Programming Windows: Internet Strategy Workshop (Premium)

Bill Gates had finally gotten the message: The Internet wasn’t just important; it was the future of Microsoft. To rally the troops, he penned an epic memo, The Internet Tidal Wave, which would forever change the software giant’s focus and strategy. The changes would be vast, and they would occur at every level, and within every product that the company produced. As such, it would have a dramatic impact on both the software that Microsoft made and on the software development tools that it provided to outside programmers. The world would never be the same.

It would also not change overnight. First, Microsoft needed to launch Windows 95, a product that would come to represent both the apex of the software giant’s popularity and the end of an era, the beginning of the slow slide to follow. We’ll examine Windows 95 and its successors separately. For now, let’s look at how Microsoft shifted to make real Bill Gates’ new strategy. And how the firm announced the changes it was implementing to the world later that year.

To the outside world, nothing had changed: Windows 95 was barreling towards an August launch, and Microsoft appeared to be hedging its bets by releasing its own web browser, called Internet Explorer and a proprietary online service called the Microsoft Network (MSN). Windows 95 would also launch alongside a major new version of Microsoft’s office productivity suite, called Office 95, that had a more modern user interface and worked natively in Windows 95’s 32-bit operating environment. There was also an add-on package of utilities called Plus! 95, whose contents had been created too late to include in the OS.

Delivering Windows 95 was a monumental enough challenge, and there was certainly a lot of hype around its pending launch. Indeed, Microsoft spent $12 million just licensing the Rolling Stones song Start Me Up because the Start button and menu were major new additions to the Windows 95 user interface. But behind the scenes, the firm was also examining how it could move quickly past this release and embrace Internet technologies everywhere.

In November, Microsoft returned to the negotiating table with Spyglass, the firm that it had earlier worked with to license the Mosaic code for its Internet Explorer web browser. That original deal was only for Windows 95 and NT, and Gates belatedly agreed with James Allard and others that Microsoft needed to make versions for Windows 3.1—which was the most popular OS in the world, with over 100 million users—and the Mac as well.

Spyglass had been hoodwinked into a flat fee in the original deal. But this time around, Microsoft was forced to pay a licensing fee for each copy of IE sold for the new platforms. That said, Microsoft demanded that Spyglass was likewise prevented from revealing the $1 fee per copy; Microsoft didn’t want it getting out that it had ever agreed to licensing fees.

As pressing, Microsoft needed to license Java, the Sun Microsystems programming language and runtime environment that Netscape had previously licensed and was adding to its Navigator browser. The talks dragged on and were running up against an early December date that Microsoft had already revealed for a big announcement about its new Internet strategy.

“They wanted the deal badly,” Sun CTO Eric Schmidt said of the last-minute negotiations. “We thought we could do a deal that was very favorable to us and to our shareholders, on terms that we could live with, given the timing. And Microsoft seemed happy with that.” The deal was signed very late at night on December 6, the evening before Microsoft’s big reveal.

The Internet Tidal Wave had been the most important memo of Bill Gates’ life, so it’s only appropriate that the public manifestation of the strategy dictated by that memo was the most important speech of his life. On December 7, 1995, Gates finally told the world that everything had changed.

“I was realizing this morning that December 7th is kind of a famous day,” he said to laughter, because it was absurd to suggest that this had just occurred to him. “Fifty-four years ago, or something. And I was trying to think if there were any parallels to what was going on here. And I really couldn’t come up with any. The only connection I could think of at all was that probably the most intelligent comment that was made on that day wasn’t made on Wall Street, or even by any type of that analyst; it was actually Admiral Yamamoto, who observed that he feared they had awakened a sleeping giant.”

The assembled press laughed again. But Gates was serious: Netscape, like Japan in World War II, had awakened a sleeping giant. And the result would be another unconditional surrender, or what Gates called “a second PC revolution” centered around the Internet.

At a high level, Microsoft’s goal was to “embrace and extend” the Internet, and he conveniently left off the end of that phrase as used internally: It would also “exterminate” any company, especially Netscape, that stood in its way.

More concretely, Gates said that Microsoft would make a major push to grab more market share for Internet Explorer by making it available everywhere. Not just on Windows 95 and NT, but on Windows 3.1, the Mac, and via online services: CompuServe had already signed on board, and others—like AOL and Prodigy—would follow in the coming year. That distribution, coupled with IE being included on all new PCs starting with the second version of Windows 95, would ensure a bright future for Microsoft’s new browser. (Helping matters, Microsoft would also threaten any PC maker that tried to bundle Navigator on their hardware.)

Gates also revealed that IE would be free. Not “sort of” free, like Netscape Navigator, which was free to download and test, but actually required users—especially businesses—to pay up. This triggered some murmuring from the audience, and some stunned, open-mouthed stares from Spyglass executives, who suddenly realized that their hard-fought, per-copy licensing fees were imaginary.

Microsoft would also scrap the proprietary online services infrastructure that it had created for the Microsoft Network (MSN). Instead, the service would be redesigned to work on the Internet, and it would be exposed as a standard website. (MSN would undergo many persona changes in the ensuing years, none successful.)

Microsoft would recast all of its products for the web. Office would be redesigned to create and edit webpages and other online documents, and new products would be added or acquired to fill out the suite. Microsoft’s developer technologies and products would all be adapted for the Internet as well. COM would evolve ActiveX, a way to distributed objects over the ultimate network, the Internet, and to power what Microsoft called “active” websites. The firm’s core developer tools would be recast with Internet capabilities and a new member, originally called Internet Studio, would help developers publish dynamic websites based on Microsoft server technologies, databases, and new scripting languages. Microsoft’s programming languages would help developers create and use Active X controls.

Microsoft had licensed Java, Gates said, and it would release its own version for Windows that would be a superset of Sun’s version. This was clearly in violation of the spirit of Java, if not literally of Microsoft’s Java license, as Sun was pushing the technology as a way for developers to “write once, run anywhere.” Developers who used Microsoft’s version of Java could write code that would run only on Windows.

“We will embrace all the popular internet protocols,” was the way that Gates described it. “Anything that a significant number of publishers are using and taking advantage of we will support. We will do some extensions to those things.”

Microsoft’s growing server business, which had evolved out of its workgroup efforts, would further evolve to help businesses create and maintain intranets, which were internal networks that used open, web-based technologies.

Microsoft would later acquire WebTV, a simple way for less experienced users to get online using their TV. The firm would even create its own content and would, over the ensuing years, expanding into online publications like Slate, online news organizations like MSNBC, and TV- and magazine-like online content sites such as Mungo Park. If it could happen online, Microsoft wanted to be part of it.

Internally, Microsoft had been preaching the notion that it should be a middleman between businesses online and their customers. But Microsoft chief scientist and Gates confidant Nathan Myhrvold, incredibly, also spoke publicly in 1995 about Microsoft’s desire to get obtain a “vig” for every transaction that occurred on the Internet that it could.

That such a word was both antiquated and largely unknown outside of Shakespeare fans was sort of beside the point. It was the argument that had helped Gates understand how Microsoft could make money from the Internet, a place where everything, to date, had simply been made available for free, a byproduct of its origins as a government-sponsored project and Al Gore’s High Performance Computing Act, which made it broadly available to the public.

To pay for all this, Microsoft dedicated an astonishing $1.5 billion budget for Internet-based research and development, and that number would grow to $2 billion the following year. Microsoft may have missed the Internet train, but it wasn’t going to be left behind now that it was on board. By mid-1996, its new Applications and Internet Client group had ballooned to over 2500 employees. The group alone was, The New Yorker noted, bigger than the combined employment of its seven largest competitors.

Everything was in place. Now, all Microsoft had to do was fire on all cylinders and bring all of the pieces of its strategy together like the world’s biggest puzzle. It was going to be a busy year.