Penguin
Recent Changes
Blame: ChallengesAndStrategy
EditPageHistoryDiffInfoLikePages
Annotated edit history of ChallengesAndStrategy version 4, including all changes. View license author blame.
Rev Author # Line
3 BruceKingsbury 1 <pre>
1 BruceKingsbury 2 From mnemonic@eff.org Wed Jul 3 12:09:05 1991
3 Return-Path: <rissa@mejac.palo-alto.ca.us>
4 From: mnemonic@eff.org (Mike Godwin)
5 Subject: Bill Gates memo of 5-16
6 To: eniac@mejac.palo-alto.ca.us (eniac@mejac.palo-alto.ca.us)
7 Date: Tue, 2 Jul 91 12:27:38 EDT
8
9
10 Challenges and Strategy
11 Bill Gates
12 May 16, 1991
13
14 * Microsoft Confidential
15
16
17 Prologue: The Reason for this Memo
18 -----------------------------------
19
20 Every year I set aside at least one "think week" to get away and update
21 myself on the latest technical developments -- reading PhD theses, using
22 competitive products, reading books, newsletters and anything I can get
23 my hands on. Several valuable thoughts have come out of these retreats
24 (tables for Word, outlining in Excel, treating DOS as more of an asset),
25 however the complexity of the industry and its techology means that a lot
26 of my time is spent just trying to keep up rather than coming up with new
27 product ideas. It is no longer possible for any person, even our "architects",
28 to understand everything that is going on. Networking, processors, linguistics,
29 multimedia, development tools, and user interfaces are just a subset of the
30 technologies that will affect Microsoft. My role is to understand enough
31 to set direction. I enjoy these weeks a great deal -- not because I get
32 away from the issues of running Microsoft but rather because I get to think
33 more clearly about how to best lead the company away from problems and
34 toward opportunities. A lot of people choose things for me to read. By
35 the end of the week I make an effort to synthesize the best ideas and make
36 our technical strategy clear.
37
38 This year I decided to write a memo about overall strategy to the executive
39 staff. As we have grown and faced new challenges my opportunities to speak
40 to each of you directly has been greatly reduced. Even the aspects of our
41 strategy that remain unchanged are worth reinforcing.
42
43 In the same way that DEC's strategy for the 80's was VAX -- one architecture,
44 one operating system -- our strategy for the 90's is Windows -- one
45 evolving architecture, a couple of implementations. Everything we do should
46 focus on making Windows more successful.
47
48 A source of inspiration to me is a memo by John Walker of Autodesk called
49 "Autodesk: The Final Days" (copies available from JulieG). It's brilliantly
50 written and incredibly insightful. John hasn't been part of Autodesk
51 management for three years and hasn't attended any management meetings for
52 over two years, so he writes as an outsider questioning whether Autodesk is
53 doing the right things. By talking about how a large company slows down,
54 fails to invest enough and loses sight of what is important, and by using
55 Microsoft as an example of how to do some things correctly he manages to
56 touch on a lot of what's right and wrong with Microsoft today. Amazingly
57 his nightmare scenario to get people to consider what's really important
58 is Microsoft deciding to enter the CAD market -- something we have no
59 present thoughts of doing because it would stretch us too thin. Our
60 nightmare -- IBM "attacking" us in systems software, Novell "defeating" us
61 in networking and more agile, lower cost structure, customer-oriented
62 applications, competitors getting their Windows to act together is not
63 a scenario, but a reality.
64
65 Recently a long time employee mentioned that we seem to have more challenges
66 facing us now than ever before. Although I agree that it feels that way
67 I can say with confidence that it has felt that way every year for the
68 last 15. We decided to pursue a broad product strategy from the very
69 beginning of the company and that means we have a lot of competitors.
70 Our success is incredible, not just within the software industry or computer
71 industry but within the history of business, and the combination of this
72 with the incredibly competitive nature of our business breeds challenges to
73 our position. I think it is critical to divide these challenges into different categories.
74
75 Category 1
76 ----------
77
78 This category containes issues of great importance but which I judge should
79 have little effect on how you do your job or our future.
80
81 APPLE LAW SUIT: This is a very serious lawsuit. If the judge rules against
82 us, without making it clear what we have to change or asks us to eliminate
83 something fundamental to all windowing systems (like overlapping windows)
84 it would be disastrous. At the very start of this lawsuit we decided that
85 Bill Neukom and I would give it very high priority and that the rest of the
86 executive staff could focus on their jobs without learning about the complex
87 twists and turns of the lawsuit. Microsoft is spending millions to defend
88 features contained every popular windows system on the market and to help
89 set the boundaries of where copyrights should and should not be applied. I
90 think it is absurd that the lawsuit is taking so long and that we are
91 educating the third federal judge on the case. I am pleased with our
92 work on this case. Our view that we will almost certainly prevail remains
93 unchanged.
94
95 FEDERAL TRADE COMMISSION: It must be surprising that our two most visible
96 problems are in this category. Certainly I take the FTC inquiry seriously
97 and I am sure it will use up even more executive staff time than the Apple
98 lawsuit has. However I know we don't get unfair advantages in any of the
99 markets we are in. As Ruthann Quindlen stated recently in InfoWorld
100 (supported by many other editorials like Businessweek's) our combination
101 of products is similar to that of every other high technology company and our
102 success is based on having great products. I hope we can quickly educate
103 the FTC on our business.
104
105 RETIREMENT OF KEY EXECUTIVES: The retirement of Jon Shirley and Jeremy
106 Butler -- absolutely two of the finest executives anywhere -- are significant
107 losses for Microsoft. Last year's "think week" was my worst, because Mike
108 Hallman called me to say Jeremy was planning to retire. I had Jeremy fly
109 out and meet with me for hours to try and change his mind. I am sure more
110 people will be retiring in the future. However, I am confident that we are
111 developing a lot of great people internally and that we are hiring the
112 best people from outside the company. Just look at some of the recent
113 additions to our executive staff -- people like Brad Silverberg, Jeff
114 Raikes and Gary Gidot. Consider the talent pool right below the executive
115 staff level -- Jim Alichin, Pete Higgins, Patty Stonesifer, Rob Glaser,
116 Mike Murray, Mike Brown, and so many others. I love working with people
117 of this caliber -- not only do they do a good job but they keep me doing
118 my best. I certainly have no plans to back off from my dedication to the
119 company.
120
121 PRINTER BUSINESS UNIT: Generally when we enter a product category, we
122 innovate. Even if our first version is not a winner we establish a position
123 >from which we can make further improvements. Our entry into the printer
124 software business has not succeeded. Steve is considering what strategy
125 we shoud pursue to make the best of our errors. Our problems have educated
126 us to consider carefully the importanance and synergy of doing new things.
127 Offering cheap Postscript turned out to not only be very hard but completely
128 irrelevent to helping our other products. We overestimated the threat of
129 Adobe as a competitor and ended up making them an "enemy", while we hurt
130 our relationship with Hewlett-Packard and focused on non-Windows specific
131 issues. Selecting TrueType as a our font solution and building it into
132 the system was an excellent design decision despite the immense resources that
133 has cost us. TrueType -- our font format -- is separate from TrueImage
134 -- our Postscript clone. Printing is critical and we will be involved in
135 printing software, but in a a different way than we have to date. The caution
136 we have shown in making acquisitions is reinforced by this experience.
137
138 Category 2
139 ----------
140
141 These are problems that are serious but solving them correctly will
142 provide growth so they can be thought of as opportunities.
143
144 DISLIKE OF MICROSOFT/OPENESS: Our applications have always succeeded
145 based on their own merit rather than on some benefit of unfair knowledge
146 of system software. We need to explain our hardware neutral approach and
147 the benefits that has generated for end users. We need to have visible events
148 on a regular basis where we solicit the input of anyone who wants to influence
149 our future direction. If we can institutionalize a process that the world
150 feels comfortable with, we will strengthen our position incredibly. This is
151 going to require a lot more creativity than even the "Open Forums" we are
152 discussing. UNIX has OSF and X/Open -- we also need clear ways for
153 organizations of all types (hardware, ISV, IHV, corporation, universities) to
154 feel like they have something invested in our approach and can affect our
155 course.
156
157 IBM: IBM is proposing to take over the definition of PC desktop operating
158 systems. This would be a new role for them -- their previous attempts:
159 Topview and the 3270 control program, did not succeed. The barriers to thier
160 success are not only technical but structural. Why are they willing to lose
161 so much money on systems software? The answer is that they have a plan to
162 design the operating system so that their hardware (MCA) and applications
163 are tied in. Our disagreements with IBM over OS/2 were that we wanted to
164 push 2.0 and they wanted to push 1.3. Now they have switched to the
165 strategy that we proposed -- even using our marketing slogan "better windows
166 than Windows". We will not attack IBM as a company and even our public
167 "attacks" on OS/2 will be very professional. Our strategy is make sure
168 that we evolve the Windows API and get developers to take advantage of the
169 new features rapidly, while IBM has a poor product with poor Windows
170 functionality. Amazingly they are not cooperating with us on our
171 compatibility approach called WLO, but are trying the approach we did not
172 choose of using Windows code itself. Their lack of cooperation limits WLO
173 effectiveness and the Windows approach has contractual and technical problems
174 for them. We will do almost no work specific to OS/2 2.0 -- we will rely
175 on their 1.3 compatibility to run our applications and most of our networking
176 software. Our focus is on OS/2 3.0. If a cusotmer buys OS/2 2.0, the problem
177 for us is that they expect to get Extended Edition and perhpas some PM16
178 applications that may not be on 3.0 so we may have "lost" that customer.
179 Other than usability, making sure Windows is the winning OS is our highest
180 priority. Eventually we need to have at least a neutral relationship with
181 IBM. For the next 24 months it may be fairly cold. If we do succeed, then we
182 will be done forever with the poor code, poor design, poor process, and other
183 overhead that doing our best to do what IBM has led us to (for the past five
184 years). We can emerge as a better and stronger company where people won't
185 just say we are the standard because IBM chose us. In the large accounts
186 IBM will retain a some of its influence -- this is where our risk is
187 highest.
188
189 USABILITY/SUPPORT: If there is any area we have not paid enough attention
190 to it is usability/support. It is really embarrassing that people have to
191 wait so long on the phone to talk to us about problems in our products. The
192 number of customers who get bad impression because of this must number in
193 the millions worldwide. Why weren't we hiring at full speed and picking a new
194 site every day for the last three years? Why did people keep talking about
195 support as a profit center? The creation of support as a channel hid its costs
196 >from the product groups. As CEO I take full responsiblity for these mistakes.
197 Our products can be far more usable and the product groups are focusing on
198 this opportunity -- particularly the Windows and Windows applications groups.
199 We will spend what it takes to have the best support (without an 800 number).
200 I think we can cut the number of phone calls generated by our products to
201 less than half of what it is today and use training and technology to cut the
202 length of the phone calls. However, we shouldn't assume this in our plans to
203 solve the problem. Excel 3, Win Word 2 and our BBU products have started to
204 move us in the right direction. Hopefully Windows 3.1 will generate a lot less
205 calls. The bandwidth of communications between the product groups and PSS
206 is going up dramatically, but there is still lots of room for creativity. I
207 insist that we are able to use our quality of support as a sales tool.
208 Surveys like the J.D. Powers survey done on cars will become important --
209 asking people: How many times were you confused? How many times did you
210 have to call? How good was the service you received? Fixing this problem
211 will cost us a lot of profits and we should make that clear to analysis.
212 With this problem fixed we can really start building some lifetime customers.
213 Only really usable software can be used by the "rest of the people who have
214 not bought PCs", so making software more usable expands the market. Likewise
215 it is the usability of software that will determine how many people decide to
216 use only a WORKS-like product or move up to a larger package and it will
217 determine how many large packages they can easily work with. Usability is
218 incredible stuff -- once it is designed it is easy to implement, saves money,
219 wins market share, makes customers happy and lets them buy more expensive
220 software!
221
222 NETWORKING: We knew it wasn't going to be easy but it has been even harder
223 than we expected to build a position in networking. You will see us
224 backing off on some of the spending level but don't doubt that we are
225 totally committed to the business. Our strategy is to build networking
226 into the operatin system. Some of the services will not be in the same box
227 but they will have been designed, evangelized, implemented and tested as
228 part of each system release. What this means is that we will define operations
229 on and attributes of entities like files, users, machines, mail, printer or
230 services that users or applications can have access to directly inside the
231 system software. Although we will allow connections to different systems we
232 will make ours the easiest to use by bundling some of them and making all
233 of them seamless. Architecting the extensions for these entities including
234 our evolution of the file system and how we tie in with standards like Novell
235 and DCE will be Jim Allchins's responsibility even though the implementation
236 of several of these will be in other parts of the company (for example OS
237 kernels or Mail). We are in a race to define these extensions because
238 Novells' dominance and DCE's popularity could allow them to usurp our role
239 unless we get a strong message, good tools and great implementations done
240 fairly quickly. We will embrace DCE as a weapon agaisnt Novell although
241 we don't know exactly how to relate to DCE quite yet. Our strength will
242 come from Windows, including the advanced implementation based on NT.
243
244 TECHNOLOGY: Technical change is always a challenge for the current
245 companies in a field. Even if they recognize that a change is taking place,
246 they are tied to the past. New companies will move to exploit the
247 opportunity. Our gain in applications is in no small part due to the failure
248 of existing leaders to listen to what we and other people were saying about
249 GUI. Technical change can be a new hardware platform like NeXT, a new type
250 of machine like Pen or Multimedia, a new software platform like Patriot
251 Partners, a new category, a redefinition of a category or a much faster
252 development methodology. Many of the changes that will take place in PCs
253 can be anticipated (peformance, memory, screens, motion video), however,
254 understanding when and how is still quite complex. Other changes like
255 linguistics, reasoning, voice recognition or learning are harder to anticipate.
256 We will reduce our technical risk by strenthening our reltationship with the
257 research community and having some projects of our own in areas of greatest
258 importance (development enviroments and linguistics, for example). Nathan
259 (and Kay Nishi before him) has pointed out that the transition of consumer
260 electronics to digital form will create platforms with systems software --
261 whether it's a touch screen organizer or an intelligent TV. The need to
262 work closely with Sony, Philips, Matsushita, Thompson and other Japanese
263 consumer electronics companies will require people in both Tokyo and Redmond
264 working with both the research and product groups in these companies. We
265 should have an annual exchange of research thinking with most of these
266 companies similar to what we want to do with MIT or Stanford. We have the
267 opportunity to do the best job ever in combining research with development
268 in the computer field largely because no one has ever done it very well
269 (although Sun and Apple are also working hard on this). Nathan's kickoff memo
270 talks about having the research group use our tools and including program
271 managment inside the research team.
272
273 Our proposition is that all of the exciting new features can be accomodated
274 as extentions to the existing PC standard. Others propose that start-from-
275 scratch approaches are clearer and therefore better. This is the essence
276 of the debate with Go, NeXT and Patriot. To win in this we have to get
277 there early before significant development momentum builds up behind the
278 incompatible approach. The key to our Macintosh strategy was recognizing
279 that the graphics and process of the PC would not allow us to catch up soon
280 enought to prevent Mac from acheiving critical mass so we supported it. Sun
281 presents a particular challenge to us because they have significant
282 development backing and high end features to go with their RISC performance.
283 ARC is the most evolutionary way to get to RISC and it will require a lot of
284 good execution by us and others for the strategy to succeed.
285
286 Our evolutionary proposition should be quite marketable to users -- combined
287 with hardware neutrality the nessage is "Our software runs today's software
288 on all (almost) hardware and both today's and tomorrow's software on all
289 (almost) of tomorrow's hardware".
290
291 Category 3
292 ----------
293
294 This is a category of challenges we face that I don't feel are widely
295 recognized.
296
297 PATENTS: If people had understood how patents would be granted when most
298 of today's ideas were invented, and had taken out patents, the industry
299 would be at a complete standstill today. I feel certain that some large
300 company will patent some obvious thing related to interface, object orientation,
301 algorithm, application extension or other crucial technique. If we assume this
302 company has no need of any of our patents then the have a 17-year right to take
303 as much of our profits as they want. The solution to this is patent exchanges
304 with large companies and patenting as much as we can. Amazingly we havn't
305 done any patent exchanges tha I am aware of. Amazingly we havn't found a
306 way to use our licensing position to avoid having our own customers cause
307 patent problems for us. I know these aren't simply problems but they deserve
308 more effort by both Legal and other groups. For example we need to do a
309 patent exchange with HP as part of our new relationship. In many application
310 categories straighforward thinking ahead allows you to come up with
311 patentable ideas. A recent paper from the League for Programming Freedom
312 (available from the Legal department) explains some problems with the
313 way patents are applied to software.
314
315 RIGIDITY/PRICING: In the Autodesk memo, Walker talks about the short term
316 thinking that high profitability can generate. He cites specific examples
317 such as a very conservative approach to giving out free software or a desire
318 to maintain fixed percentages for the wrong reasons. Microsoft priced DOS
319 even lower than we do today to help it get established. I wonder if we would
320 be as aggressive today. This is not a simplistic advocacy for just lowering
321 our prices -- our prices in the US are about where they should be. However
322 the price of success is that people fail to allow the kind of investments
323 that will lead to incredible profits in the future. For example we have
324 gotten away without funding any internal or external research. Nathan is
325 working with me to put together a lan that will end up costing $10M
326 per year about two years from now. I have no plan to reduce our spending
327 in some other category by $10M. Microsoft is good at investing in new
328 subsidaries and even at investing in new products (database, mail, BBU,
329 networking). Most of our rigidity comes when we have a very profitable
330 product and when the market changes. In these circumstances we should
331 spend more or charge less, but our systems locks us into staying the same and
332 losing share.
333
334 My largest concern about price comes from Borland. Organizations smaller than
335 Borland will not have enough presence or credibility to use low price against
336 us broadly I think 90% of the significant competition we will face in
337 productivity applications will come from Lotus, WordPerfect, Borland, Claris
338 and IBM barring technical innovations by small companies. It is amazing how
339 similar the applications strategies of Microsoft, Lotus, Borland and Claris
340 are. Philippe has a much lower cost structure than Lotus, IBM or Microsoft,
341 so he can afford to do things we would consider wild. For example Borland
342 is considering not offering their Windows word processor separately but
343 integrating it with Quattro for free -- the technical opportunity and value
344 would be very strong. This is very different than Lotus temporarily offering
345 Ami for free. Oly immense loyalty to a product at the end user level prevents
346 corporations from using their buying power to force a cheap site license.
347 When the US Goverment DOD moves software procurement to a separate contract,
348 the price per user of software will end up around 0. Why shouldn't some small
349 organization price their product at say $1M for the entire US Government for
350 all time? We would if we were small and hungry. Fortunately most organizations
351 don't force cheap software on their end users.
352
353 Another price concern that I have is that companies will eventually equip
354 all the employees that need software with a full complement of packages,
355 and our only revenue opportunity will be upgrades or ephermeral information.
356 although this problem is over five years away, I think it is important to
357 keep in mind.
358
359 Summary
360 -------
361
362 Readers of this memo may feel that I have give applications too little air
363 time. I don't mean to downplay their importance at all. Applications have
364 been the primary engine of growth (especially in International) over the past
365 two years. Although Windows' success is necessary for Microsoft applications
366 to succeed is not sufficient. Other ISVs will be there early with good
367 applications fully exploiting the environment (Notes, Ami, Designer), so
368 exploitation is only half of the job. The need to "reinvent" categories and
369 the way they relate to each other is crucial for all of our applications. I
370 will be writing up some of my ideas for big changes in applications.
371
372 The simplest summary is to repeat our strategy in its simplest form --
373 "Windows -- one evolving architecture, a couple of implementations and a
374 immense number of great applications from Microsoft and others." The
375 evolution refers to the additon of pen, audio, multimedia, networking,
376 macro language, 32-bit, advanced graphics, setup, a better file system,
377 and a lot of usability. The "a couple of implementations" is a somewhat
378 humorous reference to the fact that our NT based versions and our non-NT
379 versions have a different code in a number of areas to allow us to have both
380 the advanced features we want and be fairly small on the Intel architecture.
381 Eventually we will get back t one implementation but it will take four years
382 before we use NT for everything. I would not use this simple summary for
383 outside consumption -- there it would be more like "Windows -- one evolving
384 architecture with hardware freedom for all users and freedom to chose amongst
385 the largest set of applications."
386
387 Although the challenges should make us quite humble about the years to come
388 I think our position (best sofware company setting many desktop
389 "standards") is an enviable one and our people are the best. The opportunity
390 for us if we execute this strategy is incredible.
4 BruceKingsbury 391
392
3 BruceKingsbury 393 </pre>

PHP Warning

lib/blame.php:177: Warning: Invalid argument supplied for foreach()