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Broken Windows at Microsoft

Wall Street Journal
by ROBERT A. GUTH And NICK WINGFIELD
March 31, 2011

A new memoir by Microsoft Corp. co-founder Paul Allen is rewriting the history of one of the most storied partnerships in modern business, making clear that Bill Gates and Mr. Allen had a far more fractious and difficult relationship than is publicly known.

The book, written without Mr. Gates's support, also raises questions of who deserves credit for some early ideas key to Microsoft's successes. Its portrayal of events that happened decades ago, at the birth of Microsoft and the software industry, has created a major rift today between the two billionaires, whose relationship dates back to high school. Their friendship "is probably at very serious risk right now," said a person who knows both men.

Broken Windows at Microsoft

A draft of the memoir, called "Idea Man: A Memoir by the Co-founder of Microsoft," was viewed by The Wall Street Journal and an excerpt appeared on Vanity Fair's website early Wednesday. It will be released on April 19.

The book recounts how the relationship between the two men came to a breaking point in 1982. In the Bellevue, Wash., offices of Microsoft that year, Mr. Allen overheard Mr. Gates and Microsoft executive Steve Ballmer complaining about Mr. Allen's productivity before and after his recent treatment for cancer, Mr. Allen writes. According to his account, Mr. Allen eavesdropped as his colleagues discussed ways to reduce Mr. Allen's stake in the company, then burst into the room, shouting, "This is unbelievable! It shows your true character, once and for all."

A person familiar with the matter said Mr. Gates, concerned about Mr. Allen's commitment to Microsoft, was considering exercising a provision in an employment contract with Mr. Allen that let Mr. Gates acquire his partner's Microsoft shares if Mr. Allen left the company before a certain date. A spokesman for Mr. Allen denies the Microsoft co-founder's employment contract from that period, signed in 1981, contained such a provision.

Messrs. Gates and Ballmer later apologized, and Mr. Allen left Microsoft a few months later with all his shares.

New information from the book combined with interviews with former Microsoft executives and friends of both men paint a picture of the creative tension between two very different people. Mr. Gates was confrontational and single-minded about Microsoft. Mr. Allen was a generalist intrigued by everything from Jimi Hendrix to science fiction and unwilling to sacrifice his life for the work.

Those differences became more stark as Microsoft grew. Mr. Gates became more frustrated by Mr. Allen's apparent lack of focus on the company's mission, compared to Mr. Gates. Mr. Allen in his book reveals a growing disenchantment with the behavior of Mr. Gates, whom he portrays as a confrontational taskmaster who clashed with Mr. Allen's low-key style.

Microsoft co-founder Paul Allen writes in his new memoir that Bill Gates schemed to undermine his role in the early days of the company. But people familiar with the matter say some of the statements in the book are false. Plus: how important are wingmen in tech twosomes?

Eventually they exploded. Mr. Gates's browbeating, Mr. Allen writes in the book, citing a letter he wrote to Mr. Gates in 1982, had led to "the gradual destruction of both our friendship and our ability to work together..The camaraderie of the early days is long since gone."

Past histories of Microsoft have said Mr. Allen's departure from the company was sparked by his first brush with cancer in 1982, when he was diagnosed with Hodgkin's disease.

Mr. Allen in the book also positions himself as the spark of many of Microsoft's most important ideas, playing down Mr. Gates's role in some cases. Parts of the book contain an undercurrent of bitterness Mr. Allen expresses for not receiving more credit for his work throughout his career and not getting more Microsoft shares.

Mr. Allen portrays Mr. Gates as steadily trying in the late 1970s and early 1980s to reduce Mr. Allen's stake in the company. Mr. Gates, from the earliest days was concerned with Mr. Allen's lack of focus and feared he'd leave, holding a large stake, said people familiar with the matter.

Mr. Allen became one of the world's richest people from the success of Microsoft under Mr. Gates's leadership, with the vast majority of his wealth created in the years after he left in 1983.

The relationship did recover: Mr. Allen writes that two years ago Mr. Gates was one of his "most regular visitors" when Mr. Allen was recovering from non-Hodgkin's lymphoma, describing him as "everything you'd want from a friend, caring and concerned."

The book is "a very balanced portrayal of their relationship," said David Postman, a spokesman for Mr. Allen. "Paul clearly values the input and the ideas and energy of Bill Gates."

"While my recollection of many of these events may differ from Paul's, I value his friendship and the important contributions he made to the world of technology and at Microsoft," Mr. Gates said in a written statement. A spokesman for Microsoft said Mr. Ballmer had no comment.

Messrs. Allen and Gates met in 1968 at a prestigious private school in Seattle, when Mr. Allen was a tenth grader and Mr. Gates was an eighth grader and both boys shared an interest in computer programming on the primitive machines of the time.

From their earliest encounters, Mr. Gates showed great ambition, speculating to Mr. Allen that the two of them would one day run their own company, Mr. Allen writes in his book.

One of the biggest sore points between Messrs. Allen and Gates was over their respective financial stakes in the company, a source of tension that began early and worsened over time.

When the two college dropouts were based in New Mexico in the mid-1970s, Mr. Allen says Mr. Gates asked for 60% of their partnership because of his greater contributions to the creation of software for running the BASIC programming language on an early personal computer.

Mr. Allen says he had assumed that their partnership was evenly split, but he agreed to Mr. Gates' request.

In 1977, Mr. Gates asked to again change their respective shares in the business when the two men established Microsoft as a formal partnership, this time to a 64-36 split, according to Mr. Allen.

Mr. Allen protested but again agreed to the demand, which he wrote hoping to put the issue to rest for good.

Mr. Gates' attempts to lower Mr. Allen's stake in the company reflected concerns that Mr. Allen wasn't working hard enough and wasn't committed to the company, said people familiar with the relationship.

That was one reason, these people said, that Mr. Gates also put a provision in their first partnership agreement that would allow him to buy out Mr. Allen if he thought there were "irreconcilable differences" between the two men.

The agreement, dated Feb. 3, 1977, also said that a letter from Mr. Gates to Mr. Allen citing "irreconcilable differences" between the partners would be treated as an intention by Mr. Allen to withdraw from the partnership, according to a person familiar with the contract. The agreement, didn't grant Mr. Allen the same right.

Mr. Allen mentions the agreement with Mr. Gates in the book, without saying why Mr. Gates asked for the clause.

A turning point for Mr. Allen occurred in 1981 when it was his turn to ask Mr. Gates for a bigger share of Microsoft. Mr. Allen writes that he felt he deserved the additional shares in recognition for his work on a successful Microsoft product called SoftCard. Mr. Gates balked.

"I don't ever want to talk about this again," Mr. Gates said, according to Mr. Allen. "Do not bring it up."

In an exclusive interview with the Wall Street Journal, Microsoft Chairman Bill Gates discusses the challenges of philanthropy in an economic recession and how his tenure at Microsoft prepared him for his new job running the Bill and Melinda Gates Foundation.

"In that moment, something died for me," Mr. Allen writes. "I'd thought that our partnership was based on fairness, but now I saw that Bill's self-interest overrode all other considerations. My partner was out to grab as much of the pie as possible and hold on to it, and that was something I could not accept."

Mr. Allen said he sucked it up and thought, "OK.but one day I'm out of here," the book says.

By then Microsoft was changing quickly. International Business Machines Corp. hired Microsoft in 1980 to build an operating system for a secret project to build the world's first personal computer. The deal would be Microsoft's biggest breakthrough and the still-small company was struggling to meet its client's deadlines.

Mr. Allen helped land IBM and was key to acquiring the software that Microsoft would use for the project. Yet he maintained his life balance. In April 1981, in the heat of the project, Mr. Allen and three other employees took a part of a weekend to fly to Florida to see the launch of the first space shuttle, Columbia, according to the book and people familiar with the trip.

To Mr. Allen, witnessing history was worth sacrificing work, he writes. Not so for Mr. Gates, who berated Mr. Allen for taking off at such a crucial time.

Those lashings and other confrontations, revealed in the book, took a toll on Mr. Allen. "My sinking morale sapped my enthusiasm for my work, which in turn could precipitate Bill's next attack," he wrote.

Increasingly, however, Mr. Allen became an outlier in a culture that attracted more people like Mr. Gates who were single-mindedly focused on building Microsoft. They were willing to work around the clock, sleep in the office and battle over strategy and technical decisions.

Mr. Allen, people familiar with the matter said, increasingly lagged the rest of group, taking more time for himself and gradually losing interest in remaining at the company.

When he left, said people who know Mr. Allen, it came as a relief to him and his colleagues. "Paul had a well-deserved retirement. He was respected," said a person who worked with him. "It seemed all for the best."

Mr. Gates, Mr. Allen says, tried to buy his Microsoft shares just before he left the company in February 1983. Mr. Gates offered $5 a share, Mr. Allen countered that he "wouldn't even discuss less than ten dollars a share," he writes in the book.

Microsoft went public in March 1986 at $21 a share. Each of those shares, adjusted for splits, is now worth $7,376.

Mr. Allen's stake in the company created one of the world's greatest fortunes-he ranks 57th on the Forbes magazine list of billionaires, with an estimated $13 billion fortune-and funded everything from his acquisition of multiple professional sports teams to a quest to build a reusable spacecraft.

"I am surprised that Paul would have felt that it helps his legacy to express dissatisfaction with the share of Microsoft he received," said Carl Stork, who joined Microsoft in 1981 and worked there for two decades. "While all of us considered Paul a friend and valued his contribution, there is no question that Bill had a far larger impact on the growth and success of Microsoft than did Paul."

Throughout the history of the technology industry, one co-founder often plays an outsize role in the success of their companies. Mr. Gates, Apple Inc.'s Steve Jobs and Facebook Inc.'s Mark Zuckerberg all saw their co-founders leave before their companies truly took off. Yet the importance of those early partnerships can't be overlooked, said David Yoffie, a professor at Harvard Business School.

"I'm not sure Bill would ever have dropped out of Harvard if it wasn't for Paul," Mr. Yoffie said, referring to Mr. Allen's role in encouraging Mr. Gates to leave college to start Microsoft. "I don't know whether Steve Jobs, without [Steve] Wozniak, would have ever gotten things together."

Mr. Allen has spent the decades since his departure from Microsoft using his wealth to carve a somewhat whimsical path for himself.

Many of his business investments, like the cable company Charter Communications, software company Asymetrix Corp. and set-top box maker Digeo Inc., have either flopped or fared poorly for him.

Mr. Allen devotes portions of his book to investments like the Portland Trail Blazers NBA franchise and the Seattle Seahawks NFL team.

He financed the creation of rock n' roll and science fiction museums in Seattle, while he invested $100 million in 2003 to form a nonprofit organization called the Allen Institute for Brain Science to study how brains work.

Over time the Microsoft co-founders started spending more time together. Mr. Gates invited Mr. Allen to join the Microsoft board. In the book, Mr. Allen recounts how as the company's antitrust battle with the U.S. government heated up, Mr. Gates called his old friend to his Seattle estate where he discussed the strain of the case.

More recently, Mr. Allen has hosted Mr. Gates's family on his mega-yacht Octopus and Mr. Gates has flown to Portland to join Mr. Allen for Trail Blazers games.

Writing about his feelings today, Mr. Allen said he missed the "good times" with Mr. Gates "when we'd spur each other on to bigger and better ideas." Still he never regretted his departure.

"It was like a failed romance," he writes of time at Microsoft. "Parts of the relationship had been wonderful, but I remembered the negatives, too. I could not go back."



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