(1955–)
Cofounder and chairman, Microsoft Corporation
Born: October 28, 1955, in Seattle, Washington.
Education: Attended Harvard University, 1973–1975.
Family: Son of William Henry Gates II (attorney) and Mary Maxwell (teacher); married Melinda French (Microsoft manager), January 1, 1994; children: three.
Career: Lakeside Programming Group, 1968–1969, founder; Traf-O-Data, 1970–1973, founder; Microsoft Corporation, 1975–, founder and chairman; 1975–2000, CEO; 1992–1998, president.
Awards: U.S. National Medal of Technology, 1993; Chief Executive of the Year, Chief Executive, 1994; President's Medal of Leadership Award, New York Institute of Technology, 1995; Louis Braille Gold Medal, Canadian National Institute for the Blind, 2002; Knight Commander of the Order of the British Empire, 2004.
Publications: The Road Ahead (with Nathan Myhrvold and Peter Rinearson), 1995; Business @ the Speed of Thought, 1999.
Address: Microsoft Corporation, 1 Microsoft Way, Building 8, North O, Redmond, Washington 98052-6399; http://www.microsoft.com.
William Henry Gates III cofounded the Microsoft Corporation in 1975, built his software company into the one of the most successful businesses in the world, and established himself in the process as the world's richest man. Although Bill Gates started Microsoft as a small business based on a single innovative software program that he had helped to develop, his real genius was his business acumen. As the long-time CEO of Microsoft, Gates was able to borrow and integrate other computer programmers' innovations and sell them to a new and rapidly expanding home computer market. In 1985, 10 years after Microsoft was founded, it had $140 million in revenue, which grew to $28 billion by 2002. One of the pioneers of home computing, Gates proved himself to be a technological visionary and software applications guru. According to industry analysts, he also demonstrated that he was a shrewd marketing strategist as well as an aggressive corporate leader.
A Precocious Pioneer
Gates grew up in a prosperous area of Seattle, Washington, with his parents and two sisters. The son of a lawyer and a schoolteacher, Gates attended a public grade school and then the Lakeside School, a private college preparatory institution. It was at Lakeside that he first became interested in the relatively new field of computer programming, met his friend and future business partner Paul Allen, and developed his first computer software program at the age of 13.
In 1968 the Lakeside School was still purchasing computer time on a machine owned by General Electric, as computers were extremely expensive in the late 1960s. Gates and his friends from Lakeside became fascinated with the machines and formed the Lakeside Programmers Group to try to make money in the computer field. The Programmers Group primarily earned its founders free computing time on machines owned by a company in Seattle. Gates and Allen then formed a company that they called Traf-O-Data. They put together a small computer for measuring traffic flow and made about $20,000. The company remained in business until Gates and Allen graduated from high school. Although Gates was interested in computers, he enrolled at Harvard University with the intention of becoming a lawyer like his father. By the time he was a sophomore in 1975, however, Gates was more interested in computers and electronics than in his pre-law studies.
What became the Microsoft Corporation grew out of two college undergraduates' bluff and bravado. Gates's old friend Allen showed him an advertisement for a kit to build a home computer. The two called the computer's manufacturer, MITS, saying that Gates had taken a primary computer language called BASIC and adapted it for the machine. When MITS expressed interest, Gates and Allen ignored their studies and spent the next four weeks frantically working on turning their boast into reality. In an interview in Money, Gates later recalled, "One little mistake would have meant the program wouldn't have run. The first time we tried it was at MITS, and it came home without a glitch" (July 1986).
Having written the first computer language for a personal computer, Gates and Allen established the Microsoft Corporation in 1975. The name "Microsoft" was formed from the words "microcomputer" and "software." Gates then dropped out of Harvard in 1976 and focused on building the new business. He believed that there was a market for computer software and that the market was going to expand rapidly as affordable computers were developed for home use.
Right Place—right Time
Although Gates rightfully earned credit for building one of the fastest-growing and most profitable companies ever established, Microsoft started out on a shaky foundation. Gates and Allen had sold their first commercially developed software for $3,000 and royalties. Before long, however, Microsoft found itself unable to cover its overhead. Even though Gates and Allen received royalties, their software was also pirated by computer hackers. This piracy led Gates to write an "Open Letter to Hobbyists," which said that computer software should not be copied by the then relatively small computer community without the developer's permission. Gates also recognized at this point in time that the future of computer software lay in owning a standard software package to be used on most computers.
By the late 1970s the computing giant IBM had plans for marketing a personal computer for home use. They approached Microsoft to develop the standard operating system for their home computer models. Gates and Allen then went out and purchased for $50,000 an operating system called Q-Dos, which had been developed by Seattle Computer. Q-Dos was compatible with the Intel processor that IBM intended to use. The two then adapted the Q-Dos system and presented it to IBM. Money magazine quoted Gates as recalling, "We bet all our resources on that system" (July 1986).
Gates had learned well his early lessons in the software business. He insisted that IBM make Microsoft the exclusive software licensee for their home computers, meaning that all IBM products would have Microsoft operating systems. Furthermore, Gates negotiated a contract that allowed Microsoft to retain the right to manufacture and license the software, which he and Allen had named MS-DOS, to other manufacturers. Because there were three other operating systems for microprocessors at that time, Gates didn't own the sole industry standard. But he was well on his way. He and Allen made MS-DOS the most attractive system to computer manufacturers because Microsoft offered a flat-fee license rather than a per-unit contract. Gates and Allen also encouraged software developers to create programs that would broaden their system's capabilities. Their strategy was a huge success because manufacturers initially saved money. In addition, the software developers had an easier job designing such single applications as word processing for use on computers made by other manufacturers.
These negotiations demonstrated that Gates was willing to defer immediate earnings for much greater future profits. His plan was based on building a mass of users for Microsoft products, which would mean the company would own the industry standard. Once Gates's company owned the standard, it could then revert to selling its software at per-unit prices rather than general licenses.
While the contract with IBM placed Microsoft on its way to legendary business growth, it also established a precedent for what some considered Gates's unsavory business practices. When he and Allen had approached Seattle Computer, the software's original developer, they omitted to mention that they were in negotiations with IBM to develop their operating system. Seattle Computer later sued Microsoft on the grounds that it had hidden its relationship with IBM in order to purchase Seattle's system at what turned out to be a bargain-basement price. The two companies came to an out-of-court settlement without Gates or Microsoft admitting to any guilt or duplicity in the original purchase.
Marketing Trumps Challengers
Paul Allen, who had been serving as Microsoft's head of research and new product development, left the company in 1982 after being diagnosed with Hodgkin's disease. The following year, Gates faced a major challenge to Microsoft's domination of operating systems for home computers when a company called VisiCorp developed a mouse-driven computer system with a user interface based on graphics rather than the keyboard-based and text-driven system of MS-DOS. Gates quickly recognized that VisiCorp's system would be the wave of the future because it was much easier for technologically unsophisticated people to use. Even though Microsoft did not have such a system in the works at that point, Gates started an advertising campaign with an announcement at the Plaza Hotel in New York City that a new Microsoft operating system with graphical user interface (GUI) would soon be marketed. This next-generation system was to be called "Windows."
Gates's announcement was a bluff; the truth was that Microsoft was nowhere near developing such a system. But the marketing ploy worked because people preferred to wait for a system designed to be compatible with their existing Microsoft products rather than undergo the trouble and expense of installing an entirely new operating system. Furthermore, Windows allowed users to avoid buying new software applications to replace the DOS-compatible programs they currently owned. Windows 1.0 was finally released in 1985. That same year Microsoft reported $140 million in revenue, including $46.6 million from overseas users.
Microsoft's growth continued to be relatively smooth in spite of several challenges, in part because the fiscally conservative Gates had financed most of the company's expansion entirely from its earnings. This cautious approach to financing, however, did not reflect an unwillingness to take risks. In January 1986 Gates launched an ambitious long-term project to develop a new data storage system based on a compact disk, or CD-ROM, that could hold any type of computer file, including music and visual files. In March of that same year, he took the company public. His 40 percent ownership of Microsoft shares made his net worth $390 million by June 1986.
Gates had effectively cornered the market for operating software for the vast majority of personal computers (PCs) as well as developing a wide range of other popular programs. He effectively became a billionaire in March 1987, when his company's stock rose to $90.75 per share, up from $21.50 per share when the company went public. Brian O'Reilly commented a few months later in Fortune, "[Gates] apparently has made more money than anyone else his age, ever, in any business" (October 12, 1987).
Gates Switches Gears
Industry analysts had praised Gates for guiding his company on a path of growth that saw its revenue stream increasing by more than 50 percent per year in a extremely competitive, even cutthroat, market. They credited much of this success to Gates's ability to capitalize early and effectively on industry trends and his willingness to take risks on such fledgling technologies as Microsoft's CD-ROM-based software packages, which became industry standards. Furthermore, Gates had organized the company's structure so that it worked concurrently on all phases of a software product's business cycle from development to distribution. Larry Michels, an early software developer, told Mary Jo Foley of Electronic Business, "Other software vendors have modeled themselves after the hardware business. Microsoft created its own model of how to do business" (August 15, 1988).
Although Gates had established himself as a visionary, he did not always hit the mark. For years he had paid little attention to the business potential of the Internet, which led him to say later that he regretted not having focused more closely on Microsoft's capabilities for e-mail and networking. In 1995, however, he did an about-face and began to redirect the company's efforts in this area. His success was measured by the fact that Microsoft's Internet Explorer Web browser had become the industry leader by 2000. Gates's success in developing a competitive Internet browser, as well as coming out on top of the desktop-database and office-suite wars of the 1990s, proved that he had formed a company nimble enough to jump into a market that others were developing and take the lead away from the competition.
In 1998 Gates announced a new phase in Microsoft's expansion that would allow him to concentrate his energies on strategy and product development. At the same time the company funneled larger amounts of money into improving customer support and feedback. Gates planned to direct the company's work in such areas as intelligent telephones and television, as well as the integration of such new computer input techniques as speech, vision, and handwriting. Although Windows had already gone through several upgrades, Gates wanted to continue improving its ease of use and reliability. To free himself up for this work, he stepped down as president, a position he had held since 1992, but remained Microsoft's chairman and CEO.
Showdown With the Government
Microsoft earned $19.75 billion in revenue during the fiscal year 1999. Bill Gates had become an icon not only in the computer and business worlds but also in the eyes of the general public. His ghostwritten book The Road Ahead, which outlined his vision of the future, topped many best-seller lists for more than three months. In spite of Gates's financial and literary success, however, he found himself facing his biggest challenge yet as the 1990s came to an end.
The challenge came this time from the United States government rather than from Microsoft's competitors. Gates and Microsoft had come under increasing scrutiny for unfair business practices from the time of the court case that followed Microsoft's purchase of the Q-Dos operating system from Seattle Computer in 1980. In 1993 the U.S. Justice Department began an investigation into Microsoft's contracts with other computer manufacturers that led to an agreement from Gates in 1994 to eliminate some of Microsoft's restrictions on the use of its products by other software makers. In 1997, however, the Justice Department sued Microsoft for forcing computer makers to sell its Internet browser as a condition of using the Windows system—a de facto violation of the 1994 consent decree. In December 1997 a U.S. district judge issued a preliminary injunction forcing Microsoft to temporarily stop requiring manufactures who sold Windows 95 "or any successor [program]" to install its Internet Explorer.
Microsoft appealed the injunction, but the following year the Justice Department and 20 state attorneys general sued Microsoft, charging that it illegally thwarted competition to protect and extend its software monopoly. Although Microsoft won its initial appeal in 1998 to reverse the 1997 decision, Gates soon found himself being questioned for 30 hours over a three-day period in a videotaped deposition for the upcoming antitrust trial. The government finally rested its case on January 13, 1999, and the Microsoft defense team ended its case on February 26. The final oral arguments from each side were presented on September 21, 1999.
After the judge presented his findings of fact on the case on November 5, Gates issued a response disagreeing with many of the findings that went against Microsoft. In a statement released to the press as reported by Court TV Online, Gates noted, "Microsoft competes vigorously and fairly. Microsoft is committed to resolving this case in a fair and a factual manner, while ensuring that the principles of consumer benefits and innovation are protected" (November 6, 1999).
U.S. District Judge Thomas Penfield Jackson ruled in June 2000 that Microsoft was a monopoly which had illegally exploited the dominance of Windows, at that point installed on over 95 percent of the world's personal computers. Judge Jackson then ordered Microsoft to be broken up into several smaller companies. It was the most severe antitrust ruling since the breakup of AT&T in 1984. Jackson's decision was reversed on appeal, however, and the company received a far less severe punishment directed toward restricting some of its business practices. In spite of this relatively favorable outcome, however, Gates continued to battle competitors in American courtrooms over Microsoft's business practices. In addition, he found himself subjected to litigation in Europe, where Microsoft was once again accused of exploiting its monopoly of Windows to control other computer-related industries, including media-player and server software companies.
Despite the controversy over whether Gates had created a company that used its dominance of the desktop computer system to obtain unfair control of newer computer-related markets, Microsoft continued to prosper. Gates stepped down as CEO in 2000 but kept his position as chairman of Microsoft as well as its chief software architect. In 2004 he doubled the company's research and development budget to $6.8 billion and began pushing a new Windows personal computer operating system code-named Longhorn.
Management Style: Workaholic
Although Gates was long known as a "boy wonder" in the computer and business worlds, his management style was anything but immature. As was noted in a BBC News article, "Gates has come to be known for his aggressive business tactics and confrontational style of management" (January 26, 2004). Although he was considered a charismatic leader within his own company, he was also extremely tough—he fired Microsoft's first company president after only 11 months on the job.
An intense businessman who typically put in 16-hour days and took only two three-day vacations in the first five years after establishing the corporation, Gates was demanding and strong-willed about implementing his vision. Coworkers, clients, and industry analysts also remarked, however, that he did not surround himself with yes-sayers but was more than willing to change his mind if someone convinced him of a better alternative. Analysts also observed that one of the keys to Gates's success was his ability to focus on the fundamentals of the business while keeping office politics or his own ego from getting in the way. "Most of what I do is leading," Gates once said in Electronic Business. "Managing applies to the people who work directly for me" (August 15, 1988).
Gates was known from the beginning of his career as the epitome of a hard-driving businessman respected by his allies and feared by his competitors. It was his vision that guided Microsoft's immense success. In addition, Gates had an uncanny ability to tackle both the managerial and technical sides of Microsoft's operations. He was especially noted for his success as a marketing strategist who priced his products for the mass market rather than computer specialists. In 1999 the Journal of Business Strategy listed Gates among a handful of people who had the greatest influence on business strategy over the last century.
Gates also had his fair share of critics. In addition to accusations of predatory and possibly illegal business practices, some analysts remarked that Gates did not really foster in-house product innovation but tended to focus his attention instead on blocking advances by other companies.
On the other hand, supporters of Gates's managerial style and business acumen pointed out that Microsoft continued to prosper even in the midst of the 2002 information technology slump, growing at 20 percent each quarter and posting a phenomenal 35 percent after-tax profit margin. Despite all his financial success, however, Gates remained a fiscal conservative. He was renowned for his penny-pinching traveling habits, demanding that his schedule be filled for the entire day when he was on the road promoting his company.
No Time to Rest
Gates was still the world's wealthiest person in early 2004, with a personal fortune estimated at $60.56 billion. He remained a hands-on leader at Microsoft, however, maintaining an active work schedule as the company's chairman and chief software architect. As noted by Ron Anderson in Network Computer, "… no doubt his presence [at the company] will make itself known well into the decades ahead" (October 2, 2000).
In addition to extending Microsoft's success, Gates also turned his attention to philanthropy, including the establishment of the Bill and Melinda Gates Foundation. Gates and his wife endowed the foundation with $24 billion to support philanthropic initiatives in the areas of global health and learning. For example, Gates made plans in February 2004 to donate $82.9 million for research to develop a new vaccine against tuberculosis. In addition to his duties at Microsoft and his efforts in philanthropy, Gates sat on the board of ICOS, a company that specialized in protein-based and small-molecule therapeutics.
Sources for Further Information
Anderson, Ron, "Top 10 Most Influential People: No. 2—Bill Gates," Network Computing, October 2, 2000, p. 51.
"Bill Gates' Response to Microsoft Decision," Court TV Online, November 6, 1999, http://www.courttv.com/archive/business/1999/1106/gates_ap.html.
Foley, Mary Jo, "Boy Wonder: Microsoft's Bill Gates," Electronic Business, August 15, 1988, p. 54.
"Interview: Bill Gates Opens Up," PC Magazine, February 24, 2004, N/A.
O'Reilly, Brian, "A Quartet of Hi-Tech Pioneers," Fortune, October 12, 1987, p. 148.
"Profile: Bill Gates," BBC News, January 26, 2004, http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/3428721.stm.
Schlender, Brent, "On the Road with Chairman Bill," Fortune, May 26, 1977, p. 72.
"Sir Bill and His Dragons—Past, Present, and Future—Microsoft," Economist (US), January 31, 2004, p. 68.
"Strategists of the Century," Journal of Business Strategy 20, no. 5 (September 1999), p. 27.
Tuhy, Carrie, Richard Eisenberg, and Greg Crouch, "Software's Old Man is 30," Money, July 1986, p. 54.
—David Petechuk
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Life is not fair; get used to it.
