Chapter 5
The Persecuted Titan
Bill Gates as Henry Rearden, the businessman who created revolutionary technologies and was criminalized for his success
And yet—he thought—through all the generations of political extortion, it was not the looting bureaucrats who had taken the blame, but the chained industrialists, not the men who peddled legal favors, but the men who were forced to buy them; and through all those generations of crusades against corruption, the remedy had always been, not the liberating of the victims, but the granting of wider powers for extortion to the extortionists. The only guilt of the victims, he thought, had been that they accepted it as guilt.
—Atlas Shrugged
Who is Henry Rearden?
In Atlas Shrugged, Henry Rearden is a steel tycoon who refuses to join John Galt’s “mind on strike” until his business is utterly destroyed by corrupt politicians, fellow businessmen, and his envious wife.
Rearden came from poverty, assembling an empire over many years of relentless effort, managerial skill, and personal risk. At the peak of his career he invents a new alloy, both lighter and stronger than steel, and christens it “Rearden Metal.” The new metal is so revolutionary it threatens to displace the established industrial order, and Rearden finds himself blocked at every turn.
A single visionary industrialist—railroad executive Dagny Taggart, the main protagonist of Atlas Shrugged—places an order for the metal to build a high-speed track into Colorado, the only flourishing region of the economy. Rearden’s and Taggart’s ride together on the first train to use the new track is the most thrilling scene in Rand’s fiction, portraying the emotional pinnacle that can be reached by those who achieve business and technology breakthroughs.
The Taggart track proves the metal’s value, but this only intensifies Rearden’s problems. The government passes a law seizing patents, and at first Rearden refuses to turn over the formula for his metal. He relents when the government blackmails him with evidence of his affair with Dagny Taggart, begun in the exultant moment following their thrilling train ride. The government passes so many new regulations that Rearden’s steel mills become virtually state-controlled. Ultimately the government manages to stage a fake labor disturbance resulting in the mills’ outright seizure.
An unintended victim of the incident is a young government bureaucrat whom Rearden had befriended. As he dies in Rearden’s arms—in the most emotionally touching scene in Rand’s fiction—Rearden sees the evil of the collectivist system that destroys even its own adherents, and finally joins Galt’s strike.
The news hit him like a punch to the solar plexus on that blustery fall day in Redmond, Washington. Despite his unwavering fight against the forces bent on destroying him, Bill Gates was slipping ever deeper into his own personal hell. “U.S. Judge Declares Microsoft Is a Market-Stifling Monopoly,” blared the newspaper headline on November 6, 1999.1 In a bluntly worded 207-page “Findings of Fact,” Judge Thomas Penfield Jackson, a career public jurist and demonstrated technophobe—he didn’t even use e-mail—concluded that Microsoft had used its “prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft’s core products.” He added, “The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self-interest.”2
For Gates, the finding was outrageous. The company he had dropped out of college to build from a ragtag crew of computer geeks into a world force in software development had always competed aggressively but fairly. Of course he had pursued his own self-interest—and vigorously advanced opportunities to create new products and exchange fair value with his customers. That’s what a free-market system is all about. “Who grew this market?” he asked himself. “We did. Who survived companies like IBM, ten times our size, taking us on?”3 In the process, like an early metallurgist at the dawn of human civilization, he created a brand-new substance called software that would power our society into the next level of permanent technological orbit.
On the day Gates was born in 1955, fewer than 500 electronic computers had ever existed in the entire world, their total retail value amounted to less than $200 million, and the term software had not yet been coined.4 By 1999, nearly half of all American households owned a computer,5 with annual global shipments exceeding 100 million units.6 Microsoft software ran on nearly all of them. Bill Gates had come close to realizing his youthful dream of a computer on every desk with Microsoft on every computer. But that success, while seemingly destined in retrospect, was in the beginning hardly guaranteed among the primordial soup of competitors in a chaotic personal computing field all vying for prominence—or mere survival.
Along the way Gates had lived the American dream. His own personal effort had made him the wealthiest person on earth with a net worth in excess of $80 billion7—the vast majority of it still at work invested in Microsoft stock, but an amount larger than the annual gross domestic product of the Philippines or Singapore.8 His company was an American success story that ensured the United States’ place as a leader in global technology for years to come.
And while it wasn’t his primary intent, Bill Gates himself was far from the main beneficiary of his industrial endeavor. By creating a de facto standard in computer operating systems, he unlocked widespread cross-compatibility of applications and files, which boosted global workforce productivity throughout the 1980s and 1990s to historically astronomic levels. The same work output that had previously required a bank of financial analysts poring over hand calculations or a pool of typists hammering away at carbon-copied memos could be accomplished by a single office worker in a fraction of the time, and then disseminated instantly to a worldwide audience using a compatible DOS or Windows-based PC.
A single $21 share from Microsoft’s 1986 initial public offering (IPO) would be worth more than $10,000 just 12 years later. A $1,000 investment on the secondary market even after Microsoft’s 40 percent first-week IPO pop would have grown to $483,000 by the end of the 1990s. Thousands of employees and investors alike made lifetime fortunes by taking a risk on Bill Gates and his competitive drive. For that matter, thousands of competitors, far from being shut out by Microsoft, in fact made fortunes for themselves, and improved the lives of their customers, only because Microsoft had created a stable and widespread computing standard in which their products could operate. And in an age when the American economy is faulted for being dependent on paper shuffling and burger flipping, Gates built his wealth by actually manufacturing something.
So what was Bill’s reward for his industry, foresight, and entrepreneurialism? Just like Henry Rearden, the brilliant inventor and industrial titan in Ayn Rand’s Atlas Shrugged, he was persecuted for his success. He was branded a criminal for not playing soft enough, for not allowing weaker companies a spot on the field, for capitalizing on his opponents’ mistakes to score points for his own business—in other words, for succeeding against all odds in a competitive marketplace. Now the market buzzed about possible penalties, including a forced breakup of the firm, confiscation and public dissemination of its intellectual property, or other conditions—like seating government appointees on Microsoft’s board—amounting to socialist nationalization of his business.
It’s as if Judge Jackson were channeling a passage from Atlas Shrugged in support of the “Equalization of Opportunity Bill” reading that “it was society’s duty to see that no competitor ever rose beyond the range of anyone who wanted to compete with him.” In other words, the best athletes should be hobbled so that the worst can keep up. Gates should play nice, sacrificing himself, his employees, and his shareholders, and leave some room for others.
In turn, Atlas Shrugged’s Rearden, like Gates, having dealt only with the clean reality of technology and production all of his life, “had acquired the conviction that one had to concern oneself with the rational, not the insane—that one had to seek that which was right because the right answer always won—that the senseless, the wrong, the monstrously unjust could not work, could not succeed, could do nothing but defeat itself.” Gates liked to say, “The business side always seemed simple to me, you know, make great software, figure out a way to get it out there and get people to buy it.”9 But just as Henry Rearden found out in Atlas Shrugged, businesspeople who compete on their own merits—naively ignoring the parasites seeking to drain them—do so at their own peril. There is no record to suggest that Gates ever read Atlas Shrugged, or ever heard of Rearden. Too bad. It might have helped in the travails to come.
In 1988 after a full two years operating as a major public corporation, Microsoft employed just five attorneys on staff (by 2003 Microsoft’s legal staff had mushroomed to 300).10 When his senior executives urged him to boost the company image in mainstream media with a public relations campaign, Gates rejected the idea as distracting the company’s focus away from technology. “In the early days of the company I was very proud that we had no lobbyists ever, no PACs [political action committees],” Gates noted. “I had to spend more time in capitals of other countries than our capital. And, what a testament that was to America. You could build a company with great success without involvement in political activities of any kind.”11
Rearden felt the same way—right up until the government destroyed his business. “He knew that it was necessary to have a man to protect him from the legislature; all industrialists had to employ such men. . . . An inexplicable kind of distaste, part fastidiousness, part boredom, stopped him whenever he tried to consider it.”
Now, facing incessant attacks from the very government that was founded to protect his freedom and the products of his individual effort, Gates couldn’t comprehend why anyone could begrudge him for selling so much software. What could possibly be wrong with that? And what was he supposed to do instead? Should he fail to deliver what the customers demanded? Should he stop innovating, stop improving his products? In 1999 alone, he had spent $5.3 billion on research and development—more than the entire annual corporate profit of General Motors, Wal-Mart, or Boeing.12 Why was it his fault that smaller companies couldn’t afford to invest as much to benefit their own customers?
As far back as the late 1980s, certain industry players were already plotting against Gates. Instead of focusing their efforts on improving their businesses and doing the hard work needed to take on Microsoft openly, these so-called competitors chose to whine—and conspire—from the shadows. First, complaints against Microsoft were made to the Federal Trade Commission (FTC) along with a road map to help guide the agency to other disaffected companies whose spiteful grumblings might uncover more damaging evidence in support of their spurious claims. The Novell Corporation and its chairman, Ray Noorda, led the opposition, employing two Washington law firms and a well-connected Washington public relations firm in an effort to influence the FTC’s evaluation of Microsoft.13 Despite these poisonous tactics, the FTC found insufficient evidence of any wrongdoing and ceded the investigation over to the U.S. Department of Justice (DOJ).
Then, even more boldly, big names like Oracle, IBM, and Sun Microsystems together spent millions on government lobbying in part to convince the DOJ to take action against Microsoft.14 Urged on by this angry horde of collectivist interests armed with their quivers of money and political influence, the attacks would persist. As one reporter put it, the government “didn’t know what Bill Gates did—but they were sure he must have done something wrong.”15
Yet his customers clearly didn’t share the sentiment. In a poll, 77 percent of Americans believed Microsoft made quality products16—and for those who felt otherwise, well, just don’t buy them. Microsoft continued to improve its products, cut costs, and offer competitive upgrade options to newer versions—and the marketplace agreed with his approach, rewarding Microsoft with ever greater success.
“The FTC investigation was a lightning rod to bring computer people forward and say that it would be helpful if Microsoft was hobbled in some way,” Gates told Newsweek in June 1991.17 In 1994, Microsoft agreed to settle a Department of Justice case by making it easier for personal computer manufacturers to use Microsoft’s rivals’ software. It signed a consent decree that forbade it from using its operating system dominance that reputedly “choked off competition.”18
Still, Microsoft’s competitors did not let up, claiming that the software titan had achieved and then abused its monopoly status by forcing others to do business with it. Who could seriously think that Microsoft really had the power to force someone to buy its goods, as though at the point of some kind of figurative gun—and then argue that the police apparatus of the government ought to force Microsoft to desist at the point of an actual gun? Who, indeed? These were Gates’s supposed peers in the computer industry.
Grudgingly, Microsoft finally hired its first lobbyist in Washington in March 1995 to begin countering the political threat to its survival. From now on, Gates wouldn’t repeat the same mistake he made in 1994 when his reluctant capitulation signaled weakness to the scavenging hyenas who longed for a bite of the majestic beast. Next time, he would refuse to settle where other custodial-minded CEO pragmatists might cave in. For Gates, it was his company, and it was personal. He would fight any further government intrusions to the bitter end with all of his considerable might and intellect.
When the DOJ brought its antitrust suit against Microsoft in 1998, the case appeared to focus narrowly on a specific Internet browser issue. But it was much more than that. Apparently we like our capitalist system to produce success, just not too much of it. “We have people who think that we are more successful than any company should be,” Gates said.19
When called into a deposition by the government’s hired gun, attorney David Boies, Gates stubbornly made his opponent fight for every inch. Gates said at the time, “I gave totally truthful answers. I have a great memory. When [Boies] would ask imprecise questions I would simply point out to him the imprecise nature of the question.”20 But Gates did not merely “point out”—he mocked, he argued, he stonewalled—with a chip on his shoulder bigger than a mainframe. To wit:
Boies: Can you tell me, Mr. Gates, what question you’re purporting to answer?
Gates: Your last question.
Boies: Do you know what it is?
Gates: Could I make it as convoluted as you did? No.
In Atlas Shrugged, Henry Rearden finds himself on trial for a regulatory crime as trumped up as the one of which Gates was accused—and stonewalls just like Gates did. Rearden refuses to grant any legitimacy to the court by even answering its questions. Reardon tells the prosecutor,
“Your law holds that my life, my work and my property may be disposed of without my consent. Very well, you may now dispose of me without my participation in the matter. I will not play the part of defending myself where no defense is possible, and I will not simulate the illusion of dealing with a tribunal of justice.”
. . . “Are we to understand,” asked the judge, “that you hold your own interests above the interests of the public?”
“I hold that such a question can never arise except in a society of cannibals.”
Rearden gets away with it—the court is so flummoxed by his principled resistance that it lets him off with a suspended sentence. But it was only a temporary victory. There was more government intervention to throttle Rearden, and eventually it would destroy his business.
For Gates, there wasn’t even a temporary victory. While clearly in the right, his performance had done him no favors in a courtroom more amenable to defendants who show deference to their persecutors, even when it’s not deserved. In the end, such intangibles would be the deciding factors. Judge Jackson would decide the case not on objective legal arguments, but on his own whims based on the personalities and theatrics of the various witnesses and counsel in his court. More than once, he was seen to fall asleep at the bench during proceedings. He shouted at Microsoft witnesses and took over questioning from attorneys when frustrated by their approach.21 He rolled his eyes and shook his head in response to testimony. He held confidential press interviews during the trial in which he likened Microsoft to “drug traffickers” and “gangland killers.” His actions would later be declared by an appellate court to be “deliberate, repeated, egregious and flagrant” violations of the judicial code of conduct.22
The government, Gates told himself, had no real case. It would get nowhere. He was sure of it. And yet the government persisted. Gates was infuriated—and surprised—that instead of conducting their case purely in the legal arena, the Feds were fighting with PR tactics—“Call me naive,” Gates said. And the press, as far as he was concerned, ate it up.23
His own hometown paper, the Seattle Post-Intelligencer, would refer to Microsoft with the oft-repeated epithet “Evil Empire.”24 Time magazine reported on “Demonizing Gates,” citing the thousands of diabolical references to him online as “the Great Satan” and “Beelzebub.”25 Newsweek ran a story on Gates entitled “The Whiz They Love to Hate.”26 Business Month ran a doctored image of Bill’s head on a muscle-bound body under the cover heading “Silicon Bully.”27 In the article one unidentified IBM executive said he would “like to put an ice pick in [Gates’s] head.” The endless water torture of persecution would become too much for even Gates’s inner fire to withstand. “It was in the press every single day,” says Bill’s dad, William Gates Sr. “His own government, suing him, that’s not chocolate sundae! He was concerned, he was angry, he was distracted from things he’d rather be doing.”28
Eventually, Bill Gates would settle with the government. In some sense it was a pragmatic business decision, and mostly a win for Microsoft. But in another sense it was a moral collapse—the victim himself granting a moral sanction to his tormentors—just what Henry Rearden said not to do, warning that “if we value our lives, we must not give it to them.” But when it was done, Gates went on strike, just like Henry Rearden finally did when he couldn’t take the pain any longer. In 2000, Gates handed over operations to longtime business partner Steve Ballmer, who would shift the company’s focus from playing hard to playing nice.
Ultimately in a sad diversion of his productive brainpower, Gates turned aside from creating economic value, and instead began to give away the value he’d created in the past. Gates and his wife endowed the Bill & Melinda Gates Foundation with billions in Microsoft stock, and now the world will just have to wait to see whether it will be better off with Gates donating his wealth to sponsor talk shows on National Public Radio, among other purposes, rather than keeping it at work building Microsoft.
Should Americans aspiring for a better life for themselves, their families, and their nation be proud that their government forced one of the most productive minds in history to stop producing? Here’s how Gates would answer that question: “Americans should wish that every business was as competitive as the personal computer business,” he says.29 “This lawsuit is fundamentally about one question: can a successful American company continue to improve its products for the benefit of consumers?”30
Ayn Rand would agree, but she’d have another answer as well, operating on a philosophical level, rather than just a pragmatic one. Yes, the unfettered competition of pure capitalism does produce wealth. But even if it didn’t, it is still the morally correct way for society to organize economic life. Rand once wrote, “Capitalism is a social system based on the recognition of individual rights . . . the only rational and moral system in mankind’s history.”31
Without it we will all be poorer, no matter how much of his fortune Gates gives away to the poorest. Without it we will be less free, knowing that any of us smart enough and lucky enough to change the world the way Gates did will be targeted for destruction as Gates was.
William Henry Gates III was born on October 28, 1955, to a family that was well off, although certainly not rich by the standards he himself would later set. His parents nicknamed their son “Trey”—a play on his name’s suffix. It was a moniker that would stick among his family and close friends for the rest of his life. His father, Bill Gates Jr., was the first member of his own clan to graduate from college, as an honorably discharged Army lieutenant after World War II. Bill Jr. then went on to law school and later became a partner in a Seattle practice. Trey’s mother, Mary, came from a socially prominent banking family. While comfortably wealthy, Trey’s family disdained pretentious displays of affluence. Instead its focus was on substance, education, making a positive impact on the world, and focusing on creative production as opposed to a lust for money itself. It is a value system that young Bill would carry forward throughout his adult life.
Much has been made—mostly by spiteful critics—of Gates’s privileged upbringing and supposed million-dollar trust fund as the origin of his eventual business success. The truth is that he bootstrapped his business endeavors from day one. And even if he hadn’t, the world abounds with trust fund kids who created small fortunes by frittering away large ones.
Gates’s biggest asset was not an inheritance, but an amazingly powerful mind supercharged by early access to leading-edge technology. Born at the dawn of the computer era, he experienced the synergy of high-octane experience coupled with strong mental horsepower that few could match. Yet while these initial benefits translated into a strong starting position, the race would prove to be long and arduous. Only Bill’s sustained efforts of constant work, endurance, competitive drive, and obsessive focus would decide the winner.
Trey was an energetic child who learned to rock his own cradle and spent hours incessantly doing so. Later as an adult, Bill’s characteristic rocking back and forth in his office chair and in the boardroom would become legend in the computer industry. While some explain the habit as bleeding off stress or a sign of intense mental focus, the rocking behavior is also associated with conditions along the autism spectrum32—a classification that can include highly gifted savants.
The evidence that Bill’s brain functions differently than most was apparent very early on. At age 7 he read all 20 volumes of the World Book Encyclopedia from beginning to end. At age 11, he could perfectly recite the entire Sermon on the Mount unaided and, according to his flabbergasted youth minister, displayed a deep understanding of its meaning well beyond mere rote memorization.33
In the fourth grade, his classmates labeled him “eccentric” for his oddball work habits that bordered on the obsessive. When assigned to write a four-page report, Trey would turn in 30 pages. On the playground, he played pickleball as though the fate of the world were at stake. A day at the swimming pool would turn into lap races. A jigsaw puzzle became a contest to see who could place the most pieces. While it may have seemed like eccentric behavior in grade school, looking back we might regard Bill’s behavior as indicative of a fiercely competitive spirit and a drive to win. Even leisure activities weren’t merely for relaxation—they were opportunities to push the limits of one’s potential, to test, stretch, strengthen, and grow.
By the middle of 1968 the United States was retaking the lead in the space race against the Soviet Union. The Apollo moon landing, borne on the wings of newly developed electronic computing power, was tantalizingly close to fruition. Stanley Kubrick’s epic 2001: A Space Odyssey played in theaters nationwide, offering a believable futuristic vision featuring a sentient supercomputer named HAL 9000 as a central character. Amid these influences, Gates’s high school, Lakeside, vowed to expose its students to this new world of computers. The only question was how to do it.
Early mainframe computers could be owned only by large corporations or government agencies. With footprints measuring in square yards, such systems cost millions of dollars to buy and support. Even with annual tuition at Lakeside at a relatively steep $5,000 per student, these sums were clearly out of reach. Instead, Lakeside purchased a relatively inexpensive teletype machine and remotely linked it to one of the several corporate mainframes in the area with spare capacity on a time-share basis—first from General Electric, then from a Seattle start-up called Computer Center Corporation, or C-Cubed. The machine on the other end was a PDP-10 mainframe manufactured by Digital Equipment Corporation and specifically designed with architecture to support multiple remote users.
The first time Gates sat at the Lakeside terminal and typed in a short command, he was thunderstruck. Just think—a hulking silicon-based intelligence formed of transistors and copper wiring, sitting in a building miles away, interpreted the electrical impulses he himself transmitted with his own fingers and then, without any carbon-based human intervention of any sort—it responded! This was like an open door to a whole new world of vibrant possibilities, a place where the very nature of physical reality was harnessed and coupled with abstract logic and mathematics to produce something useful and wondrous. He was hooked.
Bill and a handful of like-minded students began spending every minute of their free time in the computer room exploring the system while testing their own reasoning and problem-solving skills. Among these early adherents was an upper-classman named Paul Allen. Despite their age difference, Bill and Paul discovered an affinity in their love of computers and their insatiable appetite for knowledge. They soon became fast friends. It was the beginning of a partnership that, along with several other Lakeside classmates, would become the founding programmers core of the Microsoft empire.
Gates devoured everything he could find about computers, but the field was so new, so undocumented, that he and his fellow computer freaks had to mostly learn by doing. They poked and peeked, observing the results. They posed ad hoc problems to each other that they would then compete to solve. Bill taught the computer to play tic-tac-toe. He created a lunar landing simulation. He programmed the computer to play Monopoly and then had it run thousands of game scenarios to find winning strategies. In the process, he discovered things even the professional computer experts at the time didn’t know. Perhaps it’s not as romantic as the young Henry Rearden laboring in an iron mine at the birth of his career—but Gates’s dedication and efforts as a youth were no less intense, and in any field that’s what it takes to launch yourself toward the very top.
The Lakeside kids became such power users that eventually C-Cubed enlisted them to find bugs in its system during off hours in exchange for all the free computer time they could use. In other words, Bill could now try to crash the system by pushing it, and himself, to the limit—for free. All he had to do was report any bugs he discovered to the engineers to find and fix later. As a result, C-Cubed got a robust, crash-resistant commercial product to offer during business hours, while Bill and his friends got to log more computing hours than most NASA engineers of the day.
According to one study, it takes 10,000 hours of deliberate practice to become an expert at almost any task or profession, from playing the violin in Lincoln Center to scoring touchdowns on the National Football League (NFL) gridiron.34 By the late 1960s Bill and his night shift at Lakeside were well on their way to vaulting that mark a full half-decade before even the most rudimentary personal computer was introduced, and during a time when the very terms software and hardware were unknown to most of the population.
It wasn’t long before Bill’s far-ranging young mind began seeking out ways to profit commercially from his newfound passion. “I was the mover,” Gates said. “I was the guy who said, ‘Let’s call the real world and try to sell something to it.’”35 In early 1971, he found his first real business opportunity.
A computer time-share company in Portland, Oregon, needed a payroll program written for one of its clients, and had heard through the grapevine about a talented group of students up in Seattle with experience coding for the PDP-10. With legal help from his father, Gates formed the Lakeside Programmers Group with Paul Allen, Richard Weiland, and Kent Evans as partners, then boarded a bus to Oregon to meet their new client. Bill hammered out a creative royalty agreement to guarantee his group a residual income stream instead of a standard fixed price or hourly rate. In a matter of months they had a finished product coded in COBOL. At a mere 16 years of age, Bill had negotiated his first commercial deal with a maturity and foresight beyond his years and then led his team to execute a complex task on a demanding time line.
Paul Allen graduated from Lakeside later that year and enrolled at nearby Washington State to study computer science. By then, he and Gates had already gone on to their next moneymaking venture in the form of a business they dubbed Traf-O-Data. The idea was as obscure as its name—and brilliant.
Municipalities at the time used mechanical punch-tape machines to record traffic volume on main roads in their jurisdictions. These tapes were then tediously hand-transcribed into useful data and presented to city engineers for use in timing stoplights for optimal traffic flow. Paul and Bill built their own elementary computer using an Intel 8008 chip, attached a paper tape reader, and then programmed it to transcribe the data. The process could be done for a fraction of the time and cost of manual transcription, and they successfully pitched it to a series of paying clients. The business reportedly grossed around $20,000,36 or the equivalent of more than $100,000 today. It’s an impressive start for high school kid.
Before Gates graduated from Lakeside, he and Allen completed a series of other commercial ventures. They coded a school scheduling program. They worked a full-time, short-term assignment rescuing a moribund project for defense giant TRW to computerize a regional power grid using PDP-10s. No task was too big or too small as long as it involved solving problems with computers. Bill and Paul talked seriously about forming their own software company, but the idea would have to wait. Mary and Bill Jr. insisted that Trey at least try his hand at college to gain some exposure to other students and the world of higher academics. In the fall of 1973, Bill was off to Harvard.
This was a career detour that Henry Rearden didn’t take. But Gates didn’t stray for long from the path of Rand’s self-made industrialist hero. He would outgrow Harvard in just two years.
Officially enrolled in Harvard’s prelaw program, Gates was still searching for direction among competing influences. “I was always vague about what I was going to do, but my parents wanted me to go to undergrad school,” Gates would recall. “They didn’t want me to go start a company or just do graduate work.”37 So he took a respectable class load during his first year at Harvard, including a mix of undergraduate- and graduate-level courses. He scored top marks in one of the university’s most difficult math courses, but not the top mark. He tended to focus his energy only on subjects that interested him, yet still scored well in other areas simply because of his considerable intellect.
Computers continued to pull on him, and he was often found hacking away in one of several university labs with access to his old friend the PDP-10. Over the summer, he and Allen both landed jobs at Honeywell in Boston. Allen would stay on as an employee that fall while Gates returned to Harvard for his second year. Recharged by his summer months back in the computer industry, Gates became increasingly uninterested in academics and spent more and more time on two passions—one old, programming, and one new, poker. “Bill had a monomaniacal quality,” said Andy Braiterman, his roommate at the time. “Perhaps it’s silly to compare poker and Microsoft, but in each case, Bill was sort of deciding where he was going to put his energy and to hell with what anyone else thought.”38 It was also during this time when Gates met and became friends with hall-mate Steve Ballmer, whom he’d regale with his poker exploits in a rapid-fire dialogue they’d term “high-bandwidth communication.”39
Gates was also talking more and more with Allen about starting another business. They were both convinced that the world was on the cusp of a gigantic sea change—the democratization of computing power for the masses—and they believed they could play an important part in that revolution. But how? Hardware was interesting, but ultimately, having tried his hand at building the Traf-O-Data machine, Allen felt it was a “black art.”40 For Bill, software was the soul of the machine and the area of expertise where he and Paul had invested nearly half of their young lives.
Then one December day in 1974, Paul Allen picked up a copy of Popular Electronics41 on his way to visit Bill on Harvard’s campus. The issue’s cover showed a rectangular box about the size of a small home stereo unit labeled “Altair 8800” under a bold red headline proclaiming, “PROJECT BREAKTHROUGH! World’s First Microcomputer Kit to Rival Commercial Models.” Inside, the cover story, written by H. Edward Roberts of Albuquerque-based Micro Instrumentation and Telemetry Systems (MITS), began, “The era of the computer in every home—a favorite topic among science-fiction writers—has arrived!”
Billing the Altair 8800 as “the most powerful minicomputer project ever presented” and “a revolutionary development in electronic design and thinking,” Roberts went on to describe the unit as a “complete system” that could hold a full 256 bytes in memory (equivalent to the length of his two opening sentences), which would allow its user to input “an extensive and detailed program . . . via switches located on the front panel, providing a LED readout in binary format.” The article included sample schematics and a full parts list taking up less than one column of side text. A mailing address was provided along with instructions for ordering an unassembled kit for $397, or a fully assembled unit for $498. MITS would also send along a free set of circuit board etching guides and assembly information for the cost of a 40-cent stamp and an 8½ × 11 envelope. Suggested uses among “thousands of possible applications” included a “digital clock with all time-zone conversion” and a “brain for a robot.”
While today the article reads like a spoof of pretechnological naïveté, it fired the imaginations of already eager Gates and Allen by convincing them that the tipping point of the consumer-computer revolution had indeed arrived. When the next month’s follow-up article spent two pages of text laying out a detailed nine-step procedure of complicated switch flips merely to enter a program on the Altair for adding two numbers together, Bill and Paul had a brilliant idea. They both were already familiar with the machine’s Intel 8080 central processor from their experience with Traf-O-Data, and Bill was a consummate expert in one of the relatively user-friendly programming languages of the day known as BASIC. Why not piggyback off of the Altair’s hardware distribution and provide the software that would unlock its potential by bridging the gap between binary machine and human language?
With characteristic entrepreneurial confidence, Gates picked up the phone and dialed Roberts at MITS in New Mexico, offering a version of BASIC that would run on the Altair. Roberts later recalled, “We had at least 50 people approach us saying they had a BASIC, and we just told everyone, including [Gates and Allen], whoever showed up first with a working BASIC had the deal.”42
For the next eight weeks, Bill abandoned his classes to hunker down with Paul. They spent every waking hour in the computer room working on the project, trying to beat the unknown competition they knew was nipping at their heels to steal the prize.
There is such a moment in the life of every man or woman who succeeds in business—the moment when one decides to win, whatever the personal cost. For Henry Rearden, “He was fourteen years old and it was his first day of work in the iron mines of Minnesota. He was trying to learn to breathe against the scalding pain in his chest. He stood, cursing himself, because he had made up his mind that he would not be tired. . . . [P]ain was not a valid reason for stopping.”
Just because writing code ensconced behind ivy-covered walls at Harvard wasn’t exactly digging in an iron mine, don’t underestimate the vast challenges that faced Gates, or the courage it took for him to take them on. For starters, some experts at Intel didn’t even believe that running a high-level programming language on the 8080 chip was possible. In addition, while Roberts provided schematics for the Altair, the only working model at the time was sitting in his offices in Albuquerque, so Gates and Allen had nothing to program or test their work on.
Undeterred, the duo studied the technical specifications of the Intel central processing unit (CPU) and developed an emulator program on the PDP-10 to virtually replicate the functioning of a working Altair. Drawing on all of their reserves built up from long hours on the night shift at C-Cubed, Traf-O-Data, TRW, and Honeywell, Gates and Allen accomplished the seemingly impossible: a working copy of BASIC that Allen flew out to Albuquerque encoded on a paper punch tape.
When Roberts first beheld his box of chips and toggles turned into a useful computer by Gates and Allen’s efforts, he remembers, “I was dazzled. It was certainly impressive. The Altair was a complex system, and they had never seen it before. What they had done went a lot further than you could have reasonably expected.”43 After a brief celebration in Boston, Allen headed back to New Mexico to work out the bugs in BASIC and prepare for a coming road show to promote it. Gates joined him during the summer after his sophomore year at Harvard was complete. He would never return to college.
MITS already had preorders for thousands of machines, and the hardware team was struggling to keep up. It must have been this kind of demand for even such a rudimentary machine that confirmed Gates’s conviction that the appetite for personal computing was virtually unlimited. Soon thoughts of returning to school in the fall had faded like a sunset over the New Mexico desert. In fact, he would never complete any degree. That summer he and Allen, with legal help from Bill’s father and a local attorney, formed Micro-Soft (the hyphen was later removed)—an abbreviation of “microcomputer software”—and struck a licensing agreement with MITS for their version of BASIC. It wasn’t just a technology tour de force, but a business one as well. At only 19 years old, Gates helped craft a sophisticated agreement that anticipated many of the key issues in software licensing, including exclusivities, sublicensing, and confidentiality.
BASIC sold briskly at first in tandem with Altair shipments, but soon software volume began to drop in relation to hardware. The reason was simple: Most computer owners at the time viewed hardware as something to buy, but software as a something to copy and share.
In response Gates published “An Open Letter to Hobbyists” in early 1976,44 accusing his would-be customers of outright theft and laying out a Randian argument for the protection of intellectual property. “Who can afford to do professional work for nothing?” he asked. Without adequate compensation for valuable work done, he argued, “there is very little incentive to make this software available.” The moochers who take something for free in the short term are only hurting themselves in the long run. “One thing you do [by stealing] is prevent good software from being written.”
Over the next few years as the computer market grew, Gates realized he needed to get out from under an increasingly overwhelmed and inefficiently operated MITS to begin building software for the proliferation of new, competing hardware systems if he ever wanted to realize his dream of Microsoft on every desktop. After relocation from Albuquerque to a new permanent headquarters near his hometown in Washington, the company was beginning to build momentum. Early programmer Steve Wood explains some of the company’s early success.
We were always a year or two ahead of where the demand was really going to be. But we were generally guessing right. A lot of it was Bill’s and particularly Paul’s ability to see where some of the stuff was going to go. A lot of people are able to see things like that, but we had just an enthusiasm, a real high level of drive and ambition. There wasn’t anything we couldn’t do. Okay, so no one has done this for a personal computer before, so what? We can do it. No big deal. . . . We overcommitted ourselves. We missed deadlines. We consistently underestimated the time it would take to do a project, and we committed to too many of those projects at a time. But we always got it done.45
Gates also began recruiting the talent he needed to keep driving his corporate vision. In 1980, with around 30 employees, he reached out to old Harvard friend Steve Ballmer, who was attending Stanford Business School after a stint at product marketing giant Procter & Gamble. He would become Gates’s alter ego, business champion, marketing guru, and eventual heir to the reins of the company. He also took the job of chief recruiting officer from day one and relished the job with entrepreneurial zeal.
“There’s a standing policy here,” Ballmer said in a 1983 interview. “Whenever you meet a kick-ass guy, get him. Do we have a headcount budget? No way. There are some guys you meet only once in a lifetime; so why screw around?” The interviewer noted that Ballmer’s style “hardly complies with standard corporate protocol.” Ballmer responded, “I believe in the old cliché, ‘rules serve the company; the company doesn’t serve the rules.’”46
Ballmer’s favorite fishing spot for future employees was the undergraduate pond where he liked to spot eager tadpoles full of raw talent who could be nurtured to become stellar producers within the Microsoft ranks. The recipe was simple: Take one brilliant student with drive and initiative coupled with a background in science, math, or computers. Offer scant money up front in exchange for a dynamic, empowered, and lively work environment with the financial potential of long-term equity options. Heat in the crucible of brutal work hours, intense deadlines, and a competitive corporate culture with a drive to win. What comes out is a virtual clone of your company leader—Gates himself—a techie Marine with the killer instincts to take any hill against impossible odds.
The work ethic at Microsoft was indeed legendary. Parking spaces at the office filled from front to back with the earliest arrivals closest to the door. Gates memorized which cars belonged to which programmers and took note of who came earliest and stayed latest. It was an unwritten rule that nights and weekends were work hours regardless of how much time was spent during the week. Gates even had a contest with his programmers during out-of-town trips to see who could leave the office at the latest possible moment and still catch their flight at SeaTac, the Seattle-Tacoma International Airport.
Although now famous for the nearly ubiquitous DOS and later Windows operating systems, Microsoft nearly missed out on this most fundamental layer of the computer software hierarchy—the intellectual capital on which the Gates fortune, and thanks to Gates so many others as well, is built.
As the 1980s dawned, a company called Digital Research headed by Gary Kildall all but owned the operating system market for Intel 8080-based computers with a product called CP/M (or Control Program for Microcomputers). An InfoWorld interview in May 1981 quotes Kildall as claiming “a couple hundred thousand CP/M users out there now,” with usage tripling each year.47 In fact, Gates had partially enabled the standard by actively promoting CP/M while singularly focused on the programming language layer, including BASIC. The advantage seemed obvious at the time. After all, it was easier to code his language for one operating system than hundreds. So, for example, Microsoft licensed CP/M from Digital Research and created a hardware product called SoftCard, allowing Apple users to run CP/M-compatible programs on their otherwise incompatible computers.
Then IBM called. And that call turned out to be one of the most critical moments in the history of American business.
In 1980 Big Blue was engaging in a secretive project to rapidly launch its own personal computer based largely on off-the-shelf components and the new 16-bit Intel 8088 processor. The project was on a fast track and IBM had no time to develop its own software, so it started searching for likely providers. One morning in July, Gates got a call from IBM’s Jack Sams asking for an introductory meeting.
“What about next week?” asked Gates.
“What about tomorrow?”48 responded Sams. Despite Gates’s youthful appearance and their seemingly diametrically opposed corporate cultures, the companies quickly found common ground in the language of technology, and the initial meeting went well. Sams returned in August to talk turkey accompanied by a corporate attorney bearing a nondisclosure agreement (NDA), which Gates signed with little fanfare.
With Gates sworn to secrecy, IBM proceeded to unveil the blueprint of the initiative, dubbed “Project Chess.” IBM needed high-level languages like BASIC, COBOL, FORTRAN, and Pascal for the new 16-bit platform. Could Microsoft create them? Absolutely, replied Gates with his typical can-do, competitive attitude.
But what about the operating system? Could IBM also sublicense the CP/M source code Gates used in his Apple SoftCard? Unfortunately, that was going to be a problem. Not only did Microsoft not have the rights to sell or license the CP/M source code to IBM, but Digital Research didn’t even have the necessary 16-bit version of the operating system to offer in the first place. If IBM wanted CP/M, it would have to talk to Kildall.
Gates set up a meeting for IBM with Digital Research, and the boys in suits flew out the next day. “The meeting was a fiasco,”49 recalls Sams. To start with, Kildall didn’t even show up. Instead, he left his wife in charge of the proceedings, and she, together with a Digital Research attorney, refused to sign IBM’s NDA. IBM badly needed an operating system for its project and was eager to do business. By flying off that night for a Caribbean vacation and by being fussy about an NDA, Kildall turned his back on the opportunity of his lifetime—and left it for Gates to seize.
IBM went back to Microsoft and dumped the problem in Gates’s lap. Gates was more than eager to take up the challenge.
Across town, a small CPU board manufacturer called Seattle Computer Products was equally frustrated with Kildall. It had been trying to cajole Digital Research into delivering CP/M in a 16-bit version for the boards it created. Without an operating system, the latest, more powerful hardware was all but useless to users. As a result, sales were slow. Tired of waiting for Kildall, an in-house programmer by the name of Tim Patterson had written his own operating system, which he dubbed 86-QDOS (for Quick & Dirty Operating System), and word of it soon began to spread.
At least it spread to neighboring Microsoft. As fate would have it, apparently IBM was unaware of it. After learning about this ready-made operating system for the 8086 chip, rather than build the OS from scratch, Microsoft struck a deal with Rod Brock at Seattle Computer to license Patterson’s program for a one-time fee of $25,000. Around this time, Brock was also approached by software distributor LifeBoat Associates—yet another player tired of trying to coax a 16-bit version of CP/M out of Kildall. He offered Brock $250,000 for the rights to 86-QDOS. Gates and Ballmer countered with an offer to buy, not just license, the code for $50,000 plus sweeteners, including a perpetual license back to Seattle Computer, free OS updates, and favorable pricing on Microsoft computer language products. Brock declined the richer LifeBoat offer and signed with Microsoft because he saw more long-term future benefit from receiving free updates and most-favored-nation status. Besides, he was a hardware guy—software was just an enabler for him to move his CPU boards.
While today it seems like the deal of the century for Gates, at the time it was a substantial risk for a small company like Microsoft in a very crowded field. “We had no idea IBM was going to sell many of these computers,” as Tim Patterson, the virtual grandfather of what would become known as MS-DOS, would later summarize. “Somehow, people seem to think we had an inkling it was going to be this big success. I certainly didn’t. So buying DOS for fifty thousand dollars was a massive gamble on Microsoft’s part.”50 As it turned out, the gamble would pay off in spades and cement Microsoft’s place in corporate history.
IBM and its eventual clones exploded onto the scene in the early 1980s. From a starting point of zero in 1981, they accounted for the majority of computers sold by 1986. Microsoft software ran on them all, generating solid revenue from every copy of DOS and BASIC shipped at a minuscule marginal cost. Gates plowed the money back into his business to create new applications and improve the operating system with future versions he’d dub Windows.
Some software industry roadkill, like Seymour Rubinstein, a former TV repairman whose once best-selling WordStar word-processing program would soon join the extinct ranks of the early software dinosaurs,51 chalked up Gates’s success in operating systems to “pure luck.” He surely spoke for the legion of second-handers following in the amoral footsteps of Rand’s characters like Dave Mitchum in Atlas Shrugged, the incompetent railroad superintendent who complained about “injustice,” “bad luck,” and “the conspiracy of big fellows, who would never give him a chance.” According to Rubinstein, “There was no foresight, no imagination, no brilliant maneuvers, just a lucky break caused by a combination of Digital Research screwing up and Seattle Computer Products having something which wasn’t very good that could be modified for IBM.”
Would he say the same about an Olympic sprinter who invested a lifetime in physical training, only to win gold after the race’s leader stumbled? For the moochers, there’s no imagination in seeing the future of computing, no foresight in building for multiple platforms, no brilliant maneuvers in striking elegant and creative deals to reach business goals. For the less competent it’s easier to chalk it up to lucky breaks than to view their own personal shortcomings in stark contrast to genuine brilliance.
Act II: As Far as Your Mind Will Take You
In John Galt’s speech at the climax of Atlas Shrugged, he says that “you must drive as far as your mind will take you—with achievement as the goal of your road.” Now, from a strong position in operating systems and computer languages, Gates was to set for the world a new distance record of how far a mind can drive.
Gates was eager to capture a share of the third layer in the computer software hierarchy: applications. With the ubiquity of Microsoft products today, such as Word, Excel, PowerPoint, and Outlook, it’s easy to forget just what a competitive fight it was in the quickly changing field loaded with frenzied competition from incumbents like WordStar, VisiCorp, Lotus, Symantec, Borland, Ashton-Tate, and MicroPro. Undeterred, Gates set out to beat them at their own game with better products, more features, lower prices, and higher quality.
For example, in 1988 Lotus 1-2-3 had 70 percent of the spreadsheet market, having itself taken the lead from once-dominant VisiCalc some years earlier. Microsoft Excel was seen as an also-ran with a mere 10 percent market share. Less than 10 years later Lotus’s share had fallen to 26 percent and Excel’s share had increased to 68 percent.52 It’s often assumed that Microsoft applications simply piggybacked off of their huge installed base of operating systems, but the truth is that these applications were separate software packages that had to compete on their own merits in a free market. Good products sold. Bad products died.
Nobody forced anyone to buy anything. Gates struck rigorous deals with computer manufacturers and distributors alike using the full weight of his business leverage to wring the best possible terms from his partners. Gordon Eubanks, one of the industry’s pioneers and past president of Symantec, said of Gates, “I do know of instances where he used his influence, but who wouldn’t? This isn’t a race where there’s a handicap. Bill doesn’t go around carrying a 100-pound sack on his back. That’s what some people think should happen.”53 But that didn’t stop resentments from smoldering in the minds of the envious—those willing to bend the police power of the state to the task of putting that 100-pound sack on Gates’s back. As Rand put it in Atlas Shrugged, those people thought “it was society’s duty to see that no competitor ever rose beyond the range of anyone who wanted to compete with him.”
To be sure, Gates played hardball. But he played by the rules—and ironically, he fueled resentments by insisting that others abide by them as well. In one case, a deal to market Microsoft’s OS/2 network software with 3Com was moving too slowly for Gates, so he decided to bypass his partner and sell the product directly to end users—a right he’d carefully built into Microsoft’s contract with 3Com. 3Com’s Bob Metcalfe viewed it as a double-cross and counter to the spirit of their deal, though clearly within Microsoft’s rights under the contract. “The response that I got,” said Metcalfe, “was, ‘You ought to negotiate your contracts more carefully. You were stupid.’”
Alan Kessler, 3Com general manager, had a more sanguine reaction, saying, “We were adults. We were big boys and girls when we signed the contract. . . . We signed it on the belief that certain things were going to happen to the OS/2 market, they did not happen, and it was not incumbent on Microsoft to give us relief.”54 For Gates, business is war. If you weren’t prepared to abide by an agreement, don’t expect any quarter from his side.
“It is deep in the [Microsoft] culture that success is never guaranteed,”55 observed Pam Edstrom, Microsoft’s early head of public relations, neatly explaining Gates’s drive to win. It was a tough-minded approach at odds with some in the industry who viewed business more like a gentlemanly game of golf than a battle for survival. But you couldn’t argue with success. Or could you? By 1994 nine out of 10 computers sold were IBM PC compatibles and Gates was a billionaire many times over. But corporate envy had festered and spawned a government lobbying effort to restrain the juggernaut.
Yet not all competitors bought in. In 1990 a Federal Trade Commission investigator, tipped off by others in the industry, approached Scott Cook, chairman of Intuit, whose flagship Quicken program was facing stiff competition from Microsoft Money after a period of information sharing between the two companies. Cook said he told the FTC it was wasting its time investigating Microsoft. “They are pestering one of the best run companies I’ve ever seen,” he said, “a company that should be the model for American industry. . . . [W]hen you lose to Microsoft, it’s because you snooze.”56
Meanwhile, Gates was flying commercial around the world with no entourage. No pretense. He dined on hamburgers and milkshakes. And unlike a lot of corporate executives, Gates was able to put his ego aside, look at himself honestly, and learn from his errors. “The process of identifying the mistake, figuring out the problem and fixing it is what makes Bill Gates different,” wrote one industry observer. “I’ve watched him do it over and over again.”57 Like a true Randian hero, Gates dealt with objective reality, not wishful thinking. “If he really believed in something, he would have this intense zeal and support it and push it through the organization and talk it up, and whenever he met with people talk about how great it was,” said Scott MacGregor, a Xerox manager brought over to guide Windows development. “But if that particular thing was no longer great, he’d walk away from it and it was forgotten. A lot of people have a hard time doing that. It made him incredibly agile in a business sense. . . . People usually fight to the death long beyond when it is the right thing to do.”58
Oft-quoted industry analyst Esther Dyson said Microsoft was hated because it was so successful. “They’ve gotten where they are by doing a good job,” she said. “Doing a good job isn’t illegal.”59 The government, egged on by the cabal of industry whiners, would try to prove otherwise.
Gates through the Looking Glass
No less a personage than Alan Greenspan once wrote that “The world of antitrust is reminiscent of Alice’s Wonder-Land: everything seemingly is, and apparently isn’t, simultaneously. . . . [T]he entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance.”60 This is where Bill Gates—perhaps one of the most supremely and economically rational men who ever lived—found himself transported at the height of his success. At the antitrust trial, Gates must have felt he was dealing not with the American justice system but with Alice’s Queen of Hearts proclaiming, “First the sentence, and then the evidence.”
The century-old Sherman Antitrust Act passed by Congress in 1890 was designed to protect powerless consumers against huge corporate interests that might use nefarious means to monopolize a market, then artificially raise prices and stop improving their products to the economic detriment of society. The solution, in nineteenth-century logic, was to break up big companies to ensure vigorous competition, which would supposedly result in better products at lower prices thanks to a more efficient marketplace.
One hundred years of subsequent economic thinking calls the whole premise of antitrust law itself into question. In most instances economies of scale achieved only by the largest companies reduce operating costs and benefit consumers, and breaking them into smaller, inefficient pieces would cause more harm than good. In addition, market forces, left to their own devices, will likely displace an overcharging monopolist anyway, since eager upstarts will find ways to cut into the rich profits through creation of substitute products or other innovations. What’s worse, antitrust law is inherently subjective—there is no rigorous definition of monopoly. Nevertheless, the law is still the law, and such ambiguous legislation will inevitably become fertile soil for collectivist weeds to take root. And for Microsoft, take root they did.
At the heart of the government’s case in 1998 was whether Microsoft violated a 1994 consent decree and used monopoly power to stifle competition by giving away its Internet Explorer browser for free as part of its operating system, while competitor Netscape Communications was trying to charge a separate fee for its browser. On the face of it, it’s hard to see how consumers are harmed by getting something for free. It’s as silly as a bottled water company lodging a complaint against a municipal utility for installing drinking fountains in the public park. And if the water bottler truly had a superior product—or could convince the consumer it did—it would have a willing base of paying customers readily offering value for value.
In the case of Netscape, a ludicrous irony is that, in the beginning, it gave away its browser for free, as a come-on to build an installed base of consumers so that it could sell its server software to corporate clients. In the end Netscape’s problem wasn’t Microsoft doing the same thing; it was that Netscape behaved incompetently, made bad decisions, missed deadlines, alienated customers, and (most important) failed to create a compelling business model.61 As Gates once told his own small team working on Internet initiatives in the midst of the dot-com bubble, “What you are doing isn’t that hard. This is a feature. This isn’t a company. It isn’t even a product. It’s just a feature.”62 But Netscape apparently missed out on a fundamental lesson of commerce: don’t try to sell people something that they can get for free, especially when you yourself conditioned them to expect it for free. If Netscape couldn’t muster the strength and insight to create a profitable business on its own, it would play the poor disadvantaged kid beaten up by the big bully, and plead for public sympathy in the name of altruism.
Just like the looting businessmen in Atlas Shrugged, Netscape could have hardly been more aggressive in harnessing the power of the state. To start with, CEO Jim Barksdale personally had at least six meetings with trustbusters and sent the agency at least two white papers on the subject of Microsoft’s supposedly predatory tactics, urging the government to take action. His company would later circulate an internal document describing the government’s resulting antitrust suits against Microsoft as an “opportunity for Netscape.”63 On the witness stand, Barksdale’s clever one-liners and folksy banter laced with Mississippi charm would be eagerly received by Judge Jackson over a marathon week on the witness stand, in stark contrast to Gates’s independent intransigence.
Judge Jackson himself had little business presiding over a case on free-market commerce in the technology sector—or perhaps any case at all, for that matter. Jackson didn’t use e-mail and had little or no familiarity with computer technology. In 1999, he insisted that there was no “best of breed” in browsers and none was likely to emerge “at any time in the immediate future.” From his lofty view atop the bench, he acknowledged the exponential growth of the Internet and then fantastically asserted that it “would have no impact on consumers or operating systems for the next few years,” and went so far as to argue that many consumers would not even want a browser on their computers.64
For Judge Jackson, Microsoft’s crime was hubris, not monopoly. Jackson found Gates and his crew “obstinate.” “I think he has a Napoleonic concept of himself and his company, and arrogance that derives from power and unalloyed success,”65 he’d later say of Gates. The case became one not of legal merit, but of forcing Microsoft and its proud, individualist CEO to submit to the implied guilt thrust forth by the collective, of which Jackson had appointed himself representative.
David Boies, the government’s prosecutor, opened the case with excerpts from Gates’s videotaped deposition testimony. These “greatest hits” showed Gates’s style at it social worst. Slumping in his chair, wearing a baggy earth-toned suit, he appeared sullen and annoyed. He occasionally rocked back and forth broodingly. His responses came across as petulant, arrogant, obstinate, and snippy. “Did you actually read what was in there?” he jabbed back when posed a question about the definition of Microsoft’s Web browser. “It seems strange that if you’re trying to use a dictionary you might as well read what it says,” Gates smirked.66
Judge Jackson later told Ken Auletta of the New Yorker that throughout the trial “he couldn’t get out of his mind the group picture he had seen of Bill Gates and Paul Allen and their shaggy-haired first employees at Microsoft.” According to Auletta, he went on to say, “[W]hat [I] saw was a smart-mouthed young kid who has extraordinary ability and needs a little discipline. I’ve often said to colleagues that Gates would be better off if he had finished Harvard.”67
After 18 grinding months of trial, Jackson released his Findings of Fact using the following analogy about a North Carolina mule trainer to describe his own methods: “How do you train the mule to do all these amazing things? Well, he answered, I’ll show you. He took a 2-by-4 and whopped him upside the head. The mule was reeling and fell to his knees, and the trainer said: You just have to get his attention. I hope I’ve got Microsoft’s attention. . . . But we’ll see.”68
In late 1999, Jackson’s “Conclusions of Law” were still months from release, hanging like a sword of Damocles ready to deliver the judge’s decapitating penalties. Given the damning Findings of Fact, there was a tremendous incentive for Gates to settle. By this point, the struggling Netscape had been gobbled up by America Online in a stock swap valued at a whopping $4.2 billion—not bad for a company supposedly hobbled by Microsoft’s unfair practices. The market was sorting things out by itself, but the government was still concerned that Microsoft would continue to bundle new features like voice recognition into its operating system or create deliberate third-party incompatibilities to advantage its own suite of applications.
Earlier proposals suggested forcing Microsoft to bundle rival Netscape’s browser along with its own in a remedy Gates equated to “telling Coca-Cola to bundle three cans of Pepsi in every six-pack.”69 Other proposals during the ensuing months of negotiations included signing over Microsoft source code in a move akin to declaring the formula for Henry Rearden’s hard-won breakthrough technology, Rearden Metal, a public good—and literally blackmailing him into “giving” it as a “gift” to the nation. Gates was uncharacteristically amenable to certain softer provisions, including a “detachable” Web browser, but ultimately rejected the more extreme technical definitions being proffered. Soon it became impossible to bridge the gap between the stubborn Gates who insisted he had done no wrong and his government persecutors out for blood. The settlement talks fell apart.
Jackson’s eventual ruling that Microsoft be broken apart—which when it was announced in April 2000 caused a stock market crash, and was arguably the trigger event that derailed the boom in tech stocks—was later overturned by the D.C. Circuit Court of Appeals. An eventual settlement with the DOJ contained some minor concessions but kept Microsoft intact and largely free to continue its own software development on its own terms.
The same couldn’t be said for Gates himself. Years of legal grinding and public persecution had depleted his inner reserves. Gates had gotten into the business to build great software, not defend himself in a war of attrition against an ever-changing landscape of scavenging looters. He had had enough.
In January 2000, Gates relinquished almost all of the operational decision making at Microsoft by turning over the CEO duties to Steve Ballmer. Instead, he would ostensibly focus on strategy and software development in a far less public role. It was at this point of transition that Microsoft stopped playing to win and started playing to be nice.
Ballmer made it clear that an excessive zeal had permeated the culture and gotten the company into one legal tiff after another. The zeal had to be tamed. “Providing value to customers,” Gates and Ballmer wrote to shareholders in 2003, “means not only building great products, but also listening carefully to customers, responding quickly, and being more transparent and accountable.” It was as if Microsoft’s leadership were saying, “We’ve always thought of ourselves as good guys. We don’t think we did anything wrong. But all of you think we’re not that great. So now we have to convince you that we truly are good guys.”70
By 2003, Microsoft’s legal staff had mushroomed to 300 to handle the protracted legal avalanche threatening to bury it. In January 2004, Microsoft had 13 lobbyists in the nation’s capital and another seven in state capitals. Goldman Sachs analyst Rick Sherlund estimated that the lawsuit lopped off as much as $175 billion from Microsoft’s market capitalization. The once singularly focused Gates would become more and more comfortable spending time away from Microsoft pursuits. Where previously he would obsess over computer code or the latest elements of Windows—subjects about which he was the world’s foremost expert—his conversations would now turn just as frequently to matters of philanthropy such as infant mortality statistics or malaria in the third world—subjects about which he has no expertise, indeed no experience whatsoever.
His early attitudes toward philanthropy were dismissive at best. Business came first. “He thought the most important thing to do,” his father said, “was to have the business succeed.”71 When his mother tried to convince him to be more charitable, he responded that he had employees to pay and deals to do in a very competitive market. He just didn’t have the bandwidth to deal with yet another management hassle like a foundation, and certainly not one that didn’t produce any economic value.
After the DOJ trial, he did a complete 180. He started the Bill & Melinda Gates Foundation and would join with the likes of Warren Buffett to publicly announce a Giving Pledge that would funnel a huge portion of his wealth to this behemoth charity. Eventually he would be counted among the world’s most generous philanthropists. The press that once skewered him in demonizing terms of self-serving greed now lauded his turnaround. They had hated him for making his money, and now they loved him for giving it away—never mind that he had to have made it first.
He had seemingly capitulated to the collectivists. Or had he? Some might say his operational and mental departure from the company he founded was his own surreptitious strike of the mind. The high-profile charity would be a misdirection to distract the public from the most salient consequences of Gates’s move—he was withdrawing his intellect from the parasites who had sucked value from him through the decades. He walked away in full public view, leaving his creation to stagnate under societal demands of fair play . . . and nobody even realized he did it.
It was nothing so dramatic as Henry Rearden vanishing by dark of night from his ruined steel mills to join John Galt’s revolution. Nevertheless, Microsoft investors have already felt it where it counts: in the pocketbook. As Figure 5.1 shows, a $100 investment in Microsoft would have turned into over $48,000 over the 15 years Gates was at the helm. From the day Gates accepted society’s demands and became a generous philanthropist instead of a greedy monopolist, that same $48,000 would have shrunk to $33,600 by today.
Figure 5.1 Microsoft (MSFT) Stock Price
Bravo, Mr. Gates. Like Henry Rearden, you fought long and hard. Society will miss your contribution—whether or not it ever knows it.