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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> |
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