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Weekly Column

Prisoner of Redmond: Yet Another Way Paul Allen Isn�t Like You or Me

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

There are hundreds of Microsoft millionaires (and even a few Microsoft billionaires) in the suburbs of Seattle. For the most part, these are people who no longer work for Microsoft, but still own company shares. They worked very hard for years and are now reaping the rewards of that work combined with their good luck. Most of them are proud of their careers, but a few are secretly ashamed. Climb high enough in the organization, and it becomes clear that Microsoft�s success has not always been based on legal or ethical behavior. The company is, after all, a convicted monopolist, and the exercise of those monopoly powers wasn�t just through a Gates or a Ballmer, but also through dozens of top managers, at least some of whom had to have known that what they were doing was wrong. These are smart people, but also people trapped by their own success. Some are in denial, some are just quiet. Nobody wants to risk what they have accumulated by talking about it. You would think great wealth would be freeing, but it isn�t always. Sometimes it is a trap.

Paul Allen is one week older than me. I have more kids but he has more toys -- a LOT more toys -- including professional football and basketball teams, SpaceShipOne, lots of planes and a HUGE boat. Allen is an enthusiast of epic proportions, but one of my fondest images of him was from the 20th anniversary party for the Altair 8800 computer (arguably the first PC), when Paul Allen-the-billionaire wanted some fast food late at night and -- not having a car -- WALKED through the drive-through as part of a long line of cars.

There was a time when Paul Allen, not Bill Gates, was the boss at Microsoft. When it came time to visit Albuquerque to demonstrate that first BASIC interpreter to the folks at MITs, Allen made the trip, not Gates. It was Paul Allen, not Gates, who was later offered the job as head of software for MITs -- a job I have in the past characterized as the single most expensive position in the history of employment because accepting that job meant that Allen got only 36 percent of Microsoft�s founders shares, compared to Bill Gates� 64 percent.

There�s an irony in that stock differential, and it is that Gates argued HE was working 100 percent for Microsoft while Allen was working for both Microsoft and MITs, Microsoft�s only customer, and therefore deserved less stock because of his divided duties. The irony is that shortly after they divided the shares, Gates went to MITs founder Ed Roberts asking for a job, too, which Roberts gave him, paying $10 per hour. A more aggressive Paul Allen would have demanded a share adjustment at that point, but the real Paul Allen let it slide. �I made out okay,� he told me when I asked about it.

Four years later, when Microsoft had left New Mexico for offices in a bank building in Bellevue, Washington, and Jack Sams came from IBM looking for an operating system for the secret Project Acorn -- the IBM PC -- Allen was still the guy in charge. Sams mistook Gates for the office assistant. Though both Gates and Ballmer took part in those first talks with IBM, Sams recalled that the authority figure was definitely Paul Allen.

These roles changed over time, of course, and what clearly precipitated the change was Paul Allen�s health. He contracted Hodgkins Disease, a form of cancer, in 1982 when Allen was in charge of the development of MS-DOS 2.0, a complete rewrite of PC-DOS 1, which was itself mainly derived from Seattle Computer Products� Quick and Dirty Operating System (QDOS) that Microsoft had acquired when Digital Research was unable to come to terms with IBM about using CP/M for the original PC. QDOS was simply not a very good product, and DOS 2.0 was intended to overcome the earlier products� many problems. It would also eliminate that nascent rumor that QDOS was riddled with code �borrowed� from CP/M.

So DOS 2.0 was the most important Microsoft product to date and vital to cementing the company�s relationship with its biggest customer, IBM. It was also by far the most complex product in Microsoft�s young history, which again is why Paul Allen was put in charge. As development continued, Allen�s health began to deteriorate, so much so that the IBM team was worried that Allen might not survive. �He looked like death,� Sams told me. �But still they pushed him.�

In the Boys� Club that was Microsoft in those days, maybe the concept of mortality was too abstract, maybe Allen�s poor health wasn�t as obvious to those around him every day as it was to the IBM team that visited from time to time. To his credit, Allen stayed long enough to finish the job, delivering DOS 2.0 then leaving the company forever, eventually to have a bone marrow transplant that cured him completely.

But during one of those last long nights of working to finish-up DOS 2.0, something happened. I have heard this story from two people, each of whom was a friend of Allen�s and in a position to know. Each told me the same story the same way. I am not staking my reputation on the accuracy of the story, but I am saying I have it from two good sources. Paul Allen certainly won�t confirm or deny it, so I�ll just throw it out for you to consider.

During one of those last long nights working to deliver DOS 2.0 in early 1983, I am told that Paul Allen heard Gates and Ballmer discussing his health and talking about how to get his Microsoft shares back if Allen were to die.

Maybe that�s just the sort of fiduciary discussion board members have to have, but it didn�t go over well with Paul Allen, who never returned to Microsoft, and over the next eight years, made huge efforts to secure his wealth from the fate of Microsoft. He sold large blocks of shares on a regular basis no matter whether the price was high or low. Then in October and November of 2000, just as he was finally leaving the Microsoft board, Allen did a series of financial transactions involving derivative securities called �collars,� that are a combination of a right to buy and a right to sell the stock at different prices such that both his upside and downside financial potential are limited. By the end of 2000, though Allen technically still owned 136 million Microsoft shares, his wealth was for practical purposes separate from that of Gates, Ballmer, and the rest of Microsoft.

I confirmed this with Peter Newcomb, the editor at Forbes whose job includes keeping track of the world�s 400 richest people and their money. Calling-up Allen�s financial information on his computer screen, Peter pointed to the sports teams, valued together at about $1 billion, the huge investment in Charter Communications, Allen�s Dreamworks stake, another $1 billion in real estate, and, oh yes, that Microsoft collar. �He�s worth a total of about $14 billion at this moment and while he has more than 100 million residual Microsoft shares,� Peter said, �does Paul Allen care what happens to Microsoft? Only tangentially.�

Peter and Forbes were available in this case through the help of Rich Karlgaard, the publisher of Forbes, who is an old friend.

What do you do when your wealth is immense but completely tied to people whom you inherently do not trust? If you are Paul Allen you watch your tongue and spend eight years getting out from under that burden.

My reason for bringing up this topic at this time is because it will all shortly be back in the news as Microsoft goes to court later this year in what might well be its last-ever anti-trust trial. Remember those 19 states and the District of Columbia that settled over time for software vouchers and promises from Microsoft to no longer do evil? Well only Iowa remains, represented by a lawyer from Des Moines named Roxanne Conlin whom I have met. Roxanne is not in any way impressed with Microsoft vouchers, no matter how many there are. Looking for real money for the people of Iowa, Ms. Conlin is about to dredge-up all this old news and put a new spin on it.

Based purely on character (or lack of it), I confidently predict that Microsoft is going down. It should be interesting.




Editor's note: The word "lady" was deleted from the phrase "a lady lawyer from Des Moines" so Bob's audience doesn't realize he is an old fogey.

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