Acquired: Microsoft
Authors: Ben Gilbert, David Rosenthal, Ben Gilbert, David Rosenthal
Overview
In Acquired: Microsoft, we trace the evolution of Microsoft from its humble beginnings as a software company to its current status as a tech behemoth. This two-part series caters to anyone interested in business history, technology, and the evolution of the software industry, particularly those seeking to understand how dominant companies adapt (or fail to adapt) to changing technological landscapes. Our narrative challenges the conventional wisdom that Microsoft experienced a period of decline followed by a resurgence under Satya Nadella. We argue instead that Microsoft’s “lost years” were a period of transformation, where they laid the groundwork for their future dominance in cloud computing and enterprise software, even as they stumbled in the consumer market. The book covers crucial moments like the IBM partnership, the rise of Windows, the antitrust trial, and the development of Azure, offering unique insights from interviews with key figures like Bill Gates, Steve Ballmer, and early Microsoft employees. By examining Microsoft’s strategic decisions, both successful and unsuccessful, we provide valuable lessons for entrepreneurs, investors, and anyone navigating the dynamic world of technology. We highlight the crucial role of partnerships, the importance of adapting to changing market dynamics, and the power of long-term vision. The series connects Microsoft’s history to current issues in Big Tech, such as antitrust regulation and the ongoing shift to cloud computing and AI, offering valuable historical context for understanding today’s tech landscape. This deep dive into Microsoft’s story provides a framework for analyzing the evolution of technology companies and offers enduring lessons for navigating disruption and building lasting businesses.
Book Outline
1. The Lakeside Programmers Group
Microsoft’s origin story begins with Bill Gates and Paul Allen’s early exposure to computing. Their time at Lakeside School, programming on a PDP-10, ignited their passion and entrepreneurial spirit. This era highlights the importance of early access to technology and the power of mentorship.
Key concept: Bill Gates was really smart, he was really competitive, and he wanted to show you how smart he was. And he was really, really persistent.
2. The Altair and the Birth of Microsoft
The development of the Altair 8800 and Microsoft’s BASIC interpreter marked the start of the personal computer revolution. Despite early challenges with software piracy, Microsoft’s strategy of licensing BASIC to multiple manufacturers laid the groundwork for their future dominance.
Key concept: Computer on every desk was wackadoo stuff. People laughed at it.
3. The IBM Partnership
The partnership between IBM and Microsoft for the IBM PC was a pivotal moment. Microsoft’s strategic decision to retain the rights to license DOS to other manufacturers proved to be a game-changer, enabling them to become the dominant operating system provider.
Key concept: The IBM deal…was the greatest deal in at least computer industry history, if not all business history, full stop.
4. The Macintosh and Microsoft Office
The rise of the Macintosh and the graphical user interface presented a new opportunity for Microsoft. The development of Excel for the Mac and the introduction of Microsoft Office marked Microsoft’s entry into the applications market and their strategic focus on the GUI.
Key concept: The first version of Microsoft Excel was for the Mac.
5. Windows and the OS/2 Wars
The development of Windows and the subsequent battles with IBM’s OS/2 highlighted Microsoft’s commitment to their own platform. Windows 3.0’s success solidified their position in the market, leading to their dominance in the PC era.
Key concept: Our strategy is Windows.
6. Windows 95 and the Internet Tidal Wave
The launch of Windows 95 was a cultural phenomenon, marking the beginning of the consumer PC era. The integration of Internet Explorer into Windows and the subsequent browser wars with Netscape underscored the importance of the internet and Microsoft’s determination to control the platform.
Key concept: Windows 95 cemented Windows as the franchise product for Microsoft.
7. The Antitrust Trial
The 1998 antitrust trial and the subsequent settlement marked a turning point for Microsoft. The trial’s impact on the company’s culture and the transition to Steve Ballmer’s leadership set the stage for their future in the enterprise market.
Key concept: It’s time to make peace.
8. The Enterprise Juggernaut and the Rise of Azure
Microsoft’s efforts in the enterprise market, including the development of server products and the introduction of the enterprise agreement, solidified their position as a dominant force in business technology. The rise of Azure and the cloud marked a new era for the company, setting the stage for their resurgence.
Key concept: The profit pools in mobile are changing.
9. Challenges in the Consumer Market and the Transition to Satya Nadella
Microsoft’s struggles in the consumer market, including the Vista debacle, the Zune failure, and the challenges in mobile, highlighted the limitations of their Windows-centric approach. The transition to Satya Nadella’s leadership and the focus on cloud and mobile marked a new chapter for the company.
Key concept: We have shifted from a devices and services company to a cloud-first, mobile-first company.
Essential Questions
1. How did Microsoft capitalize on the early days of the personal computer revolution?
Microsoft’s initial success stemmed from recognizing and capitalizing on the exponential growth potential of microprocessors. Bill Gates and Paul Allen’s early access to computing at Lakeside School and their work on the Altair 8800 positioned them perfectly to ride the wave of the personal computer revolution. They understood Moore’s Law, recognized the importance of software, and strategically licensed their BASIC interpreter to multiple manufacturers, establishing a crucial foothold in the burgeoning market.
2. Why was the IBM PC deal so crucial for Microsoft’s future?
The IBM partnership, while seemingly a standard OEM deal, became a pivotal moment due to Microsoft’s shrewd negotiation. By retaining the rights to license DOS to other manufacturers, Microsoft transformed a seemingly modest deal into a cornerstone of their dominance. While IBM focused on hardware, Microsoft foresaw the potential of the software ecosystem, a vision that allowed them to control the operating system layer as the PC market exploded with IBM-compatible clones.
3. How did the antitrust trial impact Microsoft’s trajectory?
The antitrust trial, while a turbulent period, inadvertently shaped Microsoft’s future direction. The legal battles and scrutiny forced the company to focus on the enterprise market, where they built a formidable business around server products and the enterprise agreement. The experience also instilled a cautiousness that, while perhaps stifling some consumer innovation, ultimately helped the company weather subsequent technological shifts.
4. How did Microsoft transition from a software company to a cloud-first company?
Despite early missteps and a Windows-centric approach, Microsoft eventually recognized the transformative potential of cloud computing. The development of Azure, championed by Ray Ozzie and Steve Ballmer, demonstrated a willingness to disrupt their own business model and embrace a new paradigm. This foresight, combined with their existing enterprise relationships and technical expertise, laid the foundation for Microsoft’s current leadership in the cloud market.
1. How did Microsoft capitalize on the early days of the personal computer revolution?
Microsoft’s initial success stemmed from recognizing and capitalizing on the exponential growth potential of microprocessors. Bill Gates and Paul Allen’s early access to computing at Lakeside School and their work on the Altair 8800 positioned them perfectly to ride the wave of the personal computer revolution. They understood Moore’s Law, recognized the importance of software, and strategically licensed their BASIC interpreter to multiple manufacturers, establishing a crucial foothold in the burgeoning market.
2. Why was the IBM PC deal so crucial for Microsoft’s future?
The IBM partnership, while seemingly a standard OEM deal, became a pivotal moment due to Microsoft’s shrewd negotiation. By retaining the rights to license DOS to other manufacturers, Microsoft transformed a seemingly modest deal into a cornerstone of their dominance. While IBM focused on hardware, Microsoft foresaw the potential of the software ecosystem, a vision that allowed them to control the operating system layer as the PC market exploded with IBM-compatible clones.
3. How did the antitrust trial impact Microsoft’s trajectory?
The antitrust trial, while a turbulent period, inadvertently shaped Microsoft’s future direction. The legal battles and scrutiny forced the company to focus on the enterprise market, where they built a formidable business around server products and the enterprise agreement. The experience also instilled a cautiousness that, while perhaps stifling some consumer innovation, ultimately helped the company weather subsequent technological shifts.
4. How did Microsoft transition from a software company to a cloud-first company?
Despite early missteps and a Windows-centric approach, Microsoft eventually recognized the transformative potential of cloud computing. The development of Azure, championed by Ray Ozzie and Steve Ballmer, demonstrated a willingness to disrupt their own business model and embrace a new paradigm. This foresight, combined with their existing enterprise relationships and technical expertise, laid the foundation for Microsoft’s current leadership in the cloud market.
Key Takeaways
1. Recognize where the value lies in a changing market.
Microsoft’s success with the IBM PC deal wasn’t just luck; it was a calculated bet on the future of software. By recognizing that the value would shift from hardware to software, they secured a position that enabled them to control the operating system layer and profit from the rise of the PC clones. This highlights the importance of long-term strategic thinking and a willingness to embrace new paradigms, even if they challenge existing business models.
Practical Application:
When building a new product or platform, prioritize understanding the underlying market dynamics and potential disruptions. Don’t be afraid to challenge established norms and consider alternative business models that align with emerging technologies and user behaviors, even if they disrupt your existing business.
2. Hedge your bets in uncertain times.
Microsoft’s willingness to explore various avenues, from the Mac to Windows, demonstrates the power of hedging bets in uncertain times. While OS/2 ultimately lost to Windows, the company’s diverse explorations allowed them to quickly pivot and maintain their leadership position as the market shifted towards graphical user interfaces.
Practical Application:
In rapidly evolving technological landscapes, hedge your bets by investing in multiple promising directions. While focus is important, maintaining a portfolio of explorations allows you to adapt to unexpected market shifts and capitalize on emerging trends.
3. Focus on internal culture during crises.
During the antitrust trial, Steve Ballmer’s leadership proved crucial in maintaining employee morale and holding the company together. While the legal battles raged, his focus on internal culture and motivation helped Microsoft weather the storm and emerge stronger, demonstrating the importance of strong leadership during times of crisis.
Practical Application:
When facing external threats or crises, focus on building a unified internal culture and narrative. A strong internal culture can help weather external storms and maintain momentum even during challenging times.
1. Recognize where the value lies in a changing market.
Microsoft’s success with the IBM PC deal wasn’t just luck; it was a calculated bet on the future of software. By recognizing that the value would shift from hardware to software, they secured a position that enabled them to control the operating system layer and profit from the rise of the PC clones. This highlights the importance of long-term strategic thinking and a willingness to embrace new paradigms, even if they challenge existing business models.
Practical Application:
When building a new product or platform, prioritize understanding the underlying market dynamics and potential disruptions. Don’t be afraid to challenge established norms and consider alternative business models that align with emerging technologies and user behaviors, even if they disrupt your existing business.
2. Hedge your bets in uncertain times.
Microsoft’s willingness to explore various avenues, from the Mac to Windows, demonstrates the power of hedging bets in uncertain times. While OS/2 ultimately lost to Windows, the company’s diverse explorations allowed them to quickly pivot and maintain their leadership position as the market shifted towards graphical user interfaces.
Practical Application:
In rapidly evolving technological landscapes, hedge your bets by investing in multiple promising directions. While focus is important, maintaining a portfolio of explorations allows you to adapt to unexpected market shifts and capitalize on emerging trends.
3. Focus on internal culture during crises.
During the antitrust trial, Steve Ballmer’s leadership proved crucial in maintaining employee morale and holding the company together. While the legal battles raged, his focus on internal culture and motivation helped Microsoft weather the storm and emerge stronger, demonstrating the importance of strong leadership during times of crisis.
Practical Application:
When facing external threats or crises, focus on building a unified internal culture and narrative. A strong internal culture can help weather external storms and maintain momentum even during challenging times.
Memorable Quotes
Part 1. 0
You could tell three things about Bill Gates pretty quickly. He was really smart, he was really competitive, and he wanted to show you how smart he was. And he was really, really persistent.
Part 1. 0
Computer on every desk was wackadoo stuff. People laughed at it.
Part 1. 0
The IBM deal…was the greatest deal in at least computer industry history, if not all business history, full stop.
Part 2. 0
It’s time to make peace.
Part 2. 0
The profit pools in mobile are changing.
Part 1. 0
You could tell three things about Bill Gates pretty quickly. He was really smart, he was really competitive, and he wanted to show you how smart he was. And he was really, really persistent.
Part 1. 0
Computer on every desk was wackadoo stuff. People laughed at it.
Part 1. 0
The IBM deal…was the greatest deal in at least computer industry history, if not all business history, full stop.
Part 2. 0
It’s time to make peace.
Part 2. 0
The profit pools in mobile are changing.
Comparative Analysis
Acquired: Microsoft distinguishes itself from other narratives about the company by challenging the “rise, fall, and resurgence” narrative. While books like “Hard Drive” by James Wallace and Jim Erickson focus on the personalities and internal conflicts, Acquired emphasizes the strategic decisions and business model evolution, providing a more nuanced perspective on Microsoft’s trajectory. Unlike broader histories of the tech industry, such as “The Innovators” by Walter Isaacson, Acquired offers a deep dive into the specific context of Microsoft’s decisions, highlighting the interplay between technology trends, competitive dynamics, and internal culture. Acquired also emphasizes the importance of legal and regulatory context, offering a more detailed analysis of the antitrust trial than other accounts. The series’ unique contribution lies in its integration of these diverse perspectives, supported by original interviews and archival research, to offer a richer understanding of Microsoft’s journey.
Reflection
Acquired: Microsoft offers a valuable perspective on the evolution of technology companies. While the narrative emphasizes Microsoft’s successes, it also acknowledges their missteps, providing a balanced view of their journey. A skeptical angle might question whether Microsoft’s dominance was solely due to their strategic brilliance or if factors like luck and timing played a larger role. The authors acknowledge these factors but emphasize Microsoft’s ability to adapt and capitalize on opportunities. The book’s strength lies in its detailed analysis of key decisions and its use of original interviews to provide insider perspectives. A weakness is the occasional reliance on unsourced information, particularly in the first episode. Overall, Acquired: Microsoft provides a compelling and insightful narrative of a company that has shaped the modern technology landscape, offering valuable lessons for navigating disruption and building enduring businesses.
Flashcards
What two “freak laws of nature” contributed to Microsoft’s early success?
Moore’s Law, zero marginal cost of software.
What was the purpose of Traf-O-Data?
To reduce traffic congestion by analyzing car counts at intersections.
What was the user interface of the Altair 8800?
16 lights and 16 switches.
How much did Microsoft pay for the rights to QDOS?
$75,000.
What were the three machines of the “1977 Trinity”?
Tandy/RadioShack TRS-80, Commodore PET, Apple II.
What was the first graphical spreadsheet program?
Excel.
What spreadsheet program initially outcompeted Microsoft’s Multiplan?
Lotus 1-2-3.
What did Marc Andreessen famously say Netscape would reduce Windows to?
To be a poorly debugged set of device drivers.
Who did Steve Ballmer promote to General Counsel to handle the antitrust issues?
Brad Smith, with the message “It’s time to make peace.”
What two “freak laws of nature” contributed to Microsoft’s early success?
Moore’s Law, zero marginal cost of software.
What was the purpose of Traf-O-Data?
To reduce traffic congestion by analyzing car counts at intersections.
What was the user interface of the Altair 8800?
16 lights and 16 switches.
How much did Microsoft pay for the rights to QDOS?
$75,000.
What were the three machines of the “1977 Trinity”?
Tandy/RadioShack TRS-80, Commodore PET, Apple II.
What was the first graphical spreadsheet program?
Excel.
What spreadsheet program initially outcompeted Microsoft’s Multiplan?
Lotus 1-2-3.
What did Marc Andreessen famously say Netscape would reduce Windows to?
To be a poorly debugged set of device drivers.
Who did Steve Ballmer promote to General Counsel to handle the antitrust issues?
Brad Smith, with the message “It’s time to make peace.”