Hard Drive: Bill Gates and the Making of the Microsoft Empire



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Bill Gates sometimes has to be reminded that he is one of the world’s richest men.

"He clearly has no pretenses about being rich, anymore than he did when he was young," said Dan Bricklin, who has known and competed against Gates for many years. "I know people an awful lot poorer than him who flaunt it. He doesn’t." Vem Raburn recalled meeting Gates not that long ago at the airport in Phoenix, Arizona. Gates was dressed in slacks and a casual shirt open at the neck. Raburn was struck by how little his friend has changed. "Here’s like the fifth richest man in the world, " said Raburn. "There’s no entourage, and he’s just loping along, saying ‘Hey how are you? Let’s go get a hot dog.’ " Gates, who still flies coach rather than first class, explained to Playboy magazine in 1991 why he does not indulge himself in perks such as limousines and chauffeurs and private jets enjoyed by other Fortune 500 executives. "It sets a bad example. I think eventually you get used to those things, then you’re just abnormal. I’m afraid I’d get used to it."
Much has been made recently about American CEOs helping themselves to huge salaries and hefty bonuses at a time when the revenue and profits of their companies are declining. Eyebrows and voices were raised, for example, by the salaries of the group of U.S. auto company executives who accompanied President Bush to Japan in early 1992 on a trade mission. Lee Iacocca, CEO of Chrysler, had made $4.5 million in salary and bonuses in 1990, the last year such information was made public. Harold Poling, CEO of Ford, was paid $1.8 million in salary and bonuses. And Robert Stempel, CEO of General Motors, received $5.2 million in salary and bonuses.

Based on Microsoft’s performance, Bill Gates should be one of the highest-paid CEOs in the country. But Gates receives a very modest salary. In 1991, he earned $274,966 in salary and bonuses, according to Microsoft’s latest proxy statement, making Gates only the fifth highest paid executive in his company. (Michael Hallman, Microsoft’s former president who was fired in early 1992, was the company’s highest-paid executive in 1991 with a salary and bonus totalling $604,290.)

Gates has said any number of times that he doesn’t care about the money, nor does he bother to follow the stock market.
Money, he has said, is not a distraction from work, nor will it become one.
Examples abound that show just how conservative Gates is when it comes to spending money. Friend Heidi Roizen recalled driving into Seattle with Gates for a meeting at the downtown Sheraton Hotel, looking for a place to park. They were running late, and Roizen suggested the hotel’s valet parking.
"Yeah, but it’s $12 and that’s not good value," Gates told her.
"I’ll pay the $12," Roizen said.
That s not the point," Gates replied. "They overcharge for parking."
Said Roizen of the incident, "That’s really indicative of Bill. But he is not cheap, she added. "I’ve never known him to be cheap about picking up the dinner tab or something."

Despite his disdain for a flashy lifestyle, Gates hardly lives a Spartan existence. He does indulge himself with a few luxuries. He has a taste for expensive champagne and keeps his refrigerator at home stocked with a half-dozen or more bottles of Dom Perignon. And he has never outgrown his love of fast cars. Although Gates drives a Lexus to work and still owns the Mustang he had in high school, he recently bought a $100,000 Ferrari 348. Two years ago, Gates and Paul Allen each bought one of the fastest production cars in the world—a 1988 Porsche 959, with an estimated top speed of more than 200 miles per hour. (The cars sit side by side, gathering dust in a U.S. Customs warehouse in San Francisco. Porsche built only 29 for the American market. The cars, which do not meet U.S. safety and pollution standards, were to have been imported under a legal loophole, but the EPA closed the loophole. To pass crash safety tests, at least four would have to be destroyed. At $320,000 a vehicle, it would be a pretty expensive demolition derby. Each car now would probably fetch about $1 million. Gates proposed a crash test by computer simulation, but the Department of Transportation has recommended the cars be shipped out of the country.)

Most of Gate’s wealth, of course, remains in Microsoft stock and thus is susceptible to the vagaries of Wall Street. This helps to explain Gates’ attitude toward his fortune—he is leery of counting paper assets as wealth. At the end of 1991, Gates owned about 57 million shares of Microsoft stock, representing about thirty-three percent of the company’s total shares. While he has not diversified much of his wealth, he has cashed in a lot of stock over the years. According to The Invest/Net Group, a company in Fort Lauderdale, Florida that tracks insider trading, Gates has sold nearly $300 million worth of stock since Microsoft went public in 1986. In October of 1991, for example, he sold about one percent of his holdings for $67.5 million. Earlier in the year, he collected about $50 million in cash when he sold 500,000 shares on the open market. No one knows what Gates is doing with all this cash. But some of it is going to finance his new home, which the local media jokingly refer to as San Simeon North, a reference to the William Randolph Hearst castle in San Simeon, California. The most oft-quoted price tag for this high-tech Xanadu is $10 million, but that’s only a guess. No one really knows but Chairman Bill, and he isn’t talking.
As far back as 1984, Gates told a reporter about the kind of home he envisioned, with advanced displays in rooms that could be commanded to call up images and music by remote control. Gates said back then that his home of the future would be overseen by a computer a little like HAL—the run-amok computer in 2001: A Space Odyssey.

Thanks to his wealth, Gates’ vision is fast becoming a reality. Under construction for more than a year, the house is located on the other side of Lake Washington from where Gates lives now, in the community known as Medina, which has the highest per capita income in the state. In 1988, Gates began buying up seven lots on nearly four acres for $4 million. The property includes 415 feet of waterfront. Trying to be sensitive to his neighbors, and because the property is situated on a steep hillside, Gates designed about eighty percent of his home below ground. From the water, the house will resemble a small neighborhood, with five different structures, or pavilions, above ground. None is higher than two stories. All the major structures will be connected under ground. With enough living space to cover a football field, it is supposed to be finished by 1993. There will be three kitchens, a 60-foot-long swimming pool, a 20-seat movie theater, two elevators, a manmade stream, a dock, a beach and lagoon, a meeting hall big enough to accommodate 100 people, offices, a computer center, an underground garage for as many as 28 cars, a 14,000-book library, an exercise room with a trampoline, and a game room.

In addition, the public rooms will have high-definition television screens mounted on the walls. Guests will be able to call up images from a vast electronic library, a computer databank containing great works of art and photography. The digitized images will be stored on computer disks similar to CDs. In one room, these TV screens will show the view from the top of Mount Everest at any time of day and in any weather condition. The system will incorporate music, sound, and video into computer programs that can be manipulated by the guest with the wave of a "magic wand." Gates has made a point of saying he’s not just building a home, but a computer conference center exploring the limits of today’s—and tomorrow’s—home computer technology.
Gates founded his own company, Interactive Home Systems, to buy up the electronic rights to the world’s greatest works of art. In early 1991, the company bought electronic rights to about 1,000 art works owned by the Seattle Art Museum. The company is still negotiating with the Smithsonian Institute, the National Gallery in London, and the Art Institute of Chicago. Gates is well aware of the commercial potential of this new computer technology, known as multimedia. And he is not the only player in the field. In late 1991, Eastman Kodak Company purchased Image Bank, the nation’s largest supplier of stock photos. Microsoft was also trying to buy the photo company. But Gates does have a jump on the competition. In 1991, Microsoft bought a sizeable interest in Dorling Kindersley Ltd., the London book publisher known for its popular "The Way Things Work" series. Gates has said he believes electronic publishing could be a $1 billion business by the end of the decade. Competitors are already worried that Gates will dominate this field, too.

The home Gates is building will have three childrens bedrooms, as well as one room for a live-in nanny. Gates is always thinking ahead. But for now he remains one of the nation’s most eligible bachelors. Gates is sometimes besieged by women who want to date him. One woman who was a member of Mensa, the society for people with high IQs, wrote to Gates asking him about software for her Macintosh. Gates not only delivered the software, but met her in Atlanta for an evening on the town. Another woman at Microsoft sent Gates an E-mail invitation to lunch. A low-level employee in Microsoft’s information center, she didn’t expect a reply.

Gates did reply, however, informing her he was very busy at the time but would be in touch. Several months later, she heard back from Gates by E-Mail: "What about tomorrow?"
The employee took Gates to lunch at a nearby restaurant on the back of her motorcycle, and over the next few months the two went out dancing several times at some of Seattle’s trendy nightclubs, usually hitting several clubs in an evening.
"I thought he was the most fascinating man I’d ever met," the employee remembered.
Dan Graves, former export manager for Microsoft who left the company in 1991, recalled an evening with Gates at a chalet in the French Alps at one of Microsoft’s international sales meeting. Gates flew in by helicopter. "We partied all night, everybody," Graves said. "When I walked out at 5 o’clock in the morning I almost stepped on Gates on top of a woman out, on the lawn."
"Bill likes to have women in his life," said a Microsoft executive who has" known Gates for ten years.
For the last few years, Gates has had an on-again, off-again romance with a product manager in Microsoft’s marketing division. Neither will comment about the relationship.
Because he comes from a close-knit family with traditional values, close friends expect Gates eventually to marry and have children. "His family is an important part of him," said Paul Allen. "I don’t want to put words in his mouth, but I expect him to have a family one day."

Gates himself has said he expects to be married before 1995. And he expects to have children eventually. But Gates has also made some rather unfatherly remarks over the years. After a personal computer forum in Tucson, Arizona, two years ago, Gates was having a beer with half a dozen industry acquaintances when the conversation turned to the number of people in the computer industry who were starting families. Gates, who had been quiet for some time, suddenly blurted, "Kids are a problem. Later, he elaborated with the curt pronouncement, "Babies are a subset."

"As much as Bill wants children, he may never be able to take that step, said his friend Vern Raburn, who recalled a conversation he had with Gates in 1990, when Gates came down to Phoenix to help Raburn celebrate his 40th birthday.
"He was flabbergasted that his parents were in their 60s," said Raburn. "He can’t figure this out, and that’s because Bill consciously tries to protect and maintain this 9 year old in him. That’s the fun part in him. That’s a part you can’t find in most people. That’s why he doesn’t want to get married, because you can’t be 9 years old and be married. When you are married, you become your parents."
If Gates carries with him occasionally the attitude and spirit of a child, it is a spirit seen most clearly through his love of games. Each July he throws a huge bash known as the Microgames at the family compound on Hood Canal, a kind of recreation of the games he played as a child at Cheerio. About a hundred industry friends and guests vie for prizes. Gates and his family are the judges. Each year, the games have a different theme. A couple years ago, the theme was African Safari. There were prizes for everything from African Jeopardy to shooting blow darts. Gates once had six tons of sand trucked in to see who could build the best sand castle. The Microgames end with contestants composing and performing a rap song. It is the ultimate kid’s birthday party for adults—with Chairman Bill the ringmaster.

Gates gives another, much larger annual party for his employees. In August of 1991, nearly 10,000 employees turned out for Microsoft’s annual picnic at a sprawling private park in the foothills of the Cascade Mountains east of the Redmond campus. More extravagant yet is the annual Christmas party. In 1990, it was held in the new, 170,000-square-foot Washington State Convention Center. The trade room floors were turned into familiar New York City landmarks, such as Greenwich Village, the Hard Rock Cafe, and Little Italy, each with its own distinctive menu and decor. Yellow taxi cabs were parked inside, on the floor. Actors were paid to come dressed as New York City street people.

While morale at Microsoft is high for the most part, employees do complain about the demanding pace, especially those who work on the development side. The work ethic has not changed much at Microsoft over the years. One well known businessman on the Eastside, where Microsoft is located, said he runs into a lot of "Microsoft widows."
"The joke among them is, ‘We hope Bill will get married. Then we will finally get to see our husbands,’ " he said. "The sense from these wives is that Bill is a nerdy guy who has no appreciation of people’s real lives. Microsoft does crazy things, like telling an employee they have to be in Hawaii tomorrow. In this day and age of two parents raising kids, that’s hard. People see Microsoft as being hostile to families. It’s a great place for the young, unmarried devoted types. But as Microsoft employees age, there’s more and more tension between the company’s standard practices and people starting to raise families. But they are locked in because of the stock options. They can make so much money."
Ida Cole, Microsoft’s first female executive, recalled that Gates scheduled the 1990 retreat for company executives on Mother’s Day.
"You know, most of those guys are married, most of them are fathers. There were lots of complaints," said Cole. "But Bill still had it. What he did, though, was compromise. He let them all go at noon on Sunday so they could have the afternoon at home with their families.... Bill loves his mother. That’s not the issue. But the company has always taken this incredible priority with him. I’m sure he never thought [holding the retreat on Mother’s Day] would be a consideration for people."

Gates continues to keep his finger on the pulse of the company, and all critical decisions pass through him. In early 1992, Gates fired Michael Hallman, Microsoft’s president of less than two years, in a major reorganization of the company. Hallman, a former executive with IBM and later with Boeing, wasn’t getting the job done, Gates bluntly told reporters. Hallman had replaced Jon Shirley, who retired in 1990. As part of the shakeup, Gates announced that a triumvirate would now share the presidency. He said Microsoft had become so large that no one person could handle the duties of the number two job. Rather than going outside the company, Gates chose three close friends and Microsoft executives—Steve Ballmer, Mike Maples, and Frank Gaudette—as the ruling troika to replace Hallman.

Although analysts were surprised by the move, it showed that Gates is still very much in control. And that’s what investors like to hear. Microsoft’s stock surged nearly $5 a share the day the shakeup was announced.
It’s impossible to imagine a Microsoft without Gates at the controls. Those who know him best say he is as driven as ever, and as long as he’s in charge Microsoft will not be threatened as the world’s leading software company.
"We have this vision of where we are trying to go, and we’re a long ways away from it," Gates said during a recent interview in his modest office. A large picture window looks out over part of Microsoft’s huge campus. But Bill Gates is not the kind of CEO who spends valuable time admiring the view.
"You gotta watch out for the anticlimax," he went on in response to a question about what it felt like to be the chairman of the world’s largest software company. "I mean, we are not on top of the networking heap, or the spreadsheet heap, or the word processing heap. Computers are not very easy to use. We don’t have information at our fingertips. There is one thing that is fun—I look out there and see fun people to work with, who are learning a lot. That’s cool, and that feels good, but we’re not on top. Yes, our revenues are bigger than anybody else’s, but if we don’t run fast and do good things...."
His voice trailed off, leaving the sentence unfinished. Gates got up and walked over to his desk to return to work. "Believe me," he said as the interview ended, "staring out the window and saying ‘Isn’t this great,’ is not the solution to pushing things forward.... You’ve got to keep driving hard."
THE END

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