From Startup to Exit
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From Startup to Exit
Microsoft@50: The Windows Battle, with SVP for Microsoft's Desktop & Server Software, Paul Maritz
In this first installment of the Microsoft@50 series, we interview Paul Maritz who was the third most senior executive at Microsoft.
From 1986 to 2000, he worked at Microsoft and was on its executive committee. He became executive vice president of the Platforms Strategy and Developer Group and part of the 5-person executive management team. He was often said to be the third-ranking executive, behind Bill Gates and Steve Ballmer. He was responsible for essentially all of Microsoft's desktop and server software, including such major initiatives as the development of Windows 95, Windows NT, and Internet Explorer.
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Hosts: Shirish Nadkarni and Gowri Shankar
Producers: Minee Verma and Eesha Jain
YouTube Channel: https://www.youtube.com/@fromstartuptoexitpodcast
We're seeing uh seeing another technological capability now that is going to introduce new entrants into the space, whether it be another US company or the Chinese, I I don't know. If I was at Microsoft, I would not be rest this is not a time to rest on your laurels. And there's nothing history teaches us, there's nothing that says that Microsoft also necessity has to be the force that it is in 15 years' time. In fact, if anything, history teaches us that eventually the center of tectonics plays shift, and it's someone else who's on a different business model, different value proposition that gains traction.
SPEAKER_00:Welcome to the Startup to Exit Podcast, where we'll bring you world-class entrepreneurs and VCs to show their hard-earned success stories and speakers. This podcast has been brought to you by TypeScope. Hi is not a good thing.
SPEAKER_02:We both serve on the board of Thai Seattle, which produces this podcast. First of all, we both want to thank you for all the support that you've given us over the last year, where we have brought this podcast to all of you. And I hope all of you have enjoyed all the content that we are bringing from our guests. We are launching a very special series. We are launching a series that is very close to both our hearts because we are both Seattleites. Microsoft just turned 50. And as a tribute to the company and the impact it's had on the world and our city, we are going to talk to some of the very early executives who shaped and grew the Microsoft brand to what it is today. I hope all of you enjoy it. We will be talking to many of them. And over the time, you will learn a lot of things about the early years of Microsoft. Thank you all and hope you enjoy it.
SPEAKER_01:Hi everyone. Paul was one of the senior most executives at Microsoft from 1986 to 2000. Paul became the executive vice president of the platform strategy group and developer group and was part of the five-person executive management team. He was often said to be the third-ranking executive behind Bill Gates and Steve Bumber, along with Mike Maples. He was responsible for essentially all of Microsoft's desktop and server software, including major initiatives such as the development of Windows 95, Windows NT, and the Internet Explorer. So welcome, Paul. Glad to have you here.
SPEAKER_03:Good to be with you today.
SPEAKER_01:Thank you. So, Paul, I understand you grew up in Rhodesia, now known as Zimbabwe, and went to school in South Africa after that. What was it like growing up in the apartheid era?
SPEAKER_03:You know, it was uh in one level a very normal existence, another level a very strange existence. Uh you know, white people lived uh cheek by jowl with black people, but uh at the same time uh there was a great divide between the two. Uh and uh over time, you know, that became more and more uh visible and obvious. Uh and uh, you know, I think a lot of people believed that eventually it was going to be unsustainable, and a lot a lot of people feared that it would probably end in a in a very violent uh situation, which in some cases, like in the Bush war in Rhodesia, it did. Uh, but in South Africa, fortunately, th thanks to remarkable leadership uh on both sides of the divide, uh that was avoided. So even though people tend to kind of see South Africa as having a lot of problems today compared to what it could have been, uh, you know, uh it's obviously in a much better situation. Um so it did you know it uh it it certainly did impress upon me uh you know the realization that luck plays a lot of a big factor in life, that the fact that I was born uh in uh one side of the divide and not the other side of the divide obviously had a huge impact on my subsequent life. And uh, you know, I think uh over the years in the various roles I had, people finally got sick of me saying to uh everyone and saying, you know, that uh we should be very humble and thankful because for every one of us sitting in this room, there are probably hundreds or even thousands of people who are smarter than us, worked harder than us, but just for the you know, fortune we're here and they're not. So uh I think all of us who were at Microsoft during the incredible journey from you know the mid-80s through to today, that matter, uh uh have to realize that you know we were given the privilege to be part of something that occurs, you know, only a few times in history. So uh we should all be very cognizant of that.
SPEAKER_01:Very well said. So um you went to uh South Africa with your family uh for schooling, uh, and then uh you uh worked in the UK uh for some number of years and then ultimately ended up in the US. Uh what made you decide to come to the US for work?
SPEAKER_03:Well, I I had left South Africa partly because of this fear about what the future held, and and partly because I wanted to work in the computer industry. Uh I was one of the first graduates of computer science uh in Southern Africa and and and in the world. I I graduated in 1977. Uh, you know, there were the computer science was relatively new then, and but I knew I wanted to work in the computer industry as opposed to just using computers, and that meant you know, having to leave Southern Africa. So I went first to the UK uh and uh started working for a company called Burrows there. And if you can remember that name, your dating music.
SPEAKER_01:I remember that, yeah. I remember that very well.
SPEAKER_03:Uh and while I was there, um I had originally thought I'd I'd follow an academic career, so I'd gone back to university and had an offer to become a junior lecturer in Scotland. Uh, but my boss at Burroughs had moved to Intel. Uh and uh he persuaded me to come and uh join him in at in California at Intel. And I told my wife at the time, you know, we'll always have the opportunity to come back to the UK, but probably this is our only opportunity to go to the US. Uh so I went. And, you know, that again put me on a whole different path in in life. So I spent uh five years working uh uh at Intel, uh, which is very uh formative experience for me. Um uh only afterwards I realized that how good a management team Intel had it in those days in Andy Grove and uh uh Bob Noyce and Gordon Moore. Uh and they they obviously thought very deeply about what leadership and management meant. Uh and actually I brought many of those lessons to Microsoft later, some of which became somewhat uh controversial, things like ranking and rating. Renting and rating.
SPEAKER_05:Oh, I remember that, yeah. Yeah. Yeah. I love that.
SPEAKER_03:That all came from Intel um uh to Microsoft. Uh so it it turns out that that my my kind of mentor, a guy by the name of Jim Harris, who had brought me to Intel, then went to work for uh for Microsoft. Uh he was the first head of OEM sales at Microsoft. And uh I nearly joined in 1983, uh, but I had startup fever. I always wanted to do a startup, so I I declined it, uh, which I then subsequently rude because it meant I missed the initial IPO at Microsoft. Right. And in 86 I tried to do a startup on my own, and and you know, as Jim Alchin put it, uh, when you can no longer afford the milk to go with the cornflakes, you you have to be humble. So I put my tail between my legs and came back to Microsoft and uh and took a job there in the in late 1986.
SPEAKER_01:So was it uh because of uh your um uh previous manager or uh were you in key by the other thing?
SPEAKER_03:I had by then I uh as I said, I interviewed in 1983 and met Steve uh Bulmer and Bill Gates and BJ Bashi and and others. Uh so I had I had connections there. Um Jim Harris was was still at at Microsoft. Uh a lot of people don't remember him because he left fairly soon after 1986. But uh he he's he's actually the origin of the eat your own dog food story.
SPEAKER_05:Okay.
SPEAKER_03:Uh we can come back to. But uh yeah, so I I I joined uh in 1986, kind of with uh tail between my legs, and and what they did is they they said, okay, you can take over Xenix. People forget that Microsoft, before MS DOS even uh was the first commercial licensee of Unix from AT ⁇ T. In those days, AT ⁇ T was still under the consent degree with the government, and they were not allowed to go directly into the software business. So they had this asset called Unix uh that they wanted to try and market, and they marketed it on a peculiarly strange licensing scheme. Um so I was given this 12-person group at Microsoft and told to do something with this business, which like I think it was like a million and a half dollars a year. But by that stage, Microsoft had already embarked on MS-DOS and signed the joint development agreement with IBM to do OS2. So this this was always going to be a backwater, but that's what I was given. Uh so I eventually figured out a way of exploiting AT ⁇ T's licensing terms in such a way that uh they that that they wrote their licenses as perpetual licenses. There was never any expiry. So when I figured out the loophole, there was no there was no way out for them. So they eventually agreed to buy us out, in effect. Uh, and uh in return for a$15 uh per PC royalty, anytime any form of Unix was sold on a PC, this is pre-Linux days, uh, we would get$15. But yeah, that years that brought in like a million or a million and a half dollars a year to us. Uh I always felt good that whatever else had happened, I'd paid for my salary at Microsoft. That's right. But uh then, you know, but it was clearly a backwater, and and so I asked for something more ambitious. So I was given in the the networking business uh to try and compete with Novell. Remember those days is 1987-88. Right.
SPEAKER_01:I remember actually uh at that time you were the general manager for land manager, is that right?
SPEAKER_03:That's correct. So the the product we formed was land manager, which uh used OS2 on the server and uh had the SMB networking stack, etc. Uh but you know we it was a tough road hope because you know Nobel had 80% of the market. Uh and uh that that's actually the origin of uh eat your own dog food because well the phrase came from Jim Harris, who always used to lean back after their presentation and sort of say in his big booming voice to everyone assembled, yes, but will the dogs eat the dog food? You know, as the final test. Uh so uh we had because we were nowhere in the networking business, uh we uh we I I sent an email to the group saying, look, we've got no customers, we're gonna have to be our own beta test users. So Brian uh and we're gonna have to eat our own dog food, I said. So Brian Valentine set up a server called slash slash dog food. That was the first the first test server in the in the group, and uh somehow things uh caught on from there.
SPEAKER_01:Right. So uh uh you know it it took some time, but finally, you know, Microsoft crashed Novell. What do you think was behind the success eventually of uh Windows and uh Windows Server compared to Novell?
SPEAKER_03:Well it was it was Windows NT. I mean what what uh killed Novell was was uh finally uh the fact that uh Windows NT became a force on the server. And then then there was, you know, the the question was why why why have this other strange server that just serves files and print when you can have a general purpose server that does file and print and and several other and email and and the rest of it. So we you know we didn't take major market share, we kind of uh won by by changing the ground rules, changing the nature of the game. You know, it's the same way that uh the applications group won against WordPerfect and Lotus 123, because you know they went to Windows and and changed the game. Until then they could make no headway against WordPerfect and uh and 123.
SPEAKER_01:Right. Got it, got it. So um when uh I understand that you were given responsibility for the uh OS2 relationship at uh IBM, is that correct?
SPEAKER_03:Yeah. When did that happen? That happened in uh I want to say 1990 and uh maybe eighty sorry eighty nine. It happened in nineteen eighty-nine. Yeah. Steve had had uh had uh you know had wanted to move to uh no well Steve he was having to manage the A2, Steve Willem was having to manage the IBM relationship, which was becoming a a real pain in the butt and time sink, so he handed it to me. I was given uh OS two uh and you know, trying to figure out what what could be done. You know, the in those days it was a sort of article of faith that that the reason that Microsoft existed was because of the relationship with IBM. You know, in the late 80s, 87, 88, 89, we used to have these executive offsite retreats. And there was always one of the topics was what do we do if IBM divorces us? You know, that was sort of the the the doomsday scenario. Uh so the feeling was that we you know we had to maintain the IBM relationship at all costs, but at the same time, OS2 had become this beast that was so overburdened uh and trying to serve so many goals that it was just clearly failing uh uh as a system. And at the same time, uh, you know, David Weiss and others had figured out how to uh you know extend Windows uh to handle uh larger address spaces, initially on the 286 and then on the 386. So there was this increase Bill was you know, was getting very frustrated with the IBM, with with OS2 in particular, uh, and indirectly with the IBM relationship. Uh, but he didn't want to let go of it. But at the same time, he you know he could taste and feel Windows that was much better suited to the 386 generation of of PCs at that time. Uh so there was this increasing tension. So I was given this job of trying to make something out of this and uh struggled at it valiantly for nine months. Uh remember there's a time in my life when I used to uh get on a red-eye flight on Thursday night, uh, fly to Boca Raton, get there at nine o'clock in the morning, be in meetings with IBM, turn around and fly back, getting back to Seattle at uh midnight. You know, I became a sort of lifetime American Airlines flyer because of that. Uh but at the end of uh and then we launched uh Windows 3.0, I think that was 1990, was it? I could be wrong here, a year or two off, but we uh it started to succeed, it put even greater pressure. Right.
SPEAKER_01:That is that is finally when uh Windows started taking off.
SPEAKER_03:Yeah, Windows started taking off and uh it yeah it became, you know, the cognitive dissonance just got bigger and bigger as to why we were putting effort into these two uh directions. And uh and the our my our our RS2 team uh internally at Microsoft began become more and more demoralized because they were having to work with IBM. They felt they had one hand tied behind their back while their c colleagues at Windows were running rot, you know. Uh so eventually I came to the conclusion that it was unsustainable, that that sort of Microsoft and IBM had caught themselves into a situation where uh rather than getting the best out of both companies, we were getting the worst out of both companies. So I I I eventually said to Bill and Steve that unless something changes, I was just gonna, you know, untie my hand. I was gonna stop working with IBM unilaterally. I I don't think they really believed me. Uh but you know, I gave them a deadline in sort of two weeks or something, and the day came and went, and uh nothing changed. So I told the team to stop working with IBM. We just cut off all communication and stopped applying to emails, didn't do the joint build, etc. And of course, that caused the shit to hit the fan. And uh the uh so all of a sudden there were urgent meetings um going right up to Bill Gates and I the and Jim Canavino, who was the IBM senior vice president on the other side, and it precipitated uh you know a lot of brinksmanship. And and uh here I have to hand it for to Bill. He he uh people forget that IBM never paid a royalty on MS-DOS. Uh the original deal on MS-DOS is they had a uh uh one-time fee, I think it was fifty thousand dollars or something, and after that they got MS-DOS for free. So eventually IBM came back and said, Okay, uh, we'll let you continue to market Windows if you give us Windows for free as well. So we can have both DOS and Windows for free. And and Bill refused. He said, No, I'm not I'm not gonna do that. Uh and then they said, okay, and you know, so IBM said, okay, in which case we're gonna bury you. We're gonna take OS2 and we're gonna compete directly with you and and you know, take you out of business. So we had decide obviously what to do. I had this investment uh in the the OS2 team, and and by then we'd have we'd also uh Dave Cutler and his team had joined uh the companies. We decided what we would do is uh essentially walk away from OS2 and uh redirect all of our so-called advanced operating system efforts toward us towards a Windows API. And we came up with a strategy of having uh a common 32-bit API that would sit on top of Windows 4.0 and on top of what became Windows NT. And uh so we had two, I had two teams, the Windows 4 team under Brad Silverberg, and the Windows NT team under Dave Cutler. Uh and the two teams did just about everything they could to sabotage the other. It took it took everything I could just to maintain that common API. They they managed to diverge on everything else: file systems, device driver models, whatever. Uh but uh we did keep a common API between the two that enabled the apps group in particular not to have to choose between Windows 4.0 and Windows NT. I I thought there would be a much faster transition to Windows NT. Uh Ben Slivka, bless his soul, uh at the time told me that would take 10 years and I didn't believe him. He was right. Uh but eventually the the transition did happen. And uh it enabled us, that strategy essentially enabled us to see off both OS 2 on the one hand and Unix on the other. Uh because we had a fully modern secure operating system uh in Windows NT, which Windows 4.0, despite all its success, was not. Uh so it couldn't have it couldn't have carried us for the long term. But uh yeah, so that's basically the and at some point uh I think in 1992 or 93, Steve went, Steve Ballmer went to become head of sales. He wanted to really take that over and choose the sales side. So that's when I inherited all of the system side, and and it was myself and Mike Batels uh with the apps and I with the systems side of things, and uh that was sort of the general configuration. We had a lot of other interesting things going on at the same time. Uh, you know, there was the whole uh Microsoft SQL Server story. Um that actually goes back to OS2 because uh IBM had their strategy was to, on the one hand, have OS two to be the common operating system that everybody, including Compaq, etc., would use, but they had their own proprietary OS two extended edition. So this is going back to the late 80s, 88, 89. We were always very paranoid that IBM was going to screw us that way by promoting OS two, but then selling the extended edition. So we have to go and build our own extended edition, which required us to get a database and an SNA communications package. So we uh we went to uh Bob Epstein at Cybase uh and persuaded him to give us uh essentially royalty-free access to this uh to the Cybase source code uh so that we could port it to OS2 and make that our offering to uh to compete with IBM's DB2 uh which was the database in OS2 extended edition and uh and then we made the switch obviously towards Windows NT so we were porting now towards Windows NT. And then in 1993 or two uh there was this strange German company that we started to hear more and more about uh called SAP uh I I first encountered them over at DePont and I was amazed and said never heard of this company before uh but it was clear that they were uh starting to become important so we approached them and uh at that time uh Microsoft's internal IT department was still running all of our our accounting systems on uh an IBM AS400 believe it or not using uh ACPAC et cetera uh and uh so they were we were trying to persuade them to move off that and to use uh Windows NT as a statement of you know eating our own dog food and using our own system that we needed uh an accounting package that ran on top of Windows NT so we uh approached uh myself and David Baskovich approached SAP uh met Hasa Platner and uh he agreed that he would port SAP R3 to what became SQL Server uh provided we added row level locking uh which was a feature that Bob Epstein was dead against he regarded it as evil. So we had to kind of divert uh diverge the code bases and add that feature which was a key feature that Oracle had. And uh uh Husser Plattner believed that somehow by working with Microsoft his guys would learn how to do attractive user interfaces. I don't think he ever got paid off in that regard but that's how we got uh you know another way that we've got SQL Server established uh uh as a serious database and uh at the same time we had uh uh exchange uh Microsoft Exchange that had actually started with another database code that we had uh back in the late 80s we started to do explicit recruiting outside of the US because that time we were in the late 80s we were trying to hire like Matt so for the first time we went both to India and to Israel uh and recruited engineers there and we recruited one engineer's name I forget now but he was a database guy and we we we hired him and he built this essentially dynamic schema database a database where you could dynamically change the schema and and we didn't know what the hell the hell to do with it. We had this code base. So it was initially intended to be the the server counterpart to um Microsoft Access because Access was client based. But then somehow I forget exactly how we decided to use it as the backend database in our mail server, what became Microsoft Exchange and that's where MAPI and all of those things come from.
SPEAKER_01:So you know Microsoft was nothing if not prolific with various APIs and I remember there was actually a battle at that time between MAPI and what is called them from Lotus.
SPEAKER_03:Yeah exactly the it's amazing actually that Microsoft actually won that battle in the long run and you know Active Directory which I think also uses some of that technology maybe I'm wrong I can't remember anyway Active Directory has emerged as one of Microsoft's you know major uh enterprise assets you know most enterprises in the world are tied to Active Directory whether they're like it or not. And by the way that that's another fun thing to talk about is all the various names that we had. People don't remember Active was one of the first attempts to create an identity beyond Windows. Do you remember ActiveX controls?
SPEAKER_02:Active X yeah ActiveX yeah one of the ActiveX things and then then we decided that was uh bad so we then went to which is why you still get some around and then there was a live and there's still some lives around etc etc that's that got it excellent uh I'll turn it over now to uh uh Gary uh this is uh quite fascinating to hear the first uh you know version right the first arguably the first decade of Microsoft uh I would say but two things that emerged from your stories right one was um that uh uh they they really worked with other companies Intel Novelle IBM uh SAP whoever it is right just to kind of move this along was that uh sort of by design or was this core belief that somehow we got to keep expanding but we can't build everything where's that culture come from um to begin with because that you know as a startup you could you have this tendency to say I'll go build everything because you can is the first thing but instead they uh it seems like at that point partnerships of some kind were important and that was uh sensing the market. Where did that come from in the first decade of Microsoft?
SPEAKER_03:I would say it came from two perspectives. One was uh and you can credit your Bill Gates a lot of credit for this he always believed in the power of a platform and you know a platform almost by definition is something that becomes valuable because so many other people use it. If you take actually MS DOS as an original example MS DOS is only I don't know 50 or 60 K bytes of code. Somebody could almost recreate it you know i in a weekend uh and people did uh there were you know people forget there was digital resources Dr. DOS you know was a compati uh a compatible competitor to to MS DOS uh and I think there were a couple of others as well uh but uh people would always be willing to pay a royalty however small to Microsoft to quote unquote get the real thing and the reason for that is is they were afraid that something would break because it was this platform on which so many other applications whether they were with you know TSRs, terminate and state resident things, et cetera, were dependent. So if you can get a platform going and if you're not greedy too greedy on the prices that you charge for it, uh the the cost of switching is is just not worth it for someone else to go away. So there was always this belief that we needed to establish a platform and get as many third parties using certainly our system level components, operating system, networking, tools, databases, et cetera and uh it was less so on the application side deliberately, because they are more end user oriented. So they had less of a or an incentive for to do that. It comes with a huge cost because now you have a massive testing matrix before you can release anything you've got to make sure that you're keeping things competitive sorry not not competitive compatible. And you know for many years there was these app hacks in Windows that would literally look at the XE being loaded and say, oh yeah this application expects the top of stack to be all zeros you know so even though it has no reason uh you know there's no uh requirement for that we would have to then load zeros otherwise this app would break et cetera et cetera so you know that was uh one aspect of the desire to work with third parties the the other key part is just as important was paranoia uh you you you you gotta remember that right up until about 2000 it wasn't didn't appear to us that we were you know uh destined to be there for all time uh certainly uh up until nineteen ninety five I would say that was very much the case. I mean as I said earlier we used to have these uh uh uh uh themes at Executive Ostrites which is you know what's the doomsday scenario you know somebody else gets hold of the platform then we're screwed uh so right it through through nineteen ninety five there was a a lot of focus on competition through nineteen ninety five there were still people confidently predicting that Unix was the future that things would go that way there was the whole risk movement uh all of these things which you know could have if they'd gone that way would have severely diminished Microsoft's uh uh assets it was a belief that you know we had to have uh a strong uh support from partners uh otherwise yeah as a defense against uh platform going elsewhere as we celebrate the 50 years right of of Microsoft uh was it ever uh occurred at that point that this would be the longevity? Was there any hey we're here forever No hell no we we were all 30 years old I mean uh you've got to remember that that uh i i if if you go back to 2000 and rewind the clock 50 years computers didn't exist uh you know uh so we we had you know if you'd said to me in 1993 that uh what 40 years on from now 30 years on from now from then you know people would still be using Windows NT. And I I would have just, you know, it just wouldn't have been could occur to me that it even be the case. Because there had been so many revolutions in uh the computer industry before that, you know, from weird things to the IBM 360 generation to the Max VMS generation to Unix, you know, it just we just thought yeah you know that we're so in a recording for another 10 years great.
SPEAKER_02:You know there's been a whole lot of articles and Bill Gates writing his latest book right um I read somewhere that um um that he's more a Rockefeller than an editor right he understood the business sense of things extremely well that he could take the technical capability and combine it with business compared to say IBM or Kodak or Xerox that all had significant technology and contributed to what we even use today whether it's cameras or or there is the computers and so on and so forth the relevancy of Microsoft is greater now than the last 50 right uh I mean they are the top one or two most valued company on on the planet and uh looks to me you and Bill Gates accorded in a couple of days ago when he did this 50 years of Microsoft with uh Satya and uh Steve that the next decade is the most relevant decade for Microsoft than the previous five. So A do you did you see that in in Bill and um did that shape it? And do you do you agree with his assessment that the next ten is the most important ten than the last five?
SPEAKER_03:Well let me handle that one at a time because you asked two questions there. One is was you know was he more Rockefeller than Edison? In general I would say yes. I mean what made him remarkable is he did have such a good sense of the industry and what was valuable and the power of the platform etc on the other hand you know he is one of the most intelligent people you could ever meet and what was truly remarkable in many ways because uh he combined three things. He combined that uh instinctive strategic insight about the structure of the industry. He combined extraordinary technical depth you know he could go toe to toe to anyone all the way down to the bottom of the stack. And uh he he was also you know uh a great I wouldn't say a great manager but he was a good enough manager to know how to hold a team together. Uh because uh you know great endeavors are never the product of a single person. Uh they're always the product of of an effective team. And uh you know the thing that I value about Bill is you know he could be a son of a bitch but at the end of the day he would listen to you. You know sometimes you had to hit him with a two by four before you'd do that. But he was secure enough in his own person to be able to take that feedback. He didn't feel like he had to win the argument. Uh so you know I I many times I could have cheerfully killed him for the way he behaved in meetings. Uh but at the end of the day it was about the argument. It wasn't about him or the person and you know you very rarely find those three qualities uh in a person. So I think you know he he deserves to be remembered as one of the the great figures in an industry um in the way that uh you you see other great people who've had a huge in impact on their industry. Switching to your other question is is the next 10 10 to 15 years I think it is crucial for Microsoft. I think it's gonna be very interesting to see how they fare in it because uh we are seeing uh you know a a true revolution has occurred which is for the first time uh computer systems can in some very real and meaningful way understand natural language uh and that is a huge step forward. If you'd asked me ten years ago whether I thought that was going to happen even in my lifetime, I might have said I I doubt it. But the fact that you can now have a interaction or even a discussion in a meaning very meaningful sense with the computer system is a huge game changer. It means that you know almost overnight every computer interface in the world is now obsolete. Because you don't have to in some cases it clearly makes sense to still use a mouse and a pointer and that but a lot of other cases particularly in these cases where it's more difficult to express you can now express high level goals which you couldn't do before and the system can meaningfully adapt to those high level goals and that is going to revolutionize computer systems without any question. Now Microsoft's done a good job so far at positioning itself in that race but there's nothing proprietary that they have about their technology. And you know whether you whatever you think of DeepSeek it's it's showing that there is no monopoly on Microsoft's behalf or or even on the West's behalf of this technology. And I think it's you know Microsoft's still going to be around 10 to 15 years from now but every time one of these major technological shifts occurs it it allows somebody else to be introduced into the equation. Microsoft got introduced in the equation really on the back of the microprocessor which made CPU cycles become by historical standards free. So you you you could afford to waste CPU cycles on a on a graphical user interface. You went to an old mainframe program and told him how many cycles were being wasted every time you mute your mouse you know they would have held their head in horror the uh and then you know the internet happened uh and uh that in allowed uh we Google and Amazon and that to become significant factors in the marketplace. Uh so we're she seeing another technological capability now that is going to introduce new entrants into the space whether it be another US company or the Chinese I I don't know but uh if if if I was at Microsoft I would not be this is not a time to rest on your laurels. And there and there's nothing history teaches us there's nothing that says that Microsoft necessity has to be the force that it is in 15 years time.
SPEAKER_02:In fact if anything history teaches us that eventually the center uh the the the the the tectonics plates shift and it's someone else who's on a different business model differently you you touched on two things there let me just kind of uh unpack a bit right you started a career Intel and they clearly are struggling right now as a as a company at this point looks like somewhere along they missed something and they sat on their laurels um and built on it um at the at the same time the Microsoft also missed a few things the browser right uh early on there was a mess mobile was a mess uh was there something in the leadership that Microsoft had that allowed them to overcome such large misses while others whether it's Intel uh you know uh Netscape you can take you can go through uh the this road of success and it's filled with uh filled with you know companies that are dead or gone and only people with hair uh gray hairs like us can remember those names that they're not even in existence right what was specific that um just with three CEOs this company's hand has allowed it to be the the tech relevant company today whether they sit on their laurels or do something is irrelevant but they got here itself is seems like a uh a shocker uh because everything indicates that they should have been gone for the misses they've had.
SPEAKER_03:Yeah I think so it is remarkable and uh I think it's attributable to two things. One is this uh just the strength of those assets that Windows and Office were and even today uh the majority of the profits are are still coming from those two sources uh so it gave Microsoft an enormous cash flow stream with which to invest and they tried several investments as you point out like buying Nokia etc that didn't pay off uh and uh the I think the other so they had this very strong two cash cows in in Windows and Office that that gave them a strong cash stream and then the third time they got uh they succeeded which and I give that full credit there to Craig Mundy. Craig Mundy was the guy who went and did the deal with open AI uh and gave them billions of dollars uh in return for royalty free access to everything that openai does until such time as they reach AGI uh which is what I think is giving Sam Altman you know partake today uh the uh uh but without that Microsoft would not be relevant today and we'd be having a very different conversation about Microsoft today. We'd be saying well you know they missed the boat once again uh but it is Craig who went out on the limb and persuaded uh the board and and uh uh and Steve and and and Bill and then Satya to basically put billions of dollars uh into allowing uh essentially the scale to happen at OpenAI and you know open AI's fundamental breakthrough they may argue with this was not the algorithms but was just simply the scale at which they applied it you know allowing them to go to models that had billions and billions of parameters which is you know brute forced by essentially building out this enormous hardware back end uh that's enabled them to succeed. And uh but it's a strange relationship. I mean uh I I it's debatable how stable the relationship with open AI will be because you've got two different entities now that at the end of the day have different ownerships and different um you know uh economic incentives. Um so I don't know I'm not not privy to what's going on in either company but I it's right it's gonna be interesting to see how that gets squared in the long run.
SPEAKER_02:But at the at the you know uh if you go back uh say 1995 the browser really came into being and the adoption was at a that may not be as the rate as chat GPT but it was still at a at an incredible pace at the adoption right that you know Amazon it literally went to IPO four years later once the browser became ubiquitous if you think if you sort of use that as a parameter. At that time um uh you were building Internet Explorer did you think that you should just buy out Netscape?
SPEAKER_03:Because that seems like you could have done it that was I mean Barksdale was an old ATT guy and yeah we very early on we had an opportunity to deal with do a deal with uh with Andreessen and uh I forget what they called it before they started calling it Netscape and uh you know we we kind of somewhat arrogantly said this is 50k bytes of code again. Why can't we just write this in a weekend? And I and we didn't actually license some some code from one of their competitors. I you'd have to ask Ben Slivka. He probably would know the the history here. So we did license some code uh which was the first uh incarnation of what we came in at an explorer uh and uh you know I I argued very strenuously to the Department of Justice in the in the the uh antitrust trials that this was a huge threat to us that that uh you know if the browser took off new applications it would become a new applications delivery platform etc etc they didn't buy that argument but in the final analysis it actually did happen uh I mean we did manage to stave off Netscape competitor competition by somewhat changing the the the game on them by essentially pushing on this actually uh accelerating uh this capability of the browser to become a real platform by introducing things like the DOM uh you know that was all Adam Bosworth's work um uh that that showed how you could you know you could really use JavaScript to really script the browser itself and and get single page applications and all of those things going which which somewhat wrong footed Netscape and uh so Internet Explorer 3 was the one that really kind of held Netscape at bay. But if you look at what happened in the long run is Chrome came in and uh you know today Chrome is a platform. You have to be compatible with Chrome. Even Microsoft's Internet Explorer is now based on the Chrome engine et cetera et cetera it just turned out that the the value on the browser didn't really go to the clients it went to the servers to these service server-based systems like Amazon, Google et cetera that's where all the you know if you look at the Microsoft's still one of the, as you say, one of the most valued companies in the world. But if you look at the other most valued companies in the world Google, Netscape, Matter, et cetera, they're all browser-based companies so I I I I wish I could go back to even the judge's name he was in the uh the antitrust trial and said, look, uh yeah, yeah, yeah totally.
SPEAKER_02:I think uh I mean you you you uh you had said like you uh licensed uh Unix from ATT and ATT's argument was that we'll be irrelevant in 10 years turned out to be so judge green who did that uh who did the breakup was totally wrong only just that 10 years later they were completely irrelevant. I think if there was some momentum they could have delayed it but not stopped it whether it's ATT or whether it's Microsoft they couldn't they couldn't have completely stopped it. But the the other uh question that um that uh comes to mind is Microsoft was actually an early investor believer in media you know they made a lot of bets in in the streaming media cycles at that time it was unclear I mean they the obviously it's still called MSNBC uh if you think of it that you know it goes back to the investment in in the NBC era uh the but did were they that much early? Because Netflix they had everything to be a net in Netflix right um but they they succeeded in game by Xbox but not not in the Netflix yeah now you're gonna hear yeah so now you're gonna hear you know my theory as well which I've told by the way Bill Gates directly is the problem fundamentally was you know every company has a uh I don't I wanna I I was gonna I was gonna use the word soul but it's not the right word.
SPEAKER_03:Yeah every company has a a an innate understanding and capability. And ours was about the white collar worker and the enterpriser. We didn't have a consumer bone in our bodies in my opinion. We just didn't understand that space. I can remember the days when you know there was a big uh internal debate about whether uh search was a valuable asset or not. And the conclusion was no search is just going to be a commodity that's given away with the the browser and no no point in investing in that we shouldn't go and buy Yahoo or anybody else. So Microsoft's had numerous forays to get into the consumer space none of which have been super successful. In fact most have been the opposite and it's because every company distinctively the senior management understands that space and you recruit people who have a similar view and you know how to distinguish between A-quality people and B quality people in that space. In the consumer space I I personally would have had no way to decide whether somebody's an A quality person or a B quality person or a C quality person. I mean that whole space to me was a mystery and to I think a lot of other people it was a mystery as well. So you know Microsoft has made its the key at the reason that it's the asset it is today is because of its white collar enterprise uh assets and now it has an opportunity to uh further those assets through artificial intelligence and we'll see how that plays out. Right.
SPEAKER_02:So one last one was last in in that was what plays there. So there's this uh famous investment that uh Microsoft and Bill Gates made into Apple that helped it could you know just be a company otherwise they were going to fold or at least the folklore says that you they would have folded but uh for the sake of uh uh history looks like there was a very pivotal important uh investment that was made and theoretically uh you it uh I was I was there and as part of those just deliberations um and as important as the investment was uh there is another aspect to that deal because that the deal I think had three components to it if I remember rightly here uh one was the investment one was that that I that Apple would switch to use Internet Explorer people have forgotten that and thirdly that the Microsoft Applications group would continue to develop applications for the Mac platform.
SPEAKER_03:At that time, you know this was in the interregnum between the two reigns of Steve Jobs and you know they were really on the ropes and the app the Microsoft Applications group actually said look it's no longer worth us putting effort into markets uh developing and marketing uh apps for the for the Mac it's going down the tubes we should take all our uh resources and put them elsewhere uh but at that time we were in the midst of the browser wars and we desperately wanted uh you know allies in that space so we went and essentially bought allies from in the form of uh uh a commitment from uh Apple to use Internet Explorer and uh in return for money and a and a commitment to continue to develop apps for the Mac platform and I've no doubt that in my opinion that it was that commitment to using uh continuing apps on the Mac platform that enabled the Mac to survive and Apple to survive for that matter. I I'll never forget I I I was sent down as a Microsoft representative to announce all of that at at the Apple developer conference and uh uh I found out that uh the other person that uh they'd invited two other people to the event and one was Muhammad Ali who was clearly you know daughtering and suffering from Parkinson's or whatever he suffered from and he I remember thinking to myself why would you want to put this guy up on the stage sort of the the epitome of sort of the aging daughtering champ you know it's not the not the image that you I would want to be uh portraying if I was Apple at that point in time.
SPEAKER_02:So uh but but do you uh the question I was going to sort of uh uh extend that on is do do you think that led to when the when iPhone came out the app store also came out so there was this switch in Steve Jobs' mind that other ecosystem players were necessary to build out his hardware business because till then they were uh they were what they were I mean without debating whether the strategy was right or wrong.
SPEAKER_03:Yeah it it's it was always strangely enough a point of I think an annoyance with Microsoft and with Bill in particular that Steve Jobs didn't value more the contribution that Microsoft applications made to the success of the Mac platform. You know you you people forget that in 1986 Apple sued Microsoft over you know the the the graphical user interface. They they claimed that they had you know they invented that and uh y anyone who did a graphical user interface was infringing uh and we had to go to court over it and and they lost uh there was the the famous uh quote that Bill Gate gave in the court uh in the deposition I think where he said that he and Steve Jobs were like two robbers who'd broken into Xerox's house and and were now arguing about the the TV on the driveway the uh but uh Apple was always very legit uh litigious and and and I I I don't think Steve ever appreciated Microsoft's contribution. But yes when he uh realized that uh he was gonna do the iPhone uh he realized that he needed third parties but equally I think he realized it was a revenue source. Uh people forget that from day one uh to be in the only way you could get an app onto the uh iPhone was uh through the App Store and and you had to pay 20% or whatever it is of your revenues over to Apple. So I think he realized that wow he had a really great he took the gamble that he had a really great world meeting product and that he was in the driver's seat.
SPEAKER_02:He could dictate terms uh to uh to to others because look uh at that point there were alternatives uh that that were completely open the Android except I mean he didn't have to pay a royalty to to be on it so uh it on the one hand he was open but the other hand he realized that's right that's right I mean it certainly combined Apple and Steve Jobs' ability to design beautiful products with this uh what I would call a very savvy business model that the product itself may not produce recurring. Yeah yeah yeah yeah no it's it turned out to be you know a gold mine for them and but it took a lot of you know putzpa to do that uh and and partly because I think he as I said I think he always kind of resented Microsoft's making a lot of money of quote unquote his platform he always thought that he he he had created the platform everything reflecting back Paul um the journey that you started in southern Africa all the way to you know today in Microsoft where um ai is uh is prevalent in everybody's life at the time when you started you know you had to leave so that you can actually experience what you had learned but today the spread of AI is instant meaning I would argue all seven plus billion humans have experienced AI in some format whether they knowingly or unknowingly etc the cycles for dissemination has dramatically changed in your lifetime uh which you have referred to saying it'll never change in your lifetime from Southern Africa to today the the idea that you could go to your old neighborhood in Southern Africa where where you were growing up and they would have heard of ChatGPT while at the time you were the first or maybe a few graduates who had heard of computer science what how do you uh see that journey in your lifetime given that you have been part of major uh transformations in lives of humans through this uh association with uh Intel and Microsoft well first of all I it's an experience that I think I share with you two gentlemen in that uh you know I uh I also came from sort of the the fringes uh of of the uh of the high tech world and you know when I was growing up the you had to physically move yourself uh to get to this to where things were really happening.
SPEAKER_03:Uh and I and it's something I share in common with uh a lot of my colleagues who I've worked with over the years from South Asia who I think had a similar experience maybe a little before you were two guys' time but certainly there was a feeling that you know you had to go to Western Europe and or the US in particular to be where it was all happening. Uh but that's no longer necessarily the case as you point out uh and there's uh thanks largely to the internet and uh other revolutions uh uh uh information spreads so much more quickly and so much more easily now. And uh so there's been a massive change in the 50 years that I've been uh cognizant of the computer world and uh I I think the next fifty years are are gonna be even greater change. Not necessarily because of computer hardware per se per se, but because of these twin revolutions that are occurring. One is you know the AI revolution and the other is the biological revolution you know for the first time in human history uh we're gonna have the ability to start uh manipulating our own DNA. Uh and when you and AI will help us understand how to do that even more quickly uh and you know when those two flywheels start working together I don't know where this all goes uh I I think the world's in for uh a lot of dislocation over the next ten years uh you know the number of jobs people are very polyannerish I think in terms of the impact on employment that the AI is going to have but uh you know here in the US we have a million people who drive trucks you know in the next ten years that's all gonna go away or uh and I don't think you can just wave your hands and say oh well they'll they'll we'll find new things. Well maybe maybe they could all go and go into elderly care. I don't know but it's not going to be an easy transition.
SPEAKER_02:But uh you know one has to in some ways it's totally fascinating because uh that resonates with me the most because I just uh returned from a trip to India and when I left nearly 40 years ago um you know probably 10 to 15 households would share a telephone I mean when I meant a telephone as a telephone now individuals carry two to three you know uh phone lines or devices even to get be connected to the world right there in a 40 year span I never thought that they would move from one for 10 households or 15 households to every person having two devices irrespective of socioeconomic strata or what they did for a living or what their education none none mattered everybody had multiple devices uh whether you uh whether you were interacting with just the shopkeeper who where you bought a uh drink from or you were in executive office both had similar devices too not even different devices like very similar devices but uh it is interesting that the 20 year olds everywhere uh are looking at from a lens that's dramatically different than the lens i i've even experienced thus far i i can't even see that that's the lens they're looking at their lens is so normal because their amount of access they have is incredible so totally relate to it Paul this was a incredible conversation uh he for from uh talking to you well before we go i i just i just want to add one thing uh um 20 year 20 25 years ago i was in india and i had occasion to meet a gentleman his name unfortunately just escapes my mind this is the problem with being 70 years old now that he was contributed to being one of the fathers of of India's atomic bombing and he told it wasn't the it wasn't him he was the guy who did the computing side of it to put the computers together to do all the calculations etc but he told the story of how he came from I think Wuha State uh and he he got a scholarship to go to the University of Califor uh University of Chicago in the 1960s and when when he said as a master's student when he got to the University of Chicago he was doing uh physics master's degree he had never used a telephone in his life uh the first time ever that that's when he got to use a telephone but the the amazing thing is he said is you know I found that I was at no disadvantage to my fellow students that the education he'd received in India stood him in good stead that he was able to drop right in amongst the sharks and start swimming.
SPEAKER_03:And uh I I don't know about you guys, but I found the same thing that that for whatever reason the education that I received meant when I came here to the US I didn't feel inferior. I was able to adapt very rapidly and so I think it's important to always remember it's not just about the technology it's about that foundation that educational foundation that you get or you've been lucky enough to get that is really important and hopefully that will continue.
SPEAKER_02:Excellent yeah thank you so much Paul for sharing your journey it's an incredible good talking to you guys uh yeah I'm not gonna stay on now until you tell me to get off okay okay thank you thank you for listening to our podcast from Startup Exit brought to you by Dai Seattle assisting in production today are Isha J and Mini Verba. Please subscribe to our podcast and rate our podcast wherever you listen to them. Hope you enjoyed it
