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Bill Gates’ excellent adventure ends in tears

by John Naughton

LONDON — The scene: a tasteful, wooded corporate retreat north of Seattle. The time: one day last March. A large group — mainly chaps in their mid-40s — stand around. They seem to be in quite a state.

Here’s how one described the scene: “Steve Ballmer was sobbing. Minutes passed as he tried to regain his composure. But the audience of 130 of Microsoft’s senior leaders waited patiently, many of them crying too. They knew that the CEO was choked up because this retreat . . . was the last ever for company cofounder Bill Gates, as well as for Jeff Raikes, one of the company’s longest-tenured executives.

“I’ve spent more time with these two human beings than with anyone else in my life,” Ballmer finally said. “Bill and Jeff have been my North Star and kept me going. Now I’m going to count on all of you to be there for me.” Aw shucks.

There’s been a lot of “end-of-an-era” talk about the departure of Gates from the company he founded with Paul Allen in 1975. There have also been acres of speculation about “whither Microsoft after Gates?” Both topics are, well, a bit passe.

The eclipse of the Gates “era” began with the arrival of Google 10 years ago. And the succession plan that he and Ballmer engineered nearly two years ago effectively handed direction of Microsoft to a triumvirate of Ballmer, Ray Ozzie and Craig Mundie. So let us dispense with the Kleenex and take a detached view of Gates’ contribution to civilization.

The headline is that he is the John D. Rockefeller de nos jours in the sense that he shaped an emerging industry and revolutionized philanthropy. The big difference is that, unlike Rockefeller, Gates did not wait until the closing years of his career to engage in good works, and the $100 billion endowment of the Bill and Melinda Gates Foundation will ensure that his name lives on.

His great contribution to the computer business was to impose order on a fragmented industry by creating a de facto standard in the shape of the MS-DOS (and, later, Windows) operating system. This, allied with the fact that IBM had lent respectability to the industry by deigning to market a personal computer, was what enabled the astonishing growth of the software business as programmers saw a platform for which it was worth developing products.

The great irony is that operating systems were not part of the original plan. Microsoft’s core business was producing compilers for programming languages. But when IBM dropped the opportunity of a lifetime into his lap, he was smart enough to spot it — and exploit it. He was the biggest beneficiary to date of what economists call the “network effect” — where the value of a network increases dramatically as more people join it.

The company he cofounded turned out to be a corporate extension of his personality. That is to say, it was smart, arrogant, paranoid, hyper-competitive — and curiously cautious. (Microsoft has never carried significant debt, and Gates ran the company on the basis that it could run unchanged for an entire year without earning a cent in sales revenues.)

The high point (or nadir, depending on how you look at it) of the Gates corporate mind-set was the way Microsoft set about exterminating Netscape, the company that developed the first big commercial browser. The antitrust suit that followed revealed the extent of Gates’ hyper-competitive, arrogant temperament. In video testimony he was shown swaying back and forth in a rocking chair, giving resentful answers to lawyers’ questions, like a teenager under interrogation for suspected vandalism. He simply couldn’t understand why the government had the temerity to interfere in his business.

Under Gates, Microsoft exploited its monopoly to produce revenues and profits beyond the dreams of Croesus. But in the process, the company became bloated (it now has 90,000 employees), middle-aged and torpid. Its stranglehold on the PC platform seems to have blinded it to the fact that the network was becoming the computer, and people were getting computing services via their browsers. Google has been the prime beneficiary of this new kind of network effect, and Microsoft has struggled to get to grips with a world in which its old monopolies have little leverage.

The company Gates leaves behind will continue to be prominent in the computing industry. But as it has aged, it has lost much of its edge and focus. Its great days are behind it: The excitement has gone. No wonder Ballmer wept.