High Stakes, No Prisoners: A Winner’s Tale of Greed and Glory in the Internet Wars

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CIDM

April 2000


High Stakes, No Prisoners: A Winner’s Tale of Greed and Glory in the Internet Wars


CIDMIconNewsletter Reviewed by Andreas Ramos

High Stakes, No Prisoners was just published a few months ago. The author was under a nondisclosure order from Microsoft for two years, which expired early in 1999. Small wonder they wanted a five-year gag order. When they read this book, they’ll regret they didn’t get a ten-year gag order.

Charles Ferguson has a degree in mathematics from Berkeley and a PhD in sociology from MIT. He worked as a semi-conductor industry analyst and later with Oracle, Apple, and other Fortune 500 clients. In the early 90s, he got the idea for a information publishing tool that later, as the Web arose, developed into a Web page editor and publishing software. He started Vermeer to develop the tool and finally sold the company to Microsoft for $130 million, enriching himself and his team of engineers.

High Stakes, No Prisoners is actually three different stories. First, it is an account of how Ferguson built the company, the strategy that went into developing the software, and how software depends on a number of projects. In effect, this account serves as a handbook for anyone planning a startup. Ferguson talked to several dozen venture capital (VC) firms to secure funding for his company. In many cases, VCs were ignorant about technology. Ferguson describes the problems with professional CEOs and talks about the poor choices he made when hiring a CEO.

The CEO was only interested in increasing his personal wealth, even to the point of screwing the employees out of their money. He names and describes quite a few people. He describes how well-known law firms made strategic blunders that cost millions of dollars. He also describes many of the pitfalls in stock options. VCs and the board can revoke stock options at any time, so that loyal employees who have made enormous contributions can be literally stripped of their stocks. Steve Jobs did this to the engineers at Pixar. He also describes how analyst white papers are based on bribes.

Second, the book is a history of the Web from 1994 to 1998. In that time, the Web arose and Jim Clark found Marc Andreesen and started Netscape. As it happened, they decided to make a browser rather than interactive TV-their original project. Prodigy, Compuserve, AOL, and MSN struggled over the Web and only AOL survived.

Ferguson shows that Microsoft, almost by chance, became aware of the Web and embarked on corporate restructuring. Gates’ understanding of the technical and marketing aspects is not a trivial matter: Ferguson describes countless CEOs, VPs, and corporate board members at other companies who are either wholly ignorant about technology or simply don’t care about their own corporations. He also writes about the George Gilder, SUN, Wired, Netscape, Forbes ASAP, Marc Andreesen hype club. Ferguson describes the market forces, the leaps in technology, and the main players.

Third, because Ferguson’s area of interest at MIT was the interaction of business and technology shifts, he is able to offer a scholarly analysis of the Internet situation. The book ends with a set of analyst papers and case studies. Netscape made severe mistakes on several levels. In management, Jim Clark and John Doerr made a fatal decision in hiring Jim Barksdale, affable but technically ignorant and uninterested in the company. Barksdale did not develop a technical strategy and left technology up to the engineers. That decision, too, was a serious mistake: the engineers were led by Marc Andreesen, Chief Technical Officer (CTO), who was twenty-two years old and had never held a real job. He had no idea how to develop a major engineering project and the result was a student hacker team that produced spaghetti code. This code crippled future versions of Netscape.

In marketing strategy, Netscape also blundered by wasting resources on Java (a failed project that consumed half of the engineering staff), UNIX versions (for a miniscule, fractured market), and Macintosh (another minor market) instead of pursuing the Windows platform. Netscape had no marketing or distribution strategy. Also, as an organization, Netscape was unable to work with outside developers, partners, and other groups. In short, Netscape was unable to create a viable corporate structure to develop and distribute a product that could compete on the market. At its core, the browser was just a freeware program.

Ferguson also analyzes Microsoft. He describes, in detail, meetings with Microsoft, negotiations, and how Microsoft relentlessly entered the Web market in order to seize it. He discusses Microsoft’s role in the computer market in general and how this affects other companies. He also discusses why SUN, Apple, SGI, and others want to stop Microsoft: they want to preserve their proprietary systems in which they once made huge profits, in effect, their own mini-monopolies.

Ferguson estimates that Apple and SGI have been effectively pushed out of the market; SUN has only a few years left. Microsoft has social and economic costs as well. He discusses the anti-trust efforts of the Justice Department and the FTC, along with personal descriptions of the key people and their strategic shortcomings and failures. Justice’s Antitrust Division has 350 lawyers and not a single technically competent person. Finally, he considers various options for breaking up Microsoft.

However, Ferguson’s last chapter looks at a more far-reaching and potentially more damaging monopoly than Microsoft: telecommunications. He shows how this industry lacks innovation and is actually impeding Internet development. The telecom companies have local market monopolies and no incentive to improve. Ferguson also argues that they are very good at bribing industry analysts to prevent further antimonopoly action.

Taken as a whole, the final three chapters alone (the case studies of Netscape, Microsoft, and telecommunications) will serve as the blueprint for many startups.

Quite a few people are going to look at the index to see if they are discussed in the book and what Ferguson says about them. Ferguson has enough millions that he doesn’t care if he can’t eat lunch in Palo Alto anymore; he’ll just buy his own restaurant. Some of his personal descriptions of people are very funny (Larry Ellison: “a seriously random number”). Ferguson is not without fault himself. At times, his excessive paranoia and lack of tact get him into bad situations, and he often remains there because of his abrasive personality. However, he’s bright, articulate, and perceptive about the industry.

The book is essential for MBAs, VCs, startup founders, director- and board-level managers, and anyone who works in Silicon Valley (or a reasonable facsimile). It describes how markets, VCs, and startups interact. Ferguson shows how the evolution away from desktop computers to Web-based computing will be as significant as the shift from main frames to desktop computing. In the latter shift, IBM fired 250,000 employees and lost more than 50 percent of its stock value. In the shift away from workstation computing, SGI collapsed, Hewlett-Packard is desperately trying to reinvent itself, and SUN has only two to five years of future. Because Microsoft is based on the desktop computer metaphor, they too face severe changes. The future is in handheld, wireless, single-purpose appliances. None of the major corporations has any significant market share in this new world.

There have been some reviews of this book, but reviewers who aren’t technical or don’t understand the computer industry will not understand the book. They focus on the zingers, the funny stories, and so on. Po Bronson and Michael Lewis also have books on the market at the moment; both of them are journalists who are trying to write a topical interest book. Lots of nutty stories, but neither of them is technical nor understands the market. CIDMIconNewsletter

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