Understanding Industry Dynamics: Microsoft and Compaq's Rise

What I learned from reading Hard Drive: Bill Gates and the Making of the Microsoft Empire by James Wallace and Jim Erickson. 

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Microsoft had become the first software company to sell more than a billion dollars worth of software in a single year. 

Gates was the undisputed mastermind of that success, a brilliant technocrat, ruthless salesman, and manipulative businessman. 

Gates had slammed his fist into his palm and vowed to put several of his major software competitors out of business. By 1991, many of those competitors were in full retreat. 

I can do anything I put my mind to. 

Aggressive and stimulated by conflict; prone to change mood quickly; a dominating personality with outstanding powers of leadership. 

Mary Gates, in describing her son, has said that he has pretty much done what he wanted since the age of eight. 

Even as a child Gates had an obsessive personality and a compulsive need to be the best. 

Everything Bill did, he did to the max. 

Everything he did, he did competitively and not simply to relax. He was a very driven individual. 

Gates was immediately hooked. He found he had to compete for time on the computer with a handful of others who were similarly drawn to the room as if by a powerful gravitational force. Among them was Paul Allen. 

Gates devoured everything he could get his hands on concerning computers and how to communicate with them, often teaching himself as he went. 

Gates and a couple of other boys broke into the PDP-10 security system and obtained access to the company’s accounting files. They found their personal accounts and substantially reduced the amount of time the computer showed they had used. 

“It was when we got that free time that we really got into computers,” Gates said. “Then I became hardcore. It was day and night.” Gates was 13 years old. 

Although he was only in the ninth grade, he already seemed obsessed with the computer, ignoring everything else, staying out all night. 

He consumed biographies to understand how the great figures in history thought. 

If you had asked anybody at Lakeside, ‘Who is the real genius among geniuses?’ everyone would have said ‘Bill Gates.’

He was obnoxious, he was sure of himself, he was aggressively, intimidatingly smart. 

He had a hard-nosed, confrontational style. His intensity at times boiled over into raw, unthrottled emotion. 

To those who knew him best Gates was hardly the social outcast he may have appeared to be from a distance. He had a sense of humor and adventure. 

He was a risk taker, a guy who liked to have fun and who was fun to be with. 

He had an immense range of knowledge and interests and could talk at length on any number of subjects. 

Although Gates may not have known what he was going to do with his life, he seemed confident that whatever he did would make him a lot of money. He made such a prediction about his future on several occasions. 

He and Paul Allen began to talk about forming their own software company. They shared the same vision that one day the computer would be as commonplace in the home as a television set and that these computers would need software—their software. 

Bill Gates would later tell a friend he went to Harvard to learn from people smarter than he was and left disappointed. 

That Gates would fall asleep in class was not surprising. He was living on the edge. It was not unusual for him to go as long as three days without sleep. 

His habit was to do 36 hours or more at a stretch, collapse for ten hours, then go out, get a pizza, and go back at it. And if that meant he was starting again at three o’clock in the morning, so be it. 

Gates and Allen were convinced the computer industry was about to reach critical mass, and when it exploded it would usher in a technological revolution of astounding magnitude. They were on the threshold of one of those moments when history held its breath and jumped, as it had done with the development of the car and the airplane. 

They could either lead the revolution or be swept along by it. 

Gates spent many hours sitting in his room “being a philosophical depressed guy, trying to figure out what I was doing with my life.”

Bill had a monomanical quality. He would really focus on something and stick with it. He had a determination to master whatever it was he was doing. Bill was deciding where he was going to put his energy and to hell with what anyone else thought. 

Gates eventually gave up any thought of becomming a mathematician. If he couldn’t be the best in his field, why risk failure? 

Gates knew Allen was right. It was time. The personal computer miracle was going to happen.

The personal computer revolution had begun. Its prophets were two young men not yet old enough to drink, whose software would soon bring executives in suits from around the country to a highway desert town to make million-dollar deals with kids in blue jeans and t-shirts. 

You’ve got to remember that in those days, the idea that you could own a computer, your own computer, was about as wild as the idea today of owning your own nuclear submarine. It was beyond comprehension. 

His parents and grandparents had taught him to be financially conservative, and that was the way he intended to run his company. There would be no unnecessary overhead or extravagant spending habits with Microsoft. 

Bill always had the vision that Microsoft’s mission was to provide all the software for microcomputers. 

They became known as the Microkids—high-IQ insomniacs who wanted to join the personal computer crusade, kids with a passion for computers who would drive themselves to the limits of their ability and endurance. 

Gates’ tireless salesmanship, browbeating, and haggling had resulted in agreements to license BASIC to a number of computer companies. 

He took one look at the long-haired, scraggly, 21-year-old and decided the legal battle against Microsoft was going to be easy. Roberts had warned Pertec that it would have its hands full with Gates, but no one listened to him. “Pertec kept telling me I was being unreasonable and they could deal with this guy,” Roberts said. “It was a little like Roosevelt telling Churchill that he could deal with Stalin.” 

What sustained the company was not Gates’ ability to write programs. Gates sustained Microsoft through tireless salesmanship. 

For several years, he alone made the cold calls and haggled, cajoled, browbeat, and harangued the hardware makers, convincing them to buy Microsoft’s services and products. 

When we got up to 30 employees, it was still just me, a secretary, and 28 programmers. I wrote all the checks, answered the mail, and took the phone calls. 

I’ll tell you or anybody else, that by the time you were with Bill for fifteen minutes, you no longer thought about how old he was or what he looked like. He had the most brilliant mind that I had ever dealt with. 

Microsoft did not need venture capital; Gates was essentially hiring the firm’s expertise. 

Gates wanted to eliminate his opponents from the playing field. Bill learned early on that killing the competition is the name of the game. There just aren’t as many people later to take you on. In game theory, you improve the probability you are going to win if you have fewer competitors. 

If you talk to Bill about any software company there’s a very high probability that he will be able to tell you who the CEO is, what their revenues were last year, what they are currently working on, what the problems are with their products. He’s very knowledgeable and prides himself on knowing what’s going on in the industry. 

Hanson suggested a different product naming strategy. It was important for a product to be identified by its brand name. Microsoft had to get its name associated with its products.

The brand is the hero. People start to associate certain images with the brand, and that becomes more important than any single product. What the consumer goods companies realized years ago was that products come and go. But if you can create a halo around a brand name, when you introduce new products under that brand halo it becomes much easier to create momentum. 

With few exceptions, they’ve never shipped a good product in its first version. But they never give up and eventually get it right. It was all part of Gates’ master plan. As General George S. Patton liked to say, a good plan, violently executed now, is better than a perfect plan next week. 

He was a very clear thinker. But he would get emotional. He would browbeat people. Just imposing your intellectual prowess on somebody doesn’t win the battle, and he didn’t know that. He was very rich and very immature. He had never matured emotionally. 

For the year that ended June 30, 1985, Microsoft had revenues of $140 million. Its profits had totaled $31.2 million. 

All I’m thinking and dreaming about is selling software, not stock. 

The combination of ambition and wanting to win every single day is what Gates referred to as “being hardcore.”

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