The Microsoft File : The Secret Case Against Bill Gates - Hardcover

Rohm, Wendy Goldman

Hardcover

ISBN 10: 0812927168 ISBN 13: 9780812927160

Publisher: Crown Business, 1998

Synopsis

The Microsoft File is an extraordinary fly-on-the-wall account of Microsoft's intent to monopolize the computer industry. Wendy Goldman Rohm takes you to the inner sanctum of Microsoft, has you sit in on meetings between Microsoft and important customers and competitors, and looks at the struggles of the Federal Trade Commission and Department of Justice as they try to develop a strategy to counter one of the most serious charges of market manipulation since John D. Rockefeller and Standard Oil.

The Microsoft File is based on information from not one but many "Deep Throats," as well as internal documents that tell a story of:

> How Microsoft's predatory marketing and pricing behavior belies its claims of fair competition.

> How Microsoft killed the market for a competitor's operating system, a system that could have challenged MS-DOS.

> How bugging devices were found in the hotel room of a supposed business partner of Microsoft's the day before a critical meeting with Microsoft.

> How Microsoft inserted hidden code in the beta version of Windows 3.1, creating fear in the marketplace that competing products would crash and adding a byte in the final version that was marketed so the hidden code wouldn't appear on the screen.

> How close Apple came to discarding the Macintosh operating system for Windows, and the real reason why Bill Gates decided to invest some $250 million in Apple.

> How Microsoft, despite nondisclosure agreements, obtained and used technological secrets from competitors.

> How the biggest mergers in the software industry unfolded, blow-by-blow, as Microsoft's competitors tried to survive the increasing power of the Gates juggernaut.

Is Microsoft's rise as the world's most powerful and successful company a classic example of the free market, as many Microsoft apologists contend? Is its success, and the failure of other companies, the result of the creative destruction that makes capitalism so strong?  The Microsoft File suggests that other forces were at work.

About this title

About the Author

Wendy Goldman Rohm  is an award-winning writer who has covered the high-tech world for over a decade. Her articles have appeared in, among other publications, Wired, Upside, the Chicago Tribune, The Boston Globe, The Financial Times, and Information Week, and have been syndicated by The New York Times Syndicate International. Rohm is also a playwright and poet, and lives with her daughter in Evanston, Illinois. She welcomes correspondence at wendy@compuserve.com.

From the Inside Flap

crosoft File</b> is an extraordinary fly-on-the-wall account of Microsoft's intent to monopolize the computer industry. Wendy Goldman Rohm takes you to the inner sanctum of Microsoft, has you sit in on meetings between Microsoft and important customers and competitors, and looks at the struggles of the Federal Trade Commission and Department of Justice as they try to develop a strategy to counter one of the most serious charges of market manipulation since John D. Rockefeller and Standard Oil.<br><br><b>The Microsoft File</b> is based on information from not one but many "Deep Throats," as well as internal documents that tell a story of:<br><br>> How Microsoft's predatory marketing and pricing behavior belies its claims of fair competition.<br><br>> How Microsoft killed the market for a competitor's operating system, a system that could have challenged MS-DOS.<br><br>> How bugging devices were found in the hotel room of a supposed business partner of

Excerpt. © Reprinted by permission. All rights reserved.

MICROCOSM

Bill Gates' personal and business strategies all over the world were being played out in microcosm in Germany, where the largest computer manufacturer in Europe was still not under Gates' control. Gates was about to turn an entire country market around. He would stop at nothing, including paying "reverse bounties" to a company in exchange for an agreement that it would never sell another copy of a rival's product.
The old castle had belonged to royalty and was a favorite haunt of members of Parliament. Stefanie Reichel could not believe that she was here, at the Hotel Cliveden, just outside London, with Bill Gates.

Cliveden, which had been Lord Astor's estate, had become known as a place of intrigue in the 1960s, when a young woman named Christine Keeler inadvertently brought down Britain's conservative government. Members of Parliament and British aristocrats had used the place for orgies until Keeler squealed after a love affair with a defense minister and a military attaché from the Soviet embassy. (It had become known as the Profumo affair.)
The place was still breathtakingly beautiful, with its hunting grounds and gardens. The dining rooms and meeting rooms were palatial. Microsoft had rented it for its annual board meeting in August 1992. There had been traditions for this summer board meeting; it was always held in an exotic place, and Gates' mother and father usually attended.

Gates had first spotted Stefanie Reichel, wearing a striking red suit, in April 1992 during a business meeting with computer makers in Monte Carlo; he couldn't take his eyes off her. He canceled his flight back to the States for a chance to get to know this beautiful young woman, who spoke three languages and was an employee of Microsoft Germany.

Just the previous day Gates and Reichel had arrived at Heathrow and had a rendezvous at the Sheraton Heathrow hotel. From there they continued to London's Park Hyatt. That night they had tickets to see Miss Saigon and dined at the British actor Michael Caine's Indian restaurant.

Now Gates stepped into the Cliveden's richly appointed library, where a predinner cocktail hour was unfolding, with Reichel on his arm.

All found it unusual that Gates had not taken a room at the Cliveden like the rest of the Microsoft entourage, who had flown in from Seattle. But Mary Gates was happy to notice that her son had a pretty young blond with him. "Ohhh, hi! Who are you?" she asked Reichel.

The two spoke at some length, and Mary, who was known to light up a room, made every effort to include the young woman. "Oh, we should invite you more often to these things, Stefanie," she said.

Gates was slightly embarrassed by his mother's attentiveness to his new girlfriend.
The board members were filtering in, and many of the men were lighting up cigars. There was CFO Frank Gaudette and President John Shirley and his wife. Microsoft's cofounder, Paul Allen, was not present. Bill Neukom meandered into the room. Reichel's presence startled him. He had heard that Gates was intrigued by a woman in Europe, but later Neukom told Reichel that his heart sank when he realized it was she. He had met her months earlier at headquarters and been taken with her himself.

Earlier this day Gates and Reichel had had a lunch meeting with Theo Lieven, the chief of Europe's largest computer maker, Vobis Microcomputer. In a "Microsoft secret" report, one executive had months earlier provided a snapshot of what was going on at the Vobis account. "It looks like DRI is urging them to focus on DR-DOS," it stated, adding that "Lieven is complaining about the per processor license-he does not want to pay $9 with every computer system and thinks about shipping both DR-DOS and MS-DOS."

Before the Vobis lunch meeting at one of London's best restaurants, Nico at Ninety, Reichel and Gates had sat in a limo together. She had prepared a detailed briefing on the Vobis account for the big boss and handed it to him in a neat binder. Gates was impatient. "Just tell me what it says," he told her. Reichel laughed, a bit flustered. Gates had been sending her e-mail and love letters since he met her the previous April.

"Du." From the beginning, Stefanie Reichel was struck that she was being addressed as du.
German citizens knew there was something different about the American company from their first day on the job. Microsoft Germany was operating much as the company operated in the United States. That is, the sensibility of Bill Gates had filtered across the ocean with great intent.

Despite the influence of Western culture around the globe, inside most German companies, employees addressed each other using formal names. Sie, the formal version of "you," was the correct usage. The informal Du was reserved for after-hours socializing and personal relationships. An internal directive instructed Microsoft Germany employees, however, that "we do not address each other formally." It was one of the first things Reichel was told when she joined Microsoft in 1991.

Now she was helping to orchestrate in Germany a microcosm of how Microsoft operated and took over markets worldwide.

Reichel, though raised in Germany, had lived for many years in the United States, where she attended an Ivy League university and worked in Silicon Valley for several years. One of the first things she noticed as an employee of Microsoft Germany was how most new employees found the company's informality uncomfortable.

Reichel and her colleagues worshiped Gates. Germany was very structured. People did not drop out of college and become billionaires every day; there was a clear path for every accomplishment. In that respect, to the German culture Gates was even more of a phenomenon. Also, it was still pretty much a chauvinistic society. There were no other women salespeople or managers in the OEM group in Europe. And all the customers Reichel worked with were male.

Her hiring was a leap for the division and Microsoft Germany. Reichel soon found it easy to charm the men she met in business-not by being flirtatious or sexual but merely by being a woman. It didn't hurt that she was strikingly attractive, along with being intelligent and knowledgeable about both German culture and the computer industry.

In fact, Juergen Huels, her boss, considered Stefanie Reichel his secret weapon. He would send her into the marketplace to find out certain things. She was simply doing what men had done for a long time.

The two had met at another software company. At Microsoft, Huels, his boss, and his boss's boss had interviewed her. They were skeptical because she was female. But he was intent on hiring a woman to handle the most difficult, and strategic, account.

From day one Reichel was told that it would be like "mission impossible" to turn around the Vobis account. Vobis was the largest computer manufacturer in Germany-all of Europe for that matter-and at the beginning of 1991 , 100 percent of the computers it sold were being shipped with DR-DOS.

The edict had been handed down from Gates through the ranks: We want DR-DOS not to exist in this account. They had even set a date for her to meet the goal that the company be selling "no DR-DOS" but all Microsoft DOS and at least 50 percent Windows. "You make this happen, and you make us both stars," Huels told her. That meant more stock options for one thing.

Months earlier Gates had walked into a Vobis store to see only DR-DOS posters. He was enraged.

Gates and his top executives knew full well the strategic importance of signing up computer makers for "per processor" licenses, which would essentially require them to pay royalties to Microsoft for every computer shipped-of a particular processor type-regardless of whether the machine was running Microsoft software. In e-mail messages to a reporter, he would refute the impact of this type of licensing. "Whenever someone ships other software, that would be a system that they don't pay us for," he said. "People get to choose which is the most effective license type for them."

In the meantime, Theo Lieven had earlier been outraged at the per processor scheme but wanted to get the best prices he could. Margins were paper thin in the PC business. He recognized DR-DOS as the superior product but realized that he would end up paying twice for using an alternative to Microsoft's software. Gates would deny this as well, in e-mail to a reporter. He wrote, "I don't understand your argument that people can't afford to offer another operating system. They are NOT paying twice-who gave you that impression? It's silly. People license the way they choose based on the demand they see."

As to "who" gave that impression, in country reports circulated to Gates, his own senior executives noted that they had been pressuring computer makers to stop shipping DR-DOS, especially because they were bound by per processor licenses to pay Microsoft regardless. One report, circulated throughout the executive offices at Microsoft, stated about one computer maker, "He was advertising a system bundled with DR-DOS. This was quite an embarrassing situation, because we did not know this at that time. Novell was offering him a good deal. . . . We hear this from different customers right now. . . . We mentioned to [the CEO of the company] that this system is a system he is paying Microsoft royalties for."

Indeed, DR-DOS was such an attractive product that some computer makers were willing to pay twice in order to offer it to customers, despite the fact that Microsoft was reminding them that they were locked into paying royalties to Microsoft, and so offering other products did not make sense.

But Lieven, who had in October 1991 begun some shipments of MS-DOS 5.0, was still selling DR-DOS. Gates was about to help Stefanie Reichel turn him around.

The e-mail message that appeared on Re...

Edition details

• Publisher: Crown Business
• Publication date: 1998
• Language: English
• ISBN 10: 0812927168
• ISBN 13: 9780812927160
• Binding: Hardcover
• Edition number: 1
• Number of pages: 313