The Internet Tidal Wave

Our vision for the last 20 years can be summarized in a succinct way. We saw that exponential improvements in computer capabilities would make great software quite valuable. Our response was to build an organization to deliver the best software products. In the next 20 years the improvement in computer power will be outpaced by the exponential improvements in communications networks. The combination of these elements will have a fundamental impact on work, learning and play. Great software products will be crucial to delivering the benefits of these advances. Both the variety and volume of software will increase.

[ … ] Not shown: Why communication costs will fall within a decade.

The Internet is at the forefront of all of this and developments on the Internet over the next several years will set the course of our industry for a long time to come. Perhaps you have already seen memos from me or others here about the importance of the Internet. I have gone through several stages of increasing my views of its importance. Now I assign the Internet the highest level of importance. In this memo I want to make clear that our focus on the Internet is crucial to every part of our business. The Internet is the most important single development to come along since the IBM PC was introduced in 1981.¹ (Editorial note 1)Editorial · 1Known at the timeGates ranks the internet above the graphical interface, the shift that had just made Windows. That ranking is the memo’s instruction: once the internet outranks Windows, every group has to justify its plan against it, not the other way round. It is even more important than the arrival of graphical user interface (GUI).

[ … ] Not shown: Why the IBM PC analogy fits; how the internet works.

Amazingly it is easier to find information on the Web than it is to find information on the Microsoft Corporate Network.² (Editorial note 2)Editorial · 2Known at the timeGates tests the claim on his own company. A free public network beats Microsoft’s private one at Microsoft’s own job, finding information. That is harder to dismiss than a forecast, and he turns it straight into a goal for Office and the systems products. This inversion where a public network solves a problem better than a private network is quite stunning.

[ … ] Not shown: Office on company networks; audio, video and connections.

Three of the biggest developments in the last five years have been the growth in CD titles, the growth in On-line usage, and the growth in the Internet. Each of these had to establish critical mass on their own. Now we see that these three are strongly related to each other and as they come together they will accelerate in popularity. The On-line services business and the Internet have merged.³ (Fact note 3)Fact · 3With hindsightIn December 1995 Microsoft held a news briefing on its internet strategy. The wire report said Microsoft would change The Microsoft Network, an on-line service that “became available in August and has signed up 500,000 customers”, to be available on the internet.SourceThe Spokesman-Review (wire reports)Microsoft Bows To The Internet8 Dec 1995 What I mean by this is that every On-line service has to simply be a place on the Internet with extra value added. MSN is not competing with the Internet although we will have to explain to content publishers and users why they should use MSN instead of just setting up their own Web server. We don’t have a clear enough answer to this question today. For users who connect to the Internet some way other than paying us for the connection we will have to make MSN very, very inexpensive - perhaps free.

[ … ] Not shown: Novell, Lotus, IBM, Sun, SGI and Apple online.

Browsing the Web, you find almost no Microsoft file formats.

[ … ] Not shown: Acrobat and QuickTime, and why free readers matter.

A new competitor “born” on the Internet is Netscape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. They are pursuing a multi-platform strategy where they move the key API into the client to commoditize the underlying operating system.⁴ (Fact note 4)Fact · 4With hindsightThe trial court quoted this sentence in its Findings of Fact of 5 November 1999, and found that by late spring 1995 Microsoft’s executives were “deeply concerned” about Netscape. The memo puts Netscape’s share at 70%; the estimates Microsoft executives cited at trial put Navigator’s share “above eighty percent in January 1996”, falling to “fifty-five percent in November 1997”.SourceUS Department of JusticeU.S. V. Microsoft: Court's Findings Of Fact5 Nov 1999 They have attracted a number of public network operators to use their platform to offer information and directory services. We have to match and beat their offerings including working with MCI, newspapers, and other who are considering their products.

One scary possibility being discussed by Internet fans is whether they should get together and create something far less expensive than a PC which is powerful enough for Web browsing.⁵ (Editorial note 5)Editorial · 5Known at the timeGates names the threat that matters most to a PC software company: a cheaper device built only for the web, on a chip and operating system that are not Microsoft’s or Intel’s. The memo calls it scary: a threat aimed at the PC itself, not at a single Microsoft product. This new platform would optimize for the datatypes on the Web. Gordon Bell and others approached Intel on this and decided Intel didn’t care about a low cost device so they started suggesting that General Magic or another operating system with a non-Intel chip is the best solution.

In highlighting the importance of the Internet to our future I don’t want to suggest that I am alone in seeing this. There is excellent work going on in many of the product groups. Over the last year, a number of people have championed embracing TCP/IP, hyperlinking, HTML, and building clients, tools and servers that compete on the Internet. However, we still have a lot to do. I want every product plan to try and go overboard on Internet features.⁶ (Fact note 6)Fact · 6With hindsightAt its December 1995 internet briefing, Microsoft said it would use internet products developed in whole or in part by Sun, Oracle, Spyglass and Computer Associates, use Sun’s Java in its browsing software, and change its core operating system products to be more Internet-friendly. The report called it “a remarkable capitulation”.SourceThe Spokesman-Review (wire reports)Microsoft Bows To The Internet8 Dec 1995 One element that will be critical is coordinating our various activities.

[ … ] Not shown: New groups, the home page, and server plans.

Client. First we need to offer a decent client (O’Hare) that exploits Windows 95 shortcuts. However this alone won’t get people to switch away from Netscape.⁷ (Fact note 7)Fact · 7With hindsightThe court quoted this line and the one before it. It found that Microsoft did not believe improved quality alone would depose Navigator, and that once Internet Explorer matched it, Microsoft “could employ other devices to induce consumers to use its browser instead of Netscape's”.SourceUS Department of JusticeU.S. V. Microsoft: Court's Findings Of Fact5 Nov 1999

[ … ] Not shown: Blackbird, and features for Windows customers.

We need to move all of our Internet value added from the Plus pack into Windows 95 itself as soon as we possibly can with a major goal to get OEMs shipping our browser preinstalled.⁸ (Fact note 8)Fact · 8With hindsightThe court found that Microsoft bundled Internet Explorer 1.0 with the first version of Windows 95 licensed to OEMs in July 1995, and that its OEM licences “prohibited the OEMs from modifying or deleting any part of Windows 95, including Internet Explorer, prior to shipment”. The 2002 Final Judgment required Microsoft to let end users and OEMs “enable or remove access” to middleware such as Internet Explorer.SourcesUS Department of JusticeU.S. V. Microsoft: Court's Findings Of Fact5 Nov 1999US Department of JusticeFinal Judgment12 Nov 2002

[ … ] Not shown: Help files, browser count, sharing, tools and applications.

By giving away the client code to support all of these scenarios, we can start to show that a Windows machine on the Internet is more valuable than an arbitrary machine on the net.

[ … ] Not shown: MSN, consumer titles, broadband and electronic commerce.

We enter this new era with some considerable strengths. Among them are our people and the broad acceptance of Windows and Office.

[ … ] Not shown: Groups and technologies Microsoft can build on.

There will be a lot of uncertainty as we first embrace the Internet and then extend it.⁹ (Editorial note 9)Editorial · 9Known at the timeThe order matters. First adopt the open standards so Microsoft is not left out, then add its own extensions so customers have a reason to prefer its products. Elsewhere the memo spells this out for the browser: exploit “our unique extensions so there is another reason to use our browser”.SourceUS Department of JusticeGovernment Exhibit 20, United States v. Microsoft26 May 1995 Since the Internet is changing so rapidly we will have to revise our strategies from time to time and have better inter-group communication than ever before.

[ … ] Not shown: How Microsoft will reach customers online.

The next few years are going to be very exciting as we tackle these challenges and opportunities. The Internet is a tidal wave. It changes the rules.¹⁰ (Fact note 10)Fact · 10With hindsightFour years later the trial court used similar terms. It found that “the exponential growth of the Internet represents an inflection point”, and that, with middleware, it “could oust the PC operating system” as the main platform for applications.SourceUS Department of JusticeU.S. V. Microsoft: Court's Findings Of Fact5 Nov 1999 It is an incredible opportunity as well as incredible challenge. I am looking forward to your input on how we can improve our strategy to continue our track record of incredible success.