The following article, GOLIATH AT BAY, was first published in Forbes ASAP, February 26, 1996. It is a portion of George Gilder's book, Telecosm, which will be published in 1996 by Simon & Schuster, as a sequel to Microcosm, published in 1989 and Life After Television published by Norton in 1992. Subsequent chapters of Telecosm will be serialized in Forbes ASAP.

 

GOLIATH AT BAY

BY

GEORGE GILDER

Microsoft suddenly sees itself beset by
broadband rebels with its own middle age.

     GOLIATH IN THE VALE of Elah roared his contempt at the weapons and
zeal of David:  "Do you think me a dog that you contest me with sticks
and stones?"
     
     Bill Gates, the Goliath of software, sees himself similarly beset by
zealous rivals with risible weapons.  Entering his modest second-floor
office on the edge of the Microsoft campus on a twilight evening in late
November, I find him irked and addled by what he sees as a siege of
slingshots from irrational media and capital markets in his industry.
     
     Microsoft entered November on an autumnal blaze of upside
news-earnings up 53%, sales up 63%, a double gigabuck quarter.  But now,
amazingly, people were speaking of a "crisis" at Microsoft.  "That's an
emotional word," says Gates, twisting uncomfortably in his chair.




     IT WAS BAD ENOUGH when Netscape came on with 9,000 lines of code for
a World Wide Web browser that took six weeks to build and that was given
away free, and people began talking of his company's downfall.  Gates had
pulled that trick himself in 1976, with a few thousand lines of code for
the Basic programming language for the PC and then again in 1980 with MS-
DOS.  But to do it to Goliath seemed lese-majeste.
     
     Then comes Sun Microsystems with a new programming language called
Java, and people like me, who by Microsoft standards don't know anything
about programming, who have never written a single line of code, presumed
to tell him about its virtues.  It's safe, secure, interpreted, platform
independent; it collects your garbage (automatic garbage collection).  It
compiles as if by incantation.  It builds market cap as by magic.  Give
poor Bill a break.
     
     "Yeah, right," says Gates.  "I have to wonder who screwed your head
around . . ." Oh, he knows, he knows.  "The Internet" makes everything
different.  You can make any claim you want, however bizarre or
ludicrous, that would ordinarily be laughed off the stage, and if you add
the mantra "on the Internet" at the end . . . you can morph yourself from
a typical media clown into a visionary, a prophet, a guru.  "Nobody
pauses to say, 'Huh?'"
     
     Even the analysts will nod and the market will bow.  It's "on the
Internet."
     
     One day in November, three days before my visit, Rick Sherlund, the
Goldman Sachs analyst who helped bring Microsoft public in 1986 and had
touted the stock for a decade, downgraded Microsoft's shares from buy to
"moderately outperform" on the basis of Internet incantations from Sun
and Netscape.  Sherlund also replaced Microsoft with Netscape on his
recommended list.  Indeed, Goliath's net worth was shrinking by the
minute as Microsoft's market cap sank by $9 billion, and Sun's and
Netscape's surged by $9 billion in a matter of weeks.
     
     Does Bill Gates know Rick Sherlund, by any chance?  Sure, Gates
answers, "extremely well." "He's your man, he's great," says Gates, "if
you want to run a spreadsheet."
     
     In this world of manias and emotions, "I have to make rational
decisions," Gates says, glaring at me.  "Somebody who thinks that because
of a browser that anyone can clone, because of a language that is magic,
they [Netscape and Sun, the unmentionables] can overthrow the world--that
person can't even think two chess moves ahead.  You're not even in the
game I'm playing."
     
     Okay, thinking forward a couple of moves, what is the big thing
bearing down on Microsoft on that road ahead?  It's middle age.
     
     No, in Redmond, they have another name for it.  Throughout the
company, wherever you go--from hummus on pita bread at the cafeteria with
a glib former Hollywood agent hired to handle publicity, to a Starbucks
latte at the Microsoft model "home" with software sage Rick Rashid
incandescent on a couch, or off to Rover's Restaurant where Nathan
Myhrvold spiels refulgently at a corner table through 12 courses of
rococo "fatware" and my two missed flights--the word is middleband.  From
the top down, Microsoft is becoming a middleband company.
     
     Gates, Myhrvold, James Allchin, Craig Mundie--nearly anyone in
Redmond will step you through it.  The future is not broadband, not
narrowband; it is some middle way.  It takes Excel and Word and
Powerpoint presentation graphics and multimedia CD--ROMs and the new Video
ROMs--indeed all the front and back Office suites that are the core of the
company, all the teeming towers of legacy code--and attaches that to the
Internet.  It's Encarta and Baseball and digital TV all tied to the Web
over middleband circuits.
     
     Gates explains:  "We will translate Encarta into many languages and
make it a front end to the Internet, so that whenever you look up a topic
in the encyclopedia, we can link you into what there is in the Internet
on that topic.
     
     "Now the Internet is not fast enough when you just want to go pure
Internet, so every year you can buy the CD that holds the bulk of the
material." It will be a middleband world.  I see the millennium at hand:
People are all queuing up at Egghead for their Encarta update CDs.
     
     From Gates on down, however, Microsoft leaders do grasp the essence
of the change.  Myhrvold trenchantly points out that communications
standards no longer rise from the center out, from the LAN to the WAN.
They begin on the Net and move inward to the LAN and transform it.  "The
LAN is dead," as Myhrvold says.
     
     But these same Microsoft leaders seem to believe that the
transforming power of the Net stops short of the PC and operating system.
Sun will set, but Windows will open wide on the World Wide Web (up to
ISDN speeds).  After all, as Allchin puts it, "We see the Internet as an
extension of the operating system."
     
     I ask Gates how we can have a middleband world in the face of a
rising tide of bandwidth.  Gates in the past has spoken of virtually
"infinite bandwidth." But he does not see it today.
     
     Twenty years from now we will have broadband in homes, he explains,
but until then middleband is the best you can expect.  Indeed, in his
presentation to the press the week after my visit, on December 7, he
strangely declared "broadband is the holy grail, [but] it's much further
away than ever before."
     
     I ask about cable modems.  But to Gates, cable modems are mere
middleband:  "Don't get me wrong--you can do a lot in middleband.  But
cable is a shared medium.  Cable modems are middleband.  You get 10
megabits per second and share it with 500 homes and you are back to ISDN
speeds."
     
     But, I protest, Netscape has a different view.  It has joined with
@Home (the Kleiner Perkins--TCI joint venture) to supply browsers and
servers for a new scalably broadband Internet based on cable.
     
     Gates's voice reaches a new pitch.  "I assure you Netscape has no
relationship with @Home that Microsoft does not have.  I didn't spend
three years talking with John Malone for nothing--three years with Bruce
Ravenel [Tele-Communications Technology Ventures' senior Vice-President
and chief operating officer].  In the first place, browsers are trivial.
We will have cable browsers.  And we will have cable servers.  We will do
anything with @Home that Netscape does." After all, TCI Technology
Ventures invested $125 million in MSN (Microsoft Network).
     
     So it went in the Redmond gloaming.  I deeply admire Gates.  The
guts to leave Harvard at the end of his junior year and launch a new
industry; the tenacity to build it into a planetary utility; the audacity
and ingenuity of the original deal with IBM; the entrepreneurial
confidence to cut loose from OS/2.  The vision to be the only major
software company to embrace Macintosh and save Apple by endowing the Mac
with the leading GUI spreadsheet and word processor, Excel and Word,
while at the same time gaining the graphics skills to create Windows.
The bold challenge to Unix through Windows NT.




     THERE IS NO DOUBT that Gates has been the exemplary business leader
of our era.  Compared with the leaders of IBM, heavy with "NIH" (not-
invented-here) and degrees in business administration and finance, who
could not even grasp the concept of sunk costs or the rule of self-
cannibalization well enough to burke OS/2, who could not even see the
huge opportunity to embrace the Mac OS, Gates is indeed a giant.
     
     A week later, in an announcement emblazoned in Computerworld as
"Capitulation," Gates showed his superiority to the NIH syndrome at IBM.
He declared that he was licensing Sun's Java Internet animation language,
in which he seemed suddenly to have discovered new virtues, and was
essentially abandoning Microsoft Network as a proprietary paid service.
It would serve as an attractive Internet entry point, open to all, with
content and advertising prepared with anyone's available software.
Beyond that, Microsoft announced array of impressive-sounding new
Internet products:  Blackbird publication tools for the Net; Gibraltar
Internet server products four times as fast as Netscape's; Visual Basic
as a scripting language for the Net already far easier and more familiar
than Java; upgrades of current Word versions that allow direct creation
of HTML documents; and an array of other announcements.
     
     But all the brave talk, the best-selling book, the stilted TV
appearances, the announcement of a news channel with NBC, the stream of
new products, the bold embrace of an Internet strategy, the spread of
Windows 95, could not disguise the rising confusion in Redmond.
     
     All of a sudden, Gates seemed to have lost his bearings.  The man
who elbowed aside an on-air Connie Chung as if she were a bothersome gnat
and shunned NBC as a nuisance, now was clutching the old network, of all
things, as a source of news and investing in it, as if it had a future.
It was as if old NBC with its Max Headrooms of smiling anchor faces and
two-minute splashes of "news" could morph into an information resource
simply by invoking the mantra "on the Internet."
     
     As in his long romance with Warren Buffett, Gates seemed to be
reaching out to old money, power and prestige to bolster his company as
it whirled in the vortex that he had described as the "Internet tidal
wave." It was as if he no longer trusted the PC to sustain his growth as
an $8 billion revenue company, as if he needed sustenance from mass
media.
     
     With Netscape, Sun, @Home and other firms, Silicon Valley is in the
ascendant again.  But the software colossus is still losing ground on the
road ahead, so Gates pivots on his peerless pinnacle simultaneously at
the summit of the New York Times bestseller list and the Forbes 400 and
looks back with a Macaulay Culkin smile from the cover of a book that is
mostly news of yesterday.

     Two weeks later, back in Silicon Valley from the Vale of Elah, I
visit Goliath's prime mover, Andrew Grove of Intel.  With revenues more
than twice as large as Microsoft's and a price/earnings ratio less than
half as high, and commanding the world's most awesome manufacturing
facilities for the world's most complex and portentous product, Intel
seems to stand on firmer foundations.
     
     Grove opens the meeting with jokes about the "tunnel of death" that
perpetually menaces his industry in the pages of the media.  Ensconced in
a small open cubicle on the fifth floor of the Robert Noyce headquarters
in Santa Clara at the heart of Silicon Valley, with "Intel Inside"
inscribed on the roof to enlighten the planes from nearby San Jose
International Airport, Grove effervesces wit and irony and bonhomie where
Gates seethed sarcasm and defensiveness.
     
     With Grove, there is no longing for canonization by old money, no
sell-sign craving for the sickly glamour of Hollywood and TV, no
fashionable yearning for business in "content." Grove grasps that the PC
is the ascendant force in the global culture of capitalism and that the
Internet consummates the PC.  Nonetheless, asked about the possibility of
the teleputer--the $500 Internet PC--freed from the coils of Wintel, he
echoes Gates in a celebration of current PG culture that somehow misses
the point.
     
     Grove associates the teleputer with dumb or static appliances, from
set-top boxes to PDAs, in the catalog of PC subspecies that emerged in
hype as substitute PCs.  Most of them sold a few hundred thousand units,
and then expired.  "The new device will be produced and it too will sell
a few hundred thousand units.  But not 10 million units," he says.
     
     As Forbes ASAP editor Rich Karlgaard and I prepare to leave his
office, he asks us to guess the cycle rate of the upcoming '96 basic home-
based PC.  I suggest 100 megahertz.  Grove shakes his head.  He confides
that he is headed for a meeting to decide whether the 1996 PC will bear a
120-megahertz or a 133-megahertz Pentium.  "Everyone underestimates the
progress of PCs," he says with satisfaction.
     
     "You could fix on a special-purpose device today, to satisfy Larry
Ellison's mother [who wants a simpler PC], but by the time it came out,
the PC will have moved on, powered by incomparably more potent
microprocessors, leaving the new machine trivialized and obsolete in its
wake."
     
     In other words, evolutionary products will suffice in this
revolutionary time of exponentially expanding Nets and peripheral CPUs.
Nonetheless, moving a few miles north on California's Route 101, out of
the hypergravitational fields of Philistea, one can still feel a radical
shifting in the spheres of possibility.
     
     "And David took his staff in his hand and chose him five smooth
stones."  I Samuel 17:40




     FOR THE NEW ORDER, the ultrawideband wireless Sand Hill
slingshot--the capitalist conjurer of the forces causing new sleeplessness
in Seattle--is John Doerr of Kleiner Perkins Caufield & Byers.  Shunning
Herb Allen's summits of schmooze, where the entrepreneurial big-time is
an "audacious" investment in Coke or NBC, Doerr epitomizes the venture
capitalist as industrial demiurge.
     
     As technology investor Roger McNamee puts it:  "While other venture
capitalists say, "Let's start a company," John says, "Let's start an
industry." "So far, beginning at Intel in the early years, he has played
a key role in launching industries in electronic design automation, RISC
workstations, personal computers, financial software, multimedia and
wireless pen appliances (well, let that last one pass).  His current new
industry will be the biggest yet.  It is broadband Internet.
     
     From the vertiginous launch of Sun, Lotus and Compaq in the early
1980s to a fund gushing Go at pens, his career has seen several peaks and
valleys.  Doerr has even dallied with middle age.  He once weighed a mid-
life retreat from the madding bustle of Silicon Valley to contemplate the
Tantra or the Tao:  "I sometimes think," Doerr told the New York Times in
1987, "I would like to become a Buddhist monk."
     
     Sure, John.  But, tell me, what yoga discipline was he brewing two
years ago in Palo Alto, at breakfast at Il Fornaio head-to-head with Jim
Clark?  What karmic rites was he conjuring with Clark and Bill Joy in the
winter of 1994 on a three-hour conference call among wildernesses of
Marriott on the road?  What karass was he kenning in December 1994 among
the tacky booths and bins, the barkers and indoor bikinis at the Western
Cable Show in Anaheim?  What tables were tipping in January 1995 in his
Woodside home, among pizzas and pastas with his wife, Anne, and Marc
Andreessen, Bill Joy, Andy Bechtolsheim, Jim Gosling and Rick Schell
(Netscape's VP of engineering)?
     
     Why, in early 1995, was he lurking around the NASA Ames Research
Center at Moffett Field in Mountain View, Calif.?  Is he seeking evidence
of alien IPOs, or just some hard-core Unix Christian libertarian
netbender from outer space to levitate a new industry in Palo Alto?
     
     AT&T venturer Thomas Judge told Forbes ASAP's Nancy Rutter in 1993:
"You have to be on the fringes to make money in [Doerr's] business, and
that's where he is." Follow Doerr, however, from day to day, call to
call, from Sun to Oracle to America Online to Netscape to Macromind, and
you will find yourself at the fringes just as they invert into the Zen
center of the sphere.
     
     A lean figure, with blondish hair, a cowlick and hornrims, Doerr at
44 is as bashfully all-business and frenetically bitwise as Gates whom he
resembles, but he is still flouting the gravity of middle age.  On a
crisp Sunday in mid-December, I catch up with him at Buck's restaurant,
near his home in Woodside in Silicon Valley.  Wearing a dark suit from
church, he checks for messages on his SkyTel pager, greets fellow
venturer Bill Davidow passing by and then opens a black briefcase full of
technotoys.  From across the restaurant, this venture colossus looks to
be a frowsy salesman perhaps a little desperate to present his wares.
     
     He removes a Mac PowerBook 5300 and Sony speakers and lays them out
on the table.  Amid empty latte glasses and plates of ravioli pesto and
his own half-eaten hamburger, Doerr is ready to give a demo of the new
industry--a forecast for next year's Netscapestyle IPO.
     
     It takes a minute or so to boot up the Mac, checking through the 32
megabytes of RAM (teleputers, Doerr says, will boot up instantly from
flash ROM).  But from there on out, it is all immediate gratification.
Click to ignite a Java Web page with streaming stockmarket data, a c/net
talking-head newscaster and a volcano video from Venezuela.  "Wow, look
at that new PowerBook go," exults a jolly woman observing from the next
table.
     
     But Doerr is on a rush through a world of his own.  Click again and
you have the Sunnyvale Sun, efflorescent with vivid speech, sports clips
and classified personals.  Newspapers will be hot on the broadband
Internet.  Click on the classifieds and you can presumably meet their
makers in living color.
     
     This is a glimpse of @Home, a mere demo of Doerr's new broadband
Internet company.  As the service develops you will soon be able to
download movies and other programs on demand.  Over 28.8 modems or even
128-kilobit per-second ISDN lines, all such dynamic fare would be
agonizingly slow to access.  By contrast, Doerr says, in @Home everything
is instant, full motion and always on.
     
     How can this be, you ask, on an essentially middleband Internet?
"That's the genius of Milo Medin, @Home's network chief," he explains,
"linked to the genius of Marc Andreessen of Netscape." NASA Ames's
network king, Medin is now building a scalable, extensible architecture
for a cable-based World Wide Web.  With some help, I might add, from John
Doerr and his five smooth stones.

     Indeed, four of the five companies--Sun, Netscape, Macromind and
Intuit--Doerr estimates, "have added more than $10 billion to their market
cap in the last six months because of their Internet initiatives," this
new model of computing based on the Web, while Microsoft lost a similar
total by briefly resisting it.  Now @Home is on target to generate
another multibillion market cap by exploding the current bandwidth
bottlenecks of the Net.
     
     At Intel, Doerr worked at a desk down a corridor from Bruce Ravenel.
Then an architect of the 8086 and the 8087, Ravenel is now TCI Technology
Ventures' influential chief of technology.  Igniting the fuse for @Home
were words between Doerr and Ravenel as the two old grads from "Noyce-
Moore U" wove their way through the Western Cable Show in the first week
of December    1994.  "I dare not call it an epiphany," Doerr says, "but
Bruce and I were at the Motorola booth where they were showing off a
sleek little $300 box the size of a modem that would enable telephone
calls over a cable line.  "What would it cost,' I asked, "to add an
Ethernet port to the device, so you could link a computer to the Internet
through it at up to 10 megabits per second?" When the Motorola guy
guessed, "Maybe $30," our eyes got as big as saucers."
     
     When Doerr sees a hole in the line, he hits it hard and fast.  Two
weeks later, four days before Christmas 1994, he was in John Malone's
office in Denver presenting a plan for a Silicon Valley startup to bring
broadband Internet over cable.  Likely IPO market value in two years." $3
billion.  Malone also hits hard and fast.  After a three-hour meeting,
the TCI chief signed off on the venture without a qualm.  Doerr's chief
job was to "line up some unique Silicon Valley technical genius to make
it work."
     
     Tapping Internet experts at Sun and around the Valley, Doerr found
only one name popping up on every list.  It was that hard-core Unix
Christian libertarian netbender from outer space, Milo Medin.  A 32-year-
old wunderkind manager of the multiple networks converging at NASA Ames
Research Center in Mountain View, Medin had spent the last 12 years
making increasingly crucial contributions to the Internet's growth.  But
uh-oh.  For a week or more, Medin refused to answer any calls from
Kleiner Perkins.  He says, "I thought they were a bunch of lawyers."




     DOERR WAS ATTACKING the key problem of the Internet.  With the
number of host computers doubling every year since 1970 and the power of
the computers doubling every 18 months, the Internet had mastered every
challenge of capacity by multiplying cheap local routers and servers.
The Net has already overtaken the U.S. Postal Service as a carrier of
mail (by one estimate, a trillion e-mail messages compared with 180
billion postal deliveries).  And the Net similarly has pushed the number
of digital data bits ahead of the total of voice bits on the phone
system.
     
     Over the last two years, however, the traffic has taken a turn
toward GIFs and graphics, doubling the number of bits every few months.
As the Internet careens toward its destined collisions with television
and telephony as the prime sources of information, entertainment and
communication for the public, the prime obstacle is bandwidth.  Many in
the industry have begun to blink and bluster in the bright light of
optical media and other broadband pipes.
     
     Led by Bill Gates, they believe in middleband and ISDN.  They dabble
defensively in TV.  As a shared medium, even cable, so Gates contends,
will dwindle to ISDN rates as the number of customers on the system
rises.  But at 128-kilobit-per-second or even at 1.54megabit-per-second
T1 rates, ISDN means picture quality inferior to NTSC television.  A
shared medium linked to slow routers means bottlenecks throughout the
system if cable modems yield a thousandfold increase in bit traffic
beyond existing modems (up from 28.8 kilobits to close to 30 megabits per
second).  Online services will bog down in slow access, sticky searches,
jerky movement, blurred faces.
     
     Such a middleband net will not be able to maintain its current
momentum of growth and power.  It will not be able to challenge
television and telephony.  Yet the valuations of Internet companies
depend on a continued exponential ascent.  Thus many people believe the
Net is overhyped, overvalued, starved for "content." They believe Doerr's
broadband revolution will fail.
     
     Milo Medin is Doerr's weapon to break the bottleneck.  He has spent
most of his adult life overcoming crises on the Net.  Medin's fast rise
began in 1987 when he led the creation of NASA's Internet and almost came
to an end in 1993, when the swarthy Serb with the spruce mustache and the
piping voice and broadband gush had barged into Washington to persuade
the entire government to embrace the Internet protocols (TCP/IP).  Fueled
by this universal language, the Net had grown exponentially up a wall of
worry.
     
     The problems did not reach critical mass until 1994, however, when
its traffic began doubling every couple of months.  Andreessen's Mosaic
browser had spurred the World Wide Web into a multiterabyte cyclone of
growth and expansion, concentrated in California.
     
     Here the entire Internet converged in one room in one building at
Ames.  On one side of the room were the Cisco 7000 routers and Digital
gigaswitches and Northern Telecom add-drop multiplexers of the FIX (the
Federal Internet Exchange), the government peering-and-exchange point,
managed mostly by Medin.  On the other side was MAE West, the Internet
access exchange point for most of the private Internet, including the
pullulating college and university Nets, the regnant Internet service
providers such as ANS and Sprint, and the budding local fiefdoms of
Netcom and The Well.
     
     Then in April 1994, the government ended its $25 million in annual
Internet subsidies and arranged for a private takeover.  Among the
winning bidders were PacBell and Ameritech, assigned to run two key
network access points (NAPs).
     
     Long expecting the withdrawal of government subsidies to throw the
Net into chaos, many observers would welcome the ensuing crash.  The
private sector would flub the job.  There would be a tragedy of the
commons.  As in feudal Britain, when the commonly owned lands were
overgrazed and ruined, the commonly owned Internet would suffer a glut of
graphics "GIFraff" and traffic jams.  Sure enough it was happening.
     
     PacBell's ATM switches from Newbridge Networks, with skimpy buffers
designed like a PBX for voice-traffic patterns, choked.  California, the
source of two-fifths of Internet traffic, was down.  The Western NAP
jammed, and Ameritech's Chicago NAP was also largely out of commission.
Bay Area e-mail from a student on Netcom to a small business on BBN's
BARNet had to steer clear of the Ames hub and pinball through routers all
the way across the country to Sprint's NAPs in Pennsauken, N.J., or
Reston, Va., and then all the way back again.
     
     As a result, the Eastern Internet hubs also began to tilt.  An
obvious solution seemed to be to have FIX West, the government hub at
Ames, take over the traffic that was fleeing the Pacific Bell NAP.
     
     Savvy residents of Silicon Valley, the Ames management was
sympathetic.  Then Medin gained the blessing of NSF networking chief
Steve Wolff and enlisted Jack Waters at MCI, a crucial Internet backbone
supplier that no longer used its PacBell connection.
     
     Within two weeks, Medin created a system comparable in capacity and
reliability to the original FIX, with expanded Net management
capabilities, power supplies, communications ports and routing
facilities.  The result was a broadband national peering-and-exchange
point, with a cumulative capacity of some 10 gigabits per second.  It
combined traffic from all the major commercial Internet suppliers with
the bitstreams from government laboratories and agencies.
     
     Meanwhile, throughout this period of crisis and turbulence, no
ordinary Internet customer experienced any untoward deterioration of
service.  Although Medin's contribution was only part of a major national
effort, he became the talk of the Net.  Doerr had to sign him up.
     
     AS DOERR SUMS IT UP, "Milo was running the largest IP net in the
federal government.  When they decided to set up a White House.gov Web
site, they asked where to put it.  They put it on Milo's server.  Milo
helped run the fiber ring around Moscow.  Internet connections for
Australia and Antarctica and for deep space probes ran through Milo.  He
was supplying IP connectivity for the entire Scandinavian subcontinent.
He had some 200 remote nodes.  And he ran it all with some 99.98%
uptime."
     
     @Home CEO Will Hearst of Kleiner Perkins likes to tell a story that
gives some clues as to how this young Net nerd from NASA became a legend
in his own time:  "In 1988, a Finn--call him Lars--hacks his way into
Milo's computers.  Ticks Milo off.  He does a trace route and finds his
way back to the administrator of the domain in Finland.  It's an academic
site.  Milo already knows Lars' IP address.  You can't hide from Milo.
He says to the administrator, "We have a problem.  Please have a
conversation with Lars."  That upset the Finns, who say, "We are not
going to do that! We respect civil liberties here! You can post a
complaint if you like, but we can't tell the guy what to do." So Milo
goes into a slow boil.  Says, "I'll give you about 30 minutes to get that
guy's files off our machine."
     
     "Nothing happens.  So Milo issues an order:  "Take down
Scandinavia." The switch is pulled.  Three countries go dark.  They don't
notice it immediately, but pretty soon e-mail messages are not getting
returned.  At last, three senior administrators go to Lars, so the story
goes, and they say:  "We don't care if you hack into the CIA; we don't
care if you bring down NSA; and we don't mind if you abscond with all the
financial bits in the Federal Reserve.  But don't mess with Milo at
NASA.'
     
     "The Finns called back Milo, said the situation had been taken care
of.  Milo said fine and put the service back up."
     
     Now DOERR and Medin are again confronting the perennial doomsday
adventists who gather on mountaintops of slightly older money and
disparage the future of the Net, talking crisis, overload, overhype,
overvaluation.  Tragedy of the Commons.  The experts are chiming in.
From Howard Anderson of the Yankee Group to Andrew Seybold and Bob
Metcalfe, leading analysts are prophesying a crash in 1996.
     
     Medin has been there before.  The answer to traffic jams on a
narrowband Net is creation of a broadband Net.  Don't tell him it is not
technically possible.  Who are you kidding?  This is the age of the
telecosm.
     
     Bill Gates, though, thinks it is the age of middleband.  It is
obvious beyond cavil to Gates that his regime, ruling 80% of the world's
computers, is destined to prevail.  He commands a market share so
overwhelming that Washington's antitrusters see it as a monopoly in need
of government dissolution.  For Gates, among the most ludicrous claims to
be validated by the mantra "on the Internet," is the idea that Windows
machines are an inferior minority system difficult to digest in the
prevailing habitat of Unix and TCP/IP.
     
     To Medin, however, it is a matter of simple fact that Windows and NT
are awkward systems, hard to incorporate in his domains except as mere
terminals.  To Medin, Unix is the heart of the Internet, the matrix of
creativity in networking, the bearer of thousands of programs and
services and tools and scripts and languages that together comprise the
pullulating fabric of the rampantly growing Web.  So far, Medin has a
strong case.
     
     Sixty percent of the managers of Internet host computers use
Macintoshes as their preferred personal machine.  On the Internet, as a
platform for servers, whether for the World Wide Web, e-mail, FTP,
Telnet, Gopher or NEWS, Microsoft's favored NT now ranks seventh, with a
4% share, behind Sun, which commands a 56% share, Apple, Silicon
Graphics, IBM, Digital Equipment and Windows 3.1.
     
     Around the time that Gates was assuring me of Microsoft's
impregnable position with @Home, Medin was reviewing the Seattle
company's software concepts for his new network.  The @Home people wanted
to adopt Microsoft's Explorer browser if they could (TCI favored its
interactive TV ally), but it was simply impossible.  Explorer ran on
neither Unix nor Macs, and could not handle multicasting.
     
     Netscape's browser already worked with all the existing systems,
including the various Windows.
     
     Under the influence of Marc Andreessen, who had learned networking
in the broadband 45-megabit-per-second environment of the National Center
for Supercomputing Applications (NCSA), Netscape had long ago left behind
all the comforts of middleband.  Andreessen was eager for broadband
connections.  Gates was not even in the game that Medin and Andreessen
were playing.
     
     All right, suppose that "browsers are a trivial technology," as
Gates told me dismissively.  It was servers that Microsoft really wanted
to sell to @Home.  Their Gibraltar system was running Microsoft's
somewhat balky internal Internet at a pace some four times faster than
Netscape's server might.
     
     Here, Microsoft benefited from its homogeneous campus environment.
Netscape had to employ the "union" code-using the lowest-common-
denominator instructions to coordinate several varieties of Unix, Mac and
Windows NT.  Meanwhile, Microsoft could optimize Gibraltar for all the
most powerful instructions in Windows NT, so it was much faster.
     
     But the @Home people were perplexed.  How could they use Windows NT,
an alien system on the Internet, unfamiliar to their employees or to the
Internet service-provider personnel who would work the @Home headends and
other nodes?  Microsoft was behaving in the Internet environment as if
the company were still safe in the imperial realms of Windows desktops.
     
     So @Home, which promises to be the most important force in the next
phase of Internet evolution, and Medin, the intellectual firebrand at the
heart of @Home, seem unlikely to embrace Microsoft's offerings.

     As for TCI, its enthusiasm was dented a bit by the collapse of the
MSN project, in which Malone invested $125 million.  But TCI has recouped
its loss.  Jim Clark was persuaded to offer TCI a small share of the
Netscape IPO.  After the initial public offering and the subsequent boom
in Netscape shares, TCI's holding was worth $125 million, leaving TCI
quite comfortable with its new allies in Mountain View.
     
     A deeper look at Medin's plans casts darker shadows in the path of
Microsoft.  Asked about the notion of an Internet computer being free of
Windows and other Microsoft levies, Gates stops rocking on his chair and
gets to his feet.  He turns and paces urgently back and forth across his
office.  He gesticulates, summons the history of past challenges, refers
repeatedly to dumb terminals and other unappetizing machines, and hurls
forth rhetorical questions:  "Do you want to go onto the Internet when
you are doing word processing, do you want to go on the Internet when you
are using PowerPoint or Excel?" In other words, do you want to forgo all
the wonderful new OLE interactions among Microsoft programs and all the
new Microsoft hot links and other forthcoming tools when you go on the
Net?
     
     Under the pressure of Gates's energy and conviction and
hypotheticals, I    answer, "Of course not." But the real answer is,
"Sure, if in exchange I can have a computer that outperforms a current
Wintel machine on the Net and contains linking capabilities comparable to
OLE for one-third the price."
     
     Gates himself sketched out the answer in his famous Internet Tidal
Wave memo, issued in May to galvanize his company in the face of the new
threat.  He pointed out that not only could he access far more
information on the Internet, he could also find, search and browse it
more readily on the Net than on a LAN or, for that matter, he might have
pointed out, Gates's own hard drive or CD-ROM.
     
     The error of all the critics of the $500 teleputer is their
assumption that it will be inferior to current PCs.  It will be, they
claim, a PC minus a fast CPU, short a high-resolution monitor, without a
fast memory or large drive.
     
     This assumption misses the compounding impact of microcosm and
telecosm.  The advance of chip technology, through Moore's Law, together
with the advance of network bandwidth, will endow a machine not inferior
but hugely more powerful, than the most supercharged Pentium workstation
on a local-area network linked to the Internet at ISDN speeds.
     
     The Law of the Microcosm ordains that one-chip systems will be
better, not worse, than intersecting boards strewn with devices linked by
wires and buses.  As Wilf Corrigan, chief of LSI Logic, observes, "From
calculators to cellular phones, every time a system has moved onto a
single chip, it has wreaked havoc with the existing industry."




     IN PREPARING THE WAY for one-chip teleputers, Medin concedes that
the current Internet will not support broadband services.  "You link a
broadband modem to the existing Internet and what you get is an impedance
mismatch"--a bunch of fire hoses attached to a network of garden hoses.
In order to accommodate the fire hoses of @Home, Medin will have to
enlarge the bandwidth of the Net, from the humblest service provider to
the NAPs at the top of the network hierarchy, where the leading service
providers join to "peer and exchange" data.
     
     Leasing capacity from the telephone companies, @Home will create a
new broadband network linking to the existing NAPs at MAE East in Tyson's
Corner, Va., at the Sprint NAP in Pennsauken, N.J., and at MAE West in
Mountain View.  This will expand the capacity of the so-called Internet
backbone (in fact, an ever-shifting array of virtual vertebrae), which
currently works with maximum pipes running at 45 megabits per second.
Over the next two years, Medin plans to upgrade his backbone to 622
megabits a second.
     
     Most important and revolutionary, though, are Medin's plans for the
local loops and service providers of the Net.  Contrary to the claims of
many critics that the Internet PC implies a return to the now-discredited
model of the mainframe and dumb terminals, @Home resolutely distributes
intelligence and memory through the network.
     
     At the heart of the @Home system is ingenious hierarchical memory
management and caching to conceal the mazes of slow routers, sluggish
switches and narrowband wires that lurk treacherously among the higher
reaches of the Internet.  Indeed, when Doerr finally got through to Medin
and, with Will Hearst, first proposed cable modems to him, he said they
wouldn't work.  There would be "impedance mismatches" with the hardware
and software in the rest of the network.
     
     "This kind of blew the air out of their tires," says Medin.  "But
then I told them how the system could work."
     
     "You have to think of it as a distributed computer system.  In such
systems, every processor cannot access memory at once.  You build caches
and shared-memory protocols and you mirror and replicate a lot of the
data so that it's always available locally.  That's what you're going to
have to do on the Internet."
     
     In other words, the Internet is a computer on a planet.  Like a
computer on a chip, its raw bandwidth cannot handle the necessary
throughput.  Thus its communications depend on ingenious hierarchical
memory management, with registers, buffers, latches, caches and direct
memory access controllers.
     
     Studies of Internet use show that some 80% of the traffic is still
local.  If a particular Web page is popular in a particular locality, you
have to have that page in the hard drive or even in RAM on a local
server.  You have to use the multicast capabilities of cable to broadcast
popular information to all addresses.  Above all, you have to make the
system scalable.  You have to phase in bandwidth, moving fiber links and
nodes deeper into neighborhoods as demand rises.  All this is perfectly
possible technically, Medin assured Doerr.
     
     "After I was through, they decided they had to hire me.
     
     "I still thought we would have to build all the software ourselves.
I didn't know Netscape was thinking the same way.  But I went down to
Netscape and got together with Marc Andreessen, who is a friend, and we
had a real mind-meld on all this stuff.  They were doing the software
already.  Netscape became our main software partner.  It turned out that
their browser is designed for multicast.  And their proxy server is great
for caching information and delivering it to users on demand." Medin
thinks that a key to making the system work is to distribute lots of
cache through all the local points of presence.
     
     With this kind of network, the teleputer might become not only far
cheaper but also far superior to today's PC.  A now famous Gartner Group
study shows that the average office PC costs $40,000 over five years when
you factor in software and network maintenance.
     
     Perhaps 75% of cumulative PC costs now come from staff support.
@Home will supply tech support, maintenance and storage more efficiently,
whether centrally by phone or at local headends.
     
     For a glimpse of the future, visit Boston College, where cable
modems supplied by Continental Cablevision are already becoming
"addictive" to many students and professors.  On the basis of this
experience, Forrester Research is now predicting sales of some 7 million
cable modems by the turn of the century.  Medin thinks this estimate is
conservative.
     
     With cable modems you will come to demand wireless connectivity
throughout your home or small office, so that your teleputers can link to
the Net wherever they are without plugging them in to a connector or
dialing up a connection.  Only cable can accommodate such demands.
"Internet PCs fit with @Home like ice cream and hot fudge," sums up
Medin.
     
     Now the big question:  Is it possible to build such a machine?
"Sure it is," says Medin.  "Just take a Sony PlayStation, essentially
based on a one-chip ASIC, and replace the CD-ROM connector with an
Ethernet adapter.  You'll get 3D graphics, Dolby III sound, a 30-
megahertz CPU controller, a memory access controller, and a 10-megabit-
per-second 10BaseT link to your cable headend."

     Here the new paradigm begins to threaten the cause and complacency
not only of Bill Gates but also of the other master of Wintel, Andy
Grove.  When I ask him about such an ASIC solution to the problem of the
$500 PC, consternation breaks briefly through the surface of his
bonhomie.
     
     He snaps:  "I won't comment on the fantasies of Brian Halla," the
former Intel manager now executive Vice-President of product marketing at
LSI Logic.  Yet LSI Logic offers precisely Medin's PlayStation solution
to the problem of cheap teleputers, free of Wintel code.
     
     LSI Logic is the supplier of the workhorse chip for the PlayStation.
Using some 2 million transistors, this integrated chip combines a 30-
megahertz Silicon Graphics MIPS processor, a 60-MIPS geometry transfer
engine, a direct-memory access unit, and Sony's proprietary MDEC device
(for hybrid MPEG and JPEG decompression) for full-screen video playback.
     
     For a Netstation, the MDEC would be replaced with the appropriate
decompression engines, and added to those would be Reed-Solomon and
Viterbi error correction together with a cable modem module that receives
64-QAM signals and sends QPSK.  Based on its experience with the
PlayStation chip, which LSI Logic will be producing in volume on the
world's first commercial 0.25-micron fabrication lines, LSI Logic
estimates that it could sell a teleputer on a chip for around $50 in
volume.
     
     This machine is the consummation of a long LSI Logic strategy.  In
the mid-1980s, the company suffered a serious crisis as NEC, Fujitsu and
Toshiba all opened fast-turnaround design centers in the U.S. to deliver
high-speed, high density gate arrays.  At the same time, LSI launched a
spinoff, Headland Technology, to make chipsets for PCs in competition
with Chips & Technologies and VLSI Technology.
     
     "Supporting Headland," says Halla, "was like walking around with an
open artery.  Intel remorselessly sucks out all the margins in PC
hardware." Chastened by the Japanese in gate arrays, LSI learned from
Grove not to take on Intel in PC markets.
     
     To a company specializing in gate arrays and chipsets, these lessons
were not inspiring.  Then Wilf Corrigan, LSI's salty founder and CEO--a
Silicon Valley legend from Liverpool who previously played key roles at
Fairchild and Motorola--underwent a triple bypass.
     
     People talked of retiring him, giving him a title with a new
consortium, U.S. Memories, where he might have learned not to compete
with the Koreans in DRAMs.
     
     Two weeks after surgery, however, Corrigan returned to work at LSI
and developed a new strategy that would transcend the strategies of both
Intel and the Japanese.
     
     Under the new plan, LSI built state-of-the-art fabrication
facilities and design tools that could enable creation of a software
library of "CoreWare." CoreWare programs would generate a large variety
of key functions, from CPU kernels to signal processors and graphics
engines, that could be deployed in weeks on single special-purpose chips
tailored to high-volume applications mostly outside the Wintel ambit.
     
     By 1995, this strategy was bearing rich fruit.  The company
announced it had developed a fab process that could place some 49 million
transistors on a single sliver of silicon some 200 millimeters square.
LSI released a series of bellwether high-volume devices that moved the
company beyond the path of the PC, out into the network and into the
consumer appliance.  The Sony PlayStation chip ran 1995's most successful
CD game machine.  LSI's MPEG-2 decoder will go in the next version of RCA-
Thomson's hugely successful direct-broadcast satellite receiver.  LSI
also supplied the first ATM segmentation and reassembly chip for several
key equipment companies, and the first 100-megabit switched-Ethernet
solution for a fast Ethernet pioneer.
     
     Looking beyond Intel, this experience led Corrigan and Halla to
conclude that their company commanded all the crucial CoreWare ready to
deploy a teleputer on a single device manufacturable in volume for about
$50.  Attesting that Halla's view is not fantasy is the success of the
Sony PlayStation, now on sale for $299, leaving room to buy a monitor and
still stay under $500.  LSI also has several as-yet-unannounced design
wins for cable modem chips aimed at the markets to be opened by @Home.
     
     Intel's response to such capabilities is its currently embattled
program for native signal processing.  NSP allows software implementation
of real-time functions performed in special-purpose hardware under the
"CoreWare" model.  As Grove points out, DSPs and compression chips may be
getting cheaper all the time, but from Indeo video to Proshare
teleconferencing to Intel's new Vertical Blanking Interval webware, NSP
comes free of charge--if you are already buying a Pentium (and you
probably are).
     
     But no sooner will the CPU suck in another real-time role than a new
virtual temptation will glimmer on the horizon.  For reaching the ever-
receding real-time goals--from continuous speech recognition to 3D
rendering--the CoreWare approach will prevail, at least until the arrival
of the new super broadband mediaprocessors from MicroUnity and other
Silicon Valley firms.




     REGARDLESS OF WHAT HAPPENS on these far frontiers of technology,
John Doerr will launch his five smooth stones as the foundation for a new
industry.  With Intuit leading the move to Internet financial services,
Netscape pioneering Internet software, Macromind supplying the authoring
tools for multimedia, @Home providing the bandwidth and Sun offering Java
and UltraSPARC, the entente is on its way.
     
     But perhaps Doerr's most important stone is Sun.  Asked to name the
key influences in TCI's shift toward the Net, John Malone mentions Doerr
first, hesitates and then stresses the role of Scott McNealy, chairman
and CEO of Sun Microsystems.  Relentlessly, year after year, McNealy
would travel to Denver and give his pitch to Malone:  Buy sets of Sun
servers and link them to your headends in order to supply data services.
At first Malone resisted.  "Two-way data," he used to say, "is not a
business that I want to be in." But as the Internet grew, McNealy's
argument gained new force.  In late 1994, it triumphed.
     
     Malone now believes that two-way broadband communications is the
heart of his business.  For a total investment of less than $188 million,
Doerr claims @Home can launch a business yielding at least $500 million
in cumulative revenues by the year 2000.  Later this year, the Sunnyvale
system will be up and running.  Weeks later, depending on cooperation
from other cable companies, the entire state of Connecticut will move
onto broadband two-way cable.
     
     At that point, all the other cable companies will accelerate their
drive to upgrade their facilities to accommodate the gold rush.  By the
turn of the century, @Home hopes to extend service to all the major urban
and suburban centers.
     
     With Sprint, TCI leads a cable group that is paying $2 billion for
wireless personal communications service (PCS) spectrum across the
country.  Through New York-based Teleport Communications and other bypass
providers, TCI and other cable firms already command fiberoptic rings
through most major metropolitan areas.  With cable providing broadband
backhaul for pcs, @Home's founders think the company will emerge as the
backbone for a full service digital communications network, including
high resolution teleconferencing, on-demand films and other pay-per-view
video, local news and school listings, classified advertisements, World
Wide Web resources, and multimedia programming.  TCI itself is furiously
upgrading and streamlining all its billing systems to accommodate this
rich transactional environment.

     Perhaps most important, as Nathan Myhrvold explains, is the
extension of the computer model of flat-rate pricing into the field of
communications.  When you buy a PC, you purchase its MIPS and bits
essentially at a flat rate.  The average cost per MIP or bit of memory
you use is determined by how much you use the machine.  The marginal cost
is zero.  As a result, people have a powerful incentive to use computers
as intensively and creatively as possible.
     
     This flat-rate pricing effect--where incremental costs are
essentially zero--largely explains the huge success of the general-purpose
PC and the companies supplying it with software and peripherals.  Faced
with a zero marginal cost of incremental use, PC owners channel as much
of their information processing, education and entertainment as possible
through the PC.  Flat-rate pricing makes the PC a dire threat to all
contiguous industries and related functions.
     
     Similarly, on the Internet model, you will pay a flat rate for
bandwidth.  Again marginal costs will be zero.  Average cost will respond
to the extent of usage rather than to a Public Utilities Commission
tariff or some per-minute charge.  As Myhrvold points out, this approach
will give you a tremendous incentive to exploit bandwidth as fully as you
can, channeling as much communication as possible away from systems that
charge incrementally and toward flat-rate systems.  In the end, nearly
all communications will gravitate toward the Internet model, and
companies will prosper to the extent that they can ally themselves with
this tremendous force of creativity and economy.
     
     Myhrvold now says that bandwidth is growing at the same pace as
Moore's Law.  Gates, too, though long alert to the effects of
exponentials in semiconductors, is strangely blind to the faster
trajectory of communications.  He finds the Internet a big surprise:
"Who predicted it?" he asks.  "Let's find the guy and make him king."
     
     But by any measure--nodes, total bandwidth, traffic--the Internet has
been doubling every year since 1970, and many people have predicted that
it would come to dominate communications.  I prophesied in 1989 that it
would usurp television.
     
     Today I believe the bandwidth tidal wave will sweep away the notions
of Gates and Myhrvold of a smooth middleband transition for Microsoft and
its boob-tube collaborators.
     
     Increasingly released from regulatory restrictions, bandwidth is now
expanding far faster than MIPS and bits (see Forbes ASAP, "The Bandwidth
Tidal Wave," Dec.  5, 1994).  Over the next five years, for example,
@Home will increase the bandwidth to home and small-business computers
by a factor of thousands.  While Moore's Law doubles computer power every
18 months, the law of the telecosm, by the most conservative possible
measure, doubles total bandwidth every 12 months.
     
     This adds up.  Over the next decade, computers will improve a
hundredfold while bandwidth will expand a thousandfold.
     
     Until this year, the computer and software industries have drafted
behind Moore's Law, while hiding behind what Roger McNamee has dubbed
"Moron's Law"--the telecom regulations that stifle bandwidth expansion.
The industry thus has thrived by employing MIPS and bits as a replacement
for bandwidth by using compression, decompression, switching speed, and
logic circuitry to make up for the constrained bandwidth of public
networks.
     
     Grove capped off this tradition in early October, in a memorable
keynote address, following South African president Nelson Mandela to the
podium, at the Telecom 95 quadrennial exposition in Geneva.  Grove wowed
the large audience of telco potentates with an on-stage real-time
demonstration of Intel's Proshare teleconferencing technology.  And yet,
what chiefly struck the viewer was the mediocrity of the partial-screen
facial images.  They were far lower in resolution than ordinary
television.
     
     As long as the pictures are inferior to TV images, PC
teleconferencing will remain chiefly a niche or a stunt.  As bandwidth
expands powerfully over the next decade, it will seem increasingly
perverse to substitute processing for bandwidth, and more and more
inviting to substitute bandwidth for processing.
     
     The logic of MIPS and bandwidth works both ways.  Not only can
processing make up for bandwidth, but bandwidth, as Claude Shannon
pointed out in 1948, can serve as a substitute for switching and other
computer functions.  With bandwidth now expanding faster than processing
speeds, new architectures will prevail by substituting bandwidth for MIPS
and bits.  Today, the bulk of bandwidth to homes is coaxial cable laid
over the last 25 years by the cable television industry.  Exploiting that
bandwidth for the Internet is the single greatest opportunity in the
history of information technology.




     HAVING ASCERTAINED that Doerr had been meeting regularly with all
the pioneers of the new paradigm that Andreessen was "mind-melding" with
Medin, and that Malone had been consulting with Doerr and McNealy, I ask
McNealy whether he has talked to Medin.
     
     "No," he answers, "I have not talked with Medin at all . . . since
lunch on Wednesday.  But back then he and I had sore necks from basically
agreeing with what the other was saying.  We're fighting like crazy to
become the standard platform for Medin's environment.  Our companies are
incredibly well aligned.  We have a list of about 12 engineering efforts
that we are undertaking and driving at Medin's request.  The power of a
network comes from the number of nodes times the bandwidth.  By this
measure, the @Home opportunity is as big as there is."
     
     McNealy revealed that the day before in his office at Sun, he saw
the demo of "a diskless, CD-less, floppyless, OS-less computer, and it
was great.  It had just about every bus, serial and parallel and S-bus,
and every kind of interface you can imagine.  With connectors on all four
sides, it was a model for what I call a zero-administration client.
     
     "Consider:  If you give a user a disk drive, a CD, a floppy, an OS
and 16 megabytes of memory, you have made him, whether he wants it or
not, a system administrator.  He has so many resources to manage.  What
they showed me yesterday was a virtual machine written in Java, and it
booted up instantly off flash ROM and ran like crazy because the virtual
machine rides so close on the hardware."
     
     Echoing Medin and Corrigan, McNealy evoked the future of the
teleputer:  "Put a touch screen on it and make it a kiosk, put a large
screen on it and make it a workstation, put in an infrared detector and
make it a set-top box, put a joystick on it and make a game machine, put
a cable modem or an ISDN port on it and make it a PC or a digital phone.
     
     You never run out of disk space; you never have to back it up; it's
mirrored so you never lose your files.  You have an uninterruptible power
supply.  Your phone or cable line is much more reliable than your hard
drive on your PC.  You get used to the security of the system with no
disks to corrupt and with Java programs that execute only in a virtual
machine and cannot invade your system." McNealy might have added, in
ecumenical concern for Larry Ellison's mother, "Put in some Oracle code
and you have a terrific, cheap database client in an emerging world of
far-flung databases."
     
     All the participants in the new regime agree.  Combined with a
broadband network, the teleputer will be more flexible and powerful than
existing PCs.  Rolling out both the network and the teleputer will be the
central activity in the industry over the next two years.  Responding to
it will be the principal challenge to Gates and Grove, and possibly a
route of redemption for their companies.
     
     All the leading figures in this Silicon Valley renaissance have
endured recent periods of trial and failure.  Malone suffered the
collapse of his Bell Atlantic merger in 1994 and the long stagnation of
his stock.  Corrigan suffered physical collapse and the slump of his
company.  McNealy endured a long tunnel of shrinking market share as his
SuperSPARC processor proved too complex to keep pace with rivals.  Clark
of Netscape lost influence at Silicon Graphics, the company he had
founded, and finally had to leave in order to retain his self-respect.
Even Doerr lost his touch for several years.
     
     For Bill Gates, however, business life has been an almost
unrelenting ascent toward riches untold for one so young.  In the end,
his success has made him seem a bionic business leader leached of his
humanity.
     
     His company has appeared to government and to competitors alike as a
monopoly threat, targeting existing rivals and systematically suppressing
them, rather than creating new products and industries.  Much the same is
said of Intel.
     
     Perhaps this is the time for the Wintel team to face a domestic
challenge.  From it they may well emerge stronger.  Without them, it is
clear, the Internet will be weaker.  Only from the crucible of
competition between paradigms can emerge a robust and redemptive new
economy of information.






 

MICROSOFT INTERNET PLAY


BY


GEORGE GILDER AND REX HUGHES








If Gates is right, browsers will be trivial.







     STUCK IN A SNOWSTORM in Ithaca, New York, in midwinter 1993, Steve
Sinofsky shipped a shocking memo back to Bill Gates, his boss in Redmond,
Wash.  Ordinary students and faculty on the Cornell University campus,
according to Sinofsky, commanded powers of communications, collaboration
and information-sharing well beyond the tools of the world's leading
computer jocks on the Microsoft campus.  To make matters worse, the
Cornell collaborators shunned Windows machines.  They were using Unix
workstations and TCP/IP networks.
     
     Bill Gates today describes this report as his wakeup call for his
May 1995 memo, "Internet Tidal Wave." What Gates's memo does not explain
is that the tidal wave is in large part a Microsoft application, made
possible by the early conversion of Windows machines into Internet
platforms.  But the Microsoft Internet scheme, based on the notion of the
Net as an extension of the operating systems, saw browsers as "trivial."
This vision now clashes with the Sun-Netscape plan in which it is
Microsoft's increasingly vast and versatile operating systems that are
becoming peripheral.
     
     Although Microsoft did not declare itself an Internet company until
December 1995, the firm had begun laying the necessary foundations as
early as 1991.  When Marc Andreessen of Netscape described the Internet
opportunity as a "giant hole opening in the middle of the world," the
computers opening in his mind were mostly Windows machines increasingly
equipped with the standardized Windows Socket APIs (application program
interfaces), now notorious as Winsock.
     
     Without Winsock, developers of Internet applications for the world's
PCs, such as Andreessen, either would have to design their own TCP/IP
stack or would have to compile a separate API for each of the existing
stacks on the market.  By writing an open standard for interfacing to all
Windows-based TCP/IP stacks, Microsoft gave the Windows Internet market a
tremendous jump start.  Any application could work with any protocol
stack.
     
     The key step in 1991 came when Nathan Myhrvold hired James Allard
out of Boston University's computer science program and gave him a free
hand "to make Windows PCs the world's best Internet appliances."
Supporting Allard was top Microsoft executive Steve Ballmer, who had just
returned from a sales trip where he found that key Fortune 500 customers
were more keyed into the Internet's potential than Microsoft was.
Ballmer did not know what the thing was exactly, but he knew its initials
were TCP/IP and he wanted Microsoft to have it in spades.
     
     Allard's first task was to develop the TCP/IP stack for the Windows
platform.  His second task was to assist Microsoft's information
technology group by replacing the Novell-Xerox networking standard with
TCP/IP across Microsoft's own 30,000-PC corporate network.  Thus began
the Windows Socket technology through which most Windows applications,
including some 80% of Netscape's, normally reach the Internet.
     
     Winsock has acquired an unsavory reputation in recent months, summed
up by the joke:  "Windows 95 sure is a great program.  It blows the
Winsocks off all the competition." But the joke captures the reality that
all the competition depends on the Winsock standard to reach the bulk of
the world's PCs.  What had happened after the release of Windows 95 was
that multiple Winsock.DLL (dynamic link library) files were installed in
many machines and they conflicted.  while the Justice Department saw the
companies whose .DLL files were displaced as victims of Winsock, in fact
these firms, from Netscape to Attachmate, were huge beneficiaries of the
Winsock standard, which was necessary to make Windows work in a Unix
world.
     
     Although the Internet tidal wave--and the companies that fed on
it--were largely a Microsoft-enabled application, Microsoft sees the
browser mania of 1995 as a passing phase.  As Craig Mundie says, "1995
was the year people focused on the stand-alone browser.  You get people
launched in one mind-set and they go roaring down that path for quite a
long period of time, until they wake up one day saying, "Oooh?! Gee,
these two things were not as separate as I thought." Soon every Microsoft
application will contain browsing functions."
     
     Here once again engaged is the crucial conflict of paradigms--the
Wintel machine full of what is ungraciously described as Microsoft
"fatware" versus the lean and mean Internet appliance using the resources
of the net.




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