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Guest Commentary: I want to thank Paul Allen for writing his memoirs. It’s great to hear the story of the formation of Microsoft in his own words. His candor is surprising to some, but I think he is just telling it like he saw it. That is not to say that this is a balanced account of Microsoft’s history.  Paul’s stories are first-person accounts, from the perspective of a participant — and without displaying much empathy for the motivations of the other people involved.

In the Microsoft story, I entered as a young software developer just at the time that Paul was leaving.  Having just graduated from MIT, I showed up on a June morning in 1983 at Microsoft’s Northup building in Bellevue for my first day of work. With only 300 employees, Microsoft was not yet a household name; I had to explain to my family why I was headed out to the far corner of the United States to join a tiny little company, when I could have had any number of jobs from well known companies like IBM, Hewlett Packard, Texas Instruments, Digital Equipment Corporation, Xerox, or even Apple Computer.

Paul dropped by my office perhaps once that first year to say “hi” between trips. All I knew of him was that he and Bill founded the company together, and that he had been battling cancer. As new employees, my co-workers and I didn’t have much awareness of why he had left. As Paul’s book fills in, he was deeply unhappy with his relationship with Bill at the time and the stress of working at Microsoft while dealing with his cancer was too much for him to face.

I was eager to read details of how Microsoft got started. I think most readers who have followed Microsoft will be disappointed with this aspect of the book. The facts of the story have been out for some time, and Paul does little to add to what is commonly known. We get a few personal details like what kind of car he was driving or the apartment he was living in at the time he discovered the Popular Electronics magazine with the Altair computer on the cover. The details of Bill and Paul’s hacking on the Lakeside computer and other high-school adventures present new material that are quite interesting to read about.

The secret sauce of Microsoft’s early days

That first Altair BASIC programming language that Bill and Paul developed (with Monte Davidoff) was an amazing feat of engineering for which they were uniquely prepared.  Paul’s major contributions were in developing the tools for building their program.  He adapted the PDP-10 assembler to understand the Intel 8080 op-codes, and built the simulator that let them test their BASIC without having access to an actual machine.

In fact, it’s clear that being able to use these larger computers as a development environment was Microsoft’s secret sauce in the early days. Paul credits the cross-assembler and simulator he built with giving them a leg up on anyone else who might be trying to develop software using the target platform alone.  These early machines were just too limited and unreliable to make fast progress developing software on them directly.

Even as I joined Microsoft in 1983, we were still using this same strategy. We developed software on a Unix “minicomputer” using a CRT terminal to connect 2 or 3 developers to each machine. Our software was cross-compiled and downloaded to the target machine only for testing. While not quite a Teletype and paper-tape, it was not that far removed from the techniques they were using in 1975 to program the Altair.

Unfortunately, the reader of Idea Man will be distracted by Paul’s efforts to puff up the importance of his own role in creating what Microsoft was to become. No one can deny that Paul was an essential part of founding the company in 1975 or that he and Bill worked very hard over the next 8 years to build Microsoft up to an important provider of languages and tools in the new microcomputer industry.  Paul’s industry knowledge and connections were also instrumental to getting into the operating system market by negotiating the purchase of QDOS from Tim Paterson in 1980 and bringing him in later to help complete the first version of MS-DOS for IBM in 1981.

Paul seems to be trying too hard to establish his own reputation in this book.  Apportioning credit between people that work so closely together is very hard to do in a fair way.  I personally do not place a very high value on merely having an “idea” or claiming to have a unique “vision.” Paul states:

I was the idea man, the one who’d conceive of things out of whole cloth.

My most vital charge was to chart our future. Where Bill eyed tomorrow’s markets, I looked to a more distant horizon.

I would argue that in the evolution of technology, it is usually obvious to a very large number of people (if not the general public), what the future potential can be. Seeing the potential of a new technology is not the unique asset, but rather being able to create a business that can bring a product to market is the quality that separates success from obscurity.

Good ideas don’t guarantee success

Looking at the successes that Microsoft has had, it’s pretty clear that most of the Big Ideas were not home-grown.  Windows followed an idea originated at Xerox and elaborated by Apple. Excel was a better-done GUI-based clone of Lotus 123 than Lotus was able to make themselves. Merely having the idea for a new product, is not the guarantor of ultimate success. Success, in Microsoft’s case, came from a lot of hard work and iteration. It’s common knowledge that “Version 3” is the first edition of a Microsoft product that most users really want to be using.  Feedback and iteration, I would argue, are the keys to Microsoft’s successful products.

Paul Allen and Bill Gates in 1981. (Microsoft photo)

When Paul was diagnosed with cancer in September of 1982, he was already having a falling out with Bill, having sent him a resignation letter in June. But Bill tried to reset Paul’s expectations and keep him involved in the company with his own six-page letter in December. By February 1983, Paul had officially resigned, but kept a board seat. His cancer was in remission and understandably, he just knew that he wanted to enjoy life.

Paul’s initial contributions were great; he had helped create a company with 220 employees that reached $24 million in revenue by 1982. But then he was gone. His impact on future Microsoft product development was practically zero. The company was doubling revenue and employees each of the next two years and into the stratosphere beyond.

Paul makes much of busting in on a December 1981 meeting between Bill Gates and Steve Ballmer where they were discussing diluting Paul’s ownership of the company. Paul was understandably hurt, but I maintain that decision would have been the “right” thing to do in this situation. At that time, it was obvious that Paul was leaving the company, and was not contributing as much as a founder as others were. From my experience with startups today, I would not view it as healthy to have a non-participating founder retaining a large equity stake in the company. If the demands for capital or incentives for new employees outstrip the revenue that a company is bringing in (as it was, even for Microsoft in 1981), a company needs to be able dilute the current shareholders to more fairly apportion rewards to the active participants.

Yet, when Microsoft went public in 1986, Paul had still managed to retain over a 10% roughly 28% ownership of the company. [Editor’s Note: Number corrected since original post; thanks to Mike Slade in the comments.] I view this as a largess on the part of Bill Gates, who would have been within his rights and abilities to dilute the ownership of his former partner.  This gift resulted in a net worth of over $20 billion for Paul at its peak (estimated at $13 billion today).

Perhaps the most interesting chapters in the book deal with Paul’s failures. With great candor, he admits to poor negotiating tactics with NBA players, and losing $500 million as an owner of the Portland Trailblazers. He got stiffed by David Geffen into paying 18 times more than the other investors in the new DreamWorks movie studio (though he ended up with a 2x return in the end).  In the largest loss of all, he tells the story of losing $8 billion dollars in cable company Charter Communications, chasing his dream of the Wired World.

Looking for a unique competitive advantage

Here we can best understand the differences in style between Bill Gates and Paul Allen. Neither man continued to be a serious “software developer” in his own right past 1983.  But, where Paul chased ideals to predict the future direction of a technology, Bill kept a laser focus on the business outcomes.

Up until the mid 1990’s, I never saw Bill “green light” a project unless he felt that Microsoft had a unique competitive advantage. In every product review meeting, he would always ask why Microsoft would win in a new category. It was never enough merely to have a vision for a new technology, nor even to have the smartest people or development team; Microsoft had to have a unique ability to capitalize on a market.  This was later the seed of many of Microsoft’s problems with the Justice Department with claims of anti-competitive behavior and bundling.

I was hoping for more details from Paul on the other companies he had started using his Vulcan Ventures investment company.  Paul “invested in more than a hundred Internet, media, and communications companies” in the 1990s.  His record for business success has not been great with most of these. I wish the book would have talked more about some of the companies he founded here, especially where he was an early pioneer of multimedia authoring tools.

Paul’s sister, Jody, obviously has played a huge role in helping Paul manage his many ventures. She earns his gratitude in the book, but she remains largely anonymous. I would love to know more about her and her role in running the Allen Family Foundation and other ventures.

Paul’s startup companies have a reputation for being more hobby than business. Employees I’ve talked to seem less motivated by their work when they have such a casually engaged (though deep-pocketed) boss. Paul has spread himself too thinly, and has not been able to surround himself with the talented hard-driving managers he would have needed to make more of his ventures successful.

An outsized interest in life

While Paul seems too distracted to focus on his many businesses, he has some very engaging chapters about his experiences with travel, music, and recreation. He’s used his wealth to seize the day when it comes to “enjoying life.” One of his yachts, Octopus, would stick out past both end-zones were you to place it on Qwest Field (and would stand well into the upper deck of seats at seven stories tall). He’s been able to meet and play music with most of of his idols (in his private music studio aboard his yacht). He’s even been able to extend his love for scuba diving to much greater depths by deploying his yacht’s on-board submarine!

As a philanthropist, Paul has stayed more local than Bill and Melinda have. Our communities in the Northwest owe a large debt to Paul for invigorating our sports teams, and urban development in both Seattle and Portland. And his Allen Institute for Brain Science has also given the world a highly detailed brain map in the public domain.

Paul embarked on this book knowing that his health was particularly fragile. Now, having survived a second bout with cancer, and with a pacemaker installed, he remains optimistic about life, and pursuing his passions. As a fellow “geek,” it is great to see someone like Paul putting into action things others can only dream about. At the end of the book, he hints that he’s thinking about extending his interests in space travel. Paul’s team was the first private group to launch a man into space in 2004 on SpaceShip One. I think we’ve not heard the last from Paul as he makes plans for SpaceShip Three.

What I don’t expect from Paul is a more focused approach to business or philanthropy, despite the lessons from the past.  Perhaps it’s not in his DNA. I suspect it’s a hard thing for a billionaire to say “no,” especially when faced so concretely with one’s own mortality. In the live interview with GeekWire last week, Paul said we should expect to see him “cast a wider net” in his future endeavors. It should be interesting to watch.

Former Microsoft developer Mike Koss is the launch director at Seattle technology incubator and the organizer of the Seattle Google Technology User Group.

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