Bill Gates' Internet Tidal Wave Microsoft memo – 30 years ago

30 years ago today, on May 26, 1995, Bill Gates wrote a company memo to Microsoft. It was something he did every few years, outlining the company’s top priority. But this one was different. It was a five-alarm fire titled “The Internet Tidal Wave,” warning that the Internet was going to change everything and had the potential to disrupt the current order, displacing Microsoft and other titans of the computer industry.

The Internet Tidal Wave and what it meant for Microsoft

Bill Gates’ Internet Tidal Wave memo was 5,600 words long and predicted, correctly, that the Internet would be disruptive.

It was a long memo, about 5,600 words, spread out over 40 paragraphs. It was a thorough and well thought out analysis of the state of the computing world, including the Internet, in mid 1995. Gates called the Internet the most important development since the IBM PC of 1981, even more important than the graphical user interface.

He described the underlying technology in moderate technical detail, including protocols, and which protocols were important then versus which ones would be important in the future. One detail he brought up that seems curious today was “3D presentations for virtual reality type shopping and socialization.” That hasn’t really happened yet, so it seems odd to think it was going to happen soon after 1995. I think Gates was referring to VRML, which stood for virtual reality markup language, and it was pronounced “vermal.” Yes, really. VRML was a markup language intended to build 3D virtual reality worlds, and it was a real thing in 1995, and it worked. It just didn’t catch on.

But the rest of the stuff Gates mentioned caught on. HTML received numerous extensions over the decades, but the Web is still built on the underlying technologies Gates described in May 1995. He also said, correctly, that the Internet was inexpensive and cost about the same whether you used it a little or all the time, so it encouraged heavy usage. He noted that he could find information on the Internet more easily than he could find information on Microsoft’s own internal network.

Why Bill Gates sounded the alarm

None of this sounds like a bad thing, so why was Gates sounding alarms? Because the Internet of 1995 was largely a Microsoft-free zone. Gates noted that after 10 hours of browsing, he didn’t encounter a single Word document, AVI video file, or other Microsoft file format other than EXE files distributing content viewers. He said Apple files were online, and attributed that to Apple adding TCP support to its operating system before Microsoft did. That gave Apple an outsized presence on the early Internet, much larger than its market share in the physical world. He also noted that one of Microsoft cofounder Paul Allen’s Internet startups had a Sun server. Paul Allen left his full time job at Microsoft in 1983, although he remained on Microsoft’s board until 2000.

Of course Gates mentioned Netscape and its 70% market share. “We have to match and beat their offerings including working with MCI, newspapers, and other[s] who are considering their products,” Gates wrote.

Gates said other leaders at Microsoft had been championing Internet standards for the past year. He said this was great but much work remained to do. “I want every product plan to try and go overboard on Internet features,” Gates wrote. That meant turning Windows NT into a viable web server to compete with Unix-based servers, releasing a web browser–he mentioned O’Hare, which was the pre-release code name for Internet Explorer–and moving it from the Plus pack to bundling it with the operating system. That couldn’t happen before Windows 95’s August release, but it happened soon afterward. He also mentioned integrating Windows Explorer with the web browser, which became a reality with Internet Explorer 4.0, and making Microsoft Office much more Web-aware and friendly. He even mentioned the need to get into the search engine business.

Gates seemed to see the dotcom boom coming and wanted Microsoft to benefit. Or better yet, own it.

How Microsoft reacted to the Internet memo

Microsoft listened. And the Web didn’t remain a Microsoft-free zone for long. The Internet didn’t sweep Microsoft away. Microsoft also fared better than some early success stories like Sun. The Internet also didn’t get overrun by Microsoft file formats, which Gates would have preferred. But that wasn’t for lack of trying. Other parties intervened.

Not even a week passed between Microsoft abandoning its merger effort with Intuit and this memo. It was a huge shift, and one Microsoft probably would have done anyway. But everything that got the Justice Department’s attention yet again was present in this memo. Probably the only reason we know the full details of the memo is because it was evidence in the DOJ’s antitrust case. On May 19, 1998, not quite three years after the memo, the DOJ sued Microsoft, seeking its breakup, because Microsoft used its monopoly power in operating systems to gain a second monopoly, in web browsers, and to try to replace open standards with proprietary Microsoft formats. While the DOJ didn’t get the breakup it sought, it did gain concessions from Microsoft in the settlement. Google eventually passed Internet Explorer by giving away its own browser, Chrome.

The Internet we got isn’t perfect. Far from it. But I don’t think anyone thinks it would have ended up better if Microsoft had succeeded in turning it into a wholly owned subsidiary either.

The full text of the memo is available at https://lettersofnote.com/2011/07/22/the-internet-tidal-wave/.