Programming Windows: The Internet Tidal Wave (Premium)

Bill Gates may have missed the Internet threat. But he can’t say he wasn’t warned.

In late 1993, Rob Glaser sounded the first alarm within Microsoft, noting that Bill Gates’ desire to build a proprietary online service was akin to “building the last minicomputer.” Instead, he said, Microsoft should embrace the Internet, which he called a “paradigm shift.” Gates ignored his advice.

In January 1994, a Microsoft engineer named James Allard sounded a second alarm within the company about the Internet. In a memo titled “The Next Killer Application on the Internet” and delivered to the upper echelon of Microsoft’s leadership, Allard argued that Windows should become the “next-generation Internet tool of the future.”

“We are years behind many of our competitors on the Internet,” Allard explained. “[But] our agility and creativity will allow us to catch up quickly … We must deliver Internet-ready systems to customers in 1994. The biggest challenge in meeting this goal will be the extensive interoperability testing necessary to successfully establish Windows as an Internet-ready system … The best way to establish respect in the Internet community is to become more active in it … Weaving the Internet into our networking marketing messages will establish a more visible presence and get us up on the Internet ‘wave’.”

Allard called for a three-pronged attack on the Internet. After establishing base Internet connectivity capabilities in both Windows 4.0/95 (“Chicago”) and Windows NT 3.5 (“Daytona”), Microsoft should, among other things, move Marvel (what would become the Microsoft Network) to the Internet and then evolve Windows to the point where it becomes “the next killer application for the Internet” (emphasis Allard’s).

What’s interesting is that Allard wasn’t pushing for a Microsoft web browser, though the memo explained to the company’s executives how Mosaic had turned the Internet into a friendlier place for end-users. Instead, he wanted to see Microsoft replace Internet DNS with the directory services infrastructure that was planned for Cairo, with information browsed using “Explorer,” the same user interface that Microsoft planned to use for Marvel. Basically, he saw Microsoft moving the Internet from being based on Unix to being based on Windows.

While most of the recipients of the Allard memo were top-level Microsoft executives—Paul Maritz, Jim Allchin, Brad Silverberg, Dave Cutler, and so on—one, Steven Sinofsky, was not. Sinofsky was instead Bill Gates’ technical assistant, and he was CC’d on the memo instead of Gates.

He needed no convincing. Indeed, Sinofsky had already tried to inspire Gates to embrace the Internet and the web in late 1993, thanks to Glaser’s warning, to little avail. But in a well-timed coincidence, Sinofsky visited Cornell, his alma mater, in February 1994, saw how students were using the Internet, and wrote a new memo of his own. “Cornell is WIRED!” he wrote (emphasis Sinofsky’s). I’ve not found a transcript of this particular memo—I assume it was overly long, given the author—but it brought Allard and Sinofsky together. (Glaser had left Microsoft to found ProgressiveNetworks, which later became RealNetworks.) And the two teamed up for an April 1994 attempt at convincing Microsoft and its senior leadership, during a Microsoft management retreat, to finally address the Internet.

Sinofsky came loaded for bear: He prepared a 300-page catalog of Internet destinations to show the scope of how the web had quickly exploded. (300 pages? Now that’s the Sinofsky I know!) For his part, Allard again evangelized the roles that Microsoft could play on the Internet, but this time he limited it to Windows 4.0, which would ship 18 months later as Windows 95.

But this in-person overture had little impact on Bill Gates. Two weeks later, he penned yet another memo summarizing what he had heard. “We want to, and will, invest resource to be a leader [in] Internet support,” he wrote blandly, “fully understanding that if we are wrong about this it will have been a mistake.”

Not exactly a shining endorsement.

Fortunately, there was at least one person at Microsoft who thought that the software giant needed a web browser of its own. Engineer Ben Slivka had begun cataloging key Mosaic features as early as August 1994, convinced that Microsoft would need to launch its own competing product. But when the firm started looking around for a browser to buy and turn into a Microsoft product, they were collectively shocked when America Online (AOL) acquired browser maker BookLink for $30 million that November.

“$30 million?” Microsoft’s Brad Silverberg asked. “That woke us up. We had to be a lot more aggressive, a lot more lively. Time was ticking faster in this new world.”

Silverberg was right: The software world, suddenly, was moving on Netscape Time, where release schedules would be measured in weeks, not years. And products released on the web could command millions of new users within just days.

So, the firm turned to Plan B: Acquire Netscape, which had just released a beta version of its own web browser, called Navigator. Microsoft offered $100 million for the entire company, but it was rebuffed. The software giant found this confusing. Not helping matters, Netscape was being described in the press as the next Microsoft. And Netscape cofounder Marc Andreessen, then all of 23 years old, was being described as the next Bill Gates.

Suddenly, Netscape’s refusal to even entertain an acquisition started to make sense. And as beta and then release versions of the new browser routinely attained several million downloads each, the danger started to become very real.

Microsoft needed a web browser.

And there was only one remaining choice if it was to get a browser released concurrently with Windows 95: A company called Spyglass had been chosen by NCSA in May 1994 to be the commercial licensee for Mosaic, and it created its own browsers on Windows, Unix, and Mac. So, Microsoft licensed the Windows version of the browser from Spyglass, and named the resulting product Internet Explorer, so named because the Windows 95 shell was called Windows Explorer. Where Windows Explorer was the interface for Windows, IE would be the interface for the Internet.

(Fun aside: The codename for IE 1.0 was “O’Hare.” O’Hare is the biggest airport in Chicago, which was the codename for Windows 4.0/95. “O’Hare is a point of departure to distant places from Chicago,” Microsoft noted of the codename.)

Microsoft struck what seemed like a great deal for Spyglass: It would pay the firm $2 million upfront, would cover the cost of the Mosaic licensing fee, and, most lucratively, would pay Spyglass a separate royalty for each copy of Internet Explorer that it sold. Internally, however, Microsoft was already planning to screw over Spyglass: Instead of selling IE, it would bundle it with Windows, and give it to users for free. Because IE 1.0 would not arrive in time to ship in-box with Windows 95, however, the first version would be made available as a free download and would be included in the Plus! pack for Windows 95.

(Not-so-fun aside: Microsoft’s betrayal of Spyglass would result in the threat of a lawsuit, which Microsoft settled for $8 million, and it would play a role in its U.S. antitrust trial. Spyglass said it lost $20 million in licensing revenues that year because of Microsoft’s free IE bundling.)

Slivka played a major role in Microsoft’s first, small IE team, which was led by Mr. Silverberg. They would follow the Netscape model, and deliver a quick and dirty first version of the product and quickly improve it over time. “We needed to get something into the market quickly as a placeholder,” Silverberg later explained. But Microsoft’s browser was, well, just a browser. The firm was still afraid of harming its Windows cash cow: IE would just be part of Windows, not a standalone platform in its own right.

But in early 1995, Netscape went public with its plans to create a web-based platform for applications. Feeling a bit too full of his own press, Andreessen inadvisably raised Gates’ ire by stating that Netscape Navigator would reduce Windows’ role on the PC to that of “a set of slight buggy device drivers.” Netscape CEO Jim Barksdale later testified in Microsoft’s antitrust trial the comments were the result of Andreessen’s youth and were made in a “spirit of jocularity and sarcasm” that had gotten the firm in trouble as a result. Perhaps. But they also reflected Netscape’s literal plan.

So, in May 1995, Slivka penned another memo, called “The Web is the Next Platform,” finally spelling out how a simple application like a web browser could kill Windows, the most successful software platform on earth, and how Microsoft might work to undo prevent that from happening.

“The web is an application platform that threatens Windows,” he explained. “Many corporate developers and ISVs could develop and deliver their solutions more quickly, to a wider audience, with the Web than they can with Windows or MSN as it exists today. If Microsoft is to influence the web, we must have broad, standards-based Web support in our products … Once we have market and mind share on the web with our products, we can take a leadership role in expanding and shaping the web.”

The strategy, publicly called “embrace and extend,” was internally described as “embrace, extend, and extinguish” or “embrace, extend, and exterminate,” depending on the speaker. Either way, the strategy was sound: Windows NT should evolve into the premier web server platform, Windows should evolve into the best web client program, and Office should evolve into the best web authoring tool(s). Microsoft had too many different authoring/publishing tools, he argued, and too little of the firm’s online work was web-based. Most crucially, he said, Internet Explorer should be evolved to push Microsoft technologies—COM/OLE, Visual Basic, Access, and more—to the web. He even proposed a “web shell” for Windows that the firm eventually (if briefly) used in Windows 98, complete with one-click hyperlinks.

Slivka’s memo is incredibly prescient and it is rather amazing to see that Microsoft literally implemented most of his recommendations in the coming years.

Perhaps it’s not that amazing: Slivka, finally, had convinced Bill Gates.

And that was all it took. On May 26, 1995, Gates penned perhaps the most infamous memo in Microsoft history, “The Internet Tidal Wave.” In it, he slammed the brakes on Microsoft’s strategy to date and directed all of its employees to embrace the Internet in everything they did going forward.

“A new competitor ‘born’ on the Internet is Netscape,” Gates wrote. “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. 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 [anyone] who are considering their products.”

Gates’ description of the Internet of 1995 is interesting. He writes that the Internet was unique because of the commodity nature of its communications lines, and that it was the new place to publish content. He describes the issues with the slow connectivity speeds of the day and looks ahead to 128 Kbps ISDN lines and then cable modems.

“Amazingly it is easier to find information on the web than it is to find information on the Microsoft Corporate Network,” he wrote. “This inversion where a public network solves a problem better than a private network is quite stunning.” That inversion, he argued, had an upside: It was an opportunity for Microsoft in the corporate market to use Office and Windows to “superset” the web.

“Browsing the web, you find almost no Microsoft file formats,” he continues. “After 10 hours of browsing, I had not seen a single Word .DOC, AVI file, Windows .EXE (other than content viewers), or other Microsoft file format. I did see a great number of [Apple] QuickTime files … Another popular file format on the Internet is PDF, the short name for Adobe Acrobat files. Even the IRS offers tax forms in PDF format. The limitations of HTML make it impossible to create forms or other documents with rich layout and PDF has become the standard alternative. For now, Acrobat files are really only useful if you print them out, but Adobe is investing heavily in this technology and we may see this change soon.”

But the big takeaway for Gates was that the web browser could usurp Microsoft’s and Windows’ control of the industry.

“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,” he continued, discussing a machine that would today be described as a Chromebook. “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.”

Gates suggested—OK, demanded—action across Microsoft’s product lines. But his ideas about evolving Windows are particularly interesting.

“First, we need to offer a decent client (O’Hare) that exploits Windows 95 shortcuts,” he writes. “However, this alone won’t get people to switch away from Netscape. We need to figure out how to integrate Blackbird, and help browsing into our Internet client. We have made the decision to provide Blackbird capabilities openly rather than tie them to MSN. However, the process of getting the size, speed, and integration good enough for the market needs works and coordination. We need to figure out additional features that will allows us to get ahead with 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 [PC makers] shipping our browser preinstalled. This follows directly from the plan to integrate the MSN and Internet clients. Another place for integration is to eliminate today’s Help and replace it with the format our browser accepts including exploiting our unique extensions so there is another reason to use our browser. We need to determine how many browsers we promote. Today we have O’Hare, Blackbird, SPAM MediaView, Word, PowerPoint, Symettry, Help and many others. Without unification we will lose to Netscape/HotJava.”

Gates was already looking ahead to future versions of IE that would “converge and support hierarchical/list/query viewing as well as document with links viewing,” an offering originally planned for IE 3.0 but later scrapped. “We need to establish OLE protocols as the way rich documents are shared on the Internet,” he noted. He wanted to allow Windows clients to share files and printers over the Internet and provide an easy way for developers to create web-based forms (which would later come via an acquisition of Vermeer for its FrontPage product; this would also replace Blackbird).

Ultimately, Gates was troubled by how behind Microsoft was, but he also saw the advantage of its dominance and how its products could evolve to embrace and extend the Internet.

“I believe the work that has been done in Consumer, Cairo, Advanced Technology, MSN, and Research position us very well to lead,” his conclusion begins. “Our opportunity to take advantage of these investments is coming faster than I would have predicted. The electronic world requires all of the directory, security, linguistic and other technologies we have worked on. It requires us to do even more in these areas than we planning to. There will be a lot of uncertainty as we first embrace the Internet and then extend it. 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.”

“Our products will not be the only things changing,” he continued. “The way we distribute information and software as well as the way we communicate with and support customers will be changing … The next few years are going to be very exciting as we tackle these challenges are opportunities. The Internet is a tidal wave. It changes the rules. It is an incredible opportunity as well as an incredible challenge. I am looking forward to your input on how we can improve our strategy to continue our track record of incredible success.”

Of course, it would take Microsoft’s product teams some months to make the details of this strategy shift come together, and the firm needed to ship Windows 95 first. Then, it could publicly inform the world about its new Internet strategy.

It would do so at an event timed, non-ironically, to the anniversary of Japan’s sneak attack on Pearl Harbor during World War II.