Henwood on Bill Gates

Bill Gates, business genius?

DOUG HENWOOD

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.