Programming Windows: Fallout (Premium)

At a regularly scheduled quarterly meeting with Microsoft’s board of directors in early 1998, the board witnessed something they had never seen before. Co-founder and CEO Bill Gates was unraveling before their eyes. “I can’t do this anymore,” he said quietly as he put his head into his hands.

And then he began crying.

By that time, U.S. v. Microsoft was well underway in Washington D.C. and Gates and Microsoft had been hammered by the prosecution witnesses, ample Microsoft email evidence, and Gates’ own depressing and painful taped deposition, key moments of which were played in court, again and again, to hammered home points made by the witnesses. Gates had been painted a destroyer running roughshod over the industry he helped create.

Gates expected his firm’s witnesses, which included key Microsoft executives, to turn the tide. But they only made matters worse, as one by one, their own words in email messages were used against them, proving that they were lying, didn’t remember the recent past correctly, or were simply clueless. The net effect was that Microsoft’s once-stellar image was shattered, and that Gates’ mythological business acumen was laid bare as a lie. By the time the trial ended in 1999, it was clear that Microsoft had been beaten not by the DOJ and its competitors but rather by its own behavior.

As this painful truth emerged, an employee exodus started. Key Microsoft executives, especially those closest to Gates, started leaving the company, the first time the software giant had ever endured such losses.

Chief Technology Officer Nathan Myhrvold was among the first to go: Microsoft’s version of Grima Wormtongue announced a leave of absence on June 1, 1999. He had had Gates’ ear ever since Microsoft purchased his company Dynamical Systems Research in 1986. And this cackling genius madman had lead Microsoft and Gates down innumerable paths, a few hugely successful, most not so much.

Perhaps most infamously, Myhrvold had once publicly bragged that Microsoft would grab a mobster-like “vig” on every transaction made online. But before that, he was Gate’s coauthor on the clueless book The Road Ahead, which barely mentioned the Internet at a time when Netscape, Java, and the World Wide Web were all the rage. The future, Myhrvold had convinced Gates, incorrectly, was interactive TV.

Chief Financial Officer Greg Maffei, another key Gates lieutenant, announced that he was leaving Microsoft in December 1999 to become the chief executive of a Canadian telecommunications company. Maffei had previously engaged in a controversial accounting practice in which Microsoft would even out its quarterly revenues by holding huge chunks of revenues in a new category called “unearned revenues” that would essentially be cashed in when future revenues dipped.

The practice hid the fact that Microsoft’s stratospheric year-over-year earnings gains of the 1990s had fallen through the floor in recen...

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