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Paneful Struggle:
How Microsoft's Ranks
Wound Up in Civil War
Over Windows' Future
Vying for Mr. Gates's Nod
On an Internet Strategy,
Doves Took On Hawks
Choking on `Java Kool-Aid'

By David Bank

The Wall Street Journal
Page A1

REDMOND, Wash. -- In March 1997, Microsoft Corp.'s top managers crowded into the conference room in headquarters building 27, anxious to see how Chairman Bill Gates would resolve one of the most profound internal conflicts in the company's history.

At issue was a growing threat to Mr. Gates's crown jewel, the Windows operating system that runs 95% of the world's personal computers. Archrivals Sun Microsystems Inc. and Netscape Communications Corp. were combining Netscape's best-selling Web browser with Sun's new Java software, which promised to allow software programs to run on any kind of computing device. The aim was to create a new operating system that ran software programs straight from the Internet's World Wide Web.

As disturbing to Mr. Gates as the competitive threat was an ideological split among his own ranks. Unbeknownst to the rest of the world, many of his best programmers had come to believe what plenty of outsiders were already saying: The advent of Internet computing would spell the end of Windows.

That a large and vocal insurgent group even existed inside Microsoft is something of a revelation, given the monolithic image the company presents to the outside world. The story of their campaign, and the heated conflict it generated, has been pieced together from hundreds of electronic mail exchanges released in connection with Microsoft's various court cases, as well as from interviews with a dozen Microsoft officials. In the end, the conflict not only would affect the business direction of Microsoft, but also would help fuel the huge antitrust case the company is now fighting in federal court in Washington, D.C.

The pro-Internet "doves" were led by the quiet but powerful senior vice president Brad Silverberg, a bearded programming whiz who had taken over Microsoft's Internet work after heading development of Windows 95. Mr. Silverberg saw a way to expand one of his projects, Microsoft's Internet Explorer browser, into the kind of software Sun and Netscape were proposing: a "cross platform" system that could run on Macintosh, Unix and other computers, as well as on Windows PCs.

Instead of cranking out new-and-improved PC operating systems, Microsoft would beat its rivals in establishing the dominant platform for Internet computing, Mr. Silverberg posited. The doves pointed to the surging support for Java from software developers, Microsoft's key constituency, who wanted to write applications that could run, without change, on any kind of operating system. Interest was also high among corporate customers, who sought freedom from the complexity and cost of running different software on disparate computer systems.

Two months before the March meeting, one of Mr. Silverberg's top lieutenants, Ben Slivka, proposed the new strategy in a presentation titled "Java Is Our Destiny." The group believed the only way for Microsoft to survive was to execute what one team member called "a graceful exit plan" from Windows.

To Windows loyalists, led by another powerful senior vice president, Jim Allchin, such talk was heretical. A hard-core Windows "hawk" and veteran developer in charge of Microsoft's most advanced operating system, Windows NT, Mr. Allchin was a fierce protector of Windows. He regarded advances that helped other operating systems as a distraction and a mistake.

"In my opinion, Windows is in the process of being exterminated here at Microsoft," Mr. Allchin fumed in an e-mail to Mr. Gates a month before the meeting. "I consider this cross-platform issue a disease within Microsoft."

By early 1997, Mr. Allchin was angling to take over development of Internet Explorer from Mr. Silverberg and fold it into Windows. He wanted to put a stop to Microsoft's campaign to push software partners toward the company's new "Internet platform." As for Java, he advocated the creation of a "polluted," noncompatible version that would run well on Windows, but not on other operating systems.

For months, Mr. Gates let the two camps compete, a favorite tactic when Microsoft confronts a new challenge. By the spring of 1997, however, he had to make a decision. Microsoft's software customers, as well as its own developers, were getting mixed messages about whether to develop for the Web or for Windows, and competitors were gaining crucial momentum.

For Mr. Gates, the March meeting was a moment of truth. On the one hand, the doves' plan hewed to one of his core principles: If customers want an innovation, Microsoft had better provide it, or another company will. "Someone will execute on the above strategy," Mr. Slivka warned in his January presentation. "Windows becomes irrelevant in bigger and bigger sections of the market."

Nonetheless, the key to Microsoft's great wealth and power had been its ability to keep software developers tied as tightly as possible to Windows. The more applications available only on Windows, the more popular it became, thereby attracting even more developers and completing what Microsoft calls "the virtuous circle." As Mr. Gates saw it, according to several Microsoft executives, the Internet was threatening to break the loop. Without the hooks between software applications and Windows, he knew, Microsoft's software would be left to compete solely on its merits and its pricing, putting at risk the company's tremendous profits. The hawks' plan would protect Microsoft's existing franchise by tying customers as much as possible to Windows-only versions of the browser and Java technology.

Safe as that course seemed, Microsoft could lose everything if Sun or another competitor succeeded in wooing away its customers with true cross-platform software, because Microsoft had no such product.

Yet Mr. Gates was in possession of a crucial bit of intelligence: His own programmers were having trouble getting cross-platform Java software code to run well on different computers, company e-mails show.

As part of his pro-Java campaign, Microsoft's Mr. Slivka had persuaded two teams to use Java software to develop Microsoft's Office suite of productivity applications and for a software tool code-named Vegas. Both teams were "in effect betting that Windows . . . loses and Java wins," one of Mr. Slivka's programmers wrote to him in February 1997. But the results were disappointing. Code written specifically for Windows ran three times as fast or more, says one top ranking Microsoft executive.

If Microsoft's experts were struggling with Java, Mr. Gates had reason to believe Sun's were, too. Sure enough, Sun's Java software later proved slow and often broke down. That was a big plus for Mr. Allchin's lobbying campaign.

It fell to Mr. Slivka, as the doves' head cheerleader, to present his team's progress report at the March meeting. Showing up in his usual Hawaiian shirt and shorts, he clicked up the first slide. There wasn't any reference in it to Windows.

Mr. Gates pounced. "There's nothing about that slide I like," he snapped, according to several executives' accounts of the meeting. Mr. Slivka struggled to recoup, but Mr. Gates soon erupted.

"Why don't you just give up your options and join the Peace Corps?" Mr. Gates is said to have thundered. "Hasn't anybody here ever heard of Windows? Windows is what this company is about!" Microsoft declined to make Mr. Gates available for comment for this article.

The normally brash Mr. Slivka was devastated. Mr. Gates was "amazingly, unnecessarily rude to me," he complained in one April e-mail to a colleague. "It is disappointing that Bill chooses to flame like that without giving me a chance to educate him," he wrote in another e-mail. "Bill is convinced my group is trying to kill Windows."

But the die was cast. In no uncertain terms, Mr. Gates had decided to protect Windows at all cost. "Having cross-platform not be successful was good news for the Windows group," says one senior Microsoft executive.

In the months that followed, Mr. Gates decided to follow Mr. Allchin's suggestion not to fight Sun and Netscape head-to-head with a cross-platform system. Mr. Allchin argued that Netscape's lead in browsers was so large that Microsoft could catch up only by making a browser an integral part of Windows. That, he said, would make Windows a more compelling and useful product; making the browser part of Windows would give computer users little reason to buy Netscape's version.

Meanwhile, Mr. Silverberg took a leave of absence a few months after the March meeting to bicycle around the Northwest; his Internet group, which once totaled 2,000 employees, was reassigned. Though he occasionally consults for Microsoft, he has yet to return full time. He declined to comment for this article.

By September 1997, the Office and Vegas teams had returned to the Windows fold. "Do we have any pretense of cross platform left?" asked Prashant Sridharan, the program manager for the Vegas project, in an e-mail to a colleague. "Don't care about cross platform in future -- pretense or otherwise," answered Russ Arun, previously an ally of Mr. Slivka's. Mr. Slivka's Java group was also disbanded, and he is again working on Windows. Mr. Slivka declined to comment.

"Even at Microsoft, there were some people who drank the Java Kool-Aid," Mr. Allchin says.

The decision to follow the hawks' course foreclosed a tantalizing, alternative future for Microsoft. If Mr. Gates had swung the other way, the company could have pioneered a new era of computing in which any software can run on any computer using any operating system.

It also could have avoided a heap of legal trouble. In November, a U.S. District Court judge in San Jose, Calif., issued a preliminary injunction requiring the company to reverse many of its efforts to tie its version of Java to Windows, pending a final ruling on whether Microsoft violated its license from Sun. Microsoft says it simply gave developers a choice between the Windows-enhanced version of Java and the "pure" form endorsed by Sun. In Washington, another federal judge is hearing the antitrust case brought last year by the Justice Department and 19 states that charges Microsoft sought to illegally maintain and extend its monopoly by tying its Web browser to Windows.

Today, Mr. Allchin will begin testifying in that case, explaining to Judge Thomas Penfield Jackson that his tactic of integrating Internet technologies into Windows is a common and even desirable practice in the software industry. The company is relying on a U.S. Court of Appeals ruling in a skirmish last year that the integration of Internet Explorer into Windows 95 doesn't violate antitrust law, as long as the combination provides some benefit to consumers, even if other motives are involved. The government may seek to overturn the ruling.

Despite the legal mess, Mr. Allchin's strategy has so far proved a boon for Microsoft, and his star is still rising; he is Microsoft's most important line manager, with responsibility for all Windows development, including Internet technologies. With the appeal of the Internet driving a boom in cheap PCs, Windows is more wildly popular than ever. Last month, Microsoft reported a staggering net profit margin of 40% and a swelling cash hoard of $19 billion for its most recent quarter, both the highest of any major corporation. Late last year, Microsoft overtook Netscape in browser market share. Netscape has agreed to be acquired by America Online Inc.

Still, Messrs. Gates and Allchin may only have bought Windows some time. Although Java hasn't delivered all it once promised, the Web has indeed spawned an explosion of cross-platform software not hooked to Windows. Increasingly, users take advantage of applications on the Web -- from e-mail to book-buying to tax preparation -- using simple browsers rather than complex Windows software.

As Web sites are able to handle more sophisticated transactions, and high-speed modems from cable and phone companies make the Internet more useful and reliable, more programs will be written for the Web, not Windows. One of the goals of AOL's acquisition of Netscape is to create, in alliance with Sun, a $200 machine that provides access to applications running on AOL's huge Web servers, through a Java-based browser, with no Windows software at all.

Mr. Gates himself conceded the diminished importance of Windows on PC desktops last September in an internal memo describing Microsoft's efforts to develop a "megaserver" of its own to deliver software and services over the Internet. Microsoft is already offering several megaserver style services, including HotMail, an e-mail service that stores messages on a central server and delivers them through any Web browser.

"We have to improve the PC and we have to offer developers a great reason to build and deploy distributed applications on Windows," Mr. Gates wrote. "Otherwise they might decide simply to target the basic browser, ignoring the richness that we offer because it is too hard and complicated to deal with."

Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved

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E-mail David Bank at david.bank@wsj.com