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Riding the Bear

Microsoft probably benefited the most from the growing IBM personal computer market. Because IBM didn't have the skill-set to write an operating system for their desktop computers, they chose to hire Microsoft, still a small Seattle company, to do the work for them. After the first MS DOS was released, IBM decided to keep the business relationship and let Microsoft maintain the operating system. Microsoft was pleased to serve, because they knew IBM ruled over the computer business and they would go wherever IBM went. Microsoft called it "riding the bear."

Bill Gates In the mid 1980s, IBM was working on a new personal computer, and they wanted a revamped and more powerful operating system to match the capabilities of the new computer. They contracted Microsoft to work with them to design and write the second generation operating system, OS/2. This new operating system added several new features, such as a graphical interface with windows and a mouse. However, they didn't want to add any networking for OS/2. IBM was still in the mainframe and minicomputer business, and some of the management didn't want to the personal computer division competing with the rest of IBM.

Bill Gates and the rest of Microsoft didn't see it that way, but no matter how much they argued and pleaded IBM would not add networking to OS/2. Microsoft just watched as Novell took over the networking market:

"Around '83 and '84 and certainly ... by '85 Netware was reaching critical mass. And so Microsoft felt really like there was a huge missed opportunity. In fact, I remember some memos Bill wrote, in sort of '84, '85, '86, where he said, you know one of the biggest disasters for the company is that ... is that we have no assets in networking or very weak assets in networking."

Rob Glaser
Microsoft

In late 1989, Bill Gates made his first attempt at buying the competition, Novell. He called David Bradford of Novell and offered to band together and compete against IBM, but Bradford refused the offer. So, Microsoft went to 3Com instead and offered to band with them and compete against Novell. Metcalfe was already frustrated with Novell, so he agreed with the arrangement. He believed that with Microsoft's relationship with IBM, they had an opening to the largest market, IBM PCs.

"What Microsoft failed to tell us was that their relationship with IBM was falling apart at that moment. Which came as a big surprise about three days after we signed the deal."

Bob Metcalfe
founder of 3Com

Later in 1989, Microsoft announced OS/2 LAN Manager and the headlines proclaimed that it would control most of the networking market by 1991. But that forecast fell short and Novell still controlled the majority of the market in 1991.

Bob MetcalfeAt 3Com, because their half of the partnership was falling short of their goals, the board of directors decided a change of management was in order. Metcalfe suggested that he should be CEO in 1990, but the board chose Eric Benhamou instead. Metcalfe quickly resigned from 3Com. He's now a content gentleman farmer in Maine and writes a weekly column in Info World.

After inventing Ethernet and founding 3Com he does have some advice to prospective entrepreneurs:

"It helps to have good parents, and then it helps to work really hard for a long period of tie and go to school forever, and then it works to drop quite by accident into the middle of Silicon Valley, where you're swept up into an inexorable process of entrepreneurship and wealth generation, and you pop out the other side with a farm in Maine. I hate to oversimplify."

Bob Metcalfe
founder of 3Com

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