Hard Drive: Bill Gates and the Making of the Microsoft Empire (20 page)

IBM had told Gates it wanted a final proposal from Microsoft in October, and time was running out. Gates faced a critical decision. Could Microsoft deliver languages
and
an operating system and still meet the demanding schedule IBM had set to have a computer ready for market within a year? The software would have to be finished before that, probably in about six or seven months. The four languages IBM wanted—BASIC, COBOL, FORTRAN, and Pascal—would require writing about
40,000
bytes of code. An operating system would likely mean another 2,000 bytes of code. According to Microsoft, on September 28, 1980, a Sunday night, Gates, Allen, and Nishi were in Gates’ eighth-floor corner office in the downtown bank building, brainstorming about the operating system. Should they commit to it? Suddenly, Nishi jumped to his feet, waved his short little arms in the air and shouted, “Gotta do it! Gotta do it!”

That’s when it became obvious to Gates that 2,000 more bytes of code for an operating system was no big deal. Of course they had to do it. “Kay’s kind of a flamboyant guy, and when he believes in something, he believes in it very strongly,” Gates would say later. “He stood up, made his case and we just said ‘Yeah!’ ”

Not long after this, Gates was pacing nervously in his office late at night, waiting impatiently for the last pages of a lengthy computer printout. When the machine was finally silent, he grabbed the pile of paper it had been spitting out, stuck it in his briefcase, and dashed out of the building with Ballmer and O’Rear for the airport. Microsoft’s final report to IBM was ready. It was now time to get down to hard-core negotiations with the guys in blue suits in Boca Raton.

Previously published accounts of this crucial meeting between Microsoft and IBM, including the books
Blue Magic, Fire in the Valley,
and
The Making of Microsoft,
reported that Paul Allen made the trip to Boca Raton with Gates and Ballmer. This was not so. “It was Bill and Steve and myself,” said O’Rear. “I’m not sure why P&ul didn’t make it, because he was certainly heavily involved. Maybe he was off on some other project that eve

ning. It was a situation where we kind of finished the proposal to IBM, tore it off the computer, raced out to the airport, barely made the flight, flew all night, got there, bought a tie for Bill and made the pitch.”

The report Gates carried with him covered hundreds of technical issues, involving both hardware and software recommendations for the PC. But it also detailed financial matters. Early on, Sams had talked to Gates about a fixed price for an unlimited number of copies of any software Microsoft licensed to IBM. The longer Gates thought about this proposal, the more he became convinced it was bad business. Microsoft would be making a huge financial investment in this project, and a lump sum payment from IBM would not give the young company much of a return on its investment over time. When Gates boarded the nonstop Delta flight for Miami, he had decided to insist on a royalty arrangement with IBM.

Sams had made it clear from the first of his meetings with Gates that Microsoft would retain ownership of whatever software it developed. In fact, IBM wanted nothing to do with helping Microsoft, other than making suggestions from afar. “There has been a lot of speculation about why we ever let Microsoft have the proprietorship and all that,” said Sams. “The reasons were internal. We had had a terrible problem being sued by people claiming we had stolen their stuff. It could be horribly expensive for us to have our programmers look at code that belonged to someone else because they would then come back and say we stole it and made all this money. We had lost a series of suits on this, and so we didn’t want to have a product which was clearly someone else’s product worked on by IBM people. We went to Microsoft on the proposition that we wanted this to be their product. . . . I’ve always thought it was the right decision.”

When the rental car carrying Gates, Ballmer, and O’Rear pulled up in front of IBM’s Entry Level System unit in Boca Raton, it was half past ten in the morning. They were 30 minutes late. But Gates had a new tie dangling from his neck, and he walked confidently into the large conference room where about seven or eight IBM employees were waiting for him, including a couple of lawyers.

Gates planned to make the presentation himself. Ballmer and O’Rear were there to make points if necessary and to answer questions. “Bill was on the firing line,” Ballmer said later.

If Gates was nervous, he didn’t show it. As usual, he was in complete command of his material and his audience. The much older executives asked question after question, making notes on yellow, legal-sized writing tablets as they went around the table taking turns. Many of the questions concerned the operating system that Microsoft proposed to supply IBM. Gates answered with confidence and maturity, often rocking back and forth with characteristic intensity. Everyone in the room wanted the joint venture to work. It was in the interest of both parties to resolve any differences here at this meeting. IBM was about to forge an alliance with an outside supplier unlike any in the company’s history. Microsoft would not be supplying nuts and bolts for the new PC but rather the vital operating system, the very soul of the machine.

“We had a lot of coaching from the IBM people, they really wanted to do the thing,” said O’Rear. “We’d talk to them about what we wanted to do and how we wanted to do it, and they’d say things like, well, it’ll be more acceptable if you do this, that or the other. . . . Everybody was searching for a solution. Everybody in that room wanted to do the project. They just wanted to explore all the issues.”

That evening, Gates, Ballmer, and O’Rear had dinner with Jack Sams, who had been part of the IBM team quizzing them throughout the morning and afternoon. Over dinner, Sams coached Gates on how he should modify parts of his proposal to make it more acceptable. Later, the three exhausted Microsoft employees went to their rooms at a nearby Holiday Inn. It had been two days since any of them had slept.

When the meetings ended the next day, Gates and Ballmer immediately flew back to Seattle. O’Rear remained in Miami for two days visiting friends. It would be his last consecutive days off for the next ten months.

The talks had gone well in Boca Raton. Gates and his team had made a good impression. During the two-day meeting, Gates had gotten to know Don Estridge, the brilliant, maverick leader of the Project Chess team. Although Estridge was almost 20 years older than Gates, they would develop a close friendship. When it came to computers, they were kindred souls sharing the same vision. Estridge told Gates that IBM chief executive John Opel, who was known around the company as “The Brain,” had mentioned to him that he knew Mary Gates, having served with her on the national board of United Way. (Before joining the national board, whose members, like Opel, were for the most part chief executives of Fortune 500 companies, Mary Gates was the first woman president of United Way in Seattle.) Whether this United Way connection helped Microsoft get the IBM deal is not clear. Opel, now retired, won’t talk. Sams said Estridge made the same comment to him about Opel and Mary Gates. Sams believed Opel may have been reassured about Gates because he knew his mother. After all, Gates was only 24 years old, and IBM was betting the reputation of the company on Gates, and Microsoft, coming through.

It was shortly after the Florida meeting between Microsoft and IBM that Estridge replaced Sams on the Project Chess team. But Sams, who would continue to see Gates off and on during the coming years, had formed a lasting impression of the young cofounder of Microsoft. “He was an extraordinarily competent person,” said Sams. “More than anyone I’ve ever known, Bill had committed himself to the idea of being ready for what was coming before it happened. He was willing to make investments on the strength of what he saw happening two or three years ahead of time. ... I’ve never dealt with anyone since who was such a force.”

In early November of 1980, the corporate odd couple officially signed the paperwork. Microsoft would develop the software for IBM’s first personal computer and supply the vital disk operating system, or DOS. Deadlines had been set, numerous timetables established, commitments and promises made. The schedule would be brutal. IBM wanted an initial working version of the operating system and BASIC by mid-January. “They showed us we were three months behind schedule before we started,” recalled Gates.

On Sunday nights, Gates usually took time off from work and went to his parents’ home for dinner. But he now told his mother that she probably wouldn’t see him again for six months.

A few days after Thanksgiving, two prototypes of the top secret Acorn arrived at Microsoft, hand delivered by Dave Bradley, an IBM engineer on the PC project in Boca Raton. “Acorn” was the codename that the corporate brass in Armonk had given to what they hoped would be the newest and smallest member of the IBM computer family. The overall project was still known as “Chess.” Big Blue was big on codenames and secrecy. When Bradley landed with the Acorns early one morning at Seattle- Tacoma International Airport, he rented a station wagon for the drive to Bellevue. It was the only way he could get all nine boxes of parts to Microsoft.

He was met at Microsoft’s offices by Steve Ballmer, who took him to a back supply room used by the shipping department. Large plastic bags and boxes littered the floor. IBM’s prized prototype computers would be kept here, Ballmer said, along with all documentation regarding the secret project.

IBM executives had made it clear to Gates at the two-day meeting in Boca Raton that they considered security a matter of the highest priority. The outside world was to know nothing about the Acorn. The cloak of secrecy would not be lifted until the official announcement when the computer was unveiled to the press and public—an event tentatively set for sometime in the summer of 1981. Any breach of security could jeopardize the project, they emphasized. The computer was to remain in the room at all times, with the door locked even when Microsoft programmers were in the room. All manuals and documents also were to stay in the room, secured in filing cabinets and a safe. IBM sent Microsoft special file locks. They also sent someone to install the locks. But when IBM insisted that Microsoft install chicken wire above the ceiling tiles to protect the room from an assault from above, Gates finally said enough is enough and nixed it.

All work on the computer had to be done in this unventilated, windowless room, which measured only ten feet by six feet. Heat generated by the computer and other electronics equipment quickly built up in the tiny, enclosed room. The temperature, which often reached 100 degrees Fahrenheit, not only made for an uncomfortable work environment, but further contributed to numerous hardware problems. Programmers would spend hours running down what they thought was a software glitch, only to discover the problem was with the unstable hardware.

Occasionally, IBM would send inspectors out to Microsoft just to nose around and check on security precautions. On one visit, an IBM security man found part of the company’s computer in the hallway
outside
The Room. And the door had been left ajar to allow a little fresh air for the sweaty programmer inside. Ballmer was called on the carpet by IBM. “After that, we got hard core,” said Gates.

One Microsoft programmer remembered Ballmer running down the hallway one day, shouting, “Close the door and lock the safe! They’re here!” Ballmer, it turned out, had gotten a call from an IBM executive, and when he asked how the weather was in Boca Raton, the IBM guy said he didn’t know. He was in Bellevue and would be there shortly.

An elaborate communication system was established between Microsoft and the Entry Level Systems unit in Boca Raton. Electronic mail allowed messages to be immediately transmitted between computers at the two companies. Packages and hardware were shipped back and forth via Delta Dash, an express service provided by Delta Air Lines. Gates made frequent trips to Boca Raton on the red-eye flight for quick business meetings, returning to Seattle the same day.

No two U.S. cities in the contiguous 48 states are further apart than Seattle and Miami, kitty-corner across the country, and probably no one from either IBM or Microsoft made that

About the time the Acorns arrived at Microsoft, Miriam Lubow did as well. The company’s secretary and den mother from its Albuquerque days had moved with her family to Bellevue so she could go back to work for Microsoft and continue looking after its youthful president. One morning, not long after Lubow had returned to work, she was surprised to see Gates arrive at the office dressed in a suit. Later that morning, three strangers arrived carrying briefcases and wearing jeans, tennis shoes, and casual shirts. The men amazed Lubow by saying they were from IBM. Shaking her head, she showed them into Gates’ office. The IBM men took one look at the spiffy-looking Gates, and he took one look at them, and everyone burst out laughing.

The hardware and software engineers in Boca Raton had much more in common with the Microsoft employees than they did with some of the executives they were used to dealing with at IBM. “A lot of people on the team were not cut of the IBM cloth,” said Bill Sydnes, engineering manager for Project Chess. “We did not recruit what you might call typical IBM blue for work on the PC program. They were all unusual characters.”

A special camaraderie developed between the IBM and Microsoft teams working on the project. Personal, nontechnical Email was sent daily, and the two groups gave each other a good- natured hard time when one group fell behind schedule, which was often. In an interview with
PC Magazine
after the project was finished, Gates talked about that camaraderie:

“This IBM project was a super-exciting, fun project. We were given, even for a small company, an incredible amount of latitude in changing how things got done as the project progressed. . . . And we had a really great interface with the people from the Customer (IBM), even though they were as far away as they could
be....
We loved to kid them about all the security—how we had to have locks, and sign things in, and use code names and stuff like
that....
I was very, very impressed with the team they put together. . . . We were the only vendor that understood what the project was about. Even up to the announcement, most vendors were kept in the dark about the general scope and the general push of things. So we enjoyed a really unique relationship.”

Gates went on to describe the scene at Microsoft during the year-long project as very much like that which Tracy Kidder captured in his book,
The Soul of a New Machine,
about a group of computer whiz kids at Data General who pushed themselves to the limits of endurance to build a new kind of computer.

Microsoft’s first priority was getting the operating system up and running on the Acorn. This responsibility fell to Bob O’Rear. Other software being developed for the PC had to run on top of the operating system, and if O’Rear couldn’t adapt Seattle Computer’s 86-DOS to the prototype, the entire project was doomed.