Monday, May 3, 2010


Microsoft Corporation

Fact File:

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

personal computer.

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

meet demand.

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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AT&T Corporation

Fact File:

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

firm in

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

various wouldbe

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

service were

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

monopoly. He

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

proved so

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

with seven

independent "Baby Bell" operating companies.

The breakup

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

and longdistance

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.

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