Control of the Information Economy

Genius, daring and technical brilliance are no match for single- mindedness, ruthlessness and large amounts of cash. That should not surprise students of American business history. After all, Standard Oil and General Motors were never technological pacesetters. But until last week, many thought the information industry would defy the monopolistic tendencies of capitalism.In 1977 the two Steves, Jobs and Wozniak introduced the Apple II and spawned the personal computer industry. Wozniak's ingenious floppy disc drive design made the computer easy to operate. His organizational innovation would prove even more enduring.The Apple II was an open system. Lift off the top and you had easy access to eight expansion slots. In essence, Apple provided a fertile soilbed into which thousands of new companies seeded their new hardware and software products. A thousand technological flowers bloomed.In 1980, when IBM decided to enter the PC market it created a company-within-the company to deliver a finished product within a year. To achieve that goal, it purchased virtually every component from outside: chips, housing, discs and operating system. When negotiations with Digital Equipment broke down, IBM turned to the fledgling Microsoft for its operating system. Gates didn't develop MS-DOS. He bought it from another Seattle software firm. IBM gave Gates permission to license the operating system to other companies. And the rest is history.Meanwhile Apple continued to be the industry's technological pacesetter. In 1984, the Macintosh, with its intuitive graphic icons, simple menu of commands, revolutionary operating system and built-in sound capability truly became "the computer for the rest of us". In 1986, Apple introduced the personal laser printer, and the desktop publishing industry was born.Technologically, the IBM PC never caught up with the Mac, but IBM's marketing clout made it the industry standard. By 1988, however, IBM clones claimed 75 percent of the IBM-compatible market. Which was just fine with Microsoft, for it received about $50 for every machine with MS-DOS. As PC sales soared into the tens of millions, Microsoft boasted a built-in multi-billion annual cash flow that financed its expansion into other markets. Its products---Works, Word, Windows--were never as good as its competitors, but they quickly became dominant.By the late 1980s Apple realized that Microsoft, not IBM, was its primary competitor. Yet it could never decide whether it was a hardware or a software company. It would not license its own technically sophisticated operating system until it was too late. That was a mistake with calamitous results. But it reflected Apple's philosophy. Apple's mission has been to change the world and that bred an arrogance stemming from its devotion to technical brilliance.Bill Gates has a more down-to-earth goal. He wants to control the world. Consider his hate-love relationship with the Internet. Initially he wanted no part of a system he couldn't own. Indeed, Microsoft banned the Net from its own 30,000 computers as a security risk. Any employee wanting to surf had to sign up to use one of the two machines equipped to do so. In late 1994 Gates announced that Microsoft would launch its own proprietary information highway.But when Netscape proved the Internet was here to stay, Gates abruptly changed his mind and in his inimitable manner, tried to buy Netscape. But says Netscape CEO Jim Barkdale, "we had read the book on Microsoft so we said no thanks. It's not in MIcrosoft's bones to co-operate with other companies." In December 1994 Gates bought another Net browser, Spyglass and renamed it Explorer. Bill Gat es's $150 million investment in Apple means that Explorer will come bundled with Apple computers just as it is now bundled with all IBM computers.Microsoft controls about 90 percent of the world's computer operating systems and sells more than 50 percent of the planet's software. In the last 4 years Gates has bought outright or invested in some 60 companies, spending more than $2.5 billion. His company has about $9 billion cash in hand. He intends to own the information economy.Gates' most recent venture, Sidewalk, targets newspapers, t.v. and radio. Consulting firm Forrester Research sees Microsoft taking $3.6 billion in ad revenues from media companies by 2001. In July, at a meeting of 500 newspaper executives, Knight Ridder Executive Robert Ingle issued a call-to -arms against Microsoft. He cautioned newspapers not to form alliances with Gates. "You dance with the devil and you pay the price".When Standard Oil and General Motors dominated their industries, Congress and the White House stepped in. But Bill Gates plays golf with the President. He's richer than most nations and both political parties salivate at the prospect of him as a contibutor at election time. The Justice Department considered but failed to act on Microsoft's predatory habits. Soon it may be too late.

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