Founders: William H. Gates III and Paul Allen
Distinction: Created the systems that drive nearly all the world's
Primary products: Computer software and Internet Services.
Annual sales: $22.956 billion.
Number of employees: 31,400.
Major competitors: America Online, Oracle, Sun Microsystems.
Chairman and Chief Software Architect: William H. Gates III;
President and CEO: Steven A. Ballmer.
Headquarters: Redmond, Wash.
Year founded: 1975.
You may love them or hate them, but there's no denying them: Microsoft is
currently the world's most powerful company. Founded 25 years ago by two
boyhood friends, the corporation grew up with the personal computer.
Microsoft is neither the largest on Earth nor the most valuable. It doesn't set
the pace for technical innovations or employee relations. It isn't sexy like a
dotcom, seductive like a sports franchise, or alluring like an entertainment
concern. What it is, though, is the purveyor of the software that runs 90
percent of all PCs – and that gives it a dominance that no other company,
inside its industry or out, can match.
Starting in 1975, when Bill Gates and Paul Allen translated an existing
mainframe computer programming language into one that could be used with
the very first PC, the company they christened with a combination of the
words "microcomputer" and "software" has been uncannily successful. It
soared from $16,000 in revenues in its first year to $7.5 million in its fifth. It
went global, forged critical partnerships with all of the leading computer
makers, vastly expanded its product line, and was earning nearly $150 million
annually by its 10th anniversary. Then, it went public – making Gates the
youngest billionaire in U.S. history, and eventually the richest person in the
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world – while consistently tallying an astounding 25 cents in profit on every
dollar it earned.
But with those accomplishments, Microsoft also has been unceasingly
controversial. It has been faulted for taking innovations developed by others
and turning them to its own commercial; advantage. For leveraging its
enormous power to stifle competition and force consumers into costly
upgrades. For missing the onset of the Internet boom and then trying to
bludgeon its way into the fray. For all these things and for making much more
money and lasting far longer than anyone in its field, the company had been in
the critical crosshairs since its beginning.
And then, in mid1998,
the U.S. Department of Justice and a coalition of 20
state attorneys general officially accused it of violating antitrust laws – a
charge that ultimately led to an order that the company be split in two. With
the case in lengthy legal limbo, however, Microsoft adamantly dug in its heels
to retain the tremendous power it had amassed.
Paul Allen saw the future in 1975 when he picked up a copy of Popular
Mechanics with the MITS Altair on its cover. Allen, then working at
Honeywell, instantly understood that this primitive device would completely
change the way computers were used. He showed the magazine to longtime
friend Bill Gates, a fellow Seattle native and Harvard sophomore. Gates wrote
his first computer program and started his first computerrelated
when barely in his teens. Gates grew equally excited with the possibilities, and
the two immediately began working roundtheclock
to adapt the popular
BASIC programming language used on large computers for this new personalsized
Allen flew to MITS headquarters in Albuquerque to demonstrate their effort
as soon as it was completed, and it so impressed the company they offered
him a job. He also began actively promoting the new Altair BASIC, which
attracted the attention of hobbyists who had longed for such an innovation.
Gates got caught up in the enthusiasm as well, and dropped out of Harvard to
follow his friend to New Mexico. There, the two struck up an informal
partnership they called Microsoftwith
a hyphen to emphasize the corporate
origins – and began refining their creation. That first year, it took in $16,005.
The two opened offices in Albuquerque and licensed their program to several
large firms, including General Electric and NCR. Both were attracted by the
Altair buzz. They hired employees to meet ensuing demand, and in 1977
formalized the company's existence. Gates also began speaking out against
hobbyists who were pirating their product, incurring the wrath of those who
believed that such programs should be freely traded. It would not, of course,
be the last time Gates and his company were accused of imposing their will on
the computer world.
More licenses for BASIC were quickly negotiated, including those for the
recently unveiled Commodore PET and TRS80
computers (along with an
upstart from northern California called Apple). By the end of 1977 Microsoft
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also began shipping a second computer language, FORTRAN, and selling
BASIC on a single copy basis. When revenues neared $400,000, Gates and
Allen decided to move their headquarters to Bellevue, Wash.
After striking a deal with a Japanese firm to begin marketing BASIC overseas,
Microsoft's business began to accelerate. And then, just before its fifth
anniversary, the company signed a seminal contract with IBM to produce the
operating system for its own soontobeunveiled
Microsoft – now with 40 employees, including a young executive named
Steve Ballmer who had recently arrived from Procter & Gamble – had nothing
of the kind under development. So Gates bought a program called QDOS
(which stood for Quick and Dirty Operating System) from renamed it MSDOS
(for Microsoft's Disk Operating System), and wound up in exactly the
right place with the right product when sales of the IBMPC
exploded upon its
1981 release. Revenues hit $16 million and the employee base was tripled to
In the 16 months after it was first offered, the company licensed its MSDOS
to 50 more hardware manufacturers, and Microsoft really took off. It opened
offices in Europe, while using its increasing income to produce an electronic
spreadsheet and move into the growing market for business software. Cofounder
Allen left the company in 1983 due to illness, and the developments
he pioneered continued. They culminated in Microsoft's 10th year, when it
shipped its first version of a graphical operating system, named Windows.
Sales were initially slow – due in part to the lack of available software – but
criticism was strong. Skeptics pointed out that Apple's Macintosh already did
everything windows could do, but better. However, Microsoft continued
working to improve it, and business picked up in other areas. Annual revenues
soon reached $150 million and the payroll approached 1,000.
The company responded in 1986 by going public and moving into a new four
building campus in Redmond, Wash. Gates, its largest individual shareholder,
became a billionaire at age 31. But as his wealth grew and the company's
power increased, so did the complaints against it. Rivals regularly accused
Microsoft of being underhanded schemers out to profit from every computer
sale in the world. Supporters also were growing in number as Microsoft
enlarged its reach, however, and they vigorously applauded the improved
products that made their computers more effective and efficient.
The late 1980s saw rapidly continuing advances from Microsoft. They
introduced a "bundled" suite of applications called Office, CDROM
such as the Bookshelf reference collection. And as international operations
tallied more than half of all sales Microsoft became the industry's top
software vender. Apple sued for copyright infringement. The folks in
Redmond seemed unconcerned and expanded their headquarters to
accommodate even more employees.
The biggest breakthrough of all came in 1990 when the most refined update
yet of the graphical operating system, dubbed Windows 3.0, was released.
Microsoft believed it would change the world of personal computing forever,
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and launched it with a $100 million advertising campaign. The effort appeared
justified when unit sales hit 100,000 within two weeks, making the company
the first in its industry to surpass $1 billion in sales. The impressive landmark
was reached as Microsoft was celebrating its 15th anniversary. It also arrived
just a little before the federal government revealed that it was investigating the
company for possible antitrust violations.
Microsoft's successes and the protests leveled its way, multiplied during the
1990s. Millions registered to use Windows in dozens of countries as updates
became available, new software was released for home and business use, and
a judge ruled in Microsoft's favor in the Apple copyright suit after 63 months
of litigation. Rivals, however, increasingly complained about its practices
even after a 1994 settlement with the U.S. Justice Department led to the
changing of some controversial practices.
The company marked its 20th birthday with the release of Windows 95 –
which finally matched the easeofuse
of Appl'e operating system. More than
4 million copies were sold in four days. Microsoft bundled its new Internet
Explorer browser in this version to belatedly counter competitor Netscape in
the increasingly hot battlefield of cyberspace. They launched The Microsoft
Network online service to grab market share from leader America Online.
Gates redoubled his efforts on Internetrelated
software, but his progress
brought even more governmental scrutiny on the firm. And in 1997, the
Justice Department officially alleged that Microsoft had violated its threeyearold
settlement by compelling manufacturers to include certain products
in their computers or risk losing the Windows operating system.
Steve Ballmer was elevated to company president and CEO as Gates assumed
the titles of Chief Software Architect and chairman as the federal action
continued. In 1999, a judge ruled Microsoft had indeed harmed consumers by
violating antitrust laws in its dealings with business partners. The following
year, it was ordered to be split into two separate companies; one to handle
operating systems and another applications. The company protested
vehemently, and i9n the fall of 2000 the U.S. Supreme Court declared a
lengthy appeals process must be undertaken before any resolution was
Observers predicted the decision on whether Microsoft would be dismantled
was thus years away. And Gates, the world's richest person and head of its
most powerful company, hunkered down to make his firm even more earthshaking
as the 21st century unfolded.
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Founder: Alexander Graham Bell, Gardiner Hubbard, and Thomas Sanders.
Distinction: Launched the telecommunications revolution.
Primary products: Telephone services, Internet access, cable television.
Annual sales: $62.391 billion.
Number of employees: 148,000.
Major competitors: America Online, MCI WorldCom, Sprint.
Chairman and CEO: C. Michael Armstrong.
Headquarters: New York, N.Y.
Year founded: 1877.
Advanced communication techniques are widely considered a hallmark of an
advanced society. And no corporation is more responsible for the state of that
art in today's world than AT&T. The ubiquitous phone company ingly vital
and complex business–from its first incarnation following Alexander Graham
Bell's first telephone in the late 19th century through its ultimate overhaul
after a governmentmandated
divestiture near the end of the 20th century. And
when the resultant corporation voluntarily dismantled itself yet again a dozen
years later, it prepared to make its mark in the 21st century as well.
American Telephone and Telegraph was once the parent company of the
legally sanctioned monopoly known as Ma Bell, and it grew to mammoth
proportions, while providing the United States with the best phone service in
the world. But its unique status always rankled regulators and competitors,
and its eventually was split up as a result of antitrust action initiated by the
U.S. Government. Despite fears of subsequent disasterboth
for the company,
and the telecommunications infrastructure it createdthe
new AT&T again
drove its industry as an integrated equipment and services provider centered
on the delivery of longdistance
phone calls. And when market conditions
shifted it evolved once more, this time into three contemporary businesses that
focused on voice, data, and video transmission.
With more than 80 million customers, AT&T remains the numberone
its field. It has certainly changed since Bell inaugurated the
telecommunications revolution with his immortal words, "Mr. Watson, come
here, I want you!" The company he formed to spread his invention throughout
the land now provides an array of local, long distance, and wireless telephone
services, in addition to cable television connections and highspeed
access. Its founder could never have imagined these advances.
Today, though, new seismic shifts are afoot and his successors are again
grappling with changes that they hope will help them keep pace with ongoing
transformations in both the technological and the competitive landscape.
Alexander Graham Bell had been trying to invent a talking version of the
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telegraph and succeeded beyond his wildest expectations. After earning
patents on the remarkable device that resulted from his endeavors, he and two
partners formed the Bell Telephone Company in 1877 and licensed their first
telephone exchange one year later in New Haven, Conn. Under the leadership
of Theodore Vail, who initially served as Bell's top executive from 1878 to
1887, the company went national. It fended off continual challenges from
competitors by inking noncompete
agreements or by
simply absorbing them.
By 1881, Vail had installed exchanges operated by AT&T licensees in most
U.S. cities of any size. During the following two years he gained control of a
firm called Western Electric, transforming it into his internal manufacturing
arm. He eventually opened the mechanical department that eventually evolved
into the fabled Bell Laboratories. His entire enterprise became known as the
Bell System, and soon laid claim to 155,000 connected telephones and
revenues of $10 million. After it was reorganized in 1885 as AT&T, Vail
began the process of building a national network to provide farflung
Americans with longdistance
Vail was the new firm's president, but disagreements with its financiers led to
his resignation within two years. The company proceeded in the direction he
had set, however, and continued constructing its nationwide longdistance
system outward from New York. It reached Chicago in 1892, Denver in 1899,
and San Francisco in 1915. Many devices critical to its completion, such as
those boosting weak signals as they moved across lengthy telephone wires,
were developed at the increasingly respected Bell Labs. But a plethora of
competitors still threatened the corporation's dominance.
With Bell's patents expiring and entrepreneurs everywhere entering the
telephone business, the innovative products and longdistance
not enough to ensure AT&T's future. From 1894 to 1904 more than 6,000
independent phone companies began operation, while the number of
telephones in use mushroomed from less than 300,000 to more than 3 million.
Many parts of the country received service for the first time, but others found
themselves suddenly hosting two or more competing providers. Unfortunately,
most of these were incompatible and subscribers to one could not call
subscribers to another. Vail, meanwhile, returned to AT&T as president and
instinctively knew how to proceed.
During his 20year
absence, Vail had decided that the nation's phone system
would be most effective if operated as a governmentregulated
proposed just that in AT&T's 1907 Annual Report. He followed with an
advertising campaign touting such status as the only way the company could
deliver the telephone connectivity demanded by both officials and the public.
Under the "one system, one policy, universal service" mantra, he pounded
home his message. The government eventually accepted it in a 1913
agreement known as the Kingsbury Commitment. Among other things, it
required that AT&T connect remaining independents around the country to its
network. Well before Vail's retirement in 1919, the Kingsbury Commitment
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finally pushed his company to total dominance in the U.S. telephone business
and allowed him to successfully expand its equipment operations overseas.
AT&T continued on a roll long after Vail's departure. It moved into unrelated
fields, such as radio broadcasting, but the new management wanted to focus
on providing telephone service to everyone in the United States. Before long,
AT&T toned down or sold off most of these peripheral projects. To keep
moving toward universal connectivity for all customers, the company did
initiate a few new services, such as transatlantic calls to London. Despite the
was $75 for five minutes when it began in 1927these
popular that other European cities were soon added. Such innovations, along
with its privileged monopolistic position, quickly helped AT&T become the
world's first corporation to generate more than $1 billion in annual revenues.
By World War II, Bell was manufacturing 90 percent of all phone equipment
in the U.S. and controlling 98 percent of its longdistance
market. The number
of Americans with telephone service also rose as AT&T had promised,
reaching 50 percent in 1945, 70 percent in 1955, and 90 percent in 1969. But
even putting phones into virtually every American home could not keep
federal regulators from looking askance at the favored deal bestowed on
AT&T decades earlier. They finally took action in 1949, filing suit under the
Sherman Antitrust Act. This led to a 1956 consent decree under which AT&T
agreed to limit its activities to government work, and the regulated business of
the national phone system.
This arrangement continued until the 1960s, when several upstarts received
approval to operate a new wireless phone service and initiate microwavebased
service. AT&T was by then the world's largest companyemploying
nearly 1 million and claiming more total assets than General
Motors, Exxon, and Mobil combinedand
federal officials became
increasingly uneasy with it handling 80 percent of the expanding U.S.
telecommunications market. And so, in 1974, the Justice Department filed the
lawsuit that eventually spelled the end of Ma Bell.
AS the legal proceedings dragged on, AT&T it would inevitably be forced to
spin off the 22 regional companies through which it provided local phone
service. Announcing it was setting its future sights on "the business of
information handling," it began preparing new initiatives for the day it was
freed from government control. When the end did come in 1982, AT&T was
indeed forced to divest itself of the monopolistic local exchanges, but was
allowed to retain its long distance, manufacturing, and research and
development units. The Justice Department agreed to lift its 1956 decree in
return and on January 1, 1984, the new AT&T was bornalong
independent "Baby Bell" operating companies.
the biggest since Standard Oil was split in 1911, brought fearful
protestations from many. Some predicted phone service would be permanently
disrupted; other forecasted persistent aggravation for consumers and rapidly
rising rates. Americans by then were making 800 million phone calls a day
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and the anxiety was palpable, but the actual transformation passed as
uneventfully as the equally overhyped
Y2K computer meltdown. With about
$35 billion in assets and 373,000 employees, AT&T remained twice as big as
its nearest competitor. And for the next decade, it used its resources to become
a major supplier of communications services, network equipment and
computers. To further that goal, it announced in 1995 that it was splitting
again into three separate companies: AT&T, which offered longdistance
other telecommunications services; Lucent Technologies, which made and
marketed telephones, network switching equipment, computer chips and other
hardware; and NCR Corp., the computer company it acquired four years
C. Michael Armstrong took the reins as chairman and CEO in 1997 and within
a year pushed the firm in yet another direction by purchasing TCI, the nation's
largest cable TV provider. He then unveiled plans to combine AT&T's
various telecom utilities and offer unified cable television connection, local
phone service, and highspeed
Internet access. The very
next year he branched out again by forming an alliance with British Telecom
to provide wireless phone service worldwide.
A few additional acquisitions followed, but as the century turned AT&T's
growth still slowed. The former head of TCI expressed interest in acquiring
the corporation that had acquired his, and speculation arose that Armstrong
would be forced to break up his company once more. Regardless of the
eventual outcome, however, AT&T's role in the development of our modern
world remains a pivotal one.