Microsoft chairman and chief executive Bill Gates met John Major for private talks in London last week. It is a legitimate question to ask which is the more powerful. But one that does not take long to answer.
Many believe Gates has overtaken Rupert Murdoch as the most powerful businessman on the planet. He heads a company which returned profits of 462m in the past financial quarter alone; that is reputed to have more billionaires and millionaires on its payroll than any other organisation; and has secured Gates an estimated personal fortune of 13.5bn.
Next week he will speak to the Marketing Society through a video recorded during his trip to London, and revealed exclusively in Marketing Week, about his views on marketing, the Internet, and how IT will affect both home and business in the future.
Microsoft software is used in more than 80 per cent of PCs on office desks around the world. Now Gates’ sights are trained on the lucrative and largely untapped home market. Apple Computer chief executive Gil Amelio says 85 per cent of people never use computers at home, which underlines the potential.
“The home is a great market for information to be delivered through the Internet,” Gates will tell the Marketing Society. “In the US nearly 40 per cent of homes have PCs and in a couple of years virtually all will have Internet connections.
“This will allow businesses to mail people, put together mailing lists easily, and the costs will be very, very low. Many people will pay their bills that way, they’ll plan their trips that way, they’ll pursue their hobbies, and they’ll stay in touch with their friends.
“It will just be the way that people think of doing things. In fact you can ask: will kids spend more time working with the Net than they will spend watching TV?”
It is in retail that Gates believes the biggest Net lessons need to be learnt.
“For some, going to the shops and looking around is part of the experience and is fun. The Net will not have an effect on that. But when you are after an obscure item or really know what you want, or you just want it quickly at the best price then the Net comes into play in a very strong way. Customers will be better informed about products. Trusted brands will show up on the Net.”
Ironically Gates’ evangelicalism for the Internet came after a long period of scepticism and a “road to Damascus” conversion.
“Gates was converted to the Net by an e-mail he received and literally within hours the company had changed direction through 180 degrees,” says one inside source.
Now, whenever Gates is asked about his views on IT, you get his views on the Net. At the beginning of last year Gates and Microsoft were unconvinced about what that technology had to offer. But seeing the success of companies like Netscape and Yahoo! changed his mind, a relatively small budget of 1.3m was invested in Net research, and now virtually every area of the company is related to the Internet.
“The Internet for us came far more rapidly and in a different way than we had expected,” admits Gates. “This year we had to change a lot of our plans. Businesses should rethink who their customers are and what they can do, because this is going to happen quite rapidly.”
The company has been characterised by its speed of change since it was launched by Gates and his partner, Paul Allen, in 1975. At the tail end of the Seventies IBM approached a number of organisations to develop an operating system for what would be the world’s first personal computer.
Gates told IBM he could do this though he did not have the technology to support his claim at that time. He bought in the MS-DOS software system which was combined with Intel chips to go into the IBM PC, launched in 1981. It was the making of both Microsoft and Intel.
Since then the company has been noted more for a mixture of good marketing and keen business timing than key technological advances.
At critical points in the development of the computer industry Microsoft has successfully read which way the market is veering and switched direction accordingly. It struck deals to develop operating systems with IBM’s early rivals like Compaq and Dell before they could seek alternative software vendors.
When Apple launched its Macintosh in the early Eighties, Microsoft copied the window-style on-screen display for its own generation of Windows software. The first mid-Eighties versions of this software were slow, used a lot of memory, and were not as easy to use as the Apple system. It was not until the launch of Windows 3.0 in 1990 that the system began to work well.
Microsoft exploited its advantage, overtaking Lotus spreadsheet packages, WordPerfect word processing software and various other database packages – reducing them to also-rans in market share terms.
As one insider at a hardware manufacturer says: “I can’t think of any Microsoft product that is revolutionary. What the company does do well is bring standards to a difficult industry. And it is very skilled at marketing. Its people are good manipulators. They are able to make consumers believe they really need its products.”
Gates is in such a strong position that he can afford to smile benevolently when he hears this sort of comment but does not shy away from the key role marketing plays for Microsoft.
He says: “Perhaps ten per cent of our people are involved in marketing, yet our competitors accuse us of having better marketing than products. This isn’t true, but it is a tribute to the fact that marketing is absolutely critical to our business.
“Customers have to know that we are an innovative company that’s thinking long term. We have a theme which is ‘Where do you want to go today?’ That talks about empowering people. We try to make all our messages fit that ethos.”
In 1995, the company doubled its ad spend to 150m for a global branding campaign, through US agency Wieden & Kennedy. The campaign kicked-off with the Windows 95 launch, then the initiative switched to branding the company across radio, TV and press.
But some sources believe that despite its prowess, Microsoft is still missing an advertising opportunity.
“It does a huge amount of technical ads and at the other extreme, brand work, but there is very little work in the middle to exploit the practical applications of Microsoft,” says one source.
“The company would not fit into the classic packaged goods marketing scenario but its speed of operation and propensity to change are things that other organisations could learn from,” he adds.
Trying to predict what the future holds for a company as dominant as Microsoft is the same as asking what’s next for the industry. Those involved in IT like to say their business moves faster than any other. They are right. In less than 50 years the industry has gone through three revolutions, taking it from the dominance of IBM to the power of software and Microsoft.
The key question, and one which nobody has the answer to, is how to make money from the Net – through retailing, through the provision of content, or in some way yet to be discovered. Microsoft is throwing money and talent at an alarming rate into both retailing and content.
What will become clear next Wednesday, when Gates speaks to the Marketing Society, is that he does not have the answers either. One of the things he seems to share with John Major.