William H. (Bill) Gates - Refocusing Microsoft On Internet Technology

REFOCUSING MICROSOFT ON INTERNET TECHNOLOGY

As work on Windows 95 was winding down, Gates began to realize that his firm was lagging behind rivals like Sun Microsystems, America Online, and Netscape in the burgeoning Internet arena. With the long awaited Windows 95 operating system near completion, Gates changed Microsoft's focus from PC operating systems to Internet technology. When the company launched Windows 95 in August, in one of technology industry's most highly anticipated product releases, it included the Internet Explorer browser, a direct competitor to Netscape's Navigator, which had secured 80 percent of the Internet browser market. The new operating system also included the Microsoft Network, an online service competing with America Online, Compuserve, and other Internet service providers.

In November of 1995, Gates published The Road Ahead, which went on to become a New York Times bestseller. He also recruited Michael Kinsley to create Slate, an online magazine first published the following June. Microsoft introduced Internet Explorer 2.0 to compete with the second version of Netscape's Navigator, and what became known as the "browser wars" began in earnest. Gates also began working with NBC on the online news source that eventually became known as MSNBC.

To aggressively market the Microsoft Network, Gates enlisted the help of MCI Communications Corp., the telecommunications industry's most intense marketer, in January of 1996. Although the Microsoft Network signed on its one millionth customer less two months later, it continued to lag behind industry leader America Online. To further facilitate Microsoft's shift to Internet technology, Gates reorganized the firm's four platform groups into three divisions. He appointed Brad Silverberg head of the new Internet Platform and Tools Division. In a major coup against rival Netscape, Gates convinced America Online to license the Internet Explorer browser, rather than Navigator. When sales of Windows NT, which competed with the UNIX-based servers on which corporate networks operated, surged 86 percent in 1996, Gates began paying closer attention to network servers. This was a sector of the technology industry that was being stoked by the Internet revolution, as an increasing number of enterprises began to take their operations online, some via corporate intranets and others via Web-based e-commerce endeavors. According to a May 1997 article in Fortune, "Forget Internet browsers, forget MSNBC, forget multimedia, Slate, and the Microsoft Network. Gates's strategy is to extend Microsoft's hegemony from the desktop into the windowless rooms housing the servers, minicomputers, and mainframes that are still central to business data processing. If he succeeds, Microsoft could dominate information technology well into the next decade."

While Gates did dump considerable resources into Windows NT, and its related BackOffice suite, he also preserved the firm's other Internet initiatives. For example, the firm released Internet Explorer 4.0 in mid-1997. By that time, Microsoft had reduced Netscape's browser market share to roughly 40 percent. Complaints regarding Microsoft's bundling of its Internet Explorer with Windows 95 to allegedly undermine Netscape's ability to compete led to yet another Justice Department investigation. It was at this time that reports began to emerge about alleged threats by Gates and his higher-ups to cancel the Windows licenses of PC makers not willing to install Explorer on their machines in place of Netscape's Navigator. The litigation resulted in a U.S. District Court ruling that Microsoft must sell a version of Windows 95 unbundled from Internet Explorer. Gates initially resisted the decree, insisting that his programmers would be unable to separate the programs without damaging the operating system. However, to avoid contempt of court charges, Gates eventually decided to allow computer manufactures sell Windows 95 without Internet Explorer.

Early in 1998, Microsoft bought Hotmail, a free Web-based e-mail system which soon became the leading such service. Sales that year surged by 30 percent to $14.5 billion. Valued at $466 billion, Microsoft was the world's largest company. However, Internet-based technology accounted for a mere $548 million of total revenues, despite the firm's success with several Web sites, such as Carpoint, Home Advisor, the Sidewalk city guides, the Expedia virtual travel agency, Microsoft Investor, and online bill payment service MSFDC. Although the firm had trounced Netscape in the browser wars, the fact remained that many of Gates's Internet endeavors had simply fallen short of expectations, leaving Microsoft reliant on the nearly saturated PC operating system and PC applications suite industries. As a result, growth at Gates's software behemoth began to decelerate in the late 1990s. Adding to the downturn were delays in the release of Windows NT 5.0, a product Gates needed to pursue his plan to storm the network server market. By many accounts the most complex program ever developed by the company, the newest version of Windows NT was simply taking much longer to develop than expected. Recognizing that a major overhaul was in order, Gates named longtime Microsoft employee Steven Ballmer president in 1998.

Early in 1999, Ballmer and Gates launched a major client-focused reorganization at Microsoft. For the first time in its history, Microsoft dumped its product-based arrangement and organized itself around five customer-based divisions: corporate systems clients; knowledge workers; ordinary Windows customers; programmers; and consumers interested in digitized content, entertainment, and shopping. Both Ballmer and Gates recognized that to lure the large corporate accounts it aimed to target with Windows NT, Microsoft needed to be more in tune with its clients. Larger enterprises typically demanded from their technology providers a high level of service, something that even Microsoft admitted wasn't its strong suit. That year, Gates published his second best-selling book, Business @ the Speed of Thought.

In January of 2000, Gates appointed Ballmer CEO, retaining his role as chairman and taking on the additional role of chief software architect. In a letter to employees detailing the management changes, Gates pointed to Microsoft's success in altering the way individuals interacted with computers as a metaphor for his firm's new focus. "Today we must make a similar bet on using software to improve the way people experience the Internet—an even more important revolution than the GUI." One month later, the firm shipped its long awaited new version of Windows NT, renamed Windows 2000, which was designed to serve as the operating platform for large enterprises, including leading e-commerce players like Buy.com and BarnesandNoble.com.

The lengthy antitrust investigation of Microsoft climaxed in April of 2000, when trial judge Thomas Penfield Jackson ruled that the firm had aggressively monopolized the PC operating systems industry. Along with 17 states, the Justice Department proposed that Gates separate Microsoft into two companies, one overseeing the firm's Office software applications, and the other handling its Windows-based operating systems. As predicted, Microsoft's lawyers appealed the judgment, which several industry pundits believed an appeals court would overturn.

Ironically, it was during these potentially devastating legal conflicts that Microsoft seemed to grow stronger. The firm completed its largest acquisition ever, paying $1.1 billion for Great Plains Corp., an enterprise management software maker serving small and mid-sized businesses. The firm also developed and launched bCentral, an e-business hosting service for small companies. With Gates at the helm of new technology developments, the firm unveiled Office XP, the latest version of the Office suite, in June of 2001. Microsoft also announced its intent to launch Windows XP, its biggest new product in five years, in October. According to USA Today writer Byron Acohido, the latest version of Microsoft's operating system will be more that just another upgrade. "Microsoft has fashioned XP into its weapon of choice for subjugating the Internet, just as it conquered desktop PCs." The new operating system is at the core of Microsoft's new strategy, known as.Net, which Gates and his cohorts envision as "a framework of software programs and services connecting every computing device to the Internet and to each other. With Windows XP as the dominant operating system, Microsoft could touch virtually every transaction." With Gates free to concentrate solely on software architecture efforts at Microsoft, this bold prediction may well prove accurate.