was good news for the Windows group," says one senior Microsoft
executive.

In the months that followed, Mr. Gates decided to follow Mr.
Allchin's suggestion not to fight Sun and Netscape head-to-head with
a cross-platform system. Mr. Allchin argued that Netscape's lead in
browsers was so large that Microsoft could catch up only by making a
browser an integral part of Windows. That, he said, would make
Windows a more compelling and useful product; making the browser part
of Windows would give computer users little reason to buy Netscape's
version.

Meanwhile, Mr. Silverberg took a leave of absence a few months after
the March meeting to bicycle around the Northwest; his Internet
group, which once totaled 2,000 employees, was reassigned. Though he
occasionally consults for Microsoft, he has yet to return full time.
He declined to comment for this article.

By September 1997, the Office and Vegas teams had returned to the
Windows fold. "Do we have any pretense of cross platform left?" asked
Prashant Sridharan, the program manager for the Vegas project, in an
e-mail to a colleague. "Don't care about cross platform in
future-pretense or otherwise," answered Russ Arun, previously an ally
of Mr. Slivka's. Mr. Slivka's Java group was also disbanded, and he
is again working on Windows. Mr. Slivka declined to comment.

"Even at Microsoft, there were some people who drank the Java
Kool-Aid," Mr. Allchin says.

Alternate Future

The decision to follow the hawks' course foreclosed a tantalizing,
alternative future for Microsoft. If Mr. Gates had swung the other
way, the company could have pioneered a new era of computing in which
any software can run on any computer using any operating system.

It also could have avoided a heap of legal trouble. In November, a
U.S. District Court judge in San Jose, Calif., issued a preliminary
injunction requiring the company to reverse many of its efforts to tie
its version of Java to Windows, pending a final ruling on whether
Microsoft violated its license from Sun. Microsoft says it simply gave
developers a choice between the Windows-enhanced version of Java and
the "pure" form endorsed by Sun. In Washington, another federal judge
is hearing the antitrust case brought last year by the Justice
Department and 19 states that charges Microsoft sought to illegally
maintain and extend its monopoly by tying its Web browser to Windows.

Monday, Mr. Allchin will begin testifying in that case, explaining to
Judge Thomas Penfield Jackson that his tactic of integrating Internet
technologies into Windows is a common and even desirable practice in
the software industry. The company is relying on a U.S. Court of
Appeals ruling in a skirmish last year that the integration of
Internet Explorer into Windows 95 doesn't violate antitrust law, as
long as the combination provides some benefit to consumers, even if
other motives are involved. The government may seek to overturn the
ruling.

Despite the legal mess, Mr. Allchin's strategy has so far proved a
boon for Microsoft, and his star is still rising; he is Microsoft's
most important line manager, with responsibility for all Windows
development, including Internet technologies. With the appeal of the
Internet driving a boom in cheap PCs, Windows is more wildly popular
than ever. Last month, Microsoft reported a staggering net profit
margin of 40% and a swelling cash hoard of $19 billion for its most
recent quarter, both the highest of any major corporation. Late last
year, Microsoft overtook Netscape in browser market share. Netscape
has agreed to be acquired by America Online Inc.

Just Buying Time?

Still, Messrs. Gates and Allchin may only have bought Windows some
time. Although Java hasn't delivered all it once promised, the Web
has indeed spawned an explosion of cross-platform software not hooked
to Windows. Increasingly, users take advantage of applications on the
Web -- from e-mail to book-buying to tax preparation -- using simple
browsers rather than complex Windows software.

As Web sites are able to handle more sophisticated transactions, and
high-speed modems from cable and phone companies make the Internet
more useful and reliable, more programs will be written for the Web,
not Windows. One of the goals of AOL's acquisition of Netscape is to
create, in alliance with Sun, a $200 machine that provides access to
applications running on AOL's huge Web servers, through a Java-based
browser, with no Windows software at all.

Mr. Gates himself conceded the diminished importance of Windows on PC
desktops last September in an internal memo describing Microsoft's
efforts to develop a "megaserver" of its own to deliver software and
services over the Internet. Microsoft is already offering several
megaserver-style services, including HotMail, an e-mail service that
stores messages on a central server and delivers them through any Web
browser.

"We have to improve the PC and we have to offer developers a great
reason to build and deploy distributed applications on Windows," Mr.
Gates wrote. "Otherwise they might decide simply to target the basic
browser, ignoring the richness that we offer because it is too hard
and complicated to deal with."

Copyright c 1999 Dow Jones & Company, Inc.






* * * * * * * * * * * * * *  From the Listowner  * * * * * * * * * * * *
.	To unsubscribe from this list, send a message to:
majordomo at scn.org		In the body of the message, type:
unsubscribe scn
==== Messages posted on this list are also available on the web at: ====
* * * * * * *     http://www.scn.org/volunteers/scn-l/     * * * * * * *