1996 Tech Leader: Bill Gates - How He Envisions The Enterprise

Whether you like him, envy him, or detest him, the war is over, and Bill Gates has won -- at least for the near term.

From the CEO to the CFO, from the human-resources representative to the production manager, from the salesman in the field to the shipping clerk, Microsoft Corp. software is used at all levels in the farthest reaches of industry. In fact, few brands of any kind of product have achieved the near-total dominance of a market as Microsoft has in the lucrative business of telling computers how to run. "Microsoft has figured a way to insinuate itself right into the DNA of the enterprise," observes Bruce Richardson, vice president at Advanced Manufacturing Research (AMR), a Boston-based research firm.

Gates' savvy steerage as the commander-in-chief -- the visionary who sees his way clearly through an increasingly murky technology landscape -- is legendary. His calling the shots and directing the next moves of his product teams while maintaining a flat organizational structure has, over the years, not only put Microsoft on top, but kept it there. The Redmond, Wash.-based company's shares continue to hit new highs in the $150 range, its market capitalization flirts with $90 billion, and analysts expect sales this year of about $10 billion, up 15% from last year. Gates' personal holdings are worth more than $20 billion. "I think he's got to be the world's best visionary businessman," offers Dave Duffield, CEO of PeopleSoft Inc., Pleasanton, Calif., a leading maker of enterprise-applications software.

In recognition of his corporate guidance -- and an uncanny skill for making a large organization adapt swiftly to a maelstrom of change in its industry -- the editors of IndustryWeek have named Bill Gates the Technology Leader of the Year.

Gates, 41, Harvard University dropout and the founder of the world's largest software company, insists to this day that luck played a key part in his rise to chief lion in the technology kingdom. Luck, and the influence of Microsoft cofounder Paul Allen.

"When we were teenagers, Paul Allen taught me a lot about computer hardware and encouraged me to believe in -- and bet on -- the microprocessor," Gates tells IW. "I was lucky enough, at a young age, to discover something that I loved and that fascinated me -- and still fascinates me. And I was lucky to have parents who motivated and encouraged me.

"My parents weren't all that excited about their son announcing he was dropping out of a fine university to start a business in something almost nobody had heard of called 'microcomputers.' But they were always very supportive."

Vision of the PC

Through it all, Gates clung to his vision of the personal computer and the microprocessor as a tool to streamline business and achieve greater productivity. But beyond vision, he displayed a knack as a capable senior executive who knew a thing or two about managing a large enterprise.

Under his leadership, the corporation he founded 21 years ago has successfully navigated numerous competitive threats. It survived a Justice Dept. antitrust investigation into its business practices. And under Gates' steady hand and guidance, the company has displayed a remarkable ability to ride wave after wave of change through an often turbulent technology sea that has left many a competitor becalmed or shipwrecked.

Perhaps his biggest single act as CEO to ensure Microsoft's success was the arrangement Gates swung with IBM Corp. to adopt Microsoft's DOS PC operating system for its PC. Later Gates successfully weaned the DOS user base over to the Windows platform. To accomplish this was anything but an afternoon swim in the pool, considering there were two hostile barracudas -- in the form of Apple Computer Inc. (Macintosh) and IBM (OS/2) with their rival operating systems -- angling to take a piece out of Microsoft's hide.

Microsoft won out by smartly packaging its software at economical prices and ensuring that it was loaded on most manufacturers' PCs. As a result, it became a de facto standard for business.

In recent years Gates has continued to pursue the strategy of low prices and relative ease of use to achieve dominance in the various markets for desktop software -- operating systems, desktop applications such as spreadsheets, and word processors -- as well as for back-office systems such as network operating software and databases. His mantra has been that sheer size and its attendant economies of scale lead to lower costs, which in turn bring greater market share. "We believe in harnessing the sheer volume of the PC market to drive costs lower," he says.

But despite this software juggernaut's overwhelming success, some significant campaigns remain to be fought. One key contest pits Microsoft's Internet browser product, called Explorer, against the market leader, Netscape Communications Corp.'s popular Navigator software. Gates must also respond to a serious challenge posed by a new method of desktop computing, called the network computer. The NC, which threatens the very core of Microsoft's business, is being aggressively promoted by a pair of Gates' most pugnacious opponents, Larry Ellison of Oracle Corp. and Scott McNealy of Sun Microsystems Inc.

Finally, Microsoft's Windows NT server operating system must be able to prove its mettle as an enterprise-level system worthy of replacing the various brands of the UNIX server operating system that currently are used as the computing backbone for most client/server-based applications.

Yet Microsoft's leadership position -- its Office desktop applications alone have an 85% share of the market -- bodes well for its ability to meet these challenges.

Browser Bashing

One challenge facing the Redmond, Wash.-based software giant could be said to be of Gates' own doing: He guessed wrong early on with regard to the Internet. "The Internet has enormous potential, but it's important for its continuing credibility that expectations aren't cranked too high," he wrote in his 1995 book, The Road Ahead.

In part because of this skepticism from on high, Microsoft's own people got nowhere when they urged the company to get into the browser business at a time when Netscape was racking up early believers. It wasn't until late 1995 that Gates and company finally jumped on the bandwagon, licensing Java and bringing out its own Internet products.

In hindsight, the CEO admits he was slow to catch the Internet drift. "My own expectations of the Internet are higher than they were when I wrote the 1995 edition of the book," he says. "But even with expectations higher, it's still important that people be realistic. Before the Internet can pay off on its promise to be a worldwide way for people to communicate, collaborate, and carry on significant electronic commerce, the industry needs to solve fundamental infrastructure and security issues."

Most Microsoft watchers give Gates high marks for swiftly refocusing the company and retooling its products for the Internet once its viability as a computing platform became apparent. "It's not so much that Gates is an Einstein or a da Vinci," says researcher Richardson. "But he's probably the savviest guy in recognizing a trend and being able to act on it. He's a genius in recognizing the commercial appeal of things."

Already, with Microsoft a serious player in the browser category for only a year, Explorer is viewed as the only serious choice other than Netscape's. And Gates wasted no time in bringing in reinforcements, bolstering Microsoft's Internet and intranet product line with a pair of acquisitions. The first, Vermeer, enabled Microsoft to quickly release its FrontPage, a Web-site management system. Microsoft's acquisition of eShop led to the release of Merchant System, an electronic-commerce package.

For its part, Netscape hasn't ignored Microsoft's belated push into its market. Last August the Mountain View, Calif.-based software company cried foul, filing a formal complaint with the Justice Dept., charging that Microsoft had overstepped the bounds proscribed by its 1994 consent decree with the government by charging PC makers $3 extra per unit to load Windows 95 in order to bundle both browsers -- Explorer and Navigator. Experts don't expect Justice to do anything that might weaken Microsoft's hegemony as the world's biggest software company.

Net Computer vs. PC

Yet another threat comes from Sun Microsystems, Oracle, and other companies that are pushing the latest counterpoint to Microsoft's desktop dominance: the network computer. Far less than a slimmed-down PC, the $500 NC, expected to be available in 1997, will have no hard drive, only basic applications stored on a read-only-memory (ROM) card, and only a couple of $20 microprocessors. It will have a spreadsheet, word processing, e-mail, and Internet capability and will get most of its brainpower from the network it connects to.

"We will be buying more and more network computers and fewer and fewer PCs," says Oracle's Ellison. He predicts that 100 million of the low-cost "information-access" devices will be sold annually in a few years. Oracle will make the operating system, as well as the networking and applications software. "There is no Microsoft software in the network computer," Ellison adds. "Today Microsoft gets $400 to $500 per PC for its software, but with the NC they will get zero."

If Gates is shaking in his Nikes, he's not showing it. "Ellison's idea of having a cheap, dumb terminal connected to a server is an old idea with a new name," he counters. "And it has the same problems. It's a lot more expensive to add CPU [central processing unit] power to the server than to the desktop, and if everything is totally server-based, what do you do when the server goes down?

"A highly networked world does not mean dumbing down the desktop. It means having the right intelligence at every point in the network, to get the most from every resource, server, and user machine. Everything that users will want to do in the future -- multimedia, 3-D graphics, active components, virtual reality -- will require more horsepower, more intelligence on the desktop," says Gates. "We believe PCs will become more personal, not less."

And what if he's wrong? Microsoft hedged its bets by announcing plans with Intel Corp. to build a "NetPC," a cheaper, slimmed-down personal computer with a Pentium processor and a hard disk but no floppy disk or add-ons, to sell in the $1,000 range.

UNIX vs. NT

On yet another front, Microsoft's Windows NT server operating system is making major inroads into manufacturing. Windows NT is hot, but so far its playing time has been mostly limited to smaller-volume tasks. "NT is well accepted by smaller companies and at the department level in large corporations, but it has a way to go," says PeopleSoft's Duffield.

Gates predicts NT will have a big 1997. "If 1996 was the year that Microsoft embraced the Internet wholeheartedly," he says, "1997 will be the year that Microsoft and our partners extend our reach further into the enterprise and show the corporate world just how inexpensive and trouble-free networked computing can be."

The Windows NT onslaught has happened virtually overnight. With just 8% of the server market in 1995, Windows NT now is expected to achieve parity in market share with UNIX systems at 40% apiece by mid-1998, according to figures from Advanced Manufacturing Research. "Microsoft is a new player in manufacturing," says Roger Kash, manager of manufacturing-floor systems at Saturn Corp. in Spring Hill, Tenn. "Three years ago they had no significant presence, but they do now." Adds Martin Piszczalski, an independent manufacturing analyst in Ann Arbor, Mich., "NT is screaming right through the industry."

What's causing the shift? Ease of use is one reason. Many factory workers today have had at least some exposure to Windows, but teaching them to use UNIX is no simple task. "Microsoft really has the only game in town as far as the operating system is concerned, because UNIX is too technical -- it's too hard to learn," Kash says.

AMR estimates that NT sales will double each year through 1998. Every major (and most smaller) software-applications vendor offers a version running on NT. Even so, dislodging the various UNIX systems -- such as Hewlett-Packard Co.'s, Digital Equipment Corp.'s, and IBM's -- that make up the bulk of the enterprise applications and database servers in corporate systems won't be easy. Many manufacturing companies are understandably reluctant to throw over the massive investments they've made in accounting, human-resources, manufacturing, and distribution-management systems.

That's the situation at Dunlop Tire Co., Buffalo. "If we were to start from scratch today, then Windows NT would be a very serious consideration," says Dennis Courtney, Dunlop's chief information officer. "But we've already made the big switch from the mainframe to a distributed client-server environment, so we wouldn't just change over right now." Dunlop uses Oracle's applications software running on Sun servers with Windows-based desktop PCs.

"If it weren't for the financial investment we have in the UNIX environment, I'd go to NT in a flash," adds Jeff Sherman, manager of technical services at Remington Arms Co. Inc., a Wilmington, Del.-based sporting-goods manufacturer.

Still, "I think NT will eventually take over," Duffield says.

Looking Ahead

Gates envisions an expansive future for personal computing. "Hardware and software advances in the next few years will enable whole new worlds of technology -- computers that can visually recognize a user's face and gestures, that can recognize and generate speech, that can learn from user habits." He also foresees networking software that "will auto-configure, self-heal, and self-manage itself in very sophisticated ways."