Microsoft Volume II
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I'm a little horse today, so fully we have to do a lot of talking.

Good, like on that.

right?

Let's do this. Easy, you wait, you wait, you who can know? Easy you with you, with you see me down, say state.

Welcome two, season fourteen, episode six, the season finally, of acquired the podcast about great companies and the stories and playbooks behind them. And then gilbert David is in fall, and we are your hosts. Well, listeners, here we are.

microsoft. Volume two, at long last, after the ancient history of volume one, we now get to the stuff that you grew up with, the internet, windows X P, X box, the browser search and mobile. And in this era, microsoft had a lot of the right ideas, with a lot of the wrong timing and execution on everything from the zoo to being.

But despite that, from nineteen ninety five, where we start our story, to twenty fourteen, where we will end this episode, microsoft grew their annual revenue from six billion to eighty billion. They became a phenomenally successful company and really cracked the code on selling enterprise software. I began the research thinking our part one episode would be about the rise and this episode would be about the fall.

Cultural problems, failed consumer products, anti trust. But it's really not that straight forward. And after spending months on packing IT all, I actually don't think that's the right framing anyway.

And on microsoft, one hundred ninety eight antitrust suit against the department of justice, everyone knows of this case, but most people really have no idea what actually happened. Did microsoft lose or not really? But the answer is nuances. Finally, today we dive into IT all oh and listeners, we have just one announcement for you here today. Yes, we told you before the september tenth, we are doing the biggest thing and acquired history, and we're doing that in the city of seven six o.

We're doing a live acquired show at the chase center, which is the brand new basketball arena here in service. Go where the warriors play. We're putting IT on with our good friends of J.

P. Morgan payments. And as you can imagine, they know a few people at the j.

center. Yeah, it'll be a night to remember. With a few different phases of the evening, there is going to be lots of opportunities to meet other required listeners from around the world. And a big show like this deserves a big special guest. And that special guest is the one and only mark zuker berg.

So in addition to being the central figure in some of the greatest acquisitions of all time that we have covered right here and acquired, mark and meta are also playing a big role in defining the next decade of computing with A I 2。 So it's shaping up to be a total blast. We really hope you can join us.

Yeah, tickets will be available soon, and you can sign up at acquired data m slash S, F to get emailed as soon as they go live or pumped.

I'll see you there. This show is not investment vice day, and I may have investments in the companies that we discuss, and so do all of you of your own index funds. And the show is for informational and entertainment purposes only. OK, David, the middle path of microsoft.

the middle chapter, indeed. And boy, is there a lot to discuss. So then you covered this in your interview bit. I think everybody kind of knows the narrative about what happened to microsoft between call IT one thousand eighty five in twenty fourteen when satya took over.

There's even a quote from sattin a himself in the very first paragraph of the book that he rode in twenty and seventeen called hit refresh, which I mean, that title can not gives the way right there he rates. I joined microsoft in one thousand and ninety two because I wanted to work for a company filled with people who believed they were on a mission to change the world. But after years of outdistancing, all our competitors, something was changing, and not for the Better.

Innovation was being replaced by bureaucracy. Teamwork was being replaced by internal politics, and we were falling behind. And then he references the famous gun pointing org chart by cartoonist and software engineer manual cornet, probably listeners many of you are familiar with.

We will linked to that in the shown notes. And you can summ this kind of whole arraid up as microsoft was winning, and then IT sucked for a long time and then IT is now waiting again. And that's all thanks to SATA.

And the question we sort of asked as we are doing our research was, is this true? And what we ended up learning from the literally dozens and dozens of people that we talk to surprise us a lot. And I think we will probably surprise listener's to.

yeah, David here, wearing the lead here a little bit. We talked to probably four to five times as many people as the next highest episode. I am looking at our a little thank you list. It's like twenty something people long.

So on the last episode, we left off with the band as you put IT on a bashed celebration of software that was the windows ninety five consumer launch in August of nineteen ninety five. And IT was perfect. I had everything had, jelena had the rolling stones, IT had the start button, or actually IT had almost everything. There was one thing that was missing from windows ninety five at launch that if you are a consumer user of technology, of software, of products, of Operating systems, maybe you kind of wanted to have. And that was an internet groser.

Yes, it's so funny because we sort of intentionally left all the internet components out of windows ninety five in the previous episode because once you started talking about the internet, you're really talking about the next chapter of microsoft. You can't help but dive into IT all.

But in retrospect, the thing that mattered about windows ninety five all these years later is that the platform that everyone started using the internet on and everything that we talked about in the last episode is so important. But it's not nearly as important as is being the internet Operating system. So how did this come .

to be at the time things we're changing so fast? There is the face called the internet time. Things happened in weeks versus years. But if you rewind just a little bit back to lic twenty two, ninety three, ninety four, even into early ninety five, going online for consumers meant using a service like compute, serve or protect, or of course, the big one, aol. And these services were not what we think of today is the internet, but there are more like world gardens with proprietary services that were bungled with access via dialogue modems.

Yeah, for consumers, IT was kind of a similar experience. You could get content on your computer, but the main difference was how to put content on that network. IT wasn't like anyone could just plug a server and then, boom, you have a website. IT was like, you had to have some negotiating power and know someone at a will to go do a deal to get your content on their platform.

Yep, I think the best way to summer this up is, do you know who owned the computer service at the time?

No, but I know is a column space company.

Oh, I just think IT was owned by h and r block.

The tax problem, really? Wow, crazy.

That's what online was like just a few years or months before the windows ninety five lunch. So microsoft, of course, says, you know, inherit of the earth and all things technology they want to play in this online services arena too. So in one thousand nine hundred and ninety three, they start sniffing A O L and see if maybe microsoft could acquire A O L.

Steve case, the founder of a well, is an interested in selling. But there's this whole thing where paul Allen goes off by himself and he buys a large stake. And that creates all sorts of headaches because microsoft is like, well, if we can buy them, we're going to compete with them. So they start an internal project called project marvel to build their own online service that becomes MSN.

So there's a little slide of hand that you just did there. You said IT becomes MSN marvel when IT initially was conceived was a proprietary online service. Eventually, when that completely failed what you're about to get to, they re purpose the name Mason for their internet based media property, uh, complete shift and strategy.

At the same time, many people in technology, especially at microsoft itself, and lots and lots of investors on wall street, believe that these world garden online services were just temporary. They were just a bridge to a more utopian network, consumer culture and economy that they called the information superhighway and the specific vision of how this information, super highway europa, was gna work with interactive television, all mediated by the pay television providers.

So like the cable and satellite companies out there, you to come cast the charters, the time Warner cavs, the direct TV on the satellite side, these, we're gone to be the big consumer technology companies. And this wasn't crazy. This actually made tony sense because television, and in particular, cable television at the time, was the primary existing consumer medium. The internet was not a thing.

We'll think about the number of things required to create some sort of networked entertainment, interactive thing. You would need screens. You would need some way to control those screens to create a feedback and mechanism.

You would need content. You would need infrastructure connecting people's homes. All of those already existed by the cable companies and their end points, the televisions.

And if you pitched me on the idea that actually everyone's gonna buy a brand new device like a PC, like a computer, and we're gonna have a different set of wires that actually bring all of that to the home or maybe we'll repurpose some of the same virus. But gosh, we need to like bring a new networking equipment everywhere along the way. Oh, and there's going to be completely different content companies that figure out how to create the content for them.

It's like all of that false flat. Of course, you're going to use all the existing infection cure in content. You're not onna bank on standing at all up new from .

whole totally and microsoft, just like they had done in entering the PC software market in partnership with IBM. They're got a partner with these big consumer cable companies. And they are starting in the summer of one thousand nine hundred ninety three, they're all these rumors flying around that microsoft is working on a big J.

V. With the cable companies. Cable soft. Yeah, you can make this up. And the idea is that then, like you saying, the cable companies will control the pipes and the customer relationships and probably a lot of content.

Microsoft will write the software both for the set top boxes in consumers homes and for the servers on the back end. And the software project is code named tiger. And then there's a third company, a third piece of this sort of unholy alliance for the information superhighway.

And that was a company called silicon graphics that would make all the hardware. Cable companies are going to make hard ware themselves. You're going to need pretty powerful hardware here, both at the home and on the service side.

And S, G, I, as silicon graphics was referred to, was legendary. They are the graphics company that enable to C. G. I. In jurassic park.

And of course, they are founder and chairman was legendary in silicon valley when jim Clark put a pin in that name. So pint so wall street, of course, like not over all this. You know the hype is out of control.

It's a trillion dollar opportunity. There's all these spy shots of build meeting with john alone at T. C.

I. And jail of time. I'll start spending time with Michael.

Love is talking about how microsoft can get in on content game to either throw the MSN project or two other things they're gona do. This leads to m. Sbc, the cable network that people are probably familiar with. Well.

this is so interesting because we're talking about this general idea of interactive computing involving other people. And microsoft so far has two initiatives, marvel and the information superhighway, neither of which are the internet or the web browser. Just correct, you are already getting this picture of microsoft business strategy, which is until we know exactly what the future looks like, start placing bets that approximate so that we're sort of in the mix, even though we don't know exactly what the future is.

Which, as we talked about in part one, had always worked so well for the company here and is gna work really well here too. So bill actually decides at this point that he needs to write a book for the public to advani ze information, super highway thing, kind of embarrassing singly, given how long the book world takes to, you know, actually publish a book.

IT doesn't come out until november one thousand nine hundred and ninety five after the nets, cape IPO has already happened and windows ninety five has shipped. But in this book called the road ahead, I have two copies of IT here on my desk. The hard cover copy and the soft cover copy, which was revising, came out in one thousand ninety six. The hard cover coffee is all about the information superhighway, or, as bill likes to call, IT information at your fingertips. And then when the soft cover version comes out later, basically they control, left every instance of information superhighway and replaced IT with the internet and the web browser.

Yeah, this is one of these moments are an acquired episode where we have just a delightfully create illustration of this year IT was unclear. The next year, IT was extremely clear. And David, look up in the indexes of both of those books, the number of references to the internet.

In the hard cover version. There are three portions of the book where IT is discussed in the soft ver version, the index for the internet takes up an entire page. There needs to be an index for all the sub indexes of the internet in the soft cover version. amazing. So the hard cover version is the state of play in january one thousand nine hundred ninety four, when a Young windows networking engineer named James alert, or j as he goes by, write a memo to bill gates into the senior leadership at microsoft entitled windows, the next killer application for the internet. And in this memo, he points to a new piece of software coming out of the national center for supercomputing applications at the university, milano I, that is spreading like a wild fire and appears to be written by some like kid programmer there by the name of mark .

and reason in this free time. It's not even like his real job.

yes and IT is called mosaic and in this meo j argues that the internet and this software instantiation of IT in the mosaic web brows er china looks like IT is going to become an exponential phenomenon given the rate at witted is growing and that IT represents an enormous opportunity for microsoft to quote, embrace and extend the internet into windows itself. And this is the origin of the embrace, extend much, and the exact word uses are embraced, extend, innovate in popular press and public opinion of microsoft that would, of course, get changed to embrace, extend, extinguish by their .

effectively competitors and political enemies. But the embracing extension is actually a brilliant business strategy. There's already a hole.

Ensure people who love this thing. We want to embrace that new behavior. There is sort of no product market fit risk because we can clearly already see IT happening.

People want to use this browser thing to access hypertext on the internet. We're going to embrace that. And we're going to figure out a way to work IT into our business model to extend the functionality in a way that we .

can make money on, right? The business model is we sell windows duo EMS into businesses in the lake and consumers, and we can just bake this into IT. Honestly, it's pretty incredible that j lays out the whole winning strategy for microsoft in the internet here in january one thousand nine hundred ninety four.

This is a few months before netscape is even founded.

Yes, yes, nescafe as a company does not exist yet. There's just the mosaic web browser at the university valley. yep.

Then in the sort of exponential growth theme, the very next month in february in one thousand nine hundred and eighty four bills, technical assistant slash shadow, which is a legendary role of microsoft, now exists in aisa to and Stephen saski goes on a recruiting trip to his all the water at cornell university. And while he's there, there's a big snowstorm. He gets stuck on campus yet to stay on campus for a few extra days.

Very corneal story.

Yeah, in both cord althaea, the most ethical story ever, he notices that all these kids, especially when the campuses snowin, they're all using the internet. He knows what the internet is, know is an economic project. For years, he was an academic guy before getting in the commercial software and joined microsoft.

But IT was this way for scientists to basically trade research and you're starting to get some cool entertainment use cases. But there's certainly no business or business interest or common. It's all just like the way that academics communicate with each other.

And this is what absolutely floors, Steven, he's like. I remember the internet as what you're saying been, and now i'm here on campus and all these kids are using IT for a flooding, registering for classes, messaging each other, sending email that has nothing to do with papers or work, or school or academics or anything. He gets so excited that he writes another memo to bail in the leadership team entitled the cornell is wired explanation point is so funny.

Microsoft history is told through a series of memo s. Every milestone is some executive publishing a company wide memo or it's so funny .

because some of these memo definitely we're like internal memo s for exactly what you say and some of them were like written for publication to the press yeah and bill has a great quote when I heard Stephen talk about what was happening at cornell, I began to take the internet quite seriously. So Stephen and bill, or denies an internet offsite quote, quote with all the topic. Ex, with j.

bill. Stephen, everybody who's investigating this internet thing. And IT takes place on April fifth, one thousand ninety four, which is the very next day after netscape was incorporated on April forth.

amazing.

And at this offset, bill totally gets religion that the internet, as j said in his initial memo, is actually an exponential phenomenon. And as bill puts IT to the team, gather there and then the whole company later, IT is a core microsoft company value that exponential phenomena cannot be ignored.

Oh, wow, I had no idea that was kind of the impetus of him taking this seriously. And think back to everything we talked about the last episode, whole concept of microsoft is founded on the idea that more law is a thing, and therefore we can develop software that people have never dreamed of. That in just a few years will be usable.

So speaking of netscape being incorporated the day before, remember I said to put a pin in the name jim Clark. Of course, many listeners already know where we're going here to Clark, legendary founder of si. So can I legend? Well, a couple months before that, in february ninety four.

It's crazy how fast all this happened is just insane. Jim is still A S. G. I.

He's really frustrated with the board and the company, though, for not pushing even harder on this information superhighway opportunity. So what does he do? He resigns from the company.

Catholic in protest. The company. He found IT. wow. And on his very last day in february ninety four, S G, I, he called emails the kid in annoy mark and three.

And so you get the opportunity to team up with an industry legend uh, of course.

Yeah so jim, in the female rights, you know i'm impressed with mosaic and like clearly this seems to be getting adoption. There's any way that you and I mark might be able to collaborate would be quote of interest to me. So the two them get together.

And then they found this company on the pro eighty four called electric media. And the initial goal of electric media, soon to be nescafe, is that oak mark is this hot shop programme. Or clearly, the information superhighway is, is what this web is gonna turn into.

We're gonna a do what S. G I was supposed to do. We're gonna make set top boxes for the information super highway.

Yes, in retrospect, CT, you gotto be looking at them, thinking, how dare you? Market reason is the person in the world who understands what a crazy exponential phenomenon the internet is. The web is what I can be.

I mean, market. I think by this point, r put the image tag into HTML so they can now send images that render in browsers. And when jim Clark emails him, they decide to go to the information superhighway and not to do .

the internet. Yes, this is a so the way they're going to do this as a start up, this is so great. One of the other big things that S. G.

I had done, besides building the graphics workstations that hollywood ran on in the jassim park and all that was they were in nintendos technology partner for the end sixty four. They made the graphics engine for the end sixty four as the gym. Is this relationship with the intendo.

The sixty four is gonna coming out. It's going to be this amazing box in the living room attached to tvs and consumers homes. They're going to team up with intendo and turn the end sixty four into an information superhighway box. Meanwhile.

it's hilarious that we keep talking about the information super high way because IT never happened. There were these little tests done with cable companies that would wire up three hundred houses or something, but IT never happened anywhere at any sort of scale. And so when you're listening to this and you keep trying to figure out, like, sorry, what exactly was the the information superhighway and like what IT look like, nobody knows because .

IT never happened, right? It's A A classic case of way, way wait, too many cooks in the kitchen and total .

slide ware and the fact that even mark himself didn't pound the table for no, the internet is going to be the thing that really shows you how the human brain is not wired to understand compounding. Theoretically, this network should continue to get more nodes. The technology should evolve little by little more s law is happening on the computer.

You know, there's some reason to think that band with that is going to be available to homes in the same way it's available to like universities and companies. But still, I just wasn't obvious enough to continue down that path. That was almost like, great. I've made a naim for myself doing this toy thing that probably isn't the future. And so now we'll go to the big boy stuff because that's what all the experts are saying totally.

So shortly after this, by late spring, one thousand and eighty four mosaic now has a million active users. Clearly, bill gates is bag attached here. So shortly after all this, jim Clark and work injuries and say, wait minute, let's just go do this was a thing.

They scrapped the end sixty four information superhighway. They go raise money from cinner perkins, john door and vest joints, the board most legendary investor of the time. And by october one thousand and ninety four, the newly present mosaic communications corporation post the first version of its browser, mosaic navigator, for free to download on the web. And their business plan is that they're gna give away the consumer browser for free, and they're gonna charge companies for server or software. So if you want to host a website, you know you are a corporation or whom ever you need server software to do that, they're going to charge companies for the service software.

Great and listening ers, you should be paying attention to something David just said there. He said it's the mosaic corporation and then he said it's mosaic navigator, even though it's called mosaic c because mark endurance and wanted to draft off the success of the previous project he had done called mosaic. This is completely new code.

They founded the company. They started writing code from scratch. They had the experience of writing mosaic, the thing owned by the university and the N.

C. S. A, before. This is a new thing called mosaic that does the same thing architected for commercial use.

Yes, exactly been. So meanwhile, back at the university of lenoir, even though there are academic and government institution here, they realized that you've got something valuable here in .

the original to pilot millions of users. Market doesn't work there anymore, but seems to be working.

So they license their moc, the original one, to a local company .

called spyglass. So the state of play is you've got the old mosaic, which spyglass has the right to license for commercial use. You have a new thing that will become nescafe called mosaic that is totally separate code hand mosaic, mark and reason's.

New mosaic keeps trying to go due deals like sell their server software. And every time they find a customer, spyglass, they they threatened to sue and they basically blow up the deal because they keep calling each customers. And yeah, we're gna.

And so this is obviously very frustrating and technically illegal. Mark and races. Moc realizes that this is going to be a existential problem for them unless they do something about IT.

They actually sue spiggot ass. You guys got to a stop. So there is a settlement.

Well, the net of all this is that mark and jims company, it's got that changes its name in the fall of one hundred and ninety four, two nescafe. And mark had a typically great mark quote about this to the, at the time you go to school, you do your research, you leave, and then they try and cripple your business. Had I known this would happen, I wouldn't gone to stanford.

which, of course, is a poker, because he had no means of going to stanford at the time he lived in the midwest. He was going to go to a state school no one recognizes, genia said at the time. So yeah, yeah.

it's also the most market and and could tear, which is awesome now anyway, okay, meanwhile, member, the online services, the computer, you to protect A O L eta, they're not blind. They see that the internet and the web is also becoming a thing. They want to go license a web browser and incorporate IT into their platform.

So I think that was late ninety three year, early ninety four. But this was a seminal moment where the oils of the world inter connected with the internet. And now you could not just navigate the propriety services, but also serve the open web.

So netscape isn't interested in licensing because they have their own business model selling web server software, and they want to allow free downloads of the navigating client spie glass, though they start licensing that original mosaic and they start doing deals with the online service providers and a small start up company called books link goes and codes up another browser that they start licensing to companies as well.

So bill gates and Stephen and asked they go and meet with books link in may of one thousand nine hundred ninety four. So coming right off for this internet tree, we're going to make this a core part of microsoft in the core part of windows. And they're interested in licensing book link as well.

They started negotiating. They're talking about a call IT two million dollar license deal. And all the sun A O L comes in and buys the whole company of books link for thirty million dollars.

So this now leaves microsoft without a browser. And there are basically only three real browsers on the market. There's book link, the O L. Just bought. There's .

netscape navigator.

nescafe navigator.

which is not a available to license.

and then there's music and spyglass. So microsoft goes to who else spite us. They license the source code for marking since original mosaic browser from spy class software for two million dollars, and that code base becomes the base upon which microsoft bills internet explored.

Well, David, i'm glad you took debate. I am here to tell you that that is the public narrative. And very close to the truth. But there are some more new ones here.

You're ready ready to here. But hey, if you click the about menu in the early versions of internet explore, oh yeah, a text box pops up that says based on csa mosaic distributed under a licensing agreement with spyglasses yes.

all that technically true. IT is just not quite as meaningful as you think IT is. So as with all of these things is it's not just like bill gates and Stephen Sophia having to think and the rest of microsoft to sit around waiting for the thing to finish, and then an edict comes down and then they go and do the work.

There are a lot of people with a lot of ideas working on a lot of stuff in parallel. And that is why microsoft history is so delighted. Li messy is there is a zillions and issue is going on, and it's never clear if your thing is gonna come the next company strategy or not.

So here is a slightly different version of this history with different players. And I want to to underscore IT for one big reason. IT will come up later in anti trust.

Okay, so some of the windows ninety five team in late ninety four LED by Thomas reardon, is pulled off before IT ships to sort IT thinking about, what should we do after windows ninety five ships? What would the next markey investments be for what at the time they're calling windows ninety seven, which, of course, there was never a windows ninety seven. So the group's opinion is all internet all the time.

You know, how could the next determination of windows be extremely internet native in a very embedded way? And there's tons of proposals in this low group. There's virtual meeting software.

Think the zoo m type things. There is an email client specifically built for the internet rather than for your companies, is corporate network, which at the time was novel. Then there's, of course, a browser.

But the big vision was, what if the whole windows shell is a browser? Every visual thing that you interact with windows, what if that actually was like a HTML rendered server communicating online thing? And the team technically kind of looked at, at this way, we should build HTTP directly into the Operating system since I was just another protocol on top of the T C P I P protocol that the internet is based on.

We should provide reusable U I component to any application that wants to display H T M L. That's a good engineering building block to build. Is this HTML render r that any application can sort of frame in and use.

So of course, microsoft, the strategy here is we will develop a browser application that used the building block that others could also use to render HTML. So they actually go to netscape and say, hey, we have this great H T T P stack. We have the H T M L engine.

We have these rappers to go around IT. Instead of rewriting all of IT just use are off the shelf code that we intend to ship with windows. Famously, that's cape did not do that.

And so I E internet explore actually ends up being kind of the only application that used all these windows components. And once they got going on the browser, they convinced the windows leadership that actually we can do this fast. We should get this done as a part of windows ninety five, not wait for the next big .

release we're going to get to in a minute when windows ninety five launched. IT had either at launch very shortly there after I was called the plus pack, yes, an internet explored was available as part of the plus pack.

yes. So anyway, how does N C S moza can spiggot ass come into this? Well, the nuances, spy glass had actually massively changed the mosaic code.

They were trying to create the spy glass browser that out of on this N C S. A code base, but IT wasn't very good. And so that is what microsoft was able to get their hands on.

They could not license the original N C S. A verge, and that was gone, or at least not available for license. And so they sort of tried backing out a lot of the spyglass stuff.

Ultimately, IT wasn't that helpful in creating an explore. And they spent just as much time trying to undo a lot of IT and then build the internet, explore stuff on top. So ultimately, did IT actually accelerate their path to market? And was IT actually market in recent code? Some of IT was in there, but you know, it's not like they grabbed off the shelf .

and now it's I E makes for such a good story though IT sounds like reality is a lot like the dose acquisition. Yes, microsoft bought custos quick, dirty Operating system from seattle computer products. Was that the same thing as microsoft dos? Sort of a lot of work went .

into IT after the deal. Yeah.

as you would expect, same thing here. But IT is definitely true that if you click that about box in the early versions of internet explore told to IT.

it's just so delicious. IT is delicious. And the two big takeaway here, at least from this additional version of the story, is, one, what they actually wanted to do was make windows web enabled in a really deep, integrated way, not just have this one little application called a browser.

And technically, there was a lot of com ingle. There are a lot of what became the code underpinning. And in our explorer, actually windows code implemented in windows Operating system to do these protocols. And two, still a lot of work to make I E after the deal.

So this brings us now to the launch preparations for windows ninety five. And in the spring leading up to all this, bill writes another memo, this one intended for publication, so to speak, that is the famous internet title of memo. I just want to do a big quote from IT here.

Perhaps you have already seen my most from me or others here about the importance of the internet. I have gone through several stages of increasing my views of its importance. Now I assign the internet the highest level of importance in this memo.

I want to make clear that our focus on the internet is crucial to every part of our business. The internet is the most important single development to come along since the IBM PC was introduced in ninety eighty one. IT is even more important than the arrival of the graphical user interface. Can get any more clear than that.

very clear.

So that brings us to the August ninety five, windows ninety five launch scheduled for the tony fourth. On August sixth, couple weeks beforehand, netscape goes public with a market capitalization of three .

billion dollars. Massive IPO.

massive. I mean, this is like like to eighty five were talking about nets.

Cape, we should say, goes from one million to fifty million users in one year. I mean, IT just instant product. Market fit was so clear that people wanted to browse s the web a lot of the time in technology, in the system and become a thing that a that from one thousand ninety four onward.

never a question about the internet. never. yep. In the IPO press ycl, mark Anderson is quoted as saying that, quote, netscape will soon reduce windows to a poorly debug set of device drivers.

It's such a good quote and there's so much behind IT to if you really well in that quote, what does that mean if one of the things he's saying is windows is a platform upon which independent software vendors right applications? So windows is the way that currently people write software for businesses and consumers to use.

And if we are going to reduce windows to a poorly debug set of device drivers, what i'm implying is these crappy static web pages that get served right now, that is merely a step on our journey to enabling rich web applications. Think java s script, C S S. Eventually java and flash the web will be a way that developers write their applications.

That's right, their implicit in the quote. And so when they're saying word to reduce windows 888， it's saying, okay, windows has all this stuff right now for developers, but essentially you're gona use windows or any Operating system just to boot IT up. Connect all your preferable in your screen and your mouse, your cables and everything, and you live in your browser and you'll do everything through the browser.

And that scared the hell at a microsoft, not specifically this quote, but microsoft had come to the same conclusion, two of, oh my god, if the web becomes the platform of the future, all the reasons why we have all this incredible business, you know, people feeling the need to use our Operating system to be able to get access to their favorite software. And for developers to build applications are a form to get access to the users that could go away. And in the same memo that you were quoting earlier, the internet title wave, bill gates famously says, when I say famously, it's because the department of justice later grab this quote and used IT as a exhibit bill rights.

A new competitor born on the internet is netscape. Their browser is dominant with a seventy percent usage share, allowing them to determine which network extensions will catch on. They are pursuing a multiplatform strategy where they move the key A P.

I, the application programing interface, into the client to commoditize the underlying Operating system. I mean, they got IT immediately. The web is an application platform that completely reduces our value.

You can see why IT was so important to microsoft to beat netscape, to bring the internet in the form of internet explorer windows, and have windows maintained its role as the dominant platform. So all of the stuff will cut off their air supply. IT was existential.

And how amazing is this? It's an application platform of the future that is distributed as a windows APP. I mean, windows had huge market share at this point. I don't know, eighty, ninety percent, eventually over ninety percent market share. The way that netscape could get to consumers was because microsoft, all these computers out the running windows IT was like this ultimate trojan horse that they can build the platform of the future through microsoft up.

So windows ninety five launches couple weeks after the that cape by P O, internet explorer. Not big in, at least not in the retail box version. You can buy IT for fifty dollars as part of the plus pack that I was referencing before installed that and add IT in to windows and microsoft will make money on the sale of that software. But that, of course, there's nothing to make a dent in the free version of nets cape navigate that is out there.

right? If microsoft s goal is to cut off the air supply, David, as you already quoted of netscape, the goal is ubiquity instantly. And we don't care about making money. We just need to get this thing out so the internet doesn't nek up our business and we can sort of embrace and control IT or perhaps embraced and extended.

Netscape run continues. The netscape stock triples over september, october, november. Let's give this no way. Ten billion dollar. Public company in.

And I don't think making very much money on their servers software yet. All the market cap creation is attribute able to people believing they have the dominant platform of the future and not based on their .

current financials. Yes, basically all of the hype train that had been behind the information superhighway has now completely ported over two nescafe.

That's true. What's our track ker for the net netscape .

everybody file in yeah like a logy to today. But okay. And then on december seventh, one thousand and eighty five, bill gates announced that internet explorer is now free and IT will be bungled in with every single copy of windows ninety five going forward.

And on that day, netscape stock drops by about a third and never recovers. That was the high watermark for nescafe. It's over after that.

yep. And for good reason, I mean, there's a very difficult to learn lesson, but you learn at once. You never forget that if your distribution decides to compete with you and decides to make that a priority, your businesses over in a minute.

Yep, and that's exactly what happened. I mean, this is now the march of internet explorer. IT doesn't happen overnight, but it's inevitable by the end of the next year in one thousand nine hundred ninety six.

Microsoft has now done deals with A L compute server, protect all the old online services to ditch whatever browsers they were using in bundle in internet t explorer. And by the end of that year, in ninety six, internet explore passes twenty percent market chair. Ninety seven passes forty percent market chair.

Ninety eight passes sixty percent market chair. And then by the year two thousand, internet explore basically has, for all intensive purposes, one hundred percent worldwide groser market share. If you look at the internet, explore market share share over time.

IT is the most perfectly rounded hill that you will ever see. IT goes from zero and ninety five to like a hundred in two thousand. And then all the way back, down to zero, tody did.

which is the next chapter of this story, is how on earth did they lose that monopoly that they had in the browser? But before that, there is an interesting moment of reflection here. Why did not escape business dry up? Because their business was made from selling server software.

Well, the way to have the best server software is to also control the client. People are very interested in making sure that their websites run perfectly using the experience that everyone has and what you can no longer claim. Hey, a whole bunch of internet users actually use our browser.

Do I really want to buy my server software from you? Or I just be open to buying IT from anyone that I can sort of the lowest cost in the best value with the most features, all that so they sort of lose the competitive edge in the revenue side of the company. On top of that, it's just really hard to recover for companies that have a eighty percent drawled out or whatever in their stock Price. There was a lot of excitement around the company that then goes away. Suddenly, all these employees are under compensated company killing event and .

all the market captain excitement was all on the cub IT wasn't because of the revenue, right?

So to this point, microsoft has not changed their business model. They simply vanquis shed a potential future that was dangerous for them. They're still doing the same thing as ever sell in windows licenses through OEM and two consumers at retail. Yep.

there couple war for little, little bits from this era. In August one thousand nine hundred ninety seven is when the famous macworld happens where Steve jobs returned to the company. Yes, and bill gates shows up on the satellite feed and know, of course, this moment is legendary.

Studying IT from this lands, I realized there's this whole other aspect to IT that I didn't know before. So with bill still announce on stage, it's also so telling that bill, can you even be there in person? He joined by settled IT.

yeah. So there are four points to the partnership. One is the hundred and fifty million dollar investment yet from microsoft and apple. Two is the five year commitment on the part of microsoft ship office for mac. And those are the big ones everybody think about.

which, by the way, saved apple. The company would have been completely out of business because he was so existent. Ally, important to anyone using an apple computer to use office that have office, microsoft des are going to stop developing office people, stop buying max. And you know, the companies already in such a tenuous financial .

position is just over. So the third deal point was they agree to end all pattern disputes. So this is the end of all the back.

And before we talked about part one, but then the fourth point, which I didn't even remember at all, was that internet explore would become the default browser on the mac, displacing netscape. And that continued from one thousand eight ninety seven until two thousand three, when saari became the default razer. And knowing this now and knowing the heads space the bill was in, I got to imagine that the reason he did the deal.

well, it's funny, I actually do have some color and why he did the deal. Steve jobs wanted to message this as microsoft believes in the mac as a great way to use the office sweet. They believe in us and as the company.

And so they're investing one hundred and fifty million dollars in making this commitment to help us get through this difficult time. And this money, by the way, just to help people understand, apple was worth about two billion dollars at the time. So this is microsoft buying eight percent of apple.

yeah. wow.

Steve clear identified this moment as a time to call microsoft and say, hey, I know we're through all the pattern issues, a big lawsuit. I have more. Oh, I think you guys are using some of our stuff.

I don't want to sue you. I know the D, O, J is sort of looking at you guys for anti trust. Right now. Apple was aware that microsoft would be interested in appearing collaboration with another major player in the ecosystem.

And so we sort of have the leverage to say, hey, what if you guys invested in us and did this big commitment to office for market? Super important to help us get through this difficult time. And microsoft said back, well, really important.

Us have I, E everywhere. So they rolled at all into one big deal. No one's going to see anyone.

All the I, P is cross licensed. And microsoft gets the win with I E. Apple gets the win with the investment in office. And we can all walk away.

Interesting, interesting.

Apple is saved. Truly, apple would have gone out of business had Steve jobs not seize this opportunity.

IT was a critical business deal for .

both of them.

Yeah so to close the book on netscape, in november one thousand nine hundred ninety eight, A O L acquires netscape in an all stock deal for just over four billion dollars. But again, all stock, this is just a little over year before the time, warn a merger. And this moment here is just the absolute peek of microsoft as a consumer technology company.

I mean, I think maybe the absolute peak of any consumer technology company ever. I mean, think about the market power that microsoft has at this point in time. Apple has an existential reliance upon them.

They have completely crushed netscape. Try to quote, quote, cut off the air supply. There is nobody else. There is nothing else except microsoft.

Google is three years from being founded. Facebook is nine years from being founded.

Yeah, like this. Yahoo, sir.

there's real competition in the enterprise at this point. Sun, oracle, but in terms of what your point is, the consumer technology landscape, yeah, they had ultimate power. Yp, you have a David, I don't know the whole thing of you can just decide to. And then you completely vanquish your biggest listener, al threat by cutting up their air supply .

shouldn't be illegal. Well.

so I to lead you a little bit into our next section. Well, listeners, I think you know what is coming next based on David and I coal eluding to IT. But before we get there, we have really been talking about this idea of development platforms.

We were talking about the web as a potential development platform of the future even as far back as one thousand nine ninety four people building web applications or in windows ninety five and a. But what makes for a great development platform? Well, this is a great time to think our friends at J.

P. Morgan payments to talk about their developer platform. To build a great one, IT requires a culture focused on, empowers others and investing with a long time horizon.

And jp, more in payments knows this well. We've talked about how they're much more than a global bank. They're now investing seventeen billion dollars a year in technology and R, N.

D. But you may not know that they've also been investing heavily in their developing ecosystem. And over the last year, they've really embraced this dev first mentality with their API powered payment solutions.

yep. And if you sum up, it's clear that traditional finance folks aren't the only decision makers anymore. It's also your developers, your engineers, your product managers and so on, who now seed at the table when IT comes to finding the best payments platform for your company. Many of these modern digital first categories like ride sharing, e commerce or travel, couldn't exist without smooth and seamless payments built to the product experience.

Yes, we know that many of you listening are developers who will be excited to learn about J. P. Morgans new payments developer portal.

That's essentially a one stop shop to build solutions for your business on top of their trusted and scale platforms. While this is just a first step in a long journey for their developers, portal J. P. Morgan is really taking a long view in investing for the future, working hand in hand with their clients, dev teams, beta testers and payment industry experts to launch, learn and iterate. And they've got a robust and and road map of payment is coming in the future across treasury, commerce and bedded finance in even valued services like account validation that are going to be truly unique in the industry.

Anyone can make an account to create projects, collaborate with team members, generate access tokens, and try out payment apps that help accept, manage or send payments in the same box environment.

which is great. I can speak from my past experience as a developer that IT is very nice. When your heads down, you can just use self serve, well documented aps and code samples. I actually read through the quick starter guide and thought I was very easy to follow.

With J. P. Morgan. You get to rely on their experience and security so you can focus on your core functionality. This season, we've talked a lot about how they've been showing secure innovation with the lego system of payment solutions trusted by some of the world's largest and most innovative companies.

Not to mention two hundred years of banking experience. Your payments just work the first. And every time you get security and huge scale, we've set IT before.

Jp are going to move ten trillion dollars a day, over fifty percent of all e commerce transactions in the united states passed through their platform. We encourage you to learn more about their API powered solutions built for developers at J P. Morgan dot com.

Slash acquired and let us know if you've tested out their new payments developed cornel, in the slack, if any listeners are heading to fin tech dev conon August, you'll be able to learn more about all of this directly from their team. Okay, David, so we've arrived the famous one thousand and ninety eight microsoft versus the U. S. Department of justice anti trust trial.

yes. And I was talking about IT in the transition at the end of the browser wars.

There you like my sarky comment. Yeah, well.

we are being cleared about. My god, this should be illegal. That's really the question here. All that power that microsoft had IT had probably never been concentrated in the hands of owning company like that and probably never will be again. And the question is, was that illegal and did microsoft do anything wrong?

right? We're getting into a whole bunch of very interesting questions here. And I asked IT exactly to sort of pop up in the kind of worms.

But there is a question of what actually is legal in the U. S. What actually is legal in the E. U. Then there's an interesting question sort of emotionally for everyone who was working on software, microsoft, the vast, vast majority of people, people are not really focused on what is the business and competitive strategy.

Most people who worked on any of the stuff, their whole goal was, I wanna ship great software and make things that people love to use. And I want to work with people that I love making IT with. And so if you ask most people who worked on any of this, their opinion is, I don't know, we are trying to just make the best software out there, which is very interesting to square with this growing public perception that microsoft is being a bully, especially public generated by their competitors.

right? And then the literal legal question of, did they do something illegal? Because the actual anti trust laws are a super different thing than who does this feel? And I competitive in some way to me.

And then this, the other dimension, two of, as a consumer, am I unhappy that I get a world class web browser included in my Operating system? Ww, David.

now you're cracking up in the issue of consumer harm, the consumer welfare standard, the full thing is based on. So take us into the story.

Yeah, so the microsoft anti trust saga actually started not with the department of justice and not in one hundred ninety eight, but with the federal trade commission, the ftc, all the way back in one thousand and ninety when they opened an investigation into the company about whether IT was violating and I trust lost.

This centered on the notion of poor processor licensing, which we discussed in our last microsoft episode.

Yeah so in july one thousand nine hundred and ninety three, the ftc commissioners vote on whether microsoft is a monopoly that deserves further action in penalties and the deadlock at two to two, which means essentially a win for microsoft. No action would be taken against the company. This is a huge Victory.

The anti trust case of the U. S. Federal government against microsoft should be closed at this point time. Yes.

because theoretically, they could have examined any monopolistic practice at this point. And they said, just the one narrow thing that we were worried about, they agreed to stop doing. And we, in voting to two, we see no other issues that we need to to .

investigate the microsoft. You are good as far as the U. S.

Federal government is concerned, however, the very next month, in August one thousand and ninety three, the department of justice picks up the case, which is pretty unprecedented. Department in the U. S.

Federal government essentially investigates a company about whether IT is abusing its monopoly power, declined to prosecute them for IT. And then another department within the federal government the very next month says, essentially, well, we don't think you did IT right. We're gonna do IT. Microsoft is now all of a sudden basically standing trial for the same accused crimes twice.

yeah. Theoretically, double jeopardy is not a thing.

and in fact several members of the F, T, C commission opposed this whole process and tried to refuse to turn over their notes to the justice department. But nonetheless the D O， J proceeds. And the next year, in july one thousand nine hundred and four, microsoft just settles with them rather than going to trial.

They're look, we want to be done. We are onna, settle with U. D, O, J.

Will be done with the U. S. Federal government here. And in that settlement, they agree to enter into what folks may know, the famous words I consent decree. And that means they can sent, in this case, that they are not going to tie the sale of microsoft application products to the sale of windows, meaning they can't say like, hey o EMS or businesses or consumers or whoever. If you're buying windows, you have to also buy office or exert whatever else that we're selling in our applications group. But importantly, as part of the concept degree, they remain free and clear microsoft does to integrate additional features into the windows Operating system, which brings us right back to internet explore, is that a product or is IT a feature? exactly?

And this is so messy because, I think, David, you just use the exact language, which is they cannot tie these application products in a bundle LED sale. However, they absolutely can integrate new features.

yes. So what is internet explore?

And this also looks the other way at the whole idea of software development and platforms, which is IT is a continuously changing landscape where over time, in the interest of users, platforms do more and more and more things that applications used to do. And so the whole notion that they're gna write that sentence and then call IT good what is an application today might be a feature years down the line, but the law is written and we have to pay attention to that sentence constantly reevaluated in the context of the current time.

Yeah I mean, today, could you imagine purchasing a device that has an Operating system and that device not having an internet broster as part of the core system? No, you can even imagine that. Of course, it's a feature. Well.

is this a feature? It's actually it's literally an application. IT is a bundle application as IT exists today and is this .

is the great, this is the great. And you know, look, if you ask bill in microsoft j alert all the way back to the original memo. IT was absolutely intended to be a core feature of the windows Operating system having an internet browser as part of IT.

clearly motivated by the idea that we want our windows platform to maintain the power IT enjoys from its monopoly market share. So there is a sympathetic view, for sure, of, hey, this is core functionality to an Operating system, whether it's a feature or an application that we bundle. And also clearly, the reason you are instead vied to ship your browser is to cut off the air supply of potential computers that developed the platform of the future.

yes. So in october nineteen ninety seven, the justice department files a motion in federal district court stating that by bungling internet explore with windows, microsoft has now violated the nineteen and ninety four concentric against product time.

And is important to know what they are basically asking is this is not about future versions. You know, we know you're doing some kind of windows and ninety eight things worth thing right now. Stop shipping I E bundled into windows.

Microsoft insists this is an integrated product. You cannot do that and it's not even necessarily illegal argument yet of were allowed to do this because it's an integrated feature. They're saying we ship a pile of code and you actually cannot just rip out explore.

And if you remember at this time, you could do all sorts of crazy stuff, like you could paste a web address in windows explore. And IT would render, even though was an internet explore. So there actually was like, if you think back to that sort of vision of the browser is integrated into the window shell, and it's sort of happened.

A browser was not really at least in the explore, was not really its own stand alone thing. IT was deeply integrated. Now could they have pulled apart as a different question if they really wanted to?

I'd also remember the fact pattern here is an exactly great for microsoft of, well, they did shift windows ninety five without internet explored in the beginning. So, right.

so the federal judge, Thomas pen n. Fiel Jackson ordered them to do IT anyway. Or more specifically, he ordered microsoft ship a version of windows to the PC makers, the OEM or original equipment manufacturers that didn't include I E, so that those OEM could load those onto the pcs that they were gonna to if they wanted to.

And microsoft said, we told you we can do that, but you're a judge and you're ordering us to so they do. And surprise, surprise, when you just disable a bunch of code that other code depends on IT doesn't work. So then, of course, two things happen.

Judge Jackson is not pleased, since IT appears microsoft is complying with the letter of the law and violating the spirit and sort of thumbing its nose and being arrogant. So that thing, one thing too, is obviously the PC makers don't actually ship this version of windows, so IT never sees the light of day. And so things get real petty, real fast. The D O J asks the court to hold microsoft in contempt.

Yeah, hold, bunt back and forth. Microsoft appeals judge jackets order. And in early may nineteen ninety eight, the a palace court rules that microsoft can continue shipping windows with I E bundled into IT, and also continue to bundle any other features that they want as part of windows as long as IT .

benefits consumers. And this is interesting because this is when IT really hamers home the idea of what we, the U. S. Courts, care about is consumer welfare. We haven't explore the idea of f microsoft is a monopoly or not yet. But for now, what we are saying is, as long as what they are doing is in the consumer best interest, they're not causing harm, they're not raising Prices, then it's okay. So then .

one week later, on may eighteen th, one thousand and eighty eight, the D. O J announced a brand new, enormous, wide ranging anti trust lawsuit against microsoft for violating the sherman antitrust act and abusing it's monopoly power .

to suppress competition. And this investigation is way bigger than just is IT OK. If they tie internet, explore with the shipment of windows, this is, a, is the company of monopoly and b, are they doing anything across their entire business to abuse that monopoly? Y power. In the disinterest of consumers.

right? IT is not necessarily illegal to be a monopoly. IT is illegal to abuse your power CT.

So this cord is examining of those questions. Is microsoft monopoly too? Are they abusing their power? This is really bad for microsoft.

really bad, and it's worth decoupling. Did they do anything wrong from just legal strategy by holding a very firm line? Early of we're appealing this decision, we couldn't possibly be doing anything wrong here.

Microsoft is starting to take this super aggressive stance. And the department of justice is then like what you didn't give an inch, you're not open to just this one thing, the tying of internet expLoring and windows. Okay, we're going to look at everything.

Yep, you can see how it's sort of gods them into like OK.

We're going to bring the big lawsuit.

right? But this whole suit, you can also see from microsoft perspective, a feeling of like the trail by their government. This is the third time we are being tried for what feels like the same crime.

Then you said, double deputy is nothing earlier. What is this triple jeopardy? Come on. I thought this was supposed to be a free country where we can build businesses.

What the hell? And you know, microsoft, ks at the time to you are starting to get this singling of, why are they doing this? Are consumers really mad at us who's being helped her and they starting to realize him? There is a lot of love in going on behind the scenes of netscape and everyone else. We're competing against trying to find a way to call us the anti competitive you, which we should say is always true in these big and I trust lawsuits. But that was certainly happen in this one.

yep. And so for all these reasons, including ben, is you say, the legal strategy they started within the first place, if we're going to fight everything they say, like are right, we're fighting this. We're gona fight IT hard. yeah. So then you talk to a lot of people here, take us through what happens in this big trial to the fall of ninety eight to ninety nine.

So the first question that everyone is sort of wondering, did microsoft have a an apply here? Well, the fact is that they had over ninety percent of P C Operating system sale. So i'm not a judge, but at first gLance there you think like, okay, they have market power. So in August of one thousand and eighty eight, judge Jackson issues a pretrial order that all depositions shall be submitted during the trial only in transcript form. And so for folks who aren't in this world or looked at lawsuits before a deposition is when the council goes in dozer bunch of interviews beforehand, they're not being called as a witness in the trial, but it's specially information gathering.

Yep.

interview process, yes. So on August twenty seventh, bill gates is deposed by the D. O, J, S appointed prosecutor David. Boys, for twenty hours. And I think this happens over multiple days actually on youtube, which is interesting to know. You can watch twelve of the twenty hours I think i've watched eight or nine of IT, but it's just hours and .

hours and hours of them you like bedtime viewing of.

uh, bill gates being asked questions. So the strategy that gates in the microsoft legal team used was one that was tailored for this pretrial ruling. If you watch the video, you can see that the strategy is essentially never given. Inch avoided saying anything that can be used against you. And microsoft walked out of IT feeling like they were pretty successful in this.

And but you say tailed for the pretrial ruling. You mean tailored with the assumption that this is only going to be delivered as a written transcript, right? There will be no video, no recording of great these depositions.

And yet I just watched the video on youtube.

What's going on here? How did that happen?

So if you're watching the video though, it's very easy to think this guy is rude, pedantic and disrespectful. I'm not out on a limb saying that opinion. If anybody watches this video, that is just the obvious take away.

Yes, at a certain point they argue over the definition of definition. Is that?

yes. So A A couple of examples. I'm not exaggerating here. The deposition really does come across this just showing pure disdain for the prosecutor, the questions he's asking, bill gates rat holes on things like refusing to answer questions about memorandums since they were not memo but emails.

So I couldn't possibly answer you on the question about the memorandum at one point. He does look at David boys and ask him how he would define the word definition, of course, while smirking the whole time. And so the whole thing is like, very obviously tailed with this idea that i'm going to a give you pages and pages and pages of which you will have nothing that can be used against me.

And that is the whole strategy. I don't care how I come across. I don't care how tik tacky the language is.

You know, he sits in pais forever. He'll say, well, you asked me what the person who sent this was referring ing to. How should I know what they're referring to? I didn't write the email. You'd have to ask them I I don't know and so it's twenty hours of this well, somehow and I actually don't really know how this happened. After the deposition is recorded on october ninth, the judge then issued a reversal, saying that video taped depositions are indeed allowed to be used in court of.

yeah, how did this hold up? And if you give a great .

prosecutor like David boy's this opportunity, he uses IT masterfully. And so throughout the trial, he d show little clips at strategic moments in the trial where he either wanted to give the press something juicy to write about that day was a whole press section in the back going and listening to all the witnesses every single day, or he would place something he knows, is he going to go to rise out of the judge. And if the judge makes an expression, then the press rights about all the judge is leaning this way, that way also, he would use at any time there was an opportunity to feel sympathetic for gates or anyone at microsoft, and then he would show a clip that sort of clearly causes you to lose any sympathy or leaning. And so I was just dripped out in this really clever way.

Yeah and certainly went a long way towards shaping the decision, but also shaping, more importantly, public opinion about gates and about microsoft.

Yeah.

how did this hold up though? I didn't microsoft appeal the change from recordings being allowed for depositions to recordings being .

allowed and is a great question, David. And one of the things that I read to prepare for this episode is a book called world war three point o which is exclusively about this trial. And the author has this comment on IT.

Microsoft feared that judge Jackson was a foo. He had made a number of pretrial rulings deemed hostile to the company. They were especially unhappy that he modified the pretrial order.

The deposition shall only be submitted in transcript form, issuing a new order allowing video tape depositions. Microsoft suspected that justice had somehow prevailed on Jackson to amend his earlier court ruling. Jackson categorically denied this, but does not recall exactly why he issued the october ninth ruling.

They browsed, but only in the most unguarded private moments, because they were terrified of offending him, that Jackson was biased in wood role in favor of the government. So your question of how does IT hold up? I guess there was no formal chAllenge of that change in rule. And part of IT probably was just because they realized they a long way to go with the judge and didn't want him agitate too much.

Wow, interesting. IT also sounds like maybe they didn't realize yet how disastrous these types getting out was going to be for billing for the company.

Yeah, I think that's right.

interest. Well, okay. All of this starts to culminate in november nineteen, nineteen ninety nine. This trusted forever when judge Jackson issues a finding of fact that microsoft is indeed a monopoly in the Operating systems business. Now remember, it's okay to be a monopoly. It's not okay to abuse the power, but simply the fact that the judge has now issued his opinion that IT is a monopoly. Everybody knows this probably means the other show is about to drop.

And more specifically, the finding was that the network affects from the large installed base so that users and large body of applications so apps makes IT prohibitively expensive for a competitor to develop its PC Operating system into an acceptable substitute for windows.

which yeah, of course, obviously that's what our whole episode one was about.

correct? right? So the finding effect is, hey, it's monopoly. But again, not necessarily illegal to be a monopoly, only illegal to abuse monopoly power.

right? So couple months, go bye after the finding effect. And then on june seventh, two thousand, judge Jackson issues the final judgment in the case, and he rules that microsoft did indeed abuse its monopoly power.

And as a remedy for having done so, he orders that microsoft be broken up into at least two separate companies, separate Operating system company and a separate applications company, just like the standard oil break up border. However, many years IT was before ninety. I think .

also what this is completely lost to history, unless you are a tech old timer. Microsoft was ordered that was the ruling by the court to split up.

Yes, IT wasn't just that. Oh, microsoft lost the D. O. J. case. No, the ruling was microsoft will be split up by order of the united states government.

And there is a whole bunch of additional provisions in this. Steve bomber had to work at one company, and bill gates had to work at the other. They could not work at the same company.

Each of those two, after they picked their companies, had to divest all of their shares from the one that was not their employer. So they couldn't have this conflict of interest. IT is crazy imagining this world that could have been I mean, clearly this didn't happen, but for a moment in time, this was the position of the united states government.

It's totally well, I think you imagine if there was like the gates company and the bomber company, I mean, sort of as we're going to talk about in the rest of this episode, that is what happened, but is a very different way.

It's also worth pointing out from late nineteen ninety nine, when the findings of fact came out over the next twelve months, microsoft market cap dropped from six hundred billion to two hundred and seventy billion, which was a fifty five percent drop. Now this coincided with the dot com bubble in the CEO change that were going to talk about shortly. But the perception of microsoft, this super high fire, completely fell off a Cliff from this ruling.

Imagine if a ruling comes out tomorrow that apple needs to be broken up and I O S needs to be separated from the devices, and you need to be able to buy a phone without IOS. What do you think that's gonna do to .

the company's market cap? Yeah, not exactly the same thing.

of course, because this is not about devices, just i'm making a similar type of scale analogy what the impact would be?

yes. So do you know the technicality that was discovered?

No, I don't. I know that microsoft .

immediately appeals. Of course, IT was discovered later in june two thousand that judge Jackson had secretly been meeting with reporters in his chAmbers before the rulings were delivered. It's not allowed.

And so judge Jackson was removed from the case. Yes, the reporters all had these embargoed stories, take a drop immediately afterwards. And everyone was like, how did you? what?

Wow, that's wild. yeah. What a freezing crazy escapee here. Like, there's no other way to put IT.

So this is june of two thousand, by the way. The appeal then takes a long time. So there is a meaningful moment in history, I think, about fifteen, sixteen months where the official ruling as microsoft should be going through the preparations to do their break up.

right? That is what the world beliefs as far as anyone knows. Yeah so the appeals court removes judge Jackson from the case. They install a new judge to read judicis the matter SHE gets up to speed when now in the year two thousand one SHE started pushing the parties toward a settlement.

especially nine eleven happens. And I think that's a galvanizing factor to pull the parties into the room and say, hey, this has gone on too long and we need to put this behind us.

But also, there was a political administration change from the clinton administration to the bush administration. yeah. So then in november two thousand, one, just a couple of weeks after the windows X P launch, the D, O J and microsoft finally completely settled the case.

Also, can we just say this case is brought against windows ninety five. Windows ninety eight comes out. And then before we have a resolution.

windows X P comes out. Windows ninety eight. You mean the marketing update to sell back to school PC?

But like insane right in the whole time, in an explorer shipping with windows right the whole time. So november second, two thousand and one, the settlement is proposed at this moment in time, internet explorer has write around ninety percent market chair.

right? If you are in the camp of microsoft, wasn't monopoly, was abusing its monopoly power, you like, well, this was a complete failure process, is the damage is done yeah. Meanwhile, also, if you're in the microsoft camp of what the hell is our government doing, you're also like what the hell? Nobody is happy here, right?

An innovative company that built the most important product for that technology phase. Meanwhile, there's a whole new thing going on with the internet and like we need to figure out how to legally that transition.

right? Yeah, we have enough existence al threat to our business from technology trends happening to try to navigate that with our hand tied behind our back because of these legal proceedings.

Like come on, right. So two thousand and two, the settlement is finally approved. IT reverses the order to be split up. Obviously, microsoft is still one company. Officially, the ruling that microsoft did indeed have a monopoly is upheld. They put in place a five year consent decree, and the terms are that microsoft is not allowed to enter into contracts with PC makers that exclude competitors. I mean fine, two windows had to be in interOperable with non microsoft software, which of course IT does IT.

Once ah it's a developer platform.

they have to write A P I documentation and make their apps such that developers can build applications on top of them. That is the purpose of the company. So okay, three, an independent technical committee was created to field complaints from competitors. Okay.

they created a call on that is IT.

Wow, that's IT.

Am I missing something, David?

That's my understanding of what IT is.

Yeah, I know I don't know anything else, but okay, that is the letter of the resolution here. The actual cost of this was immense. Nothing could have been bigger. I mean, we spent the whole first section of this episode talking about how microsoft was so powerful, had never been more powerful, and there probably never will be a more powerful company than microsoft in the late nineteen nineties. This is what destroyed IT.

who that is a take right there. I think that we will debate at the end .

of the episode, oh, well, the back of the episode is about the incredible story about how microsoft rebuilt itself in a completely new market into now again, the most valuable company in the world. But let's just talk about what the actual cost is, not in terms of money. IT certainly didn't actually impact internet explorer.

Windows X, P. Was a huge success. Cells, over a half a billion copies, gets used over its lifetime on probably a billion PC unifies.

Windows under the nt. Architecture has the bliss wallpaper. amazing. But the true cost is what I did culturally and emotionally to microsoft. I mean, we talk to all these people, and god, IT was like death being there. I mean, to believe for sixteen months that the company was gonna broken up for build, to have this really embarrassing video of him all over the press, and to have the narrative change about bill, change about the company, change about for every employee working at the company to like, oh, you're the best in the test in amErica to you guys are evil. And why are you working at this company yet?

IT exposes the difference to in the legal strategy of both sides, where microsoft strategy was to refute, point by point, every allegation brought against them to the point where they were trying to review netscape. We don't view netscape as an existent al threat to us and they should just probably acknowledged ged E O. Build literally rota letter that got published a memo saying that that scape as a competitive thread burn on the internet.

But they wanted to refute every single point in knock of age. Meanwhile, all David boys in the D. O J wanted to do was destroy microsoft credibility so that every time they brought a witness, there were emails or there was deposition that basically called into question, are they really telling the truth, understand? And they really not remember that.

And I just blow by blow, made microsoft look like they were diplomats. And that has to leak into the company culture. That has to make you, on the one, feel like your government is attacking you, but on the other hand, start to question and say, why did we do this again? I thought we were just trying to make the best soft where we trying to do something illegal.

And I just know about IT, right? It's worth talking about some of the other pieces fall out. IT did slow microsoft down. There were huge amount of of protocol documentation that needed to happen.

So if anyone's running a software company, you know that if your iteration times are slower and you just have prominent new drag on your development process, you are gonna fall behind. And I think that was one that was felt by a lot of employees and managers who suddenly can do less with the same out of resources that they have. There was also a bunch of private lawsuits. Sun, a well real network, microsoft was paying out billions of dollars in these private settlements that follow the D, O, J.

Their civil suits, not to mention state attorney generals were also suing microsoft, left, right and .

international, many of the state ages for years, who brought the suit together with the D. O J, did not accept this reversal. And so they try to continue independently suing microsoft, which was painful for another five, six years.

We made IT all the way to two thousand and nine before they settled their eu version of this anti trust case. I mean, that's another what's seven years after the reversal and in may twenty eleven, that is when the final concentration ree finally explored. So basically from nineteen ninety until twenty eleven and twenty one years of the company's life, the majority of the company's life IT had been spent under some sort of anti trust scrutineer active litigation.

well. And obviously, the company thrived through much, you know, if not all that.

but where consumers ever harmed. I continue to wonder this IT was horrible for microsoft, even though there were real material changes they had to make, but effectively they won, which I guess they should have because it's not clear that there was negative impact to consumers. There was all kinds of negative impact to existing competitors or future potential competitors.

But that is not the U. S. Standard for entire law, especially at this point in history. And so I guess the right answer is the right thing happened eventually, but I was awful to get there. And IT had all sorts of indirect negative impact on the company job.

So I said a minute ago, I think I killed microsoft, immense, dominant consumer technology power. And the biggest reason I say that we didn't talk to bill gates as we were preparing for this, but is what this whole thing clearly did to bill gates. Yeah.

yeah. Microsoft had one competitive advantage that no other company had, and that was bill gates.

And for whatever sets of reasons, I mean, I can imagine so many thinking about like if I were in that seat going through that bill at microsoft was never the same person after this.

In fact, bill stepped down before the final ruling from judge Jackson.

yeah. So in july ninety, write as this big, huge D O, G. And I try to this heating up.

Steve obama gets promoted to president of the company. Bill is still C, E. O. But Steve is now promoted to president and is the clear number two. And then they go to the trial, the deposition, the november ninety nine finding of fact that microsoft is not and then ban, as you referring to. On january thirteen and two thousand, bill gates announced that he is handing the C E O role of microsoft over deceive and that he is moving to a newly creative position as chief software architect and he will remain chairman of the company, but he is no longer gonna be C E O. And then, of course, it's just a few months later that the break up verdict comes on.

Yeah, going through something like this has to feel personal and has to change you forever. I can't imagine how wouldn't totally, especially when, again, it's not clear to me how consumers were harmed. So this constant battle, this war that was waged on forever and ever and ever and ever, IT totally distracted microsoft. And as anybody can attest, especially in the tech industry, if you are distracted, you just fail because you need to have all of your best resources making stuff, building stuff, focused on a firing on all ceLinda clear in north star strategy. And so if you tie up a company for five years and you .

lose your leader, do IT. I mean, somebody we talk to characterize this period as like a mental breakdown for the whole company. I think that's kind of the best way to characterize IT.

Yeah, it's not fair to blame everything we're about to talk about all the future consumer feelings on this. But IT is helpful to keep this in mind and say, okay, why perhaps did they not fully have their wits about them?

yes. And so the transition to Steve bomber happens. This is the context under which Steve bomber became the sea of microsoft. So I talk to a whole bunch of people who are microsoft in this area. And one thing that every single person brought up that never gets talked about, IT, is how much Steve was the emotional rock for the company when this was happening. All the stuff everybody thinks about Steve vito, the running around on stage, the yelling.

the screaming, developers, developers, developers.

When do you think all this happened? The crazy dancing on stage. I'd love this company that was in september of two thousand when they thought they were going to a get broken up and Steve was there. Try and to keep everybody moving forward. Everybody we talk to is like, I don't know how he did IT and IT meant so much.

It's actually shocking. They held on as much talent as they did in a fifteen month period of people, assuming the company was about to be split.

right? Knowing that context, for me at least, IT completely changed my perception of Stephen of the competitor in this time.

fascinating.

So when Steve takes over his agenda is three things. And I think in basically priority order, number one, hold the company together emotionally. I love this company.

That is, job number one, didn't keep everybody coming to work. Job number two, clean up this hanta trust mess. And then job number three, I think, was, hey, let's keep this company like growing and waiting. And I think it's kind of fair to say he did all three. So we just talked about, one, emotionally holding the company together.

Two, one of the very first thing Steve is one to become see as he promotes brad Smith to general council, who brave ith is still, of course, leading all this in microsoft to this day, he is now president, and Steve tels bread, go make peace. So actually this is amazing. Brad's final interview with the microsoft board of directors, I wondering .

if you found this yet for .

his jovita to be promoted to general council. His powerpoint presentation to the board is just one slide that has one sentence on IT. It's time to make peace and that is totally what he goes and does.

And he says, okay, i'm gonna figure out what settlements we can live with, and I am going to go settle everything. And this company just needs to move forward. And IT doesn't matter that we all feel IT wasn't fair. IT doesn't matter that we all feel this was a shame of a process. We just have to move on and we have to live .

in a new reality. And you kind of need a new set of people to do that. It's kind of amazing that Steve was part of the old guard and the new guard to do this because how can you say i'm going to put how unfair I feel this was a side and just focus on moving forward?

That is an extremely difficult compartmentalise, ation exercise. And so for brad to come in and say, like i'm going to be the guy who is able to disregard the past and figure out how we and I use this phrase in the first episode, become a trusted partner to governments around the free world. I mean, how crazy is IT that? This microsoft that we just talked about for the last hour became the microsoft that can do no wrong from a regulatory perspective.

The only one that's not under active anti trust investigation today by the federal government, the one that is a massive provider of software services to the U. S. And its allies at the .

government level, right? The reversal here is IT doesn't get talked about enough. What an amazing job brad and the company did to reverse this perception. So then that leaves job number three on Steve agenda, be successful, continue to have microsoft B A leading technology company, and hopefully still grow revenue and profits.

And bill gates is still chairman of the board like not only as a full time employee being the chief software architect, it's not that it's like a shame that he's not the CEO. He is a very present voice at the table in these big decision making moments. And so for how do we become a company that continues to innovate and make Green products despite all this, he still has bill as the technical leader of the future products.

yes. And absolutely. Bill is still there, and Steve had billing there running to come together. absolutely. But what's so interesting is microsoft, right at this time, basically starts a transformational journey from a technology company writ large, a consumer and sort of enterprise technology company to the enterprise technology company.

And that is a muscle that, as we talked about last episode, Steve had been building for a while. But boy, does he really come in to his own here. And microsoft, the entire enterprise jogging, not that IT builds the bulk of IT really is post D O J. IT is like new business and new markets that they are getting into.

yep. So then the question becomes, how did microsoft build this phenomenal enterprise business? And along with that, released XP, the most successful windows Operating system ever. And then we're going to talk about vista and they're were going to talk about zoo and search and being in .

windows mobile. Yeah.

all that. But before we do, we would like to think huge partners of hours here in this season of acquired service.

Now yap service now is the A I platform for business transformation, helping automate processes, improve service delivery and increased sufficiency. Over eighty five percent of the fortune five hundred runs on them. And over the past few years, they've joined companies like microsoft as one of the most important enterprise technology vendors in the world.

And speaking of microsoft service now, they just announced a huge expansion of their partnership, specifically integrating the two companies, enterprise A I assistance. Starting in the fall, customers will be able to interact with service now now assist AI assistant directly within microsoft pilot.

Yeah, it's telling for the magnitude of this partnership to see sattin adella appearing in the keynote at service now big annual event knowledge last month, IT had echoes of that bill gates one thousand nine hundred ninety seven mac world video that put apple back on the map. Not that service now needed putting back on the map.

yes. And like that historic announcement from bill committing to microsoft office for the mac, this partnership is also huge service. Now noise st will be integrated with microsoft co pilot and will be available directly from office apps, starting with microsoft teams in August. The is are integrated into one seamless user experience without actually sharing data. So if, for example, a user as copilot in teams about how the companies the laptop policy works behind the scenes, copilot shares that request and context with noyce st analysis access is internal company policy with the right permissions for that user, and returns the answer to copilot in a rich card with options for the user to kick off a workflow via now assist in the future, microsoft copilot will also be integrated the other way analysis, so we can automatically generate office files like powerpoint presentations and excell spread eetes directly from assets and knowledge in the service.

Now platform is pretty awesome for both companies and especially awesome for enterprise users. So if you want to learn more about the service now platform and how I can work with your companies, microsoft services go over the service now, dog comes, slash required. And when you get in touch, just tell them that benny David said you alright.

So to contextualize how this enterprise business was built, IT is worth understanding the shape of microsoft business, like the divisions, what products generated, what revenue, even before all this D O J off. So if we go back to one thousand nine hundred ninety six, bill gades gave a great interview where he was talking about that kind of four businesses that they're in today. Oh.

this is the wired interview with Kevin Kelly, right? Yes, it's on youtube. It's great. IT is great.

So there is windows, which he calls one business. There's N T slash back office. There is office, what he calls a four billion dollar a year business.

And those three businesses together are over ninety percent. So you can think about as windows. And he said, nt slash back office, but this is the enterprise in office yeah.

which is so far to build out of IT is N T slash back office .

IT really exposes that Steve was the one, had the passion for the enterprise. Yes, I was like, it's like this stuff that businesses by, but i'm gna refer to IT by its microsoft product name of one of the products we sell, which is N T. And then the last ten percent is everything else.

So there's m and e commerce games in cycle, pedia maps, joint ventures, dream works and N B C. So he's talking about the interesting thing, the server business, which is a different way. He refers to N T slash back office all the way back in ninety six.

That is the fastest growing business, even faster that windows are office. So they sort of know they are on to something. Yep, but they haven't quite crack the go to market motion, the pricing, the service organisationally. How do they sort of fit IT in that all comes later or .

the products either really yes.

that's a great point.

The fact that he calls a vat office, this is so telling. okay. So we did talk last time about N. T. And dave cuttle's and the heroics he performed to write N T windows N T, though, was still a client Operating system architecture. For a user to use a personal computer with nt .

basically was enterprise ready. IT was like very network for work groups. IT ran on only the most high power PC.

But you're right, David IT was designed for the thing that you know the first twenty five years of microsoft was all about, which is pcs. It's not like, oh, where a systems company that makes stuffer all use cases all over your enterprise. Now we make stuff that runs on a box sitting in front of you.

yes. And discovering this distinction is what microsoft in this next area really, really nailed. And they discovered that the enterprise is not about users.

It's about I, T, and it's about systems for Better, for worse. yes. And discovering that and the products and the sales motions that microsoft could then go use to cell, to enterprise I T. And cell systems with the new you know multi hundred billion dollar market, that microsoft can now go attack and play offended in this post D O J landscape, whether they're playing defense everywhere else. Hey, here, our market are, is zero.

We can do whatever we want here. Well, IT wasn't zero, but they were fighting sun IBM. Oracle.

yes, really IBM. But some have to oracle eeta. And IT was perfectly suited to Steve strength.

So then if you've ever heard of. These now sort of stream sounding microsoft products, ecl server, active directory, exchange dynamics, share point. Share point was technically within office, but this is one of these systems types products.

These are all every single one of those names I just mention, become multibillion dollar revenue enterprise IT server products that are built and sold during the sea bomber era of microsoft. And would so like honestly, like beautiful about this is they work in concert with windows and office on the P. C.

Client side. So like this is the client server era that microsoft really dominate here and microsoft within enterprises. All these new server products work best with windows Operating system devices running microsoft office applications on them.

And those windows Operating system devices and those office applications work best with the microsoft server products. You now have a full system solution from one technology venture as a major enterprise. It's like the most incredible three sided technology fly wheel ever built.

And one benefit from this, which of course, if you're microsoft, you don't want to lean on this benefit, but they end up doing IT, is if you make everything integrated together, works well and come from one vendor, nothing actually has to be best of breed. And so you're no longer competing with any point solutions you offer the whole thing. sure. Yeah, you can consider going buying that other vendors directory service so that other vendors email server. But are you really because you buy everything from us and and all works pretty well together?

Yep, the very, very, very best example of this that most listeners can probably tangibly relate to as well is exchange email, encountering service and microsoft outlook. And what .

does that all has? Active directory that sinks across everything. In doing all this research, that seems to me that once a enterprise adopted active directory, they were gonna tip and they were gonna the rest of the software to.

Because whoever manages the source of truth for who are all the people and what are all the resources, you know, devices, everything that my company owns, everything else needs to reference that canonical set of proper nouns, whether is email, whether is calendar. So that was this incredible sticky product that then you could just keep attaching more and more stuff to any enterprise need. We got recovered. And hey, IT works with active of directory dup.

And the whole product effort here started with database in one thousand nine hundred and ninety eight. Microsoft takes secure server, and IT was the first real enterprise ready database that can rival IBM and mainframe database, oracle database. And of course, unlike I B M, IT runs on sixty six intel architecture.

So the pitch now, the enterprise IT, everything we just said about why working with microsoft server products is Better for the whole ecosystem reasons. Also, total cost of ownership don't pay I B M tons of money for their main frames, just go buy cheap xd six windows boxes from dollar whom ever and use that as your I T server architecture. fascinating.

Any guy quite understood that. And so basically you then have nt, as the Operating system, see the database and then you've got all these other applications that basically run on that stack.

And here's where exchange and outlook everything comes in. This is right as email is taking off as like the killer application in enterprises. And so now microsoft shows up and says, we've got this great new product for you.

It's called exchange. And like maybe you are using lotus notes before, which of course developed by the legendary rao's. He's onna.

Come back up here in a minute. Lotus gets acquired by IBM for three and a half billion. In nineteen and ninety five.

You're buying lotus notes from I, B. M. Come take a look at exchange. Exchange has email. Exchange has coLoring, exchange has address book, exchange has outlook.

IT is a first class included in the bundle of microsoft office office application that you, you know, mister, mrs. Enterprise are now going to get for all your users. And IT works just beautifully and perfectly with our exchange, email, calendar and address book service.

IT sells itself basically. And then you were talking about active directory, that LED active directory of, oh, okay, well, now you've got your whole database architecture running on microsoft. You've got your email in your calendar architecture running on microsoft. You've got your windows machines out there.

Well, you ve got all these employees within your company, all these users with all these devices, you can need to manage them, and you need to know who has what security access, how to find each other, and where should the mail get routed in all that? Well, we've got this great new product for you. It's called active directory.

Yeah, it's pretty incredible. That's all on the sort of why it's good for customers, on the why is good for microsoft. Steve also pioneer this bundling idea, which is once you sign the enterprise agreement, you get access to all of this.

And if you're a customer that's only using thirty percent of the things in the bundle, if you have business needs that involve some microsoft product IT comes for free in your bundle, you're gonna adopt that. And guess what, you just became a sticker. Microsoft customer.

I feel like this often goes overlooked in the like of microsoft, big boring enterprise company right now. There was a tremendous amount of business model innovation in figuring out that bundled ling like that with additional products can create stickiness, which eventually creates more enterprise value for your company because you've got these long durable compounding revenue streams. All in all, your customers are growing, so you have the whole expanding there. And the thing underpinning at all is the software itself has zero marginal costs. So you can bundle in all this stuff for free because IT actually doesn't cost you anything.

I know it's enterprise software, so it's not as sexy or exciting or thought about as much as consumer software. Bit truly, the innovation that was happening here was among the most that has ever happened at a technology company because microsoft figuring all this out. Again, these were not lessons that people knew in the IBM era that came before this.

In the enterprise, there were no users. Microsoft is now figuring out how to build in cell enterprise technology systems in this new era to businesses where there are users of the technology. And on the business side, yeah, what you just said like this is crazy.

Microsoft said, okay, we're not going to just sell you the software. We're going to a introduce this thing called an enterprise agreement where you, based on the size of your company, will pay us a certain dollar amount per year per employee. Actually, I think I was per device. But in these days, I was like you of most employees just had one device and we've got you covered everything that you would want access to in our whole sweet of software products .

inclusive of windows and office. I mean, it's not just you know a salesman comes to and sales of windows. This is microsoft advertising zing their go to market costs across all of their products because when you show up an enterprise, you ve got a lots of stuff to sell.

yep. So now microsoft has turned a one time sale of software into an annual annuity that is going to keep growing every year and is going to grow with headcount.

And a key feature of the E A is that IT is a three year agreement, which means that had you really need everything to be alive to pull this off. There is something pretty convenient that you may have noticed about windows and office. They both tend to release an Operating system or a new package of office once every three years or so. And so every customer, no matter when they sign the agreement, is essentially guaranteed one upgrade during their lifetime totally.

Here's something else that you get now as a enterprise I T buyer in the enterprise agreement world with microsoft, your needs as I T are actually pretty different than your users. They're actually very different.

So like if you are an employ of a large company at this time, you are using a windows PC at your office, what are the set of things that you want from that device? Will you probably want to be able to you might be a little want to play some games, you probably want to poke around the internet and you definitely wanted to be easy to use and you definitely don't want restrictions on there. Yeah.

you're willing to make tradeoffs like if you can get a little bit more efficiency but tradeoffs some security, that's fine if you can. You know maybe you emp ire in software, but IT makes you Better at your job. Let's also fine. You're acting with your own agency, not necessarily the company's best interest in mind.

right? You, anna, run some v ba macros. You know it's okay now.

You are a corporate I T. Administrator and all of the sun. You have to manage all these row agents all over your systems.

Rog agents called your employees. You want the ability to restrict your users from doing what they can do. You want to say, like, no, you cannot upgrade the software without us doing that.

You cannot install anything. You cannot run these macros, you cannot visit these websites, is set a and part of that is productivity. But a large part of that ban, as you said, is security.

security, privacy, legal compliance.

Am I gonna get hacked? Am I gonna get suit? If we're onna lose data. While microsoft, a beautiful solution that they can sell you in with the enterprise agreement, you can customize all of this and we will give you exactly what you want. Yes.

but nobody, David, you're started to expose a couple features of enterprise adoption which have trade, ffs. If you're microsoft.

oh yes, oh yes, they do.

First of all, if you are a user, you want the latest and greatest software with all the most innovative features. Your IT administrator has a lot of incentive to say, I don't really want to go train everyone on anything new. So if the software never confused anyone, that's a win, even if that means we never get any new features.

And so suddenly, and I have a direct quote from someone who is an executive in office, told me when I was in office, I always thought we could stop boundary new features for ten years. And I would be fine. No one would notice.

I think people would probably pay more for IT office .

got to this point where, and I think Stephen sy, even rights about this in hardcore software in his book and on his subject, that at some point they were trying to ship features that the P. M. Thought were great and users would love.

They would do these these research. They would hear that people want them. And then the sales force would run back to them and say, no, no, no, no.

Do not include that. Are you kidding me? I'm going to have all these objections in my sale. If you make me take this new feature, or take this ribbon, or take this, you know, any big you. I change everything, has to be small and iteration, and not at any training or confusion.

I joined the corporate workforce in two thousand and seven when I graduated from college, and I was an investment banking analyst on wall street at ubs. I started mid summer two thousand seven, and our corporate I T. Systems, my windows laptop, was so locked down. We were using XP, of course.

in two thousand and seven .

you are using XP. Yes, we are using office two thousand three, of course. And like over everyone's dead bodies with any of that change, everything was firewater.

We couldn't access. We couldn't stall anything. We couldn't access tones of websites. I remember when I first started, we could still access mini clip top com. And so the it's like plague dogs and games that like pretty quickly I T cut on and you know that got the kibosh. So yeah, and i'm sure ubs as a customer loved every single bit of happen.

The other big thing that you are talking about, what you were hinting at with v ba macros, the key to enterprise is backward compatibility, saying, look, we don't necessarily need to promise you anything to ground breaking. We need to meet your needs today and be the most costs efficient, you total cost of ownership driven system that meet your needs and your employers are fine with. And from here on out, everything's going to take compatible any modifications you make, enterprise or software you use and rely on. We won't break no matter what, and we will .

continue to support those versions you are using. yes.

And enterprises love that. And we're going to put a pin in this right now, and we're going to bring you back toward the end of the episode in a really illustrative way that I can deeply, deeply hold you back if you are microsoft and you have built an entire brand and reputation around your backwards compatibility.

Yep, one stat. And then one point I want to make, highlight all this, by two thousand and seven, analysts estimated that forty percent four zero of all of microsoft revenue, what I think was about fifty one billion dollars that year. So forty percent of fifty one billion dollars came from multi year enterprise agreements.

So these three year agreements that are talking about ban, that covered windows, that covered office, that covered all the products that microsoft offit, except like xbox, forty percent of all dollars were flowing from multi year e and then another fifteen percent of all dollars that microsoft was earning his revenue. We're flowing from single year. E S.

wow. So more than half the company's revenue.

fifty five percent, yes, more than half the company's revenue is all from this by two .

thousand and seven. So I mean, is really the first seven years of Steve ten year as C E. O. Yes, already tip the baLance into .

majority and the vast, vast majority of the rest of microsoft revenues. You know the other forty five percent of the company was the o em windows business. That was thirty percent. So if you look at microsoft revenue in fiscal two thousand and seven, fifty five percent is this new enterprise motion, thirty percent is the old windows business he know deal and one ovo and whoever like, you know selling the laptops to consumers in paying microsoft for the Operating system. And only fifteen percent of the company's revenue is anything else.

Yeah it's fully I wasn't to bring this up here, but since you brought up OEM, the OEM business model is completely transformational for microsoft when they figured out actually, we shouldn't be just selling software directly to consumers. Instead, we should be selling them to the PC maker and the PC maker should do our distribution. So here's a couple stats.

In the nineties, the box software that microsoft would use to sell windows, their gross margin on a copy of windows was twenty nine percent. That's not good. They had to print the disk, which had actual real cost, especially on floppy, is you have to put IT in the box, you have to ship IT to the retailer or you to split profits with the retailer, you to pay the sales and marketing costs.

I mean, it's like real material costs. This is not a zero distribution cost, zero marginal costs business in the box software retail world. But when they're selling through an O, E, M channel, their gross margin was seventy five percent because you just shift the bits to the O S.

Once and then the P C, manufacturer takes IT from there. Not only is an amazing because you get that seventy five percent for the twenty nine percent of gross margin is also an amazing way to scale because you do a deal with every om, you know, as you're going down the line. It's the VISA networks of network's thing that I think we did last episode two, you just get each of them scaling on their own can recruit you without you doing additional work to do the scaling yourself.

And so David is interesting. You're talking about how eighty five percent of the business by two thousand and seven was either enterprise sales of the E A R O E M. I mean, theyd basically kick the can to the curb on that crappy retail box software model. And they're just doing the whale hunting with their sales force and doing these enterprise agreements, which of course, of great margin structures and the o ms.

And are united and exactly .

way Better business model in every way. They pivoted the whole business to the two best ways to sell software and completely eliminated the bad way. Sell software, yes.

And one of which they figured out post D, O, J. And IT became yeah by two thousand seven over half of the revenue with the company, which is crazy. Now then when you said put a pin in a minute ago, I know we're going to come back to this.

After all the consumer failures about to talk about, there is a downside to this. When IT becomes your customer, when you become an enterprise business, the quality of the software, especially the user facing software, is no longer priority number one. And this wasn't a problem for the company until in two thousand and seven with the iphone. But let's really one and talk about everything that happened in consumer software, microsoft, until then. Yeah.

what was going on with windows releases during that time. And I think through story telling the windows releases, we can then understand the state of the company. So windows X, P, why was windows XP such a big deal? Well, IT was a big deal technologically. IT was a big deal for users and IT was a big deal because it's pretty wild that microsoft, amid all the anti trust stuff we were just talking about during the ninety ninety eight to nineteen ninety nine, the ruling in two thousand, the settled proposal in two thousand, one, they developed and released an Operating system. And it's all of that .

and an awesome one.

yeah. So what was windows XP technically? Well, for the previous Better part of a decade, they had two parallel development efforts going on.

There was windows N. T for the enterprise, and there was windows nine, no, windows ninety five, windows ninety eight for consumers. And both of these had the same A, P, I that developers could write their applications for.

But ultimately, the way they were implemented, the way in a Operability work, compatibility work to user experience, everything about IT was actually completely different because IT was a completely different implementation of those A P S. And so the knock against and t was always, well, you need really bf enterprise grade pcs to run IT, and it's not as nice. And in two and the knock against the windows nine x called ninety five was that, yeah, that looks pretty, but it's not powerful.

I can actually do anything. IT was like a friendly interface, but not a powerful set of functionality that came with the Operating system. And so XP did the impossible, where they figured out how to take the ease of use of the nine ex interface and make IT run on top of N.

T. The whole thing is built on the nt. kernel. l. And IT has the friendly approached ease of use that you are used to in windows ninety five and ninety eight.

Amazing.

amazing. So the lining age of that nine next code base that came all the way from windows three out, or maybe even wanted to how long code lived?

Interface ager.

right exactly, is now dead. And so you had the nt liniers of, I guess maybe even you could say that started with O S two, but windows nt, windows two thousand and then windows XP. So everybody's running XP. Now there's two editions. There is home and there is professional.

No gotto get the professional.

I always get the profession.

did you? Every time I built a new P, C, I got to go pro. I don't even know a prom I definitely didn't need because I was a corporate, got a pro. IT came with .

the all kinds of great stuff. They've got this great slide. It's a fun announcement to watch the emphasis on digital photography, digital music, digital video, home networking IT ur us into this age of you probably have media that you're using on your computer.

Apple famously owned this as a corporate identity with their digital hub strategy. But you know, windows X P, plenty of people were importing digital photos of their camera to windows X P. That was A A sort of big.

exciting use case for a lot APP ster clients running on windows .

XP machines lot. And aster clients, yes. So like I did for every microsoft windows release, I went and watch the keynote. The keynote is extremely strange. Think about what a Steve jobs keynote was back in the day, or what a wwdc y notes like today, or a google I O. This keynote opens with a gospel choir singing amErica the beautiful, and is followed by bill gates and rudie Juliane walking out on stage together and talking about how bad terrorism is.

And of course, the thing you need to know about this keynote is the date.

yes. So this happens one month after nine eleven in new york city. And IT really underscores what a strange time IT was in the U. S.

If you had this once in three years, product release and IT was gonna be in new york, october of two thousand and one, you pray, have this question, should we even do? What should we make IT all about the first responders? IT grounds the whole thing in a very specific moment in history when you're watching IT in a way that no other tech event really ever has been grounded in history before.

So a few other things that jump out during the keynote. Bill gates is not the CEO Steve bomber is and bill gates is the one walking out with really Julianne to kick things off. And that's a strange and somewhat telling element of what bills role at the company was.

Now you can argue he was the public facing figure, he was the founder of the company. IT seems very natural, but also at some point, why isn't the CEO the one doing the keynote? Another thing about windows X P, there was a new release of office right at the same time as X P.

This is a classic microsoft move. They are able to create great applications available on day one, which makes the O. S more valuable.

And so from the applications perspective, very able to ensure that they get great market share since they're always adopting the latest and greatest windows platform right away. So windows success begets office success, and it's important. Remember that, that worked for many, many years.

And if you remember back the last episode, notice one, two, three and word perfect smoked microsoft in microsoft own backyard. During the dos era, microsoft productivity apps did not get real adoption in dos, which is crazy. So when they were making windows, they basically swore never again.

They ensured that they were going to be very early with applications on those platforms. So as windows took off, office also got huge market share. And it's smart to remember this lesson and Carry out ford for years may be a decade, but again, they may have bet on this strategy a few years, too long, forever.

IT kind of became gospel. Microsoft, so with windows goes the company. And so you need to do things to make sure that windows is gna continue to succeed because that is our companies s platform and livelihood.

It's almost like the old disney adage. So with animation goes the company. And until twenty fourteen, microsoft felt the same way.

yep. And yes, that is true for all the traditional reasons in the X P time frame. The reason I was also true in part one of our microsoft series is even more true as microsoft becomes an enterprise company because windows is at the heart of the enterprise agreement. The whole value prop of all of our server technologies is they work great with your windows devices on your network.

right? And so there are strong incentives everywhere for microsoft to ensure that windows is the standardized platform that everyone wants to have on their pcs because IT kind of makes everything else work. So of course, they're going to release a new version of office that shows off the latest and greatest windows.

And I think this X P time frame is the showcase moment of when that was a great strategy and will contrast that later. Yep, the other thing to know about this X P time frame is last episode we talked about the incredible secular growth trend of the PC that was this crazy tail in for microsoft, one of the greatest tailwinds you could ride in business history. P.

C. shipments. I believe the state, David, was that they grew ninety eight percent per year over the eleven years between the founding in one thousand nine hundred and seventy five and the IPO in eighty six.

The crazy thing is, even as late as two thousand and one with windows XP, they were still writing this tailwind. The U. S. Household penetration of personal computers, again flashing back pri po, was only eight percent.

So that whole doubling year over year over year by microsoft IPO, they still only got to around ten percent of penetrating the U. S. By nineteen nineteen ninety seven.

Thirteen years later, agreed to thirty seven percent. And after a couple of years of XP being in market, two thousand and three IT had grown to sixty two percent. So I think the crazy st.

Stat is actually that last one, two thousand and three feels like a modern moment history. But pcs were still only in sixty two percent of U. S. homes.

Wow, that's crazy.

The P. C. Wave is just one of the greatest cutting trends in history, particularly if you have a monopoly share of that market.

P, and they last defined by the U. S. Government, did been defined.

defined for there's .

just no question of as this market grows, are you going to be able to continue to participate like yeah, we basically are a tracker for that market like IT grows, we grow with IT.

Yep, and that might be a good time. Certain microsoft ans have probably been listening to the episode and gripping their phones with all their strengths. Like when you to talk about x box, we are going to talk about x box briefly right now. We will do a whole another episode on x box someday.

Maybe David will make your case. And then let's talk .

about IT my cases. I love my x box. Well.

it's important to know microsoft didn't start in gaming with the x box, windows ninety five. They ship direct x that change the world. They became a real gaming platform because of that is an unbelievably clever set of A P.

S. That went entirely around windows. Amazing piece of technology. Put microsoft on the map, and you have the whole rise in PC gaming for the next six years, even before the xbox.

Yes, totally. It's that microsoft is so huge. But this is one of the things that kind gets lost to history.

But you are absolutely right. Direct dex was so important in that late nineties area for P. C. Gaming, quick counter strike, everything that happened half life later that was enabled, you know, doom came before and was really just like the genius of car mac as a program, are to be able, a first person shooter to happen on a PC hardware without something like direct tax and hardware acceleration.

But yes, everything they came after that, the birth, the first person shooter genre, huge story to tell another day. But you're right, that leads into x box and microsoft entry into the home console. Crazy that happened in november two thousand one. So just like a couple of weeks after the X P launch, IT was a big time for microsoft.

And how crazy is this? They thought they were getting broken up.

right, as they launching a video game council and this .

opening system that theyve been working toward for.

like, eight years. Yeah, this is also part of my argument of microsoft was such a dominant consumer technology company before D. O. J. Because even though all this stuff comes out right after, it's the momentum still from before that's Carrying .

microsoft three to IT. Yeah OK well, were in x box and we finish our x boxing is right now for this episode, sir, xbox has become an important part of our world, but not an important part of microsoft business. Agree, David.

I sort of heard people other things in our research like x box is kind of been a lifetime break even business or it's never meaningfully contributed to microsoft. So i'd tried to figure out as much as I could from financial statements. And I ve got to think, alex, at the science of hitting its a great for helping me with this.

If you look there was a division called entertainment and devices that was part of their old reporting structure and if you look at the E N D reporting over time, let's start back in two thousand and six, they generated four billion dollars in revenue, lost one point four billion dollars Operating loss. So this is five years after the x boxes come out, lost, making two thousand. And they do eight billion dollars in revenue, four hundred million dollars in profit. So like even as it's becoming a real business at .

steady state, three sixty is, yes.

coming into tiny margins.

totally.

two thousand and nine, eight billion dollars in revenue, a hundred million. And Operating income, two thousand and ten, another eight billion in revenue, seven hundred million. This is seven hundred million dollars to microsoft in this time from they do caught twenty billion dollars of profit. Yep, what's six hundred? You know, seven hundred million.

There is a great quote, will bring IT up again later. But we get to talk to Steve again to ama as we are preparing for this episode. And he had this mazing code to us about some of his acquisitions that didn't go well.

He said we only lost money. It's funny, but it's such an important point in the context of microsoft. Money is not the scarce resource. The scarce resource is time and talent and focus. Yes.

David, that is exactly the right point. Microsoft sense year two or three has never been capital constrained. And bill gates says this in an interview. Any time we've thought about making investment, it's just do we have enough talented people to pull that off on any given year. I can't deploy all of the dollars available as a CEO as a capital alligator because i'm constrained by the amount of smart people we have to pull IT off. That is a much different position that most businesses are in.

yes, but is absolutely the case not just for microsoft, but for all the at scale to companies these days of the top five market cap companies in the world. Yeah, money is not the issue.

right? In fact, you're making my point for me. If I had to make the case of Y X box has been somewhat of a folly, and perhaps not worthy of a full acquired episode, IT would be there was a lot of microsoft best people worked on xbox.

This is a group of people that went and created x box live that by twenty twelve had forty million subscribers. So people who built a core competency of running a big online service. I mean, there are some of the best product people, the atheistic of x box, from a physical perspective, but also the software.

I just think IT was a sync le of some of microsoft best product people and his hardest working people. The culture at x box was so hard driving produce, at least in this point in history, up to the two thousand ten time frame, very little in the way of contributing to microsoft business, but soaking up a huge amount of the talent. Imagine if that sort of product design sensibility was deployed across the rest .

of microsoft totally. I think experts live is debate will come back to this with azure. Yes, experts live was one of the original pioneer internet services subscription services across any category of software and technology. And the DNA experience that microsoft t from that served IT extremely well.

I mean, yes, I think there are two gigantic benefits. Look, the gaming market is massive and important. And if you could try to own one market in the world today, in the world of entertainment, it's gaming and said microsoft didn't up until that, at least this point in history, but it's the right market to go after.

They were not successful in capturing value from IT at this moment in history. But you're right, the two big things that they were able to do is build out a core confidences y of running a big online service, which totally LED to azure, which we will talk about later. And to IT really did make microsoft relevant with a whole new set of consumers when microsoft was completely irrelevant in their lives.

So we talk .

about VISA. Yes.

a boy. So there is a .

little tail off of XP that i'll lead the vista.

We got to talk about the .

code names too. yes. So the windows X P. Code name, David was what?

Whisker.

of course, like the beautiful scheme mountain, real close of ancient lot, to see Adelaide go there is a favorite of media. Microsoft 的 employee。

And black on the .

scheme mount in right next to whisker is, yes, black hom, which became the name for the theoretical release that they wanted to do, like just a year or two after vista wonna follow hot on the heels of that way. But black home started becoming pretty technically, Harry, so they decided to push the date out. Another reason they had to push the date out was windows.

XP, for all of its ugly and reliability, was very insecure. And so microsoft had a whole thing where they thought they were going to spend like three months putting out of service pack. They spent the Better part of two years iterating got windows X, P. To come out with a really that really people and enterprises could trust as no viruses. No, this is safe to deploy your enterprise.

This was service pack two, I think was what ultimately windows .

XP sp two is the stuff of legend, like that's the good one. So that pushes black, comes date out. And IT also tied up a lot of the talent that microsoft needs to start working on the next generation Operating system, which again, they thought was gonna a fast follow for anyone who speed up there. There is a great ski lodge restaurant right between the two mountains called the long horn saloon. Yep.

long horn baby. That sounds like a .

great name for a modest release to follow XP. Before we get to the big hard changes that get to come in black home.

Why.

David, look on your face.

So I remember being like a teenager in high school at this point time, and reading all about long orn black home, all the stuff on the internet, you know, all these new tech sites is blogs like this is gonna be amazing. I remember loading like new shells for windows X P to mic the long hall U. I, with the side bar and the clock on the side. Oh, man, what a disaster.

Well, this was part of the belief behind long horn. They wanted to market all the cool stuff they were doing for IT through these sort of like developer blogs and fan blogs, even though the product of a ship date yet. And so everyone got really well versed in what was coming in long horn.

And then everyone was kind of sitting on their hands like, where's long orn? They've been really telling us about long horn in a way that you would never see today. No one's dripping out the features of something that is potentially still years away from a release. And ultimately, he then years go by, five years go by. Yeah.

could you imagine if apple on their developers site, apple, or just like, hey, here's you know I O S twenty three, here's all the great new features were building.

I mean, the funny thing is they actually kind of a did that this year with all the AI features. All of those are coming soon over the next year dot, which I do not say that a bad strategy in the current environment, but this is a different strategy for apple anyway, long horn is teased for five years. All the David rose cells out there are kind of like what the hacked microsoft ve been excited for.

All this crazy stuff you're showing me what's going on? Well, what happened behind the scenes, David? What was the initial technical Spark that was supposed to be the corner stone of long horn? Well, there were .

three pillars of, I think he was all originally supposed to be black. And then they're like, no, no. Gonna pair IT down the long horn. But that all ended up getting added back into long horn, the first of which was called evil on. And I was a new graphic s engine that use direct hardware acceleration. So I think the vision for this was kinda, he, we're onna, take direct ex and bacon into the Operating system and allow the Operating system to use G, P, U. Hardware acceleration.

Yeah, that's more or less at all. These code names ended up preferring to multiple things because IT was emblematic of the organizational disarray inside the windows development team. But anyway, that sounds great, right? We can render all these really great graphics as a part of the Operating system because it's G, P, U. accelerated.

Who doesn't want Better graphics.

of course. right? The thing that ultimately happened is the o EMS. We're already to make net box. And so they're furious at microsoft about saying the next new release of windows, which is five years since windows XP, they really, really are counting on a new version of windows to drive PC sales. And the one that they're getting requires pretty good .

GPU like a gaming P C.

yeah. So was like a kind of a total miss with what their O E. M. Partners were looking for. But if you did buy an S, P, C, and you did eventually enable a copy of windows vista, this is why you got to see the new, what a, what they call them.

all the arrow into ero.

That's right. The blue shiny sort of think that was I kind of ripping off machado S S. oakwood. I an come here, we tell where your true yale lies.

Well, i'm just saying.

like if you run a company where you make up your own hardware and your own software, that is much easier for you to hardwork accelerate all the graphics in the Operating system. But when you're counting on O, E, M partners, you need really good communication there.

yes. Yeah, that was one. The other one was a new web services framework called indigo, which I don't know. I did a lot of research and I couldn't figure out what I was supposed to be. I think I was kind of a fever dream of like, let's stuff the internet fully into windows.

Ultimately, there is a very fundamental architecture shift that just did not pan out. If you remember him, the last epo de, we talked about chicago windows ninety five. And caro, the theoretical thing that never shipped that was gonna the next generation Operating system. Well, they basically again did the same thing again.

Yeah, I think bill gates was a big fan of this vision because I was really technically ambitious where they had an object oriented file system, where the file system could specify data types, and then every application would plug directly into the data types that the file system knew about. So there was the sort of standards, like a calender invites, a calendar invite, and the Operating system has its own fields for date and time and notes. And that means you're not always traversing directory trees whenever you're try to search through stuff and also IT meet that the Operating system could actually reach into the data within files that were being stored by applications. So IT was sort of a standard way of storing files and an easy search way.

And what you're talking about here is the third pillar of long on slash black home, which is win F. S.

Yes, ultimately, when I guess they tried to build IT many times, there was a lot of offsides and architecture reviews and talking about how great IT was when in practice, there was never any pull from application developers that they wanted this in the first place. And this was a huge part of the wheel spinning of what we can do all the other stuff in the Operating system until we figure out the back and the implementation for a one F S.

And then once we have that, then we can start to do all this other stuff. Part of the other stuff was the dot net development team wanted to bake dot net directly into the bits of the Operating system that shipped in the box and on your PC. So dot net was everywhere.

So ultimately, what happened here is, and I heard this from a developer, there was many different groups who are all compiling their own side projects, and they can sort of run them, but when IT came time to try to actually do a build of this Operating system and say, hey, we've had too many offsides and architecture reviews and restarts, and this is in, this is out. Let's just try to do like a build of the O S. That we could deliver. They never built long .

work like I did not compile.

They could not integrate all the different projects into one. And they ended up reworking from an old windows server version or something and adding things in one by one peace meal to try to figure out, you know, in year four, how can we get something shipful out to consumers so we can say, this is our next generation Operating system. And what is the minimum acceptable set of stuff that we can put in such that that looks and feels new?

So, okay, long horn visited. This is truly a disaster for the company.

Also a hundred percent IT is. But they were trying to talk about IT like IT wasn't. So I watched the launch announcement for this too. They kind of half to they can't really say like nobody is shopko to this. So they come out, first of all, its bill gates again in two thousand and six, six years after save bomber has become CEO.

My opinion on this is they clearly had no idea what to talk about in the keynote because the one feature that I can kind of really remember as a flagship feature is that all tab switcher that you was three d that keep in the windows closer and closer and closer to you. They have got the wages theyve got the side bar at aro. They had one feature that people hated.

There was a revolt called user access control, which the theory makes sense, protecting users from running militias, ba ba blah. But in practice, IT would just overwhelm with dialogue boxes all the time. And everyone just trying to figure, how do I turn off the dialogue boxes? So they're standing up there at the keynote, the whole thing, the marketing messages, the wall starts .

now a boy oh boy, it's a .

completely incoherent ve incoherent set of things they are launching. Consumers didn't like that. Businesses tried not to upgrade even as late as two thousand and nine. So three and a half years after a launch of me like that, three quarters of corporate pcs are still running XP and had never upgraded to via.

It's even worse than that. You may have this senior notes, but microsoft o EMS. Were so unhappy because consumers didn't want to buy vest machines. Microsoft had to extend the ability for their O, E, M partners to keep selling XP machines to consumers for another two years after this.

just brutal. This was kind of the windows culture at its worst. I worked in office, so I have a bias here.

When I was a microsoft, but they weren't super ship date driven, where as office would set a ship date three years in advance and then they would hit IT, exactly office healed, really robust procedures for shipping, you know, a trios process and escalation process and zero bug bounds. Everything was run in this dev test pm triad. The excuse was this general guys that this is too hard to use your processes like we're doing alchemy over here.

And because we're doing systems level programing, none of your software r development principles work on us. And so ultimately, this was the failure mode of a process that really did work for a while, really did enable technical genius, really did enable solving hard computer science problems. And this is effectively the company smoking their own supply and just believing they were smarter than everyone else and what consumers want to didn't matter. And if they could come up with some fluctuated cool technical thing, then that is what they should spend years doing and fighting about and then force into the market and the .

market didn't take IT one that yeah and a couple of things on this one. So when investor actually ship to sort of your processing SE, IT was been, as you sing, a complete research.

So brian valentine comes over from exchange, you know in windows server in the enterprise world to take over managing getting something out the door, just cut all the features, cut all the pillars of the windows LG horn vision IT still takes two years in that process to get IT out. And then immediately afterwards, brian leaves the company. Lots of other great engineers leave the company to, they go down the street to amazon. And then brian is bleeding the entire engineering platform team for amazon 点 com。

Wow, oh, I didn't know that we're, I went interesting.

Yep, yep. He went to amazon. He was like a named top senior level executives. Ity I was on for a long time. Wow, you know. And then the other thing about this whole process, that this is purely my own speculation, like nobody said this.

But just as i've been thinking and reflecting on how seminal a moment the anti trust stuff was, two microsoft, after the height of their consumer power right beforehand, I think this might be a case where bill no longer being C E O and just being cheap software architecture really impacted this process. When you're C E O, you have to engage with your O N partners. You have to engage with enterprises, you have to engage with customers and that that it's all bills falt by any means. But this long horn black home disaster, bad, as you say, was the case of getting high on your own supply within the company.

And if he's only spending the time on technical decisions, you need some introduction into that feedback loop. Some governor on how deep to go in the architecture windows for rearchitects ting windows. The sake.

right? And you know, remembering back to part one two is not just the bill was a great engineer, he was a great business person, one of the greatest of all time he trained from birth is like, what company am I going to be C. E. O of? right?

The issue with microsoft is that there is only one, bill gates. Bill was the best engineer. Bill was the best lawyer. Bill was the best deal negotiator to figure out what the right bd, the situations where bill was not the best enterprise relationship builder.

I don't think bill had a passion for empowering the enterprise and you know making sure that businesses succeeded the way that Steve was. But nobody should ever sell bill gates short and say he was just a technical genius. That would be wrong totally. yeah. Anyway.

this is really bad at the same time as via actually is coming out in late two thousand six. This is when apple starts running the mac .

verses PC ads.

which is just brutal. And boy, if you're microsoft, tis that hurt. And like mac sales are irrelevant. Even today in twenty and twenty four max sales are eight percent of the market.

And what were they at this point in time, like two or three .

percent zero? I don't even know. Like, you know, he doesn't matter. But the point is not that apple is taking massive ve amounts of market share from windows, is that they are hitting a nerve with consumers, with enterprises and within microsoft itself. Most importantly, of shoe, we are way behind here.

And the part that really heard about all those that versus pcs as so many were just straight up true, you know, i'm a PC and I crashed again to be in the halls at apple when they're firing on all cylinders. Steve jobs back. The ipod was a smash hit.

You're developing the digital hub strategy. Max are starting to cell because of that. Your ipod attach rate with max is actually working.

People are buying max. Max are becoming the option that students are starting to pick as they're picking their college computer. Market chairs rising and microsoft comes out with vista. You just have to be besides yourself with this gift you've been given like, oh my god.

look at this opening. Here's where IT mattered and the timing mattered so much too. This sets the stage for the iphone because apple now in start, contrast to vista and with these ads, is training consumers with the benefits and the joy of IT just works.

yeah. And what did the mac do? IT just works. And what did the ipad do? IT just works.

And what did the iphone do? IT just worked, right? Yeah.

because there was this pent up demand. I remember people in two thousand and five and six when the rumor started there, is this almost like clinton people's eyes. What if apple made a phone? Wouldn't be awesome.

And IT is remarkable, like the iphone delivered on all that promise. But there actually was, wow, what if we have technology as good as the stuff that apple makes in the form of a phone? Didn't that be great?

Because phones are so crappy? So I think, yeah, you're right. There's something there. There was a training of associating the apple brand with.

well, I was really a setting of the apple brand promise at this movement in time. Yes.

at a great point.

And I think we've got a color here, the death of microsoft as a relevant consumer technology company. They never recovered from this as a leader. Well.

yeah, I think that's correct. There is a lot to talk about in their consumer technology offerings. I also think this is the death of microsoft as an interesting platform for developers who is writing this to apps, the win 32API， as a potential target for my new interesting innovative application. It's just not a thing anymore. You have to write a windows desktop APP at this point in history because it's where a bunch the users are if you need a desktop APP for real, for real, but probably you're just reading a web APP, you've lost developer hearts and minds, which is the path of losing relevance.

I've think with one exception, I think you are totally right. Nobody is writing vist ABS. But the only people left who are writing windows apps period are enterprise developers writing custom software for enterprises.

Yeah, at a great point. That is the exception. And of course, anyone that had big legis applications from main windows. So adobe is a great example of they are going to keep that up forever. But where these new disruptive software players are coming from, there are just not to have windows apps.

Facebook is not writing a window to APP correct?

So the biggest things to hurt microsoft coming at a vito are what we just talked about, losing developers, what we just talked about losing users. I mean, consumers who are excited to buy a computer there, just not excited to buy a windows with PC. But the biggest thing is they lost years of their very best talent.

I mean, mister was a black hole as I just kept growing and growing grown IT would suck in more teams. And as I sucked in more teams, you would get the town that I would suck. But then IT also would suck in executive and distinguish engineer talent from elsewhere to come fix IT.

And so microsoft is about to be in a place where they need to compete and understand the changing landscape and social. In mobile, in search, they still have to fight the browser war. I mean, I E is peaking and about to start falling off a Cliff and are completely consumed by vista. So I think a lot of the consumer stuff can be answered by Steve bomber wasn't really a consumer oriented technologist. That seems fair.

How do you got? Is true p trip, but that's not the whole answer.

This to consumed a bunch of the smart st people, even if they had the right vision to be chasing. And the D O J had just crippled the culture, among many other things, and they were still recovering from that.

One hundred percent. In that conversation that we had was, see, before he, you made the comment about my accusations by mistakes. We just lost money on the bad ones.

The genesis, that conversation was about vista, though he was reflecting, he said that probably was the worst moment actually in my ten year A C, E. O, because all of the best town, everything you just said, IT was off the field. IT wasn't playing. IT was out of commission.

right? Money is not a scares resource. So bad acquisitions, whatever who cares, is just money, but consuming a huge percentage of microsoft most talented engineers. That's company killing you.

I mean, he even taking brian valentine off of exchange. Exchange was freaking killin IT in the enterprise. He goes and spends two years getting visited out the door and then goes the amazon. Oof, that sucks.

brutal. One other microsoft exact put that to me. IT heard so bad that a bunch of our best systems people were leaving the company, driving a cross the lake, going to work for an online bookseller, and then building that online bookseller into the market leading enterprise compute company. That is a black eye right there. yeah.

Oh, I kate. Wait, talk about them. Okay, bin, i'm too excited for user. Let's do search. Let's do mobile, windows, a zone, get all that o and then let's talk cloud.

baby and David unexpectedly dly, there is a through line through all of them. There is a cohesive story that leads to azure here. Oh yeah. But before we do that, this is the perfect time for another one of our favorite companies at long time acquired partner's pilot dot com for startups and growth companies of all kinds, pilot hindle, all of your companies, accounting, tax and book keeping needs, and is by far the largest startup focused accounting firm in the entire us.

Also, as on our first microsoft episode, we have to give pilot CEO what seemed her a special shadow out here because he is the only acquired sponsor, C. E, O, who is also a research source for us. On the same episode back when was seen was a student at mt.

He interviewed bill gates for the schoolhouse aper, and he duggin up and send IT to us. Bill talks about microsoft force coming forty gigi portable media center IT was a pretty fun time, captain. We will link to the PDF in the episode sources.

yes. So back to pilot. And speaking of bill, we talk all the time on acquired about one of his seattle neighbors, jeff bao s.

And the A W S. Inspired xy. That startup s should focus on what makes your beer taste Better.

In other words, only spend your limited time and resources on what's actually gone to move the needle for your company, for your product, for your customers and outsource everything else that you need to do that doesn't fit that, bill. And accounting is just example number one of this. Every company needs IT. IT needs to be done by a professional. You don't want to take any risk of something going wrong, but at the same time, IT has zero impact on your product or customers.

Yeah so enter pilot. Pilot both sets up and Operates your company's entire financial stack. So finance, accounting, tax, even higher level CFO surfaces like investor reporting, everything from your general ledger, all the way up to budgeting and the financial sections of your board decks. And they will be doing this for years across thousands of startups in silicon valley and elsewhere. There's nobody Better who you can trust to both get your finance right and make IT easy and paintless for your company.

And when you say thousands of startups, pilot has done this for open a eye air table scale as well as large e commerce and and other companies. So it's not just that they have experience across artus. They can also keep working with you as you scale to the growth phase and beyond.

So if your company wants to start focusing on what makes your bet is Better to pilot dot com slash acquired and tell him that ban and David sent you thank you to pilot. okay. So search and the alternate title of this chapter could be an acquisition that wasn't I think that lost to history .

moment is .

the acquisition that almost happened here for forty seven billion dollars.

Oh.

okay. So i'm just actually curious, do you know the company i'm referring to?

Do you know the the deal? Well, it's funny the way you phrase that i'm taking like go to microsoft trying buy google and I don't know about that, but the number of course, you're talking about yahoo.

Yes, yes. okay. So let's sit some context before we get to this two thousand and eight yahoo attempted acquisition.

So there were two companies that had developed programmatic advertising technology to serve and target online ads, especially in search. There was double click, the market leader, and there was a quantive. Microsoft had lost the double click acquisition to google.

They bought a quantive, and that didn't go well. There was seven billion dollars, and they ended up declaring, basically the whole thing are right off. So microsoft is desperate for search market share.

And between their internal efforts with amazon search, and I believe I was called windows live search, they were not making much progress there. And at the same time, internet explorer had totally linguists shed. Microsoft had completely taken their eye off the ball of the browser wars from ten years earlier, and I E was just widely regarded as a garbage browser.

And web developers hated IT because, imagine write a bunch of weird customs stuff of random things, wouldn't oran? I E users hated IT because basically nothing new was coming every time a new version of the opening system would ship IT just felt like it's the same old intern explore over and over again. And you have firefox coming on the scene, starting around two thousand and seven, where I was really making a dent and google was the default search from firefox.

You, firefox was awesome. I had tabs. I didn't have tabbed at the time.

But oh god, F.

I don't think safer had tab. Chrome wasn't a thing. And so I know i'm on the one hand talking about search, on the other hand talking about the browser, but it's the same part of gold.

but it's the same thing, right? Yeah, IT turned out search was the business .

for the browser. yes. So the thing that you kind of have to realize is the browser is the front door to search. Search is heavily, heavily model zable. And if you're google and you can model ze IT directly, that great. But let's say you're not google, let's say your firefox or microsoft or apple, and you don't have this incredible business model of people bidding on the keywords for search and all the r indeed, to go into making search good. But you actually do have the user attention. The front door, well, you get to moise IT to the rumors are that apple make something on the order of twenty billion dollars a year today in twenty twenty four from google as being the front door to google, sending all of the iphone search traffic to google.

This is the traffic acquisition cost in google's finial statements.

absolutely. And so if you can be in the business of Operating a scale surge engine or you can be in the business of directing traffic to a scale surge engine, who is willing to pay you for that traffic? It's gonna a great business.

So David, as you just said, the way to monetized the browser is owning and Operating or directing to ASR engine. So search isn't going well at microsoft. At first, IT was sort of because they just didn't take IT seriously enough.

When google first started in one thousand nine hundred ninety eight, I think there was a lot of skepticism that the auction based advertising business would really work. And then there was skepticism that I would really scale. And then when I went public, people are sort of looking at IT, almost freak out bt at how profitable IT was.

And then even after that, people didn't really realize that being the market leader at search was way Better than being number two. There's these sive massive returns to scale. And the reason for that is just pure marketplace liquidity.

If you have the most searches, you can create the best data from the searches and you can return all the best results because you have the most data. And on the advertiser side, you have the most advertisers who are willing to come in and bid to the highest possible Price. You just get to make the most money by a country mile versus other search engines.

and then IT locks in even further because you can spend more pets on the data center and the search Better, more performance, faster.

And all that google is. Search, as analyzed by a ad based auction, is one of the world's true marvels, is one of capitalism greatest discoveries.

We may or may not do an episode on xbox someday. Band that for band. I to discuss privately for the parents to discuss after the kids go to bed. But we're definitely going to do an .

episode on google. Yeah, it's criminal that we haven't. So microsoft is really where to be seen in search.

And part of IT was just thinking, oh, will searches is just a feature of M. S N, but there's all other reasons to come to M. S.

N. Or hey, this is a product in the portfolio of windows live. And you know, we can kind of do IT with the talent that we have here. Ultimately, someone needed to grab leadership at microsoft early two thousand and two, two thousand, three, shake and say nothing else matters in the next five years except you figuring out how to meaningfully participate in search revenue because that is just the next big wave in technology. And it's a fantastic business though .

you needed the equivalent of the j alert windows, the next killer application on the internet or the sophie cornell is wired memo.

So in two thousand and eight, microsoft puts a deal on the table that gets a bit all the way up to forty seven billion dollars to buy yahoo. This was effectively their last hill mary, to become relevant in search. They actually didn't launch being until two thousand and nine.

Google was started one thousand nine hundred ninety eight and went public in two thousand four. And microsoft got serious about a branded search engine in two thousand and nine. But clearly, before that, they are just starting to realize this is a big deal.

We need to participate in IT. You know, what do we do? So they'd been negotiated to by yahoo, two thousand and eight after a bunch of negotiating and flying back and forth. Finally, both David filo and jury yang fly up to seattle, and Steve bomber goes to boeing field, and they have a eating at the airport. This is one of the great what if scenarios.

This feels like a episode of anteros.

right? It's totally right. There is conflicting reports of what happened. From what I can tell, billion, Steve kind of looked the yahoo guys in the eye and decided these guys are kind of join us around. They really don't actually want to be a part of microsoft at all.

And this has gotten so expensive that if we execute the transaction or god forbid, they even try to negotiate up even higher, it's just not gonna go well because it's going to be an organ rejection here. So the deal completely falls apart. It's interesting to try to look at the deal and figure out even at that high Price of four, seven billion dollars was IT a good deal for microsoft. So here's how to pull IT apart of laughing.

Yeah, I was hoping I could surprise you will be at the end of IT like, have something to say here, but I think you're gonna .

take my thunder. Let me know what I do and tell me if IT ryans with smale baba.

yes, yes, yes because I ve just loving i'm smiling the whole time of adverting. You know, all of you listening being like forty seven billion dollars for yahoo. What are they smoking? Keep done. So here's .

how to pull out a apart. Yahoo had about fifteen percent market share of search, which I think was number two. Google was weigh iie ahead.

And so on the face of IT, you're thinking, wait forty seven billion dollars to buy fifteen percent market share in search. But there's actually two other assets in here. There's yahoo japan and there's a stake in alibaba, not just a stake which famously is one of the greatest investments of all time.

forty percent stake, four zero percent of alibaba.

So collectively, those two assets together are worth over thirty billion dollars. So if you back IT out, it's really only like fifteen billion dollars to buy fifteen percent of the search market.

Yeah.

David, what is google revenue today?

Alphabets annual revenue in twenty twenty three was over three hundred billion dollars.

So would you want to pay a billion dollars per percent of market share of that market?

Yeah, sure. It's just money. Why not? I mean.

it's the crazy st thing. This would have been lucrative ly profitable to spend only fifteen dollars to buy fifteen percent of the search market, which is way bigger than a hundred billion dollars and still growing.

This is the thing people just always, continually underestimate and underappreciated about. The search market is IT just so large and so profitable. yes. Now.

because this is counterfactual, we actually don't know what would have happened. Yahoo completely went away. They sold for five billion dollars, and there are most recent transaction to be COO wed by verizon and Apollo.

So there's this real question of like OK, if microsoft bottle that traffic, would they actually enable to harness that and build a google like business? Or wouldn't just gone the way that yahoo was going to go anyway. But to make the bull case on that being is a good business. IT just has a small market here. Microsoft succeeded finally in two thousand and nine, attracting all the right talent and taking IT really seriously and building a super viable search engine that does, I don't know, something like a billion in a year in profit.

Well, you know, then they do go on in launch ping and they actually sign a commercial deal with yahoo to provide the search on the backs. And they're not getting the ahoo traffic. Yahoo still monitoring the traffic, but being is getting all the data from doing performing the searches for ahoo. And I know you know this, but most listers will not remember you know who the leader of being was for a brief period in its early days here.

Sai nadella.

sana della, that's right, are a piece of sati, a trivia that I very much suspect you do not know. Sati had joined microsoft first in one hundred and ninety two from sun microsystems, and he joined as an advanta st. For windows N.

T. He joined as an event alist. An vandalism, huh? And then he got his first product job. Do you know what product IT would never ship, but a product in development?

That job was, oh, no, I don't.

Tiger server, the cable soft information, super highway fever dream where .

did you find that book? Oh my god, and hit refresh what he actually I always thought he was in the marketing side. Well, it's a little microsoft.

Product managers are marketers. They don't live in the engineering log up. fascinating. There are so many things about the history that are not a part of the common narrative, like he, I think, worked in dynamics, their sales force, competitor, their C, R. M, for a while.

which they acquired, and then he, I think, ran his talk server, which was another one of these enterprise server products, and then being well.

and then they plucked him out a bing to go run asia.

right? Go run server and tools, which we will get.

pass. pass. Okay, some of the other fun, take bits of this yahoo deal. So being powers the yahoo search, microsoft does the ad sales for both sides.

So while microsoft doesn't the user, they don't have the direct relationship with the users. They do get to build up their marketplace liquidity on the advertiser side. And as you mentioned, there is a huge data advantage of actually powering the search. Well, yahoo gets eighty eight percent of the revenue in the deal for the first five years. Arguably, the value from this basically all the rude to microsoft because they ended up building out not only a proper advertising business, which now is used on a number of different sites, I think even in partnership with netflix for their ad supported tier, but also being once I had all the yahoo traffic needed to be a scaled web service. Yes, like a distributed computing system that Operated at twenty four, seven up time with super low latency, faster response time and huge scale.

Got that. Sure sounds like the cloud.

Sure sounds like the cloud. So you've got xbox live, where they have forty million users. You have a scale search engine, which is like the number one most difficult distributed computing problem, that if you get good at that and get good at lots of other stuff, the ingredients are really starting to come together for the right talent and DNA at the company to do well in building out the cloud.

So what the other big piece of IT honest, maybe even the biggest piece of IT from talking to folks who was hot mail. Yes, mico had required hotmail back in nineteen ninety seven and ran IT the whole time. IT eventually became out like that calm I think like you know, it's running a consumer web service for decades had scale yeah but oh my god, it's so unfortunate that they didn't buy ahoo just because of the alibi stick.

Nothing else. What have mattered? Forty percent of alibaba at IPO in twenty fourteen when alibaba IPO that take was worth ninety two billion dollars. Obviously, microsoft is not a heads fun fit like right?

These things are hard, because how long would microsoft .

have held that?

But van, if they did that be crazy.

It's so full. Ty, yeah, one of the greatest venture investments of all time. yeah.

okay. So at the end of all this, you might be wondering, why was search so important? How did microsoft get so obsessed with the search? And why are they still running being today? Why has he been this sort of White whale for them, where they continue to try over and over and over again to do search deals or acquisitions with things like that? Well, search monetizes incredibly well.

So microsoft sitting there realizing, okay, we're a technology company. Historically, what we've done to cell licenses of our software in people have paid us directly. But there is this new business model emerging that appears to just scale infinitely where you can make three times or more off of each user, again, using software, but not selling the software to them.

That's a much Better business. If I can take seven billion people in the world and sell them windows, where I can take seven billion people in the world and have them use my search engine for free and then make the money from the advertisers, i'm going to make three to five x more money from the advertisers that I actually would selling them software. So suddenly this kind of becomes existential, where the windows revenue isn't going away.

But actually, the next generation of economics generated from software is not selling the licenses. IT is monetising via advertising. It's funny.

I never thought about IT this way. But really what search did in what google does is you go from selling software as a technology company to selling .

everything you and the offline economy is much bigger than the software economy. And so everyone has to acquire customers, whether you make software or tents or airline tickets. And there is only a small set of dollars that goes to software.

So if I just pull up my credit cards day in each month, how much software I paying for versus how much everything else I paying for. And even if you say, well, that's really fair because it's advertising for everything else is not everything else directly, even a small percentage of my everything else turns out to be way bigger than my software budget. So at the end of the day, microsoft made a browser.

They didn't mode tize that browser. They model zed using IT to defend an Operating system that they sold licenses to. Eventually, google comes along. And croatia browser, they also don't sell that browser, but they motorize all the traffic coming through that browser. And they do IT way Better than microsoft does at moitie ing selling licenses.

Maybe put IT more simply, microsoft built a browser, how do a bunch of share, and then cut a, looked around and said, we don't really know what to do with IT. I guess we will use IT for defense. And google built a browser and said, we know exactly what to do with this. And they used IT for offence.

Yeah, was such a good point. Well, while we're talking about using software to sell everything and not software that sure makes me think a lot about social in facebook, microsoft has some history there during this period. Two, two doesn't IT they do.

David, should we take a brief aside to talk about microsoft inter twined history with facebook?

that? absolutely.

So it's october of two thousand and seven. Microsoft is missing search and the realizing social seems to be a wave that's coming five, six years after search. Also a great online advertising business.

We now deeply understand and regret not being a bigger player in that business. We can't let that happen again. So what do we do? We're not going to build one of these internally.

We know Better than to do google plus. And so we are not capital constrained. And so we are very willing to try to do large acquisitions because we've got money line around, but we don't have talent line around and we don't have DNA.

And and to be able to do this.

right? exactly. So what do you do? You try to buy facebook. Microsoft puts an offer on the table, is a very complex deal structure.

But effectively, what he does is IT let's facebook shareholders cash out over a long period of time as the company's value grew. So you're not taken all your money off the table today. And so the important thing to take away, though, is a very big dollar evaluation. News outlets reported that to be worth twenty four billion dollars. And again, this is way back in two thousand and seven, three years after the founding of facebook.

right? Where did you not that long after the yahoo one billion dollar offer?

Exactly facebook not interested. I'm pretty sure zc doesn't even respond to the offer. Some as oxyde tenants have been beating with microsoft people saying, if you get the number in this .

range is an offer we have to ask mark about IT in jasa.

we will notice. So instead, they work out an investment and a commercial deal. So the terms of the deal are in october two thousand and seven, microsoft invests two hundred and forty million dollars for one point six percent of facebook.

So for those trying to do the math at home, that is a fifteen billion dollar valuation on the deal. Microsoft will get the exclusive right to sell banner ads on facebook internationally until twenty eleven. So again, microsoft cleverly is using this as a way to bootstrap the advertiser side of the marketplace.

Now they're all of this inventory to sell. Now it's interesting to think about much, David, like your comment about alibaba. If microsoft sold all of IT at IPO, which I don't think I did.

that would be a 7XK that's a pretty good growth investment in， you know few years. Not bad.

right from two thousand seven to facebook s IPO in twenty twelve.

yeah, five years, seven x that's good for growth. Investment has great.

I'll take that if they held for another two years and sold in twenty fourteen, that would have been a fourteen next. I actually don't know when they sold, but I feel like these are helpful guard rails to understand what this appreciation could have been. Either way, it's not really relevant to microsoft.

Has they said earlier, they're not a heads found and money is the least important thing to them, right?

They're constrained by talent execution ability, focus DNA to pull IT off focus, but they're not constrained by cash. So who cares if you ten next year, two hundred and forty million over five to seven years. So IT seems like the actual interesting part of this deal is the fact that they have the right to sell facebook international ads for four years, and the companies kind of became friendly. So facebook on the pages for businesses would use being maps. And there was all this sort of reciprocity things that the company did together.

And a lot of microsoft people went to facebook like friend of the show of v og CEO that sign A. great. Early facebook folks came from microsoft.

yep. So right around this time, june of two thousand and eight, bill gates leaves the company full time. IT is an actual retirement. I no longer chief software architect. I am still chairman of the board, but i'm gonna be the full .

time at the foundation .

exactly at the bill of litigated foundation.

which of course is right at the time the iphone you of course came out in two thousand seven. But two thousand eight was, when was I O S two point o right with the s pop store opening up, S, D, K comes out and the world completely transforms. There's a pretty rough quote in time magazine from bills retirement that did who was obviously written about bill here.

But I think it's just kind of more applicable to all of microsoft DNA this point time. Gates is probably getting out of technology at the right time. Finally, enough.

It's not really a business for nerds anymore. Gates was at the center of the personal computer revolution and the internet revolution. But now the big innovations are about exactly the things he's bad at.

The ipod was aesthetic revolution. My space was a social revolution. Youtube was an entertainment revolution. This is not what gates does. Technology doesn't need him anymore.

That's a stupid quote. It's just too reduction ist.

Yeah, IT is totally two reductiones and is too personally about bill and that's just completely not right.

But that one sort of the view at the time, I mean, this really shows you how irrelevant people thought microsoft was.

Yes, that is why we included IT. No one.

We've been saying this about microsoft in the windows ninety five time frame. But after the obsession with enterprise, the complete failure and consumer markets, but importantly, the complete ignoring of what the exciting developer platforms were at the time, open source the web.

I mean, if you to think about where all the development efforts were going IT was the lamp stack, the linux of patchy mycal PHP, the stuff facebook was written on that's in a different universe from microsoft enterprise developer customers. So I just think you need developer excitement if you're going to have consumer excitement, I mean, or you need to develop every interesting APP on your platform yourself. But that's just not how to go. So the consumer outbreak that make go hand hand right.

I said to put a pin in the iphone in the downside of soft becoming the enterprise jug or not when we are telling that story and all of the huge advantages and lock in that microsoft has built up, the iphone changed their calculus because the iphone kicked off shadow I, T, and bring your own device, and IT kicked off the user revolt against I, T. And this is what this quoting capital is.

Yeah, I think that's right. I think I set of technologies or breaking through people are just going to use those devices. And that software, no matter what the area today is, one where users have way more choice in what they use at work then they did in the early two thousands and the iphone and sort of force that door open .

your choice and expectations of what that software and how is going to be like. And microsoft t for all of its great Victory in the enterprise over this period, just fundamentally did not have any of that DNA in the company anymore. And that's what this from time .

is pointing out. They were all over next box OK .

first or they .

were developing cool new stuff that would then get killed because it's not a part of the windows machine. I mean, look at career, you look at king in mobile, you look at all these things that they would let them get so far and then they would be like, ah you guys don't get windows is the center of everything. And if IT doesn't make windows look great or compete with windows, that's not what we're doing. And I think that DNA was too strong to overcome disrupt of innovations.

exactly. So let's talk about those things and what's happening in mobile.

okay. So let's rewind what was microsoft doing in mobile so far?

A lot actually.

a lot actually is right. Microsoft was obsessed with all sorts of things, and particularly bill gates, for decades before they became true, one of which was bill gates was always talking about mobile computing, so much so that in the key slide in the windows X P. Presentation, one of the big bullet points is mobile computing, 嗯， all the way back in two thousand and one, and gates thought natural user inter faces was gonna a thing. The multi touch tablet computing, pen computing.

Yeah, I had a tablet at microsoft X P. Tablet edition, I think, called PC, in coach from .

the early two thousands. And sometimes even before that, these were gill gazes, visions of the future that he thought were pretty close. And so in the world of, I suppose, they were early smartphones.

Microsoft had developed windows mobile. So what was this is like BIOS. Not really. No, what windows mobile was was an Operating system for handset makers to adopt and put on their handsets. And you know, these things kind of looks like blackberries are mostly keys with a little screen.

And when you looked at IT, IT looked like windows, IT had a little start menu and IT was much like the rest of the enterprise strategy David designed around, all working seamlessly together with your windows PC and exchange and your corporate network because surely people at home, consumers were not using smart phones. These were for business people who these were issued by their enterprise. So IT fits per squarely into the enterprise category.

Now how did microsoft think about this product? They thought about IT as an ingredient into the handset makers product. Microsoft was somewhat at the wim of an O M.

In the computer ecosystem. You know, the deal could install some more stuff on top of windows and customize the installation, but IT was still windows X P. No matter who the PC was from, IT was a pretty standard thing that really wasn't the case with windows mobile phones.

The handsets makers could modify the code of windows mobile. So when you bought a handset, first and foremost, you were trusting the product quality of the people at the hands set maker and they had several OS, is that they could buy and effectively start from, one of which was micro soft wear handset makers. We make a phone and we know how to inter connects and do all the Carrier stuff with the Carriers because there are partners and we kind of a need you to do a bunch of computer stuff too, like email and stuff.

So can you guys do all that? And then we'll make sure when we get that from you, that will start changing your code to make IT work with our phone. And we'll do all the phony stuff.

not an iphone.

What was microsoft position in mobile? Yes, they had windows mobile. But no, IT was nothing like what smartphones would become because of the way that the iphone reset everything.

yep. And at some point in this journey here, post iphone, but still in this sort of weird windows mobile erap, microsoft buys danger, the company that made the tea mobile side kick.

You remember that? Which was awesome. You like push lip around. And the .

board, yeah, I remember what is turtle had what I think .

that's right. And that was andy rubin before he started.

Andre, yeah, gabbi always hoping I could stump. You going to say, do you know who course dandy and do I .

do for a living?

Would you think from living? amazing. Andy had already left danger and started enjoy.

which would be the very thing that would sort of destroy their mobile business. Yes, but let's get there. So two thousand and seven in january, the iphone is announced.

IT won't come out until july the iphone comes out. It's the most spectacular technology demo s sense the mother of all demos, the old dog, and go one way back in the day. Consumers are all in the existing mobile industry.

People can't really believe it's real. The founder of blackberry basically said, I think his exact quote as how did they do that, then later says, will be fine. You have palm who was already saying things like, I believe the CEO, even before the announcement, said the PC guys are not just to figure this out, not to walk in famously. David, I know you have a Steve ballmer has a quote after the announcement.

Yes, he says it's never get a word at five hundred dollars, which is the full quote. You can totally see that phones at this point time, flagship phones were costing like a hundred dollars with Carrier subsidies and still like five hundred dollars that Price. Like who's going to buy that.

right? There is IT actually too. Quite interesting things about this. Quote one, Steve, is being the company sales person.

If a competition drops this amazing bomb and your interviewed you, a whole bunch of enterprise customers sort of looking to you, what do you say? You say, are things still great? There are things really expensive? Of course, you say that you are literally always selling all the time. And so I always take a isy with that to apple legitimated, a business model innovation there with the Carrier.

What IT wasn't the original, the original iphone didn't have IT IT was. Then later, I think the three G.

I mean, the mobile industry of this point had been, how do I make the cheapest possible phone? Certainly not a scaled down version of a mac, which is what the iphone was. So that was a completely different paradigm.

This is a tiny computer, not a kind of crappy embedded system that is optimizing for pennies. And apple basically said, we don't care if it's really expensive. We just think this is the user experience bar and we will figure the business model out.

And eventually, my god, did they figure the business model out in the Carrier subsidies? Were that innovation? But windows mobile was that old paradise?

Embedded systems, cheap as possible. Hardware were a couple things, either way, determines whether your phones gonna or not. And so IT was pretty shocking.

So iphone started selling. They're selling well. It's two thousand and eight APP start coming out. It's two thousand and nine sale start really picking up.

And finally, microsoft decides, hey, what we're going to do is we have this old asset, windows mobile. We can repurpose some of that to make this new thing called windows phone. But unfortunately, everything we're optimizing for is different.

The new ecosystem expectation is a super high quality use. Her experience. yeah. And so there's the this way that we used to work with all of our hardware partners, which basically said we will make the software work on whatever you can come up with, the crap st hardware you can think of and will make IT work.

It's kind of the rock u strategy in the way that they work with all the embedded T V. makers. And the new strategy had to be we will dictate really intense harbor requirements because now with windows phone, we are making a promise to users to compete with the iphone, where microsoft is backing that up.

The microsoft brand is first. And you know, we're defining a really breakthrough new user interface. Called metro that actually came from the zoo, which is funny that that its liniers.

Now how do they actually play out? Microsoft tried to use their existing business model. We will sell you an Operating system. We will charge you a royalty.

We will sell U O, M manufacturer and Operating system.

correct? And you sell that phone. People want good phones now so you can truly generate some nice margins on that good phone because the iphone really set the bar.

There's just one problem with trying to maintain your old business model is that you don't have the same competitive set that you use to you. Now have google. Google has acquired android.

Google has transformed android from a blackberry clone into a iphone clone. The software is open source. And so google's value proposition is they go to all those same manufacturers that microsoft used to work with, HTC motorola.

and say, hey, how about a deal for .

zero dollars? Deal point number one, here you go, it's free. Deal point number two, you can even have the source code.

Deal point number three, we aren't microsoft. Look at what they did to the PC makers. Do not let them do that to you.

You know, those PC makers, they make no money, zero the profit dollars in the value chain accreted these PC makers, they all recruit the software vender. It's literally the same people who did that to the PC makers. Why would you let them do that to you? And remember, in this mobile world, every cent matters.

And so microsoft is trying to ask for, you know what that is, some single digital number of dollars for a licensing fee to the U. S. I mean, I think i'm undershooting, but let's even say it's five bucks. That is a mountain of difference between zero dollars and .

five dollars in the .

total billion materials of these things. exactly.

And google also only really cares about their services that they monitise advertising. So one of the deal points in there, I think this may be varied by geography but is, oh yeah, you've got to use google services on there too. But by the way, they're best in class and the free, you do not pay anything for that .

either yeah I think at first I was you can have get open source, but you don't get any of our services or you can take the whole thing and you take all our services, but our services are great. And guess what? The play store is one of our services.

So if you want all the apps that you have to take all the other google services to, now keep in mind, how does google make money? They make money on search. So google, from the moment they figured out, hey, we can run a call IT.

Two thousand and two, when google search business model was really hardened and IT was evident this wheel scale, it's luckly profitable. Its very high value per user. Google is going to be the number one adit IT. Almost like if you really thought about IT, you could have figured out that microsoft wouldn't win in mobile.

Um yeah.

it's a really security path. But if step one is ogle makes a ton of money on search, then step two is google should try to get all the searches. So then step three is google needs to have the front door to search and see you have to count on google 变 the actor that figures this all out。

Step four is google figures out what the next platform is and make sure that they are guaranteeing all the search volume comes to the google from them. So what do they do they invent? Or by a mobile Operating system, what do they do after that? The next step, they give you a away for free, because, again, all they care about is all the search volume. And so therefore, unless microsoft adopts google's business model, they are immediately screwed.

This is such a good point. Microsoft competitor was not apple, and the iphone IT was android yeah .

it's a little bit butterfly flapped at windsor. But there is a direct line over a ten year period from google finds its web base search business model and microsoft cannot employ its traditional business model and win in mobile like microsoft will lose in mobile. And there's a pivoting there. I think the biggest moment when the door really shut is when verizon freaked out after the apple and A T N T. Deo and said, we need an answer and they decided that answer was dropped and they put like a guji lion dollars behind the droid advertising campaign.

the motor, yeah, yeah.

And so I think at that point, IT was sort of a two horse race. Microsoft probably could have figured out a way to get in before that. IT is all related to google finding that a rathole al business model .

you and that you know microsoft did have been at this point time. So they did have a business model that they could have used if they're been willing to go free on windows phone.

And I would have taken a big culture shift at microsoft to say we're an advertising company, right? Microsoft is not a company that is, at least at this point in time, comfortable with their bread being buttered from advertising. I mean, there are the PC company. They want to sell software to people using PC.

So the software company, yeah, they sell software might be a enterprise agreements, but they sell software up.

So then if you really believe this step by step by step thing, then actually what google should keep doing is finding things that microsoft cells and figure out which ones are the cheapest per user to run and then give those away for free. And so outlook exchange, G S, gmail, HMM word, excel, powerpoint, oh, g sweet workspace. And all they're doing is they're just looking at microsoft s core value propositions they charge money for.

And google says, would IT really be that expensive as we just gave that away for free. And the more of those that they do a it's good for google business model because they just get more data, closer relationship with you. You're doing either more queries or you're interacting on their platforms in ways where they have other ways to show you ads.

Maybe when you're off platform now, they know a lot about you from data they have collected blow blow b. But even if IT doesn't actually make more money for google, they make so much money in their core business. And if IT hampers microsoft, then it's a good thing to do.

Yeah interesting. And that is totally too. I totally buy IT in the consumer world. And in the enterprise world, microsoft lock in is still as strong as I ever husband.

yes. And google has really not figured out how to be another Price company.

Excel is still the main way that french eat are down around the world. I bet a lot of listers use google sheet. We do to we love IT also use excel. But if you do use google sheet, you are in the minority globally.

You think? Yes, I guess because most consumers don't actually use the teeth.

Yeah, yeah, enterprise spreading work is done in excel. false. stop.

Yep, that brings us to nokia. But I think i'd save nokia for the end here. Yeah.

nokia r koto. What IT does bring us to is a realization from the very top of microsoft that the profit polls in mobile are changing. And this is a thing that I think Steve bomber also doesn't get credit for.

Bill gates was obser ssed correctly with being the software company. IT was a brilliant business strategy to be the software platform. And then everything around you had an elaborate with you.

And again, the profit pulls in the PC world just accrued to software vendors. IT was remarkable how the P. C. Manufacturers over time had no profits, and microsoft had tremendous profits. Steve boba realized pretty early, I think, because of the google android thing, bobble was gonna ke out differently.

Future hardware platforms were not guaranteed to have the same profits in the value chain the way that the PC did. And so he was pretty aggressive about, actually, we need to be in the harvard business. And I know that seems really unattractive to us as a company because we've been in the sofa business this great general rule that it's really hard for any business to enter a lower margin business than the one they are currently in.

Yeah, amazon can go from e commerce to A W S.

right? Amazon can go anywhere. But for microsoft, you know you're selling software licenses. It's hard to even get in the cloud because cloud is a lower margin business. You know you have to Operate those data centers and just selling licenses.

So if you're microsoft and you've been making software all these years and you've been enjoying those margins and suddenly you're realizing, uh, oh, we've to be in the hardware business or at least if we're not in the hardware business or the search business, we are not going to enjoy any of the profits in the mobile era. That's a difficult canon. Um yep, but to stew's credit, he acted.

They released surface. They tried to buy nokia. Yep.

let's talk let's start with surface and windows eight, which we got to talk briefly about windows seven before that because windows seven was awesome. So Stephen san aska, he ends up running office product management. After the vested disaster, he gets drafted to come over in run windows.

And then like you saying, the office culture was known as we ship, we ship product. That's what you were part of. That was the culture that Stephen said.

mind bending, that three years in advance a data set, and then six thousand people ship on that date, no matter what.

He comes in for windows seven and he does that for windows. We are talking to women at this good analogy of windows at this point in time didn't need technical vision. IT was trying to be the dodge viper.

That's what long horn was. IT needed to be the toyota ama. And he comes in and he makes windows seven, the toyota ama of PC Operating system.

Gy, it's so good. It's exactly what I was. It's exactly what everyone wanted.

It's what the consumers who we're still using windows wanted. They wanted to just work. And most importantly, it's what the enterprises wanted.

Everyone is like, hey, it's like XP but modern or it's like this to without all that random stuff and all the regressions that visit a had.

yes, do not crash my devices or my network. Thank you.

Nice easy start button in the lower corner Normal predictable menu, fast search, fast file system. I honestly can't tell you a feature that launched in window s 7。

I have no idea, but I remember I had a windows seven laptop on. I first joined majora and IT was great.

Yep, IT ran everything the way you expected IT to. And so the product that san oski shipped there was just as much the new organization as IT was the actual product, the customers experience that was a much more slim downa. IT was dev tpm.

IT was ability to his ship date. IT was a proper planning and vision process. A lot of what the team was doing with windows seven was, yeah, yeah, we feel like we can do seven with our arms time behind our back. But let's start thinking about the future, about what we're really going to do now that we have all the infrastructure in place to really ship interesting product.

And then apple comes out with the ipad in twenty ten.

yeah. So windows vision had kicked off. The planning process for what it's gonna be had kicked off and they're starting to play.

Actually, Stephen puts these videos on youtube. They are awesome to watch the original vision of what windows should be. And they're kind of out on a limb.

They're saying the future is touch. The future is tablets. We think that's going na be a dominant computing paradise.

And on the one hand, bill gates has been saying this for years, so there is sort of like a cultural acceptance with the idea. On the other hand, IT really hasn't manifested in the market. So it's a .

little bit dangerous to say. But the iphone is now out in the is.

So you're right, the ipad coming out really validates big tablets with multi touch, actually might be the computing paradigm for the future. And oh my god, we've been in planning. We've been in development for you know a year or two already.

This thing hits the market. We're right. We are so right. We've been .

validated IT validates the product vision and IT terrifies bomber and microsoft leadership because they just watched what happened, what apple did to the phone market. The ipad sure as hell looks like it's gonna try and come do that to microsoft core PC market. I mean, right, the original jobs, keo introducing the ipad lays out his vision right of like the PC is going to become the pickup truck and the ipad is gna become the car. And that would be a truly terrible thing for microsoft, especially if that goes into the enterprise as the iphone is clearly going into the enterprise on the phone side.

Now there was a little bit of a fly in believing that the ipad was the PC of the future. Standing here today, we all can look at unit sales and realized, oh, the ipad was not the PC of the future. IT had its place.

But I did not, in any way replace pcs. And IT turns out that apple scaling up the iphone metaphor was good for tablets. Book that never was gonna take over most PC use cases today. In fact, the phone has far more replace the P, C than the tablet has .

hundred percent, yes. But back in twenty ten, that should look pretty terrifying as a prospect of microsoft.

The other thing that's happening around this time is i've said this a number of time to put windows despite having great revenue, great profits, massive penetration in the enterprise and momentum was just like staying power and consumers because people were just used to IT. IT was not relevant for the next frontier totally, that I did not have hearts and minds. IT was not where the excited was.

IT was not what people were building for. So there is sort of a two birds with one stone attempt with windows eight one touch tablets. We are going to get out ahead of apple and we're going to try to out apple, apple here. And we're not at let what happened in phone happen to us in our core market of PC. Two, we need a new developer platform.

Yes, we need to bring developers back .

everyone's building for the web. Web is agnostic to what Operating system that runs on. Can we create a platform that is so exciting for developers that they're gonna use IT and we should lean into the technologies people are already using. So the windows eight touch mode metro U I development environment ment was H T M L five because all these web developers are already writing their web apps. We want to support that too, and we're going to build a whole new tool chain so that there H T M L five windows Adams run really well on ARM processors because these tablets, ts are gonna n an ARM processors job.

I'm we're going to make our own the surface are two.

yes, so that the two head of drag on of windows eight is new developer platform and touch first.

And the way the touch first benefits in the Operating system itself is the desktop is now just a nap. And when you boot up windows eight, you are presented with a tablet tiled start screen. And if you're looking for a desktop or you gotta find IT.

Now in practice, it's not hard to find the desktop. You learn IT in like five seconds. You're like, okay, I see the start screen is actually the start menu, but full screen.

So if I click in the bottom of left corner, I can collapse, I can enter the duck mode, and then it's like, IT doesn't IT exist. I can run my one thirty two apps, blow, blow, blaw. But there is a learning curve.

There is also just a shock value, though. I bought a toyoy camera expecting IT to be a toyota ama. And I don't even know what this is. It's like a scooter. yeah.

And IT is a little confusing. I use IT for a long time when I worked at microsoft, figuring out had a APP switch between things that are part of the metro modern U. I.

Versus the legacy apps, and what's sitting on my desktop and what's sitting in the have let optimized apps, which are IT mikes to metaphors. Now the question is, why did IT mix to metaphors? And IT took me a while to figure this out. But what ended up happening was the original vision for the windows, a touch thing that we're all talking about, these live tiles that was supposed to only ship for tablets, as IT was originally dreamed up. And there was a version of windows eight that did not have that, that was gonna for the .

top pcs that was a look like windows seven.

Probably word comes down from on high windows is windows. We need to ship windows across all devices. So what happens? All of this effort has gone into a momentum and political capital and bedding your career has gone into this H T M L five developer community, the metro UI. And so that is the best top version that ships I see.

Yeah, there can only be one windows. And so we got ta put both of these babies in here.

yep. And what you have is not as bad as VISA. But man, the rollout was pretty bungled. It's confusing. The reception was poor. Interestingly, not by the tech pond's like the tech ponders who actually spend some time and figured that out.

We're trained up pretty quickly, but the cat was out of the bag even before they got to review IT on people who are angry. What are the microsoft people are prefer doing as people that, uh, oh, the basement, the basement, yes, the point. Oh, one percent power users who are the loudest, of course, on the internet.

And so that kind obtains the product. O EMS hate IT because, Frankly, o EMS weren't signed up to make these touch devices. But now microsoft putting all this energy behind touch optimized Operating system.

So there's this mixed message to consumers. It's, I got there, even good laptops available. Are I supposed to use touch on my desktop?

They have to run ARM. They can't run X D six. They got to run ARM processors. They got to run mobile processors. But you're asking these devices in twenty twelve to also be able to function as laptops and the technology just wasn't there.

There's a reason why the ipad was a scaled up version of the iphone, not a scaled down version of the mac. Today, I think I might be a very different proposition and the public might be much more radio, accept something like this. I wish apple would do this with the ipad.

I don't want to have a macbook and an ipad. I just won an awesome pin glass that can do everything. And apple silicon totally can do everything.

Yeah, my dream machine is the yoga that can flip all the way around. Yes, yeah, my complete dream machine is my thirteen and and three macbook air that when I flip IT all the way around, they do something like universal binary with the apps were all the same apps that I had installed on my mac. They now run their IOS counterpart.

They grab l the data that stored in the same places to all my apps. You know, IT knows which google sheet i'm looking for. IT has the youtube videos.

Cash does whatever. But IT just turns into an ipad with an I O S U I. That is a dream. I can't figure out if I am like a super nerd for wanting that. And most people would actually want that. I travel with an iphone and an ipad in a macbook, and I think I could just do too.

I think a lot of people would won IT.

yes. So one take away may just be, hey, was too early. The other take away might be, look, IT turns out that tablets should have been a scaled up phone, not a scaled down PC. That was certainly true at the time.

Yeah, certainly at the time.

So complete commercial failure. The ecosystem of windows eight apps did not really gavan ize. And where we left is the state of the windows APP developer ecosystem in the twenty, thirteen, fourteen time period is right back where we started. No one's terribly interested in targeting that as a developer platform. All the energies is actually just going .

to go to the web APP. yep. And then all the energies is going to go on to the mobile APP.

None of what is in the microsoft deca system. okay. yeah. I mean, this is the death of microsoft as a consumer company. no.

Underlip zoo failed being small market share. Windows phone lost. android?

yep. Laws mobile. Windows eight. You know, this whole thing didn't work. The stock Price has languished, hasn't moved in ten years. Stocker stuck at thirty box.

This is dark. This twenty, twelve, thirteen time period, this is dark.

And at the same time.

well, it's fundy, it's dark and revenues and profits have grown tremendously. The enterprise motion of microsoft has basically never had a downtown I mean two thousand and eight in the great recession. But other than that, like jog jog jung, jog jung, even through the bad windows releases.

it's dark and yet the latest staring so brave on the financial statements of this company and what is going on here, obviously, to the enterprise. But it's even more than that. It's azure.

It's the cloud. It's already human. It's going microsoft did reinvent itself. Microsoft did position itself to be at the forefront of technology.

IT just did IT all within the enterprise context of the company. And other story is absolutely incredible. And I think nobody knows how .

IT really happened. Yes, as the general public is concerned, Steve ballmer was obsessed with windows. He built the enterprise business. He left something in the delay and launched azure. And as has been great, like not exactly.

That's not really .

what happened.

So when bill was planning to fully retire from the company to retire from his chief software architect role. This all the way back in two thousand and four or two thousand and five. He and Steve know that there needs to be a successful or in this role.

Even Steve will be the first person to tell you he is not a technologist. He can do both roles. He needs a bill. He needs a chief software architect.

And realistically, you can't replace bill gates with one person. So we need two bills up.

So the casting about craig monday becomes one of those two bills internally. And they also know who probably the perfect person is to take the other job. And that is ray, ossie ray, of course, being the author of lotus notes, raise, a legendary developer. And he has great relationships within microsoft, because ray built lotus notes not at lotus, but at his own software studio start up. And lotus was just as publish, so he's known all the microsoft guys for years.

This is so fascinating, i'd never put you into together, but latest one, two, three and lotus notes were not like peers together. Lotus one, two, three was developed by lotus notes. Notes is actually raised company is almost like the way a game studio works.

Ray and his company are building yet their publisher is lotus. But ray can have agreements with microsoft where he is private information that lotus is not. And so raise like really close in the fold with the microsoft folks. I think he was even a contractor working on. Maybe the project was landman, but he was actively contributing to other microsoft products.

The soft company, yeah.

he was almost like switzerland in the middle. yeah.

So by this ahead now, two thousand four, two thousand and five va has a new startup called groove networks. And microsoft just requires the company and they get ray. So in june two thousand six, when bill announced his coming retirement, ray gets named as his successor and the official chief software architect role.

And essentially was going on, is bill and Steve kind of look at ray and they say, you figure out the vision. We've got all these assets. We've got a clear business, gotten this great talent in the coming world, the next generation of technology. One on, you figure out how microsoft fits in and what our players.

So ray writes the internet services disruption memo in october two thousand. five. And to quote from IT, this is ray rating.

The environment has changed to yet again. This time around, services, computing and communications technologies have dramatically improve. Ressie ly improved to enable the viability of a services based model. The ubiquity of broadband and wireless networking has changed how people interact, and they're increasingly drawn toward the simplicity of services and service enabled software that just works. Businesses are increasingly considering what services based economics of scale might do to help them reduce infrastructure costs or deploy solutions as needed and on a subscription base.

Wait, David, you're telling me that businesses may want to basically rent capacity from big data centers to just deploy their applications and not worry about the cap accs of buying the servers and racking them all and maintaining the data center and handling the privacy. And bloody.

bloody b, i'm telling you that. And i'm telling you they might not even just want to buy the infrastructure. They might just wants to buy the solution as a service hosted by us.

Alright, so this is ray in two thousand and five.

And so in january two thousand six, ray, with still bombers, full blessing ghost, and starts recruiting for a secret project within microsoft, incubated outside any of the existing divisions. And this is super important. This should have come within server and tools like that whole big new business that we talked about that was like the key linchpin of microsoft Steve ballmer era enterprise strategy. Of course, as I should have come from within there.

microsoft has a group that produces a product called windows server, and that is an Operating system that runs on other people's vers. And that group is not the group that produced azure, the cloud service that runs at the time windows server.

Yes, the reason for that is that this is completely disruptive to the whole window s server and server and tools business model there go to market. And their business model is we sell these solutions to be Operated in your data centres, in your infrastructure where accenture and all the consulting firms and all the value added resellers, they are all our partners there, all our market, they're all going to go implement that on prem for you. And so if we are now to say like wait and always said and we're gona do that as a service and we're going to sell IT to you separately, that is a huge issue, risking a lot of I go to market motion.

Not to mention these end enterprises in some ways are actually the O, E M customers. Yeah these dell servers are running windows server, but dell sold a bunch of servers, probably three way center to the end customer. There's that whole issue of upsetting the apple cart.

There's also the internal rewards issue and K, P, I issue everyone in windows and enterprise land. Ultimately, their KPI is how many copies of windows can we sell to end customers and generate the licensing revenue on windows. And this new thing, if we actually pursue a cloud strategy, is how can we spend a whole tone of money building out a data center, buying other people's servers, generating zero licensing dollars and hoping people use the servers so we can charge them later?

Yeah, windows is nowhere in this equation.

Yep, we're gonna build out a gigantic s server, farm and rent usage to people that doesn't fit into anyone's current K P, I R. compensation.

So rays recruiting for this project, code named red dog, and he brings in the biggest, a begun. That's right. The legend himself. Dave color.

no one builds hard core enterprise ready close to the metal code. Then dave, dave was the architect on windows. And if we .

talked about him a lot on part one, also another guy named attaf shaver, tava omaha's, had also come from deck, which is where theyve came from, total beast of an engineer he had experienced both in the enterprise survey n tools products. And amazon was also a big part of getting VISA of the door with brian valentine before brian left for amazon. And the two I M recruited him.

And they build asia. Cutler build a new hypervisor that azure runs on from scratch without using open source like himself. Hyper ser, of course, is the piece of software that virtualization underlying hardware and allows, you know multiple software tenants to run on a single piece of hardware.

It's like, V, M, where was hypervisor company? Is the whole company building hypervisor? Like, yeah, got, this is crazy. So grape and Steve ballmer supported this whole thing, pushed IT all through despite heavy pressure and incentives from inside the company, from windows, from partners, from the whole go to market motion that he built microsoft enterprise.

Go to market motion, Steve, he didn't get IT right away, but he started talking to enough customers and realizing that this was the future of enterprise computing, that he just flipped the switch and said, malin, we're doing this whatever resources we need. I mean, we're talking billions and billions of dollars of capital expanded itor to build up these data centers. This is not just I like, oh, some little incubation project to do sure we will see what happens. This is like though we kind of get .

a like Better company on this. Well, it's funny. I disagree that it's about the company move because of two reasons.

One, it's only money that they're spending. Cash is never a resource constraint. The bigger concern israeli and dave cutler are working on this. That is why I would be Better company. Two, in its initial incarnation, azure did not threaten the windows centric approach.

If you remember, when azure launched, IT was windows azure and IT ran windows server, and IT was platform as a service, and microsoft in no way changed its tune on open source. I mean, to this point in history, microsoft thought that open source was a complete cancer, right? And for good reason.

I mean, at the end of the day, basically microsoft charged for things that open source was giving away for free, from Operating systems to programing languages, to development environments to servers, mean everything about IT. IT was like, oh my god, is there a future where everyone just expects all of our value to be free and they managed to combat that and build a great business despite that? But they never embraced open source. They never at all wanted to be a part of anything that open source developers were doing until couple .

years in the action.

not until twenty, fourteen and fifteen.

And why I would say this is bet the company, you're right, they didn't go full infrastructure as a service and embrace open source and let people use azure to run linux in the lap stack on top of IT. That was not day one, but they knew they had to and they were going to. And IT was just a, hey, we're not gonna this right away because the company would organ reject this so hard.

But we are moving in that direction. And we will be aus. We will offer everything they offer and more to our enterprises. You trust microsoft?

Yep, that's a fair push back. But azure came in with a aggressive point of view. We are platform as a service which was distinctly different than A W S, which was we are infrastructure as a service.

Now interestingly, office and applications and software as a service actually came pretty quickly there after two. Famously, they did a pilot program with energizer like the battery company selling to sort of I don't think IT was like the office productivity sweet, but I was like share point and stuff, I think as a service.

as software.

as a service, right? So in twenty ten, ray, ossie actually leaves the company. But as he's doing, he is Steve roll, red dog. By this point time, ray named azure back into the survey gn tools business and do them go to the university of washington.

And Steve gives a speech at the university of washington, we are all in, and we are betting the company on cloud and on azure. The intended audience, of course, was microsoft internally of like, hey, we are sending a message to the survey n tools team. This is the future.

And after that, Steve replaces the division, head of the whole survey, gn tools division, who was bob moglia at the time. Bob would later go on to be the C. E.

Of snowflake before Frank sleeman came in. So he did. Fan, bob was great. Bob was crushing IT. As head of sovereign ool, revenue was grown, and I don't know, thirty forty percent a year, a twelve billion dollar business. But the reason that Steve made the change was he said, we need a new leader who's gna come in and change this organization and make IT a club first organization and .

not Carry the baggage of all the success from the previous generation.

And the person that Steve taps to do that from being is none other than sati andella. Yep, to come in and lead that transformation.

And from what I can tell, it's just as motivated by azure is the future and he needs a new leader as IT is. Satya is a really talented rising executive in this company and needs to be put on an important project, absolutely almost like being not enough for this guy. Where can we put him?

totally? IT was, let's get this guy the right exposure to the right important things that he could be seo of this company someday in a very distant future. Yep, to say that this goes well is an understatement, obviously.

But just to put some numbers on this, microsoft has three reporting segments, productivity and business process, A K office, and that includes office three sixty five as part of that segment. The more personal computing segment, that's windows and surface in their hardware efforts and then the intelligent cloud segment, and that's hazer. And I think linked in is part of the office segment.

I have that right. I think that I don't think linked in is in the cloud segment. Intelligent cloud today is by far the largest segment in the company by both revenue and profit and by very, very far the fastest growing within the company. Windows is declining.

the largest business now and the fastest growing .

largest business, most profitable, fastest growing. In fiscal twenty twenty three, intelligent cloud did eighty eight billion dollars in revenue.

Wow, crazy. IT is worth not to put cold water at all because I think the high .

level point stands. I I know intelligent .

cloud includes secure server and windows server. So these are big legacy businesses.

Yes, I think that is both, especially the early days when microsoft and said he was hoping up how much claud revenue the company was doing. Being able to report the legacy server business as part of that revenue helped a lot. On the other hand, the counter argument to that is this is actually microsoft competitive advantage versus A W S.

Totally agree. Microsoft can go to enterprises and say we are hybrid cloud, less so today. But in the earlier days of the azure transition, say, hey, you need to be on on cloud. We have a world class public cloud for you and IT works great with our on prem server offerings and we can be hybrid for you.

Yeah, totally agree.

Will talk about this a little more. In conclusion, we have one more chapter in nokia in the end of these ten years to talk about here. But IT turned out actually that the cloud market was so big that nothing else really mattered.

All the mistakes s all the losses. IT makes sense, right? Cloud powers everything.

Cloud powers tech. Cloud powers all the consumer services. They all run on the cloud. So every consumer service that is not owned by microsoft or meta or google or amazon runs on one of their clouds. Yeah, and some portion of that revenue accused .

to microsoft. And increasingly, the offline economy is becoming some sort of cloud dependent service. I mean, it's crazy to just see cars rely on the cloud and restaurants rely on the cloud like anything that you interface with in the physical world.

You expect to have some digital component, at the very least, take credit cards and all of these things, point of sale systems, all of these things are routed through the cloud at some point. And so David, I think you're making the same point about the cloud today that I was about microsoft. In the PC era, microsoft was lucky to own ninety percent market share.

And in cloud, they own, you know meaningfully less than that, right? But it's still basically attacker on the growth of an insane secular tailwind. That is just an inevitability in the world. It's probably a thirty, forty year wave that they get to keep .

writing this outside the scope of this episode. It's sure looking like to the extent AI is the next computing wave that is also happening in the cloud, in the data center. So like that's just gna turbo charge .

everything yeah so to review how IT came to be, interestingly, IT was rao's e in an incubation group doing IT outside the bounds of the business units .

beginning in two thousand six.

beginning in two thousand and six, with Steve buying and the air cover from Steve to make IT happen organisationally. You look at where all the talent came from being taught them how to do distributed systems. X box live was a always on cloud service, real times, real latency, with forty millions ons subscribers.

MSN was a super high traffic web property with seven hundred and fifty million registered users. Hot male was a web that hundreds of millions relied on. They had share point and exchange.

There was knowledge of how to do server based application software for the enterprise. I mean, there was some conflict to business model wise with windows servers, since azure would be an our of business model. But the technical jobs were there.

I mean, they are hard core server O S. people. Of course, that group is going to be capable of doing things like hypervisor. So I just think the ingredients were remarkably there from all these other things that microsoft had been doing over the years. They were kind of the only one who could pull this off at the scale with this set of enterprise relationships to migrant all these people of the cloud as they built out the products weet.

I mean, really kind of like we got, I don't know, half wish through a research for this. And this just hit me of holy grap. This era for microsoft that everybody thinks of is like the loser era. This is the where they won, you know, or they built a foundation to win here.

There, seven years before Steve bomber handed the rains to satire, where asia development was happening under him. Yes, that is nowhere in there. The public narrative.

And Steve is the one who hand picked satya to lead IT and get all the credit and the narrative and the win, and then become the CEO.

Pretty wild.

That is definitely not the public narrative out there.

Yep, I could see if you were an azure doubter and you were sitting there at the top of microsoft, enjoying the windows monopoly, the tremendous business that is windows in office, and thinking, why would I do anything to separate ze this? I mean, windows has self enforcing network effects everywhere. Huge switching costs for the enterprise, super profitable, high margin, one of the greatest businesses of all time.

And now there's this idea that you want me to spend the money to run servers. People can run their own software on my servers even if it's open source. So it's not feeding into my, you know, windows centric ecosystem. There is a chance not paying for windows licenses.

right? There's a chance they're not even paying for mild enterprise software services like exchange or like windows server, whatever. Like you saying then they might be running linux on there or my competitors products.

It's not even as good to business. It's not zero marginal cost running servers, running these big data science has huge costs. And even if you say all those are fixed cost to rack um and you advertise mobile course, but like energy has a real cost, it's kind of shocking that they eventually did embrace this very unproven new business that could potentially be weight SE than their current business totally.

And without taking anything away from satya because I think he does absolutely deserve a ton of for knocking about the park on execution, I kind of think all of the credit for the vision for IT and the champion IT for the initial seven years within microsoft goes to Steven to ray.

yep. Now I will say the company, he stayed the windows center company for two a lot offers.

I mean.

asia was being built. So IT was successful enough that IT sort of her races, everything else. But a lot of listeners know this.

But I worked at microsoft from twenty eleven to twenty fourteen. My internship in twenty eleven was on the word web APP in the office, three sixty five sweet. But before I was called three sixty five.

And then my real job was I worked on when I came back office for ipad, which was super secret at the time. IT was really counter strategy because we were the windows company. But at the same time, what users wanted in this world in twenty twelve was I want to access my documents on any device that i'm on.

We have moved to a world where I have multiple devices. I just want to be able to use your application on my device, please. And absolutely, one hundred percent something that happened is all two hundred of us work for multiple years to get these things ready. We had a ship date. What we had, what we thought was a ship date, actually what happened was we were told that actually we're onna shell in, and instead of a ship party, we had a shelf party because .

the product got cancelled. Sorry, cancelled what time premises twenty thirteen .

and basically IT was, hey, we just released windows eight. We just released the surface, and we want the marketing message for those things to be that office is first best on windows. And the only tablet in the world that can run real office is the surface.

And I, of course, have too biased into personnel to really think through this. But I was like, oh, this company has its head in the sand. This is ridiculous.

What users want is we have a good version of word, excel, powerpoint that people can run on their ipads. And we've decided not to ship IT to try and advantage surface and other windows a devices. Yes, the year later, we did ship IT.

Actually, right after saw I have became C. E. O. That was one of the first things he did. So ultimately, that decision didn't happen that much later than I would have otherwise.

And kind of open question of whether I was a mistake like that microsoft ever lose a dollar for deciding to hold office for ipad another year, probably not at the time I held this belief we have stayed. The windows company is for far too long and need to embrace users where they are. Now with all this hindsight, I understand why you wouldn't make the decision when you feel like the ipad could be the end of you.

Why would we go all in on that now and put our finest products to advantage that thing when we don't know if that thing is gonna ill us or not? So there's the big downside. There's not much upside to launching yet.

What am I going to renew a few more enterprise agreements because of IT? Probably not. Perhaps Young ben, working at microsoft at that period of time, failed to understand how important IT is to think like an incoming when .

you are the incoming.

And this was a low upside to doing IT right away. Plenty of downsides to doing IT right away. Really no risk on sitting on IT.

If really, IT was an easy win for saturday during his first year to say culture has changed, here we are shopping office on ipad.

We have shifted from a devices and services company to a cloud first, mobile first company. I believe that was the message.

Yes, that was the message. And that was a great. Supporting point to example of the message you well, speaking of transitions and transitioning, I think IT is time to wrap up bar history of this period of microsoft in mobile and everything and steeves tenure and talk about nokia as we end things .

here who bought nokia?

Oh, that's a good question. Okay, in twenty eleven after microsoft had released this windows phone, which like we said, I was really kind of a dom to fail against the android like just compete with three. I think bild irl. I had a blood post about the android back in the day of the less than free business model and why you can't compete .

with IT yeah in fact, is how that they were giving away for free. They were willing to pay people to take IT. I mean, if you think about IT, i'm sure there was money that they spent on the droid marketing campaign.

I'm sure there was money that they paid to the Carriers to pay to their sales people to incentivize people to buy at verse the iphone and stores. That was a common practice in the mobile industry. So I think less than free is actually the correct way to frame .

hand totally. So there was one phone, O, E, M, that was willing to play ball with microsoft and windows phone.

and that was nokia. Well, sort of, I mean, nokia basically had symbian as its O S. They tried to start another O S, because simba was sort of breaching the end of its life that wasn't going well. And so they were kind of left without a platform. And so they either needed to pick windows phone or android as their platform of the future, despite being what used to be the dominant phone maker for all cellphones.

And the then C E O of nokia was a guy named Stephen ilp. Folks, well, almost sadly remembered that name. He was a former microsoft guy, and he had come over tehran.

no. So there were deeper relationships there. In february twenty eleven, nokia agrees to adopt the windows phone Operating system as its primary smartphone, O S for its devices.

Like you said, band IT didn't have a lot of options and I wasn't willing yet to go android pretty quickly though as we get into twenty twelve, twenty thirteen, it's clear windows phone really work in and android is the future. So as we get into twenty thirteen, nokia comes to microsoft and says, hey, we got to talk. We're gonna enjoy IT unless you make IT worth a while or you know, something happens here and changes. And I, Steve, put IT to us that was only running .

that is actually the right way to think about IT. We've been joking. It's only money. But honestly, what was microsoft market cap .

at this time call IT three hundred billion.

And what was the forthcoming acquisition offer for nokia seven? So that is two point three percent of the company. You're willing to give up two point three percent of your company for some particular bet. I actually think that's a very reasonable way to think about this, a quantive sky, which we didn't talk about, which actually was a good deal, especially because of the tax treatment. You know yahoo, facebook, you should think these things as a percentage of market cap and sometimes things could go really, really right.

It's even less consequently than that. It's not even a percent to market capital. Microsoft Operating income in two and thirteen was twenty seven billion dollars. So at seven billion dollars out of twenty seven billion dollars in just cash that they don't know what to do with and that they are .

getting credit for. But your cash is valued as a party.

your market cap, I mean, sure. But microsoft stock is in the dumps here. The cash flow guiza is not appreciating the stock race here. Wall street does not apply what's going on.

It's funny. I livered, a technically correct answer. Livered, very yes, which is that's not a cw into your map anyway. So you may as well spend IT and I think .

is probably in Steve s mind here of week. I'm not get any credit for this all this catch i'm generating like right .

effort when IT doesn't cost you focus or your best people or whatever the scarce resources are that only cost you cash, then you should totally think about IT as am I willing to bet two point three percent of my company or whatever percent of the cash that i'm not getting any credit for if something could go really right. It's a venture capital bet you know up well.

and nokia is basically holding a gun in my head, right?

There's actual downside to IT. Also.

there's actual downside side here, right? So that's how the deal comes together. IT was super controversial within the company and on the board.

Obviously, at one point, the stata talks about in the book, there's a strapped taken of all the division heads, all the top leaders in the company, whether therefore or against the acquisition. The majority are against the acquisition. Satya is against the acquisition. The board basically says to see if like clearly there's not support for this.

And so my understanding of the time line is there's a seven and half billion dollar offer on the table. Steve molls at over place with IT is for IT, proposes IT to the board and exactly the board comes back and says, hey, there is not support for this.

Okay, after that happens, a series of discussions start and culminate. We're in kind of late summer, early fall twenty thirteen when all this goes down. And on August twenty third twenty thirteen, microsoft and Steve ballmer announced that he is retiring within the next twelve months and that the board and the company have started the search for a successor as C.

E. O. That was August twenty thirty, twenty thirteen. Yeah, on september third. So ten days later, microsoft degrees to buy nokia mobile unit for seven billion dollars. We heard a bunch of different stories how IT went down, we don't know exactly, but the fact pattern is Steve announced that he was leaving. Ten days later, microsoft agreed to buy nokia.

The question kind of remains.

who bought nokia? We don't really do. In any event, here's what happens next february fourth twenty fifteen, sattin.

Nadella is introduced as the next CEO of microsoft. Steve ballmer steps down on that same day. Bill also steps down as chairman of the board and john thomson becomes chairman of the board.

So IT is a wholesale changing of the guard within microsoft. Bill, Steve, the original folks, we're retiring. We're done. IT is a new day and that needed to happen.

The office for ipad discussion we had a minute ago, you know, I think is emblematic like there is truth to what sati a wrote in his book that we said at the very beginning of the episode of, hey, this company culture needed a reset. There is kind of like a bigger version of brad Smith presentation to the board of its time to make peace. It's time to make peace internally. And there just needed to be a reset.

Yeah, there was a lot of baggage. I mean, it's just what, forty years of baggage, bill, Steve, old wars, anti trust, bad releases of windows, like you just get get IT out to move on. And IT was bilin Steve, leaving in one fell swoop to clear the path.

And at the same time, everybody knew, hey, there is a huge win that we are sitting on right here like a huge, huge, huge win in azure. And IT is going to be really good for everybody's personal network, if nothing else. If we can just let that be appreciated and let a new day done here. So on february fourth, twenty fourteen, on that day, microsoft stock Price was thirty dollars in fifty cents. And as we said a minute ago, the market cap was, I know, call three hundred billion dollars slightly below today, ten years later.

Wow, wow. This is volume.

Three days yeah you know just to show that this was the right decision. Ten years later, stock is at four hundred and sixty five dollars, market cap is three and a half trillion dollars. Probably like I don't know, I haven't done as some of the part analysis, but I think you can say probably at least half is azure propping up that market cap.

They are currently the most valuable company in the world.

the once and future king, microsoft. That's a story for party. We saw a lots to talk about an analysis i'm sure that was .

looking out of their podcast yer right now like why are they actually like like there's done there's so much time after this they is going to like place some music or what's talk about okay, I have got some start and finish stats on Steve s ten year S C E O. great. This episode.

We started a little bit before Steve took over because we wanted to put the internet chapter in and the entire trust chapter in. But I think everyone kind of feels at by this point, the question really is like what happened when Steve was running the company. And so here the numbers.

And this is the time frame from two thousand when he was announced as CEO, until twenty fourteen was saudia was announced. So a fourteen year period, revenue went from twenty three billion to eighty four billion. At a three and half x over fourteen years, Operating income went from twelve billion to thirty billion.

So almost three x important to pay attention to is the printer earnings ratio. When Steve was announced as C E O was a seventy five x the time IT was real close to an all time high, which was in the month prior at an A D X. So IT is worth pointing out, its still has not been that high to this day, even today with all the excitement around microsoft A, I, everything going on forty x.

so Steve comes in all time high, multiple and ripe before the D O J verdict in the break up of the company .

and the dot com bubble is exploding. Yes, and you're taking over from bill gates all the things. Essentially.

if you're .

doing an analysis of what happened in Steve ten year and you're trying to degrade that, you are implicitly saying, did Steve make a good investment to be on think Steve took one for the team in taking over A C. E. O. In that moment, he was handed a bit .

of a impossible situation.

Garbage sandwich inherited something when IT is valued that highly.

Not to mention, as we talked about during that period, all the Frankly ship go on at the company completely.

So I worked at microsoft are in this period. I was a big open source guy. I was a big apple guy as all these things.

And I hated stews, windows strategy. And Frankly, I didn't like using any windows products. I felt like they were all crap.

And IT is still true that it's totally insane to evaluate how did someone do with an asset that they were sort of forced to buying at seventy five. So at the end of his term, IT was fourteen ex. The p multiple went from seventy five x to fourteen ex.

The market cap when he was announced, went from six hundred billion to when he left at three hundred and thirty billion. A lot of that is basically the Price earnings multiple rationalizing in that first year. And then after I did that, the stock Price was basically flat for his entire ten year no matter how much the revenue of the profits grew. And so one crazy stat on this is you could have bought microsoft in two thousand and nine for two point one x annual revenue.

Oh my god. I mean, everything was on sale back then. But like wow listeners.

a slight of hand here we switch from earnings to revenue. But David, I thought that too was like two thousand and nine. Come on, in twenty thirteen you could have bought microsoft ck for three x revenue.

wow.

And so the question is, why why did investors give Steve zero credit for any of this growth cut off that first year when the multiple is coming down? Why is that that effectively what happened from two thousand and one to two thousand and fourteen is for any gains that they got in revenue or profits, who was offset by multiple compression coming down and saying the asset still worth the same thing.

One is very legitimately, the investors had little belief in microsoft s long term relevance, not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean, you went from gates, this guy who created at all, to someone that everyone was checking up to be the sales and marketing guy.

And there's the product strategies all over the place and windows isn't getting any more relevant. But trying all these new things that are fAiling search passes you by, social passes you by. But the interesting thing is investors basically didn't think windows and office businesses were sticky, and they were only valuing the newer bets, which was super wrong.

Windows and office have proven to be these ridiculously durable franchise generating more revenue today than ever. So I mean, IT is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not Price in the retention and growth within the existing windows and office customers through a new era of technology. I think people who are just betting that microsoft would lose IT and they didn't. They held onto these durable franchisees.

You know, it's funny when you asked this question a minute ago, I had prepared for IT. I had a time because as let us know, we don't share notes. The first thing that popped into my mind about why wall street did not appreciate the revenue and profit growth during this time was just simply like microsoft did not do a good job telling this story.

And I think you're saying the same version here, like it's so funny and it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing if you cannot tell your story, right? And in a compelling fashion, this is what's gonna happen to your stock, is even if you triple revenues and profits and build azure and all these things.

yeah, I mean, consumers had no idea what microsoft strategy was, and neither did developers, so neither did investors.

Yep, C. I O S probably did sort of.

but they were only what's gone on surge and what's gone? Yeah, yeah. sorry.

What's zoom is IT winning against? Ipod is losing. Oh, mobile what's losing to?

And it's for another episode. But I really was brilliant what sati a did and the company did when he came in of, they got the story right. The messaging, we said this is a mobile first cloud first company.

Yes, that was IT. That was decker. Just saying those words over and over .

and over again yeah anyone he's listening who's a leader at a company right now knows the right amount of repeating yourself to do is about ten times more than you think IT is you need to keep delivering the same message over and over and over again. And that went the other way to sort of a look at Steve bomb's. Ten year is comparing against what else was going on in technology from two thousand to twenty fourteen.

So on the one hand, like we've been talking about, you have the rise of google and surge and you have social networking with facebook. And yes, you absolutely can compare a CEO to these category defining startup s that are in a jacket fields. But that's a little bit of an odor to evaluate a CEO.

Like how did you do against aren't even really competence of yours in your exact market? And by the way, they created the best businesses in history that were also the fastest growing in capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use.

But if you actually just look at the peer set, what other big companies were there in two thousand? And tech, you at yahoo, A L, the whole cable and media sector, you, hp, nortel, means so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived, where microsoft, dell and only apple after microsoft build them out. And Steve jobs came back. Personally.

I would oracle.

but I mean, surviving puts you in the top five percent against the peer set of that era. So even if you overlook all the revenue and profit growth, and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion.

You have, David, that saudi came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continued in our businesses for another fifteen years on what is already a thirty year old business. I don't know that way Better than anybody else does.

Yep, totally.

So anyway, this is all kind of analyzing the twenty from a business perspective. I am very amendment to the idea that products completely languished like I had no interest in using any microsoft products during this period despite .

being an employ of the .

company yeah i'm very immediate to arguments of like if they didn't make anything good yep.

And that is, I think, particularly resonant to me, a list to my history because they used to they totally used to they .

used to be .

the consumer technology leader. Winter ninety five, windows X, P, everything. We talked about, the building, internet, explore the brows, er, war, they were the leaders.

and they did make some good, no x box is good. Actually thought windows phone, particular windows phone eight, was a beautiful new crack at what is a phone look like. I thought IT worked well. But I guess what i'm saying is the products that ended up being their big profit drivers or never their good products.

right? Well, they were there are good products, just the enterprise products. They weren't the good consumer products.

right? They weren't good for me as a user. They met the needs of customers. Yes, right. Move a new analysis.

S seven .

powers. So listening ers, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is section called seven powers, which is named after hamilton heller's book.

And the question that he sort opposes is, what is IT that enables the business to achieve persistent differential return or put another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers, sort of categories that can fall into. There's counter positioning, scale economies, switching costs, network economies, process power, branding and cornered resource.

And I think on part one, we said microsoft, and that had all of these.

I elt. There are one or two that I was shaking on, but most a well.

in this era, they definitely don't have counter positioning that for sure, right?

That's the interesting thing. Once you're in in combat, you can almost never have counter positioning.

Yep, actually, I would say they had some of the in the development of azure because they could say to fortune five hundreds, we will do hyper club with you and we can be your trusted partner in a way .

that A W S could counter position against A W S. Yeah.

yeah. but. Broadly as a company like no way .

yeah they were getting counter position in mobile mean google saying we'll .

give IT to you free yeah .

less than very yeah alright perhaps the single greatest asset. They have a scale economies with the number of users and customers they have. Any investment that they make gets advertized over such a massive user base that is worth IT. If they can charge a dollar more on, they should do almost any amount of incremental R, N, D. Or acquisitions, right?

And that translates directly into the cloud era.

Two yeah the cloud era even more. I think there's crazy returns to scale on cloud economics.

Yeah, I think process power, I would argue they actually lost there. Yeah I mean, the black home long horn investor thing illustrates that yeah.

they went from knowing how to ship the most beloved Operating system of all time with windows ninety five managing to pretty much do IT again, even during the entire trust thing with windows XP with, I think, zero blenders in between. I mean, they had M E, but that wasn't a blunder as much as, like A I don't know, fresh coat paint that wasn't really real. And then yeah with long orn in windows eight separate problems but completely forgot why those franchise have economic .

value yeah I think they also definitely lost branding power in the consumer world.

Yeah, the question is that they become more trusted by the enterprise, where if you offered the exact same service for microsoft N A W S, are you bore willing to pay microsoft for IT?

definitely. So yes, they gained IT in the enterprise world.

Yeah, microsoft has unbelievable switching costs. The E A, you just can't switch now. You have to switch sometime in the future. And when that time comes, you pride, I can to switch them either because that X, D, A is going to offer even more value.

It's falling to the extent that the D, O, J. And governments were concerned about microsoft being a monopoly when I came to product dying. On the consumer side, they are really should have been concerned about product timing on the enterprise side, where you pay us a dollar among per device on your network and you get all of our software, for sure, there will be a way Better point solution software for any one of the hundreds of things that microsoft is providing for you. But there's no way you're going which yep.

you're so right. It's so funny. Reflect to IT back to the deo jack it's been so long else to be covered that hours ago I kind of forgot about IT. In that era, there were a literal switching costs to getting a different browser.

The one that came with your computer was the one you are going to use because a different browser was gone to take like five to twenty four hours to download over your internet connection. In the dialogues, IT was good for consumers to receive a browser with their computer because getting another one was almost prohibitively difficult. Yep, network economies actual a little thin.

Yeah, I mean, they had the great network economies with windows that we talked about last time. But that starts to a road here .

as inOperability becomes a thing as file format standardized and I can open the same documents on max and pcs. So okay, file from not stop being a network economy that accuse only to the Operating system yeah i'm trying to think are there any other like if you are an enterprise and become a microsoft customer, I am an enterprise and I become a microsoft customer.

do we really benefit from each other being?

I don't think, oh, I don't either. That just leaves corner resource. yep. No, I don't think they have that meaningfully.

No, I do not think so.

I guess this power, I mean, the fact that we came up with, they don't really counter position. They have great scale economies. They have a lot of switching costs and that kind of IT. That's pretty illustrative of why you can feel like this is the lost era of microsoft.

And I think IT also that sounds like an enterprise company to me.

yeah. Okay, playbook.

playbook.

Well, the first one that talks to mind that I want to address a little bit more specifically is this idea of a cultural shift. Because we've mentioned that many times on the episode, oh, with the D O, J, there was a cultural shift. Oh, with the new leadership, there was a cultural shift.

But what does that actually mean? And how do you go about quantifying that? The thing that I kept hearing in all the research interviews we were doing was that when the stock Price was flat and flat for a long time, people became convinced it's just going to stay flat.

You so basically, whatever the cause of that was, IT created a zero sum environment. Nothing I do is going to make the company more valuable. So therefore, my value, the only way to grow value of rude to me, is to win at the expense of someone else at this company.

I'm going to get promoted over them. My products gna eat their product. My teams going to eat their team. I get kudos and at the expense of them looking like an idiot. That's the kind of inside of this .

is the cartoon or chart of all divisions of microsoft pointing guns at one another.

right? And of course, it's amplified by stack ranking, which I don't have a problem of stack drinking generally. But famously at the company, everybody was ranged one to five. Every manager was only allowed so many ones and so many two. And so ultimately, he was an environment where everyone every six or twelve months, sometimes a remedia checkers, was kind of being baked off against your immediate peers in your group. And because the company wasn't growing in value, you had outcompete your friends to win.

right? The pie was not growing.

right? So why was the pie not growing? We talked a lot about that. There's a lot of reasons you could argue why IT wasn't, but the culture is an effect of that.

There's a big one i've been thinking on, which is how to go about placing your bets for the future as a company. And I think in the two thousands, microsoft was viciously trying to fight against the tide. There was open source.

There was the web. There is things people wanted to do. Ultimately, over time, you cannot fight what people want to do as a company.

You can put up all these barriers. You can steer them back in the ecosystem. But ironically, the playbook that soda is now running is a return to a ic microsoft one.

Embrace and extend, yes. Rather than fight what users are doing, I want to use open source software, whatever I want to make, web apps, I want to a hoster web apps. You just figure out what people want. You embrace IT, and then you figure out what product you can build with a business model that extends that existing user behavior. But IT does require you to be clever and outcompete a lot of other people to invent that new business model that you know is created on top of new user behavior.

I just want to double, underline and highlight this one because I think also the same dynamic played out in the building and evolution of microsoft enterprise business really IT just want to control the network and prevent users from passing IT up right? Eventually, when the iphone came out that damn broke and I. T could no longer hold back users within their company from doing what they want and having what they want.

And this is where the shift to the cloud was. Another reason IT was so strategically important. Shifting to the cloud is what enabled IT to say, okay, and become a partner to their users in a way that no paid lip service to before, but they were really antagonistic to their users.

yes. And IT works exactly with what you're saying for microsoft as a company and its products too. Like you want to use my phone? great.

You want to use open source? great. We can still serve you yeah.

The trick is figuring out how to make money when you lean into what people want. Because ultimately, like if you just reduce IT all to economics, what people want is free value. But you can actually build a business on giving away free value. Yes, you know, I can give you a dollar for ninety cents, but ultimately i'm just onna go a business and I need to figure out some way that you're happy from value creation and willing to pay me more than I cost me them. Anyway.

the trick is getting the business model right.

Yes, there's this other one of what was going on given that the ideas were good and this going to sound harsh, but timing, implementation and taste at microsoft from call IT windows ninety eight on, we're just terrible. Or maybe put another way, they have the right ideas, but late timing and bad execution. Strategically correct, but tactically misguided.

I mean, bill was super right. That touch computing was gona be a thing. He referred to this idea of a natural user interface very often.

Bill was super right, that interactive TV, he was going to be a thing. I mean, think about how I watch netflix. I will watch netlist tonight after we record on my apple TV upstairs.

Bill was right on mobile that that was going na be a huge part of the computing landscape. And yet all of these started at microsoft five to twenty years before the tech was actually ready. And they would often bet on the wrong standard or paradise.

I mean, touch computing ended up being capacity, not resisting with a stylus. Tablets have proven to be a cousin of phone scaled up, not pcs. Scaled down. Interactive TV came after the internet, not before and only once. There was a tremendous amount of band with, I mean, think about how much more band with that consumes for all of us to add. Hawks start netflix dreams versus there's one broadcast happening and we all just tune in when we tune in and we just catch whatever part of the broadcast is over anyway.

not to mention an interactive T V looked like youtube, netflix, and not like, you know, a layer on top of comcast.

Totally mobile was five years early, and IT was more can do embedded devices than IT was to scale down pcs. So something was off in microsoft ability to leverage they are future predicting into creating the right products.

right.

which is weird because historically they have .

been good at that.

Yeah, well, they at least employed the one microsoft employer referred to IT as bracketing. He basically developed two products can currently, one aimed below what the current technical capabilities are, and one aimed above.

And as you get closer to shipping or as you get closer to like letting the market play out, you gonna pick whether you're going to make the low end one Better or you're gna sort of start reducing functionality of the high and one. And so in the IBM days, you know you had windows and O S. two. And in the internet era, you had, like the web browser, verses. All the interactive TV stuff or long horn, which was supposed to be little and iteration versus black home, which was so ambitious that actually get cancelled.

Yeah the problem was doing this area that sort of optionality and multiple bets. Kona collapsed down to leg. Now we're going to make one that need is yeah .

or like the bets somehow couldn't continue to flourish internal, if I really know why. But IT seems like for some reason, bracketing worked well for a while. And then eventually their ability to take a good idea implemented at the right time, the right way, fell apart.

Yep, my next one is the idea of positive some leadership, this ones a little bit more personal than our playback themes typically are. But I think it's an important take away. Bill gates, pu, Steve bomber in the right roles, with the right level of respect for each other.

And who made which decisions when that was all humming. That was way more valuable than bill alone, or Steve alone. Yeah, he was like, one plus one equals five.

Yes, they were so great together.

This is actually pretty common among teams. The most high performing teams are so much Better together than they could possibly be a part.

Yeah, well, look at U. V. right. I totally agree.

I was going to make that analogy.

but is too much. There is no way we could do this other, yes, too much of a gazing.

But yes, bill alone, at least in this area, was totally at risk of getting too excited about theoretical technologies like a fast. That's the perfect illustration of this. And you know, Steve needs a great technology partner and one who kind of has the extreme loyalty of the thousands of brilliant engineers at the company, so that sort of a line and follow the vision.

And Steve also needed someone willing to change their mind in the face of new data. Bill was constantly processing new information, and as new things came in, he would say, I don't care how emotion things are if you're right, which is rare, usually bills, right? But if you're right, you're arguing something to me, like, screw IT.

We ve got to change everything, new data, new thing, the internet, tidal wave. And Steve was much more like we have to alive an entire aircraft Carrier in the company and then all the aircraft Carriers outside the company. So we are going to make a decision and that we are going to implement and execute.

And I think together, there was some magic where there was just the right amount of sticks ative neighs adaptor. You, my next one, is being extremely partner focused is a gift and a curse. Microsoft is an extremely partner oriented company.

There are far more profits who have accrued to microsoft, independent software vendors, resellers, retail partners, then just to microsoft itself. But IT basically makes IT impossible to reset. I mean, apple, when jobs came back, hit a full reset, all new developer tools, all new products, all new software, all new platforms.

But when you have all these external alist, depending on you, you actually can't really hit a reset button to adapt for a new era. You have a whole ecosystem to preserve. And I think this is the more nuances view of the idea that, well, if you miss one wave, then you actually well suited for the next wave.

People often say the only reason apple was able to win in mobile is because they totally lost dust topper, whatever. And I think really what the answer is, is the more external alist you have, depending on you, the more difficult that is to reset. And usually a next generation.

the more switching costs you have.

right? The next generation requires you to hit a big reset button. That's all I had for my playbook.

great. I have just one big one, but i'm going to save IT for take away landing the plane.

Let's do that now, listers, we've been trying out this new way of ending episodes. How do we land the plane? What is the one take away? This is really sitting with me, after having done all this research, talk through with David harder, and are thinking by bouncing ideas off each other, what is the thing that you can't get out of your mind?

So for me, this only came to me just a few minutes ago, but I think is the right and most complete version of what i've been feeling about this part of the microsoft story for a long time since we've been doing the research. And the feeling started with, as we are talking to people and digging in, we are just like this story is not understood, right? And this narrative about these were the losing years of microsoft.

Yes, there were a lot of else during this time, but that's not complete by any threat to the imagination. And and we were prepared, I guy really felt a lot of weight on this. One of like, man, we really have a responsibility to try and get this right here.

And I think what I realized a few minutes ago, as we were talking, is this was the biggest failure of the company during this period. They did not tell their story, right? And so much of what we think of as the losses from this time frame, and certainly every thing baked into the stock pace not moving was because of that.

Yes, Steve came to the C E, O all time high multiple, and like I was the temple ble, all stuff. Sure, that's a big thing. Fit, why did the stock Price stay in the thirties for his whole tenure? They just couldn't tell the story right there.

All sorts of reasons for that. But the story does not have to be so negative because there is so much positive that happened during this time. And yet the narrative became this self reinforcing microsoft sucks narrative.

Yeah, air relevant, fAiling, can't do consumer. The counterfactual is amazon. If they had a consistent message that they went forward with, such as where a company who invents and wonders amazon has failed that so many things.

so many things publicly.

huge bets that have totally failed.

and yet huge consumer failures.

The phone people are like, what a beautiful thing that jeff basis has imbued into this company, this idea. We invent and wonder. We make these bold bets.

We embrace failure. I mean, kindle fire, or I just go to fire account. Certainly the phone.

I mean, at this point, I feel like standing here today can say, alexa.

maybe if l ms. Hadn't become a thing i'd be with you IT .

turns out that might .

be good distribution .

for a good L M.

If they but the thing that so all I mean all the restaurant stuff it's a narrative problem and yet .

the narrative about emails on is ah what a beautiful thing jeff can put in the company yes. And the narrative about microsoft was they can get anything right.

Yep, you're right. I think yours is Better than mine. Now that's my new land. The plane. Do you want to hear that mine was before?

yeah. Tell you that you mind.

Right, ultimately, bill gates, right? Technology companies are always extremely at risk of disruption. Even if you want the battle today, even if you're the most dominant company today, IT is so easy for you to lose and become irrelevant. Tomorrow, you may keep a great business because these things are sticky. As we know, IBM made a lot of money for a long time, but even without the whole D O J thing, microsoft probably would have visited themselves.

Microsoft almost certainly would have miss mobile, because there's no chance they would have realized that the business model that google had a meant that they were gonna win in mobile when they came in from the side and gave away the software for less than free. Microsoft was gonna have these huge downstream misses because technology moves so fast. And as such, a dynamic landscape.

yep. And I think this is why I feel so added that microsoft during this era, and Steve deserves so much more credit than they get because microsoft is not IBM today. IT is not large but irrelevant. IT is very relevant. And what they have done with azure and in cloud and now what they ee is, I mean, how they are the most valuable company, ty, in the world.

If all this era did was give them a free option to play in the cloud AI era or even just say, the AI era, that would have been great. But also what they did was they triple revenue profits.

right? Yeah, they did that while building this whole new great business.

Yeah, the great take away. Carvel, let's do IT. Okay.

I have two hardware technology products. One is a recover out from you past car out the rabbit meters. Oh yeah.

Finally got a pair. They're great. They're also the use case of the audio. Ambient audio in my ears without earbuds is great, particularly for a baby monitor when I am talking to my wife or other family members or friends or what not, and I want to be able to hear what is going on in the baby crib and not wear your phones in my ears. great.

That is, they're also this grate product in general, another related hardware carve out because they start up called oslo and the oslo sleep buzz. In the last couple years, I have slowly, and then pretty much every night, gotten into using some form of audio to help fall a sleep. If I wake up in the middle, then I get back to sleep.

And I used airpower s for years and years, and they're great. But you know, if you sleep on your side or do anything we would like you you you got the airport gm in the your ears. These are little sleeped ds that are made for sleeping. And if you lie your side on your air, they don't stick.

You text me like buying .

mediately. So this is the team that was at bows that made the bows. I don't even know what the product was called, but bows had this product.

They killed IT. The team left, started and started up. And so it's all like boss engineering. Anyway, it's great.

I love them. I'm buying this .

as soon we get off.

Yeah, they're fantastic, awesome. I have two and they're like the most absolutely basic products of all time. And i'm OK with that. The first I mentioned earlier, m three macbook air. It's the finance computer i've ever oed, which I say every time I get a new mac.

turn IT around and touch the screen.

I know i'm rockin the m one macbook pro at home and it's a sixteen inches. And gosh, that thing is just a beast to fly with. And so for all the travel we've doing recently, David IT has been awesome to have this incredibly light weight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff. nice. So at my on the go and then sticking with the theme of staying incredibly basic and predictable, the tesla model .

y is an awesome car. Ah yes, that's right. You are finally dating club.

yeah. We just took a weekend and drove up to orkap island. And IT was so sweet, I never once charged that you know drove multiple hours, took a ferry, were on an island that's sparsely populated. Hung out for the weekend, drove all over the island, did the whole thing back, go back with eighteen percent battery.

and you needed to change that. There are be a super judge in network yeah.

And it's undefinably fast and fund a drive. And I finally get the it's a iphone with wheels like IT just feels whatever I drive my other car IT feels kind of iki and this one feels clean, perfect. Yeah, amazing. I get IT. I get IT. Tesla people.

we get a lot of thank here.

We we have a huge set of thank you first, of course, our sponsors jp morning pain service now and pilot. You click the link in the show notes to learn more and tell the bed and David sent you when you get in touch. I was trying to count IT.

It's safely over twenty people that we talked with this time. So on my end, thanks so much to bread. Silver burg, brad LED windows for a while, notably the development of the windows ninety five product and that team, Thomas rearden, who was one of the original team members on internet, explored and actually when on years later, to start control labs, which sold to meta.

And as a part of metas effort, now to do the neural interface, you can sort of twitch your hands. And I don't know, we even actually seen the product yet. All have to see what that looks like. But that was time as read in his next act, Stevens and oski, who LED windows in windows seven and eight and LED office before that. And David, you read quite a bit of Stevens words to prepare for this.

Yeah, his blog, core software, pushed in book form, the thousand page book keys like a textbook sitting on my desk. It's awesome. We talked Stephen for a few hours.

He's great. Is a board partner. N N. In just how? Now that was super fun.

Yep, july larson Green was also great. SHE worked closely with Stephen in office and also and windows. My old co worker on and Rogers wan, who worked with me on office for ipad, helped refresh my memory on what the blow by blew was like in those days where we almost ship the product, then didn't, then got a new CEO, then did huge.

Thank you to fitz land men who worked in some strategy and corp. Dev rules at microsoft. Just an awesome guy, actually.

Now he is the C. E. O of the combined company class, pass and mind body and talk about a person with multiple lives and careers.

He was great, someone that he worked closely with, a microsoft Charles song host. Charlies, one of the smartest st. People i've ever met. I mean, I could go for a lot.

People on this list didn't chartly do a great invest. Like the best interview with patrica couple years ago, I got to go. And absolutely .

brilliant, mind expanding person, john rubinstein, who LED engineering at apple and actually went until lead. Paul IT was fun talking with him about what was IT like from the apple side, from the competitive perspective, competing against microsoft all these years. huge. Thank you to ray aussie, who day I both spoke with. Ray is so damned delightful he deleted .

the level the right way to put IT rays now running another start up. No one called blue's wireless and was just so generous to give us a couple hours. He had some amazing you things that belonged the museum in his office that he showed us, overseen in like old computers and hardware from the seventies, the eighties and nineties.

IT was super cool. yeah. Moore on my side to rob glaser, who worked in microsoft in the nineties and founded and ran real networks, to joe belfiore a, who played a large role in windows and windows phone.

Actually, he demode windows X, P. In the way back when two thousand and one in the launch just filled. Man, that's like how the second half of the keynote t ork is joe is demonic features to IT was j.

Leno for a windows ninety five and rests for windows X T?

yes. So joe got this beautiful, long history of microsoft and was just really great to vivia varma, who was a microsoft deeply involved in sort of the comes and legal stuff during the anti trust era. Of course, to Steve ballmer being very generous with this time and helpful in helping us sharpen some of our thinking .

and especially being generous with his time as we are entering free agency here. He's got a busy day job these days .

at the clips that's right are good friend who runs the science of hitting to great substate that does investment analysis and just was very generous sharing a large spreading IT of historical data from microsoft, very easy to person look things up live or were doing the episode. And finally, last one from me to tod bishop at geek wire.

Todd has these unreleased recordings from when he was covering microsoft at the seattle pi way back in the early two thousands. And he sent me the raw recordings when he was standing there with bill and Steve. Just be a reporter and it's very fond to hear their voices in ways that I don't think we ever released her publicly heard.

yeah. Super gob. Yea, few more on my end. Terry marrion, the C. E. O of true vetter, and see adult Terry ran windows and windows phone at microsoft for a long time to soa soa sagar who is a managing directly madrona but is A A legend in the server and tools business at microsoft. So we talked about him a part one.

He's wonderfully to mary je fully IT was so fun to talk to mary joe. Mary joe dedicated her career, probably the last twenty plus years, to solely covering microsoft. And he is the best in the business today.

She's the editor and chief at directions on microsoft. It's a research firm like gardener. Accept IT only covers microsoft.

He was super kind to generous. And then the last one of dave market, IT, was so fun to talk to dave. Dave was a thirty three year board member. And microsoft.

the only outside capital.

the only outside capital into the company before IPO from T. V. I. And then they went on to go, found August capital, where he's apart her americas these days. I think dave was the longest serving microsoft ard member besides bill gates.

three decades plus. wow. Oh what? I have one more. Thanks to a good friend, arvin, at worldly partners for some of the research that he provided as well. So things arbed well with that.

You should check out our previous episode, microsoft volume one. If you've ready heard that, check out our A W S episode. We also recommend our invidia series, part one, intersex nicely with this era of microsoft, and we tell some of the PC gaming story from the NVIDIA angle.

Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired dot F M slash sf. We cannot wait to see you at the chase center. Mark frickin zuker berg is going to be there. It's going to be the event of the century in the acquired world. So if you ve always thought, like I ve always wanted to go to something like oma hai you for the burger hathaway annual meeting, I just wanted to celebrate with other business and technology nurse who also like acquired, this is going to be the greatest way you could ever imagine to do that. yes.

If you are wondering what you should be doing on september ten, twenty, twenty four, there is only one acceptable answer and that is to be in service co. At the chase center celebrating with us. It's going to be awesome.

And without listeners.

i'll see next time, next time easy you visit you, busy you who got the true.