COVER

GENIUS AT WORK

HE IS THE RICHEST MAN IN AMERICA, BUT CAN WILLIAM GATES STAY ON TOP OF THE HEAP?

BRENDA DALGLISH May 11 1992
COVER

GENIUS AT WORK

HE IS THE RICHEST MAN IN AMERICA, BUT CAN WILLIAM GATES STAY ON TOP OF THE HEAP?

BRENDA DALGLISH May 11 1992

GENIUS AT WORK

COVER

William Gates III, at 36 the richest man in the United States, casually tossed two tightly packed travel bags down at the front of Gate 23 in Chicago’s O’Hare airport, turned on his heel and walked back down the long terminal to a taco stand. After finishing his snack, he browsed through a magazine rack while he waited for his boarding call. At the suggestion that his luggage might not be there when he returned to the gate in half an hour, Gates looked surprised. “My bags never get stolen,” said the unfazed multibillionaire, adding confidently: “It would be too much of a coincidence, too random.” Some associates have called Gates’s cocky assurance in his own powers of logic a sign of arrogance; others wave it off as no more than characteristic bluntness. But when the president of Microsoft Corp. of Seattle, the world’s most profitable creator of computer software, returned to the boarding gate, his bags were lying exactly where he had dumped them.

Gates has considerable justification for self-confidence: the company he founded with high-school chum Paul Allen in 1975 is now the most successful in its field on earth, with offices in 28 countries and annual sales of $2.1 billion. Gates’s personal stake in Microsoft, one-third of its stock, is $7.3 billion. Canada’s richest man, newspaper tycoon Kenneth Thomson, by comparison, is worth $7 billion.

Gates’s self-assurance, however, transcends his net worth. Asserting that “the mathematical mind is often superior,” he recalled his dismay when he failed to rank at the top of his Harvard University mathematics class in 1973. Recounting the occasion recently during an extended interview with Maclean’s, Gates acknowledged that two classmates had outscored him. “It kind of confused me that there were people who actually were better at math than me,” he said. “It was a new data point.”

The data points that Gates has established since then are impressive by any measure, however. Gates is the king of software: Microsoft’s MS-DOS computer-operating system is used in 90 per cent of the personal computers in the world. “Business strategy is interesting,” he said of the accomplishment. “It is the intersection of business and technology, and there are surprisingly few people who can combine the two.” But now some competitors have begun to wonder if Microsoft’s streak of phenomenal success is ending. They point to signs that suggest Gates’s cockiness could be turning into an ego problem. In particular, detractors note his open sniping at computer-industry giant International Business Machines Corp., whose adoption of MS-DOS as the standard operating system for its personal computers launched Microsoft on its most important success. “He didn’t need to declare war on

IBM,” commented Philippe Kahn, president of Scotts Valley, Calif.-based Borland International Inc., in an interview with The New York Times after Microsoft’s falling-out with IBM last year. “That will turn out five years from now to look like his biggest mistake,” Kahn added. “That’s ego.”

Still, Gates has enjoyed immense success by relying on his own judgments so far. The son of a prominent Seattle lawyer, Gates first combined business and his quick grasp of technology at 16, when his Seattle high school paid him and Allen $2,400 to write a program to arrange class schedules. It was at the same institution, Lakeside Preparatory School, that he had first met Allen when they spent long hours together working in the school’s new computer room.

But when Gates started college, he seemed ready to leave computers behind. After enrolling at Harvard in 1973, he repeatedly changed his mind about his academic future, shifting from mathematics to economics to law. For the most part, he scorned computer science courses because, he says, he already knew more than many of the professors. “I was a little bit insufferable,” Gates recalled. “I took this very advanced computer class and there were all these graduate students in computer science. I would sit there and wait until they all agreed on something stupid and then, in a very sarcastic way, I’d tell them that they were wrong.”

Catalyst: Gates soon decided that Harvard itself was expendable. The catalyst for that decision was a visit that Allen made to Gates in 1974, when Gates was a sophomore. Allen urged him to leave university so that they could form a partnership to develop software. He argued that if they waited much longer, the opportunity to enter the infant software industry would be lost. The Altair, as the first PC was called, had just been unveiled on the cover of Popular Electronics magazine— but it lacked the basic software it needed to operate. Gates and Allen set out to write the missing programming. Working night and day for eight weeks using the computers at Harvard, they wrote the program to match the Altair’s published specifications. The Altair program was the first of a series of successes that Microsoft, established the following year, achieved before Allen left in 1983, after contracting Hodgkin’s disease, a form of lymphatic cancer.

In 1980, the young software firm began what was to become a hugely profitable relationship with the colossus of American computing, IBM. At that time, IBM, traditionally the dominant maker of large mainframe computers, was urgently developing a personal computer. The corporate giant was looking for outside help to produce, swiftly, an operating system—the underlying computer software that would be the brains of the planned IBM PC. IBM considered other software companies, but

HE IS THE RICHEST MAN IN AMERICA, BUT CAN WILLIAM GATES STAY ON TOP OF THE HEAP?

finally settled on Microsoft. It helped that IBM’s then-chairman, John Opel, knew Gates’s mother, Mary, from their work together on the national board of the United Way charity.

IBM’s PC design, including Microsoft’s software, quickly became the standard for personal computers, and Microsoft made the most of the linkage. Indeed, without the IBM connection, Microsoft might now be just another small software company searching for a niche. Instead, tens of millions of computer users have learned to use machines based on Microsoft’s MS-DOS.

Split: But by the late 1980s, the romance between IBM and Microsoft had soured. In 1985, the two companies began working together to develop for IBM a graphic user interface (the intermediary program that allows PC operators to run such operations as word processing by making selections from onscreen menus, rather than by entering keyboard commands). At the same time, Gates’s company continued its own work on a similar product, Windows, which is based on Microsoft’s MSDOS operating system. Gradually, the two companies began to disagree about how the next generation of software should evolve. Last year, the split seemed complete when IBM announced that it was joining forces with Apple Computer Corp. of Cupertino, Calif., to work on some joint projects. In the end, Microsoft’s Windows reached the market two years before IBM released its own interface program, OS/2. Windows continues to outsell its late-arriving rival by 9 to 1.

Gates now speaks with disdain of his old patron. Asked if he once aspired to be the “IBM of software,” Gates said: “I did not say that, ever. It is such a terrible thing to say. IBM has a lot of problems.” In fact, although IBM’s revenues and assets are far larger than Microsoft’s (IBM had 1991 revenue of $77 billion compared with Microsoft’s $2.1 billion), Microsoft was the more profitable last year: despite the recession, Microsoft made a 1991 profit of $546 million, while IBM lost $3.3 billion. Microsoft’s stock performance has been even more dazzling: one Microsoft share, first issued in 1986 for $29, would now be worth $384.

In fact, Microsoft’s rise has been so meteoric that some analysts say that it may now have nowhere to go but down. At the very least, Microsoft has set a pace of growth that it can hardly sustain indefinitely. In the past 18 months, the company has almost doubled in size to 10,700 employees from 5,635 at the end of 1990.

Certainly, Gates will need to be even more visionary and nimble than he has been in the past if Microsoft is to stay on top of the quickly evolving market for new computer products. Among them are technologies that allow users to electronically write directly onto a screen, voice-activated computers and multimedia networks that link computer terminals to everything from telephones and fax machines to video cameras and animation libraries (page 40). Gates is plainly aware of the scale of the challenge. “Gravity is always pulling you down towards normalcy, which is mediocrity,” he said. “Very few companies stay out of gravity’s grasp for as long as we have. The bigger you are, the harder it is.”

Neat: Unlike many of his Silicon Valley contemporaries, including Apple Computer Inc. co-founder Steven Jobs, who turned technical breakthroughs into early business successes but then left the companies that they had created, Gates shows no signs of losing interest in Microsoft. He says that he intends to stay at the company’s helm for at least another five to 10 years. Although Gates has had several girlfriends and the new house he is building has four children’s bedrooms, America’s wealthiest bachelor says that he does not plan to marry or have children for at least another five years. But Gates insists that he does not measure his success in purely commercial terms either. His own definition of success, he said, is more personal: “If I come up with a good idea—if one of the smart people I work with says, ‘Wow, that’s a neat idea.’ ”

Despite his impressive net worth, Gates is developing a

reputation for personal and professional frugality. He is a tough boss who expects his employees, most of them young, to work long hours and offer near-total devotion to their employer. At the same time, Microsoft has a reputation for paying lower salaries than other computer companies. On the other hand, Gates noted that a company stock-option plan has created more than 100 millionaires among Microsoft employees—on paper, at least.

Grimy: Gates disputes a published report that he once stalled a grocery checkout line while he fished in his pockets for a 50-cents-off coupon to buy a carton of ice cream, keeping the line waiting for so long that someone behind him finally gave him two quarters. “It never happened,” Gates said, his voice working up the register towards a high-pitched whine. “In fact, I don't think 7-1 Is even take coupons. I should check that out, maybe I could prove that it is not true.” A few minutes later, however, at a fast-food outlet at O’Hare, the richest man in America complained—politely—to the girl behind the counter for charging $1.65 for a small Pepsi.

The eccentric billionaire, whose grimy glasses and dandruff-frosted jacket bear out reports of his disregard for personal appearance and even hygiene, does have one stunning extravagance: the house that he is having built in the Seattle suburb of Medina. The structure, which has been under construction since 1991, will be 46,000 square feet when complete. The $ 12-million dwelling will occupy a site that includes such distinctive West Coast luxuries as its own salmon run. But, more in keeping with the source of the wealth that is underwriting its construction, the building’s interior will be loaded with some of the futuristic electronic

gadgetry that Gates expects will eventually find its way into homes everywhere.

The decorating plans have run into some obstacles, however. Gates says that he hopes to furnish many of the rooms with high-definition television screens, on which he intends to display, among other things, images of some of the world’s most famous works of art. To that end, Gates has made a personal project out of negotiating with some of the great art muse-

ums of the world to obtain electronic reproduction rights to their collections. So far, the negotiations have gone slowly, in part, perhaps, because museum directors do not appreciate Gates’s habit of describing the masterpieces that he intends to display as “electronic wallpaper.”

Gates does admit to admiration for at least one cultural figure: Michelangelo, the Italian Renaissance artist renowned for the breadth of

his genius. Indeed, Gates shares one trait with Michelangelo: according to IQ tests, his intelligence is in the genius range. “I score very well on tests,” Gates observed. With a laugh, he added: “But I am not sure that means much.”

Still, he clearly devotes a great deal of attention to the nature of intelligence—including his own. “Smart people know how to concentrate,” he said. “Maybe they can concentrate because they’re smart, or maybe they’re smart because they can concentrate.” Samuel Znaimer, a Vancouver venture capitalist who roomed with Gates during their first year at Harvard, said that Gates was just as intense when he was a student. “He was able to block out all the external noise,” said Znaimer, whose brother, Moses, founded Toronto’s CITY TV. “He didn’t worry about what he was wearing. When he wanted to sleep he didn’t care if there was too much light or noise.” Gates acknowledges, though, that there are disadvantages to an ability to focus so intensely. For one thing, he says that he could never be a psychiatrist. “I get too attached to problems,” he added. “When I start thinking about a problem, I can’t get it out of my mind until I solve it. If I was a psychiatrist and people told me all their problems, I’d be risking my own sanity.” Gates becomes most animated when he talks about the subject that seems to be closest to his heart. He takes offence at the suggestion that computers perform dull, mundane tasks best. “That’s too judgmental,” he snapped. “I’d say

routine, repetitive things, simple in design but large in scope, mathematical in nature.” He finds it perplexing that at chess, a game that requires players to assess many possible combinations of moves quickly, computers still cannot beat the best human competitors. “It’s a very strange thing,” said Gates, an avid chess player who now loses to the three top chessplaying computer programs. “We have not been able to teach a computer to play chess the way humans do it at all. We teach the computer to do it in a totally brute-force way by looking at all the possibilities. Humans don’t do it that way.” He added: “Of course, “we don’t really understand how humans do it.”

Swords: Apart from their inability to place a grand master in checkmate, however, computers’ potential to transform society absorbs Gates. “They are working for us so well that our economy has become totally dependent on them,” he noted. “You couldn’t run a stock exchange, an airline company, anything, without computers.” But Gates sees less specific, more pervasive benefits as well. He added: “It is empowering to have all that knowledge around. It makes it harder to hide things, to have misunderstandings. They allow you to bridge culture gaps, time zones. This is very positive.”

Gates does acknowledge a darker side to the technology that has made him rich. He noted the criticism that the computer conveys unequal benefits. “Some people say that it helps smart people more than it helps others, in the way that swords were a big help to people with long arms,” he theorized. “And that’s true. But, fortunately, most people have the potential to be very smart if they grow up in the right kind of environment.” The cautionary note

becomes sharper as Gates considers the future. “For the next 20 years,” he said, “computers will be one heck of a tool—but still very much in the service of man.” After that, however, “it is possible,” Gates speculated, that the relationship could be reversed. “You could get into the problem that computers could entertain people enough that they wouldn’t do some of the normal activities that we do now.” Some Gates-watchers dispute his predictive abilities. Robert X. Cringely, for one, the pseudonymous author of a witty new book entitled Accidental Empires—How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition, and Still Can’t Get a Date, says that the eccentric young billionaire is simply out of touch with reality. Declared Cringely: “Bill is at a terrific disadvantage because he doesn’t really know any real people. He sees folks all around him every day who are addicted to computers.”

Despite his genius-level IQ and sometimes abrasive arrogance, Gates reveals a touchingly human ambition for the second half of his life. Having achieved such phenomenal success in the first half, Gates said that his goal now is simply “to try to avoid anticlimax.” Laughing, he added: “You know what they say: ‘They used to all hate him because he was so successful. Now, they all like him, he’s such a God damned failure.’ ” As he wandered back down the airport corridor towards his unattended luggage, Gates, for the first time, gave the impression that he harbors at least a few doubts about his abilities. But as he picked up his bags, his confidence quickly returned. Failure, after all, simply would not compute.

BRENDA DALGLISH