The Sun Never Sets In Redmond
Date: Monday , November 01, 1999
Jared Diamond is a UCLA professor and Pulitzer Prize-winning author of (most recently) Guns, Germs, and Steel. In the book, he looks at colonization in the period of pre-Inca history and ascribes European superiority to geography and demographics. Almost as interesting culturally was that the LA Times magazine, which recently featured the author, chose to mention that “his book was on Bill Gates’ reading list.” Presumably, the discerning
reader is supposed to be overwhelmed by the fact, and truly believe that the first step toward opening the floodgates of fortune and earning his next $100 billion in paper money lies in purchasing Diamond’s book. Yes,
William H. Gates, Jr. has indeed been imputed the role of a prophet not only in the realm of fruitful investing (with a little help from friend Warren Buffett), wealth creation, and lasting business but also of an all-knowing
guru shaping the development of knowledge, opinion and belief.
Sanjay Parthasarthy who goes by the official title of GM, Worldwide Customer Service
Tools, manages Microsoft’s corporate Web site in addition to the intranet and product development activities for the formidable sales and marketing function. Microsoft.com is almost symbolic of the firm’s size – it is the
seventh largest Web site in the world and the only corporate site to feature in such a ranking’s list. It has, on a normal day, about 5 million people accessing it for downloads, support, and information – in that order. Sixty
percent of those users are pre-registered and are automatically tracked via cookies. Microsoft itself has 1,000 developers creating content for the site, who publish, on average, every three minutes. The site has historically
doubled in size every six months.
Sanjay Parthasarthy says that he benchmarks against the best in the business in every category, and comments, “I consider Yahoo! and Amazon as my competition.”
Before moving on to Microsoft.com, Parthasarthy spent two years in India (“Mostly on an airplane”) setting up the Microsoft office space there.
He quintupled the number of employees, and established six outposts of Redmond. interestingly, he was also present during Bill Gates’s four-day whirlwind visit to India, which was touted as the biggest Indian software-related event since the Vedas were inscribed on pieces of parchment. Poor Fidel Ramos, the president of the Philippines, visiting the country on a state visit, was relegated to the background while Gates, the champion of world
business, was featured on all front pages. But in the spirit of nepotism,look at some telling lines from Microsoft’s own Encarta encyclopaedia entry on Gates, which can hardly hold claim to modesty: “The company’s success
made Gates one of the most influential figures in the computer industry and, eventually, the richest person in the world…Gates persuaded other computer manufacturers to standardize on MS-DOS, fueling software compatibility and computer industry growth in the 1980s…At age 31, Gates — who then owned about 40 percent of the company’s stock — became the youngest self-made billionaire in American history
Red Snakes, Green Snakes
As I type this article (on the ubiquitous MS Word), another such incident of subtler proportions imparts itself quite readily. Green and red lines,like sea snakes of a viciously poisonous variety, traverse the white page
in all form and fashion. The red line simply suggests an unconscious spelling error. Or, it marks someone down as being brought up with a British education currently writing in America.
MS Word, or so the slogan goes, is improving your writing, and ameliorating a copyeditor’s pain in correcting needless typos. By this relentlessly helpful standard, of course, all the Indian names presented in this article
are egregious spelling mistakes, crying out for correction. The squiggly green snakes, on the other hand, are more pernicious and suggest something even more dramatic. Right-click on the line with your Microsoft-provided
Intellimouse, and MS Word offers a stylistic suggestion along the lines of “Fragment (needs revision)” or such. And in the interest of space, this most helpful of programs is neither supercilious nor politely posturing – it often offers the briefest of commands.
But stretch your imagination a level further to consider the Association Principle.
The Principle, propounded by the utilitarian philosopher Jeremy Bentham in the 1800s and meticulously followed by James Stuart Mill (economist,philosopher and employee of the East India Company) goes simply like this:
in life, one associates certain objects with pleasure, and certain objects with pain. Clearly, the intelligent animal will avoid pain and hanker for pleasure. By creating a sequence of such associations, the ruling elite can presumably create a perfect society to whet their peculiar tastes.
The Knowledge Worker
Microsoft,before the attempted reorganization in March 1999, was divided quite simply
into Product Groups and Channel Groups. The former, headed by three vice presidents (Paul Maritz, et al), developed the core set of applications that Microsoft sold. The latter group was divided into the OEM (Original
Equipment Manufacturer) and non-OEM parts (distributors and businesses that are not too large). Since the reorganization, an attempt has been made at more mellifluous marketing-speak, namely, “selling by audience instead of customer,” “selling to the knowledge worker,” and coining other such sugary categories. What the firm wants to convey is that the “knowledge
worker” (ahh, what a resplendent phrase!) in any place of work is using software to more or less perform the same tasks, regardless of the organization’s size. Hence, it makes sense to cater the firm’s marketing message to these
knowledge workers individually, rather than the enterprise as a whole.
In a sense, Microsoft hopes that it will be these knowledge workers who drive subsequent product purchase and upgrades with their boundless enthusiasm for snazzier features (as depicted in the advertising images they pounce
upon) rather than the products being implemented from above by some faceless
worker descending from the MIS department.
They also hope this will counter a disturbing trend: internal surveys indicatethat 33 percent of IT managers feel that Microsoft doesn’t understand their business needs, and 54 percent categorize the company representatives as
arrogant. In short, the firm feels that changes initiated at the grass-roots level (a la Karl Marx) will have a longer half-life. But whether the much vaunted knowledge worker holds the purse strings that sanction the actual
purchase of new software is altogether another issue
A Revelation: MSFT Has Competition
Samir Bodas, presently the director of Small and Medium Enterprise Marketing at Microsoft (covering those customers that are not sold on products via an OEM channel) joined in 1990 as the project manager for Windows. “Launching
a product that is going to be used by millions is exciting because of the impact it is going to have on the world,” says Bodas, also summarizing the essence of why he hasn’t left Microsoft to join a startup. Bodas astutely
notes that Microsoft actually has three competitors (surprise!), two of which are often ignored. First, there are the usual suspects found in any marketing space developing competing applications and platforms; then there
is the revenue loss due to piracy, estimated to be a whopping 40 percent of worldwide sales; and finally there are the old versions of software – consumers have to be convinced enough of its disposability to pay the
upgrade fee. So what does Bodas think of fanciful notions that Microsoft is shaping human discourse with squiggly green lines? “You always have the option to turn it off,” he notes.
“The conquest of the earth, which mostly means the taking it away from those who have a different complexion or slightly flatter noses than ourselves,is not a pretty thing when you look into it too much. What redeems it is
the idea only. An idea at the back of it; not a sentimental pretence, but an idea; and an unselfish belief in the idea…” wrote Joseph Conrad in The Heart of Darkness, capturing the flavor of imperialism. In a modern day
analog, consider Bodas’s 6-month expedition into the Big 5 emerging markets – China, India, Brazil, Russia, Indonesia – to develop a 3-year business plan to establish OEM divisions. Or consider the strategy of Microsoft’s anti-piracy brigade in countries where copies of software are readily made.
The company has in fact identified ingrained social characteristics as the chief cause of illegal replication. “We have to educate them,” says Bodas. And then, the 1998-99 revenues of 19.75 billion will surge another
The Genesis of a Giant
Clearly, Microsoft is a giant, and not a particularly benevolent one. But make a
great leap backward in time to 1982 when the word “options” did not yet bring to mind frenzied IPOs and sunny beaches in the Bahamas. In that pre-Internet Paleolithic age when armor-skinned dinosaurs roamed the earth, Vijay Vashee
was employee number 116 in a $25 million company that merely harbored ambitions of being the next big thing. It was small enough so that Messrs Gates and Ballmer interviewed every employee. Vashee worked closely with Mitch Kapor
and Fred Gibbons (of Software Publishing) to evangelize Microsoft’s position.
He fondly recalls a Windows seminar at which he bravely pitched vaporware to 250 software developers, and 25 OEMs. He worked on the Window’s Project endeavor, where Microsoft was able to convince the common people that GNATT
charts and arcane planning tools predominantly of use to the government and defense industries was something that would enrich their lives beyond measure. “We would go into an insurance company expecting to sell 2,000 copies to the IT folks and end up selling 20,000 for company-wide use,”he says. “It was scary because this product was meant to be a geek thing.”
Vashee’s next job of product marketing was running the PowerPoint operations in the glorious days when Microsoft still bought technology for the sake of the elegant product as opposed to gloating over vistas of marketspace. The “good people” stuff, as Vashee notes, was key. There were two other reasons for acquiring PowerPoint. First, they needed to establish a presence in Silicon Valley, since the original developer, Forethought, Inc. was
California-based. Next, it was a concession to the stickler developers who abhorred the balmy climate of Seattle, allowing them to work for Microsoft while still being dressed in shorts and coming to the office with a surfboard.
The $13 million deal subsequently reaped billion dollar rewards after being integrated into MS Office. What was Microsoft like when Vashee returned to Redmond in 1997? “So big, so big, so big,” cries Vashee in a half-lament.
What made Microsoft into the giant it now is was luck, plus its youth,notes Vashee. “Bill Gates had the right idea at the right place at the right time; and we were young and stupid enough to believe we could change the world.”
The Empire of Business
To broaden the analogy with imperial power, consider a framework often posited. First, the imperial power establishes uncontested dominion over the native country. Or as Mohandas Gandhi so elegantly put it, “a mere 4,000 British
civil servants assisted by 60,000 soldiers and 90,000 civilians (businessman and clergy for the most part) had billeted themselves upon a country of 300 million persons.” At this stage, it is “us” versus “them”. But to exploit
resources, it turns out that you have to communicate either in the native tongue, or make “them” learn the foreign language. In short, “We have to educate them,” as Bodas emphatically put it. This is the stage of standardization and cultural imposition. Next, some frontrunners among the natives realize
they could retaliate, but are often co-opted into subservience. The institutionalization
of the “British Raj” comes to mind.
But clearly, if productivity revolutions (like the Internet) are occurring outside the firm, the intangible urges to conquer and subsume have to be generated in-house. Parthasarathy, for example, notes that all the abstruse
and obscure products he had been working on in the R&D group had to be re-jiggered for the Internet, in Internet time. Microsoft’s streaming video, Windows CE and commerce servers were generated this way. But if,
indeed, youth is the fomenter of revolution, as Vashee contends, Microsoft has a problem. Entrepreneurial young tykes are breaking out of Microsoft’s gilded, gated community to partake in revolutions without. Microsoft’s
employee average age of 34.5 years is much higher than most Internet startups.
Of Luck and Stupidity
People,and youthful people, those gun-toting, cigar-smoking Fidel Castro types who code on the side, are leaving Microsoft in droves to join startups.Consider the following three cases
CEO of Infospace, arguably spearheaded the current exodus by founding his then 12-person startup in April 1996 to create a different kind of Internet Yellow Pages. Another motivation was, simply, he “was tired of making billions for Bill.” Since then it has evolved into an aggregator, syndicator and distributor of content to diverse sources. The strategy is to gather content from premier sources, aggregate and link it together in ways that add value, and then syndicate it to multiple sites. Whether it’s the Wall Street Journal directory or Playboy’s Ultimate Directory, all of them can use InfoSpace’s technology. To paraphrase Jain, Infospace bills itself as the arms dealer
of the Internet War. They simply provide the ammunition for battle, and it seems to be working – at age 39, he’s worth $861 million and was recently featured as number 19 on the top 40 richest people below age 40 in Fortune
magazine’s list. Infospace’s most recent foray is into Internet auctions, with a possible agreement to buy out Opensite Technologies
CEO of 20-employee strong imandi.com left Microsoft in October 1998 to start a reverse auction site on the Net. He credits the idea to his wife,who had a “YKWK” (Yeh Karo Whoh Karo) list that demanded continual attention.
Why not allow users to file such a request over the Internet and allow merchants to bid on them? This seemed to alleviate inefficiencies generated by plowing through the Yellow Pages, gathering recommendations, calling multiple merchants and finally negotiating a price before the deal even began. The exact process is as follows: Customers go to the site, select
a category and then fill out preferences: how many times a week they want their carpets cleaned, their flowers watered, and so on. Imandi.com matches possible vendors by ZIP code, and the customer can click on additional
information, including feedback and comments by other customers who have used the vendor. The site does not accept online orders, requiring the transaction to be worked out between the customer and vendor. It also gives the vendor an imandi.com email address for the customer; the address expires after 60 days to prevent the vendor from sending repetitive emails. Kher
already has 100,000 merchants and about 30,000 users signed on for the service. His competition for the category – allowing multiple vendors to compete for a single buyers account – is predictably large, including Respond.com, Nextag.com, and others.
Kher’s revenue projections are relatively immodest — $1 billion in revenues within
five years, with a gross margin of 25 to 30 percent. At Microsoft, he was formerly the director of strategic business decisions, and enabled the Hotmail acquisition. Was the premium he paid too high? “No,” he answers
definitively. “It would have been worth a billion dollars today.
CEO of xpertsite.com, joined Microsoft in 1993 after earning his Master’s degree in computer science only to leave in June 1999 as GM of the Internet Explorer side of business. Xpertsite.com promises to connect inquirers
with questions of a specific nature (What nutrients are good for my rose bush? How do I buy a telescope?) to experts who have that knowledge. The “xpert” is given a rating based on his or her answers, and will be allowed
to charge for his answers at some point, after answering questions with such aplomb that his or her mailbox is filled with beseeching requests.
Parthasarathy has most recently finished a round of angel investors and even turned away some VCs, cited his reason as “we are not comfortable with them.”
Veteran Microsoftie Vijay Vashee though remains skeptical of startup ventures that want to get rich on Internet time. He says, “Hotmail wouldn’t have happened if Microsoft did its job properly.” People are leaving companies, according to Vashee, because “You either do it now, or you forget it. It is not that
there won’t be startups ten years from now, but they will be held to a conventional rule of profitability.”
So luck and stupidity drive the startup experience. The part of the equation dealing with the timeliness of the opportune idea has been determined for some, but is yet to be determined for the many. Whatever happened to grand notions of empire building?