Posted by: Doug Henwood | December 2, 2010

Bill Gates, business genius?

Reading Diane Ravtich’s excellent takedown of (private school grad and college dropout) Bill Gates for his interventions in public education reminded me that the only reason people listen to him is that he’s thought to be some sort of business genius (as if business genius were translatable to pedagogy or anything else). If he’s that rich, he must be smart, eh? But he’s really not such a business genius.

Well, he’s a business genius of a sort, but not of the sort of heroic entrepreneur that’s usually lionized. His first foray into code-writing was a version of BASIC for some early hobbyist machines (written with fellow future megabillionaire Paul Allen). BASIC was originally developed at Dartmouth, a nonprofit educational institution, but Gates was learning how to take the work of others and turn it into his own property.

What really made him rich was having been in the right place at the right time in 1981 when IBM needed an operating system for its new PC. Gates (with Allen) borrowed heavily, to put it gently, from an existing operating system, Digital Research’s CP/M. (For DR’s version of this history—“Microsoft paid Seattle Software Works for an unauthorized clone of CP/M, and Microsoft licensed this clone to IBM”—see here. A less biased, though still damning, look is here.) In other words, another instance of adopting someone else’s work and taking credit for it—this time with the innovation of litigating aggressively and manipulating markets to defend a monopoly position. Because once it secured that monopoly, Microsoft did everything it could to crush competition.

Having secured that early market dominance with MS-DOS, Microsoft became a money machine. It earned monopoly profits with almost no cost of production. But after that, aside from Office, Microsoft has been unable to launch a truly successful product on its own creative juices. Windows—at first, a gussied up version of MS-DOS—was basically lifted from the Mac OS (which Apple itself had lifted from Xerox) and it took years before they got it right. Many Windows releases have been extremely buggy and bloated. Explorer is a crummy browser. Microsoft’s efforts on the web, Hotmail and Bing and the rest, have been disappointing. Their attempt to imitate the iPod, Zune, is a joke. Microsoft has lost money on videogames, despite the enormous growth in that market.

(Some numbers to back that up, from Microsoft’s latest annual report. The profit margin—operating profits as a percentage of sales—on Windows is around 70%. On Office, it’s 63%. Then the numbers fall hard. Entertainment, mainly the Xbox and Zune, has an 8% margin. And the online division, mainly Bing and MSN, lost more money than it took in in revenue.)

So it’s pretty rich for Gates to criticize monopoly and stodginess in public education, given this business history. His father was, among other things, an intellectual property lawyer, which did teach him something about gaining advantage in a world where the innovation of others can threaten monopoly profits. (The University of Washington law school’s Center for Advanced Study & Research on Intellectual Property is headquartered in a building named after Gates Sr.) But there’s nothing terribly admirable about using litigation and market power to become a billionaire. And that sort of personal and business history certainly doesn’t give you the credential to hold forth on education policy.

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Responses

  1. Thanks for posting this, the myth of Bill Gates’ business genius is one of the most annoying and persistent tropes in the high-tech culture.

    As has been suggested before, you really need to do a book of “things everyone knows that are wrong.” Sort of a LBO “greatest hits” album, if you will.

    Immigration depresses employment, the minimum wage is inversely proportional to employment, insider trading harms people, the stock market raises capital for investment, Bill Gates made a lot of money by being a genius etc.

  2. In the hit parade, you forgot Vista. Bill Gates is actually fairly good at self-documenting his genius. For example, his claims that 640k of memory should be enough for anyone, or that networking was a fad. You are right that Bill Gates did excel at being a businessman of a different kind, just not the one he is celebrated for.

  3. Gates was learning how to take the work of others and turn it into his own property.

    ^^^^^
    Appreciate your criticizing Gates. I wonder, though, whether most successful super rich in history have been “geniuses” at stealing from others, all around ruthlessness , and well, obviously greed, and not so much geniuses at more wholesome business tasks.

  4. Gates’ intervention in public schools via a foundation, and with a huge bipartisan assist from government, should remind us that the ruling class operates in many guises. “Ruling” doesn’t always mean making a buck for the next quarter – most fundamentally it means maintaining the political structure, culture, and ideology that allows for those profits. It’s time to bury the “money=merit=right of lordship” myth once and for all. And speaking of “moneyed merit”…

    In the last 48 hours, Rupert Murdoch bought 90% of K-12 technology company Wireless Generation for $360 million, only a week or so after former NYC school chancellor Joel Klein went to work for News Corp. Murdoch explains: “We see a $500 billion sector in the U.S. alone that is waiting desperately to be transformed by big breakthroughs that extend the reach of great teaching.” Now, isn’t it interesting that NYC schools just recently upgraded their contract with Wireless Generation, quite probably as Murdoch’s purchase of the company was in negotiations? And isn’t it interesting that Murdoch chose Klein to head up his, er, “educational” efforts at News Corp? As Doug has ably shown among the bankers and their alleged regulators, the revolving doors are spinning fast in so-called education too – greased with tax dollars and the sweat and tears of teachers.

  5. Actually to be fair to Microsoft, they’ve always been very good at producing software/development tools for mid->large companies (who are the primary customer as far as MS are concerned). Their developer tools have always been first notch, which is probably the single factor that has helped them maintain primacy in that sector. Yeah Windows and Office are cash cows, but the IT graveyards are filled with companies who had a cash cow and got complacent.

    But bashing Bill Gates is always fun.

    Fun story. An early hire of Microsoft was looking at some code that needed to be modified and asked outloud “Who wrote this shit!”. This shit was the last code Bill Gates ever wrote.

    And for those who want to see Bill Gates vision in action – your local thrift store will no doubt have copies of his 90s classic, The Road Ahead. Wrong on absolutely everything.

  6. Under market liberalism, success is the arbiter of merit. Gates won, becoming one of the richest men in the world. Therefore, Gates is a genius. That is entirely consistent with the competitive ethos, as Frank Knight wrote in _The Ethics of Competition_:

    “It is in terms of power, then, if at all, that competitive economics and the competitive view of life for which it must be largely accountable are to be justified. Whether we are to regard them as justified at all depends on whether we are willing to accept an ethics of power as the basis of our world view.”

    Of course, there is more to the Gates’s view of the world, which he shares with Democrat mandarins:

    http://meanstochoose.org/posts/53

  7. If I understand my Schumpeter right, then it’s because of those Windows monopoly profits that Microsoft was able to gift to the world the glorious Zune.

  8. I lead reading groups for freshmen and sophomores at the local high school “small learning community.” Gates was really into these about 10 years ago, but has recently announced that he’s lost interest and isn’t going to fund them anymore. Well, the problem is that several high schools here have converted to the small learning community system, and will have trouble keeping them alive without this funding.

    What should be obvious though is that, surprise of all surprises, some of the SLCs are very good, while many are not worth the trouble. If schools got funding for experiments that didn’t involve total transformation this minute, it would be a good thing.

  9. Bill Gates’ family had connection to IBM through the United Way. That’s most likely why he was chosen as the conduit.

    Wikipedia is your friend :

    Mary Maxwell Gates (July 5, 1929—June 9, 1994) served 18 years (1975–1993) on the University of Washington board of regents. She was the first female president of King County’s United Way, the first woman to chair the national United Way’s executive committee where she served most notably with IBM’s CEO, John Akers, and the first woman on the First Interstate Bank of Washington’s board of directors. Mary’s son Bill Gates is the co-founder of Microsoft.

  10. There’s no need to experiment with public education. The old model worked. Look how many brilliant people went through the NY City Colleges (for free).

    The ruling class just wants to do it on the cheap , and with docile but technically proficient systems managers.

    There comes the difficulty in ‘reforming’ education.

  11. Another fun fact: Bill Gates wrote an entire book on the “future of computing” and didn’t mention the internet AT ALL…

    … in 1995!

    He later amended it of course, but the fact that he actually got a book published on the topic with no mention of the most important development of the next decade is amazingly stupid, particularly in 1995. Says quite a lot about his business sense and “vision,” doesn’t it?

  12. Purple is right. There’s an oft-repeated story in the computer industry that IBM bought MS-DOS from Microsoft because Akers knew Mary Gates. There’s nothing particularly evil about that, but nothing genius either. The genius part was when Microsoft had a joint deal with IBM to go down the dead end that was OS/2, then shipped a new version of Windows which MS owned outright, and everyone else bought.

  13. I think Gates has been wrong about every development in the IT industry, except for a couple of self-serving predictions. I suspect Microsoft’s success had more to do with him hiring a few good people at the beginning – his own talents seem limited.

    Its weird the way that people fawn over Gates though (see the recent Foreign Policy list of the great 50 “thinkers”, which has him and Buffet at the top). Even if you were to limit yourself to the IT industry, the obvious people to fawn over, if that’s your thing, are the loathsome Larry Elliot, the brutal Andy Groves, or Steve Jobs.

  14. If, as this piece states, Gates’ real talent is in appropriating other people’s work and innovations, then that’s of a piece with his foundation’s efforts to privatize the public schools. Although, in the case of the schools, he’s expropriating a public good, and helping to turn it over to an crew of privateers, opportunists, naifs, politically-motivated and pseudo-scientific researchers, deceivers and self-deceivers.

    Addtionally, his foundation’s work in agriculture is deeply involved with Monsanto, heavy on emphasizing genetically-engineered crops, and is ultimately about privatizing the gene pool itself.

    Among the many conversations this country is evading is the one over the role of philanthropy (although in the case of Gates and other education deformers, malanthropy is the better word) and how it has become a vehicle for plutocrats to use their billions to buy policy that might otherwise be formed democratically.

    The mega-rich enjoy endless tax cuts, which allow them to endow foundations that pursue their personal or class interests under the guise of “love of humanity.” As Doug has written many times, the conversation should be about taxing them – starting with a financial transactions tax – and renewing democratic structures and policies.

  15. As fun as it is to bash Gates… and I have even more ammunition from a school perspective… I think we should also keep the whole education reform matter in sight…

    http://dailycensored.com/2010/12/02/the-education-celebrity-tour-legend-of-the-fall-pt-ii/

    Michelle Rhee is back in the saddle again: now working for the governor-elect’s transition team in Florida. Shocked? Awed? No, just disgusted and angry.

  16. I think you would have to concede that if he is not a genius, he is pretty smart. He was there at the right time – is it a coincidence that he, Steve Jobs and Google CEO Eric Schmidt were all born within a year of each other (1955)?

    But his stroke of genius was his ability to help establish the modern notion of “intellectual property” – he famously proclaimed that software should not be free but should be paid for at a time when the counter culture was making itself felt around the burgeoning computer community particularly in the bay area. See Gates’ 1975 Open Letter to Hobbyists.

    I think that ability to create property rights and then defend them successfully will be the hallmark of his contribution to modern capitalism.

  17. I wouldn’t be surprised if Bill’s dad taught him a vital “capitalist” lesson: the rules are part of the game.

  18. “is it a coincidence that he, Steve Jobs and Google CEO Eric Schmidt were all born within a year of each other (1955)?”

    Yes.

  19. Doug: thanks for posting that MSFT Annual Report (just in time for my lecture on financial statement analysis). Among the other myths of “genius” is why Mr. Bill can sit on $32 billion year after year after year while MSFT’s stock price went nowhere since 1999. Of course, “capital appreciation” is not everything, look at that dividend yield! MSFT’s annual dividend is the best managed number since the last Daily Double winner at Monticello racetrack: $0.08 (2003), $0.16 (2004), $0.34 (2005), $0.35 (2006), $0.40 (2007), $0.44 (2008), $0.52 (2009), and $0.52 (2010). So with all that cash, Mr. Bill can guarantee a tidy total return of around 52% for his foundation which owns something like 60% of the stock.

    As to public education: our union – like most other teacher unions – is under tremendous pressure from a state governor in a rather “blue ” state. My guess is that the terms and conditions of employment for teachers is likely to undergo significant changes in the next five years – especially if unemployment remains above 8.5%. The public is angry at public workers and Cuomo and Christy are ready for a “march to the sea.” The political winds are such that an occupation that was known for both job security and decent working conditions is about to be largely terminated with extreme prejudice.

  20. Stephen I don’t think that really fits the facts, though. That letter wasn’t very persuasive, didn’t have much influence and anyway large software companies had been selling software under restrictive licenses for decades by that point. Meanwhile the free software movement was elsewhere. Show me a software company that sold to consumers in the 70s and 80s that didn’t rail against piracy.

    However, extra fun fact. This Basic interpreter was developed upon US government machines (one funded by the DoD, who were unamused, another by a university). Free enterprise eh.

  21. Of course I do not maintain that Gates invented the idea of licensing fees for software. The point is the cultural battle front he opened up. At the time – and I was there at a small startup computer company in Berkeley – the counter-culture was part of the emerging high tech environment. There was a vague and not always vague idea that high tech could lead to something that was not capitalist. Recall, as a small example, the stories about Jobs and Wozniak using various tricks to make free long distance phone calls. Gates’ letter drew a line in the sand among those of his generation that they were going in a very different direction.

  22. I agree with your thesis although the comment on Microsoft’s foray into video gaming is misleading. The Xbox is the number 1 selling console right now. Again this doesn’t contradict your argument. Microsoft success in video gaming hasn’t come as a result of innovation or invention. Rather, it’s won it market share by imposing its substantial economic power on the market.

    And that yutz, Bill Gates has absolutely no business prescribing public education policy.

  23. From How to Become As Rich As Bill Gates:

    William Henry Gates III made his best decision on October 28, 1955, the night he was born. He chose J.W. Maxwell as his great-grandfather. Maxwell founded Seattle’s National City Bank in 1906. His son, James Willard Maxwell was also a banker and established a million-dollar trust fund for William (Bill) Henry Gates III.

    William Henry Gates, Jr. and Mary Maxwell were among Seattle’s social and financial elite. Bill Gates, Jr. was a prominent corporate lawyer while Mary Maxwell was a board member of First Interstate Bank and Pacific Northwest Bell. She was also on the national board of United Way, along with John Opel, the chief executive officer of IBM who approved the inclusion of MS/DOS with the original IBM PC.

    Remind your parents not to send you to public school. Bill Gates went to Lakeside, Seattle’s most exclusive prep school where tuition in 1967 was $5,000 (Harvard tuition that year was $1760). Typical classmates included the McCaw brothers, who sold the cellular phone licenses they obtained from the U.S. Government to AT&T for $11.5 billion in 1994. When the kids there wanted to use a computer, they got their moms to hold a rummage sale and raise $3,000 to buy time on a DEC PDP-10, the same machine used by computer science researchers at Stanford and MIT.

    Most people who are rich chose their parents wisely. Bill Gates might not have ever figured out 1960s-style computer science but he had the foresight to pick a father who is one of the richest, most prominent lawyers in the state of Washington. And before he and Paul Allen made the deal with IBM that gave them a monopoly on the PC operating system, Bill had the foresight to choose a mother who was friends with a member of the IBM Corporation board.

  24. c’mon SK drop the populist radicalism:

    Steve Jobs made the best decision of his business life to be the adopted son of middle class parents in a middle class suburb and to go to public schools.

    Larry Ellison made the best decision of his business life to be the adopted son of middle class parents on the south side of Chicago and go to public schools…..

  25. but Gates was learning how to take the work of others and turn it into his own property.

    ^^^

    I think that ability to create property rights and then defend them successfully will be the hallmark of his contribution to modern capitalism.

  26. [...] I know, I know…Gates has already been intellectually spanked by Diane Ravitch (see also this by Doug Henwood at Left Business Observer), and I don’t want to repeat what has alredy been said (much better than I could say it); [...]

  27. Informative post, Doug, and though it remains arguable, as to the relative amount of influence, on the Lisa and Macintosh teams, of the Alto and Star, I would dispute the statement that Apple, like Microsoft, essentially “lifted” the Mac OS from prior work at Xerox PARC. Apple, paid Xerox, in stock, in advance of the visit, and key personnel, duly impressed by the Apple teams, that visited, joined the Lisa and Macintosh teams at Apple. Apple’s implementation of the GUI, called Quick Draw was no mere reversed engineered “clone” of PARC’s work , but, I would suggest, an inspired elaboration, designed within the constraints of the Lisa and Macintosh devices.

    it was this implementation, Quick Draw, that teams at Microsoft progressively “copied” rather than “lifted” between 1984 and 1989-90

  28. Informative post, Doug, and though it remains arguable, as to the relative amount of influence, on the Lisa and Macintosh teams, of the Alto and Star, I would dispute the statement that Apple, like Microsoft, essentially “lifted” the Mac OS from prior work at Xerox PARC. Apple, paid Xerox, in stock, in advance of the visit, and key personnel, duly impressed by the Apple teams, that visited, joined the Lisa and Macintosh teams at Apple. Apple’s implementation of the GUI, called Quick Draw was no mere reversed engineered “clone” of PARC’s work , but, I would suggest, an inspired elaboration, designed within the constraints of the Lisa and Macintosh devices.

    it was this implementation, Quick Draw, that teams at Microsoft progressively “copied” rather than “lifted” between 1984 and 1989-90

  29. I was trying to avoid sounding like some sort of Apple partisan, actually. I should have made the point that all “innovation” requires copying to some degree—there’s nothing new under the sun, as a certain text said a few thousand years ago, and I’m frankly lifting that observation.

  30. Though I am a generally satisfied user of Apple products, I wouldn’t consider myself a “Apple partisan” as well, and would seek to avoid any “tribal” implications, in my previous post. Microsoft and Apple as companies, have totally different business models, however the main idea to take away, from your blog post, remains, that without federal government subsidization of
    solid state electronics, i.e, transistors, integrated circuits and micro-processors, as an out growth of the military industrial competition with the former U.S.S.R; Bill Gates, Steve Jobs wouldn’t have had the means to reach their entrepreneurial ends.

  31. I just found this and couldn’t agree with you more.

    At a presentation I made last year, I talked about the real innovators. People like Grace Hopper, the driver behind COBOL and Drs. Cerf and Kahn with their IP protocol. I said that had it not been for Bill Gates’ father’s money and his mother’s connections, he would have been just another Harvard attourney.

    When you have a billion dollars, you can create your own press. He’s certainly done that; and once Warren Buffet aligned himself witih Gates, we get this huge ‘Mutual Admiration Society’ with Buffet calling Gates ‘a brilliant business man’ and enough accolades going back and forth to make you sea-sick.

    If I may use part of a quote from Lou Gehrig’s farwell speech: Bill Gates is…’the luckiest man on the face of this earth.’


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