The iPhone didn’t exist yet (WAT!) – all the cool kids were using Motorola Razr’s. The, er, not-so-cool ones had Palm Treo 700’s.
Dropbox was about to get flamed on Hacker News as“not very viral or income-generating” and Facebook’s only users were Mark and his mum .
ICanHasCheezburger hadn’t been invented (NO LOLCATS !), and the most popular meme of the year was a sneezing panda:
It was into this primordial Internet soup that Zamzar was born. Most of the 9 months of intensive development time for such a key pillar of the Internet was spent on logo design (obviously the key facet for any budding “web 2.0” service).
We’ve included the best of the bunch for your delectation – extra marks for spotting the malformed sheep motif. Graphic design was not our strongest asset at the time.
The vogue for launching “web 2.0” applications into (seemingly perpetual) beta at the time led Zamzar to be included in the Museum of Modern Betas a fascinating historical record of every-man-and-his-dog’s attempt to jump on the web 2.0 bandwagon.
The “museum” is still charting new beta launches to this day, and Zamzar has the privilege of rating as number 2 on the list of most popular betas of all time (just behind Flickr).
Launching Zamzar was primarily an exercise in “scratching our own itch” in developing software which allowed us to view, edit and save files in as wide a variety of formats as possible, without needing to have every version of every application ever made. We’re thrilled that this turned out to be a useful solution for others too.
We’re proud to have run Zamzar as a bootstrapped and profitable web business for 10 years now. If time on the Internet was calculated in dog years (which it should be) we’d be 65 years old.
During that time we’ve:
Converted over 300 million files
Worked with Vint Cerf on tackling digital preservation
Served users in every country on the planet (including Antarctica)
Our plan is to keep building products and services which you will love. Products that make handling and using file formats easier for everyone, whether they are new to the world of computers or a seasoned developer.
We recently launched a file conversion API capable of converting thousands of different file formats right from the command line or inside your own mobile or web application.
We’ll be making this service even better, improving the design and features on our main file conversion website, integrating with a whole bunch of other file-related services, building out some exciting new products (including a self-driving car powered by Word Doc macros) and much more.
If you’ve used Zamzar over these last 10 years then *thankyou*. It has been an honour and a privilege to convert your files.
Here’s to the next 10 years!
Chris & Mike Whyley,
Co-Founders @ Zamzar.
 Almost. Actually Facebook had 12 million users, but most were probably Mark’s shell accounts.
This is part three of a series of stories by Robert Gaskins who helped invent PowerPoint at Forethought Inc. in 1984 (see part one and part two). It was the first significant acquisition made by Microsoft. We spoke to Robert about the process of building a startup in the 1980s and what life was like negotiating with, and working for Microsoft. After the sale Robert reported directly to Bill Gates, heading up Microsoft’s business unit in Silicon Valley. He managed the growth of PowerPoint to $100 million in annual sales before his retirement in 1993.
This post looks at what it was like working with Bill Gates, including being grilled by him in an pre-acquisition interview, working closely with him, and the insights Gates bought to running Microsoft in the early days of its’ existence.
Here’s Gaskins in his own words…
One of the explicit conditions of the Microsoft offer to acquire Forethought was that I had to pass a full-blown interview by Bill Gates (I was the only person singled out in this way). So when the acquisition discussions were under way, I went up to Redmond alone, and met with Bill in his office, one-on-one, for a couple of hours. We had had a number of business meetings before, so we knew each other slightly.
Even so, it certainly concentrates the mind to be personally interviewed by Bill, with the whole $14 million acquisition and the best chance of liquidity for our investors and financial reward for our employees all riding on his evaluation.
Bill had a normal conversation with me, probing me about technical details of our software and the Mac platform, about marketing positioning and plans, about business numbers and ratios, and about individual employees. It went very well, since I had all those areas at my fingertips. I had just written my history of the company’s restart in the prior two weeks, I prepared all the business plans, I lived and breathed the technical details, and I had had six weeks to recover from the first customer ship.
I didn’t expect anything different, but just for the record, Bill did not ask me:
Why manhole covers are round
How many gas stations there are in the U.S.
Whether I could code FizzBuzz in a language of my choice on the whiteboard.
We just had a perfectly normal and pleasant conversation, all of it at the enhanced level of intellectual intensity characteristic of Bill. I came away feeling that things had gone very well.
By Monday, two days later, word came in a telephone call that Bill had approved me and was in agreement with the deal, but was leaving the details of that deal to others.
Working with Bill Gates
After the acquisition, I worked a lot with Bill. For the first year after the acquisition, I reported directly to Bill, in his role of Acting VP of Applications. Then Bill hired the great Mike Maples to replace Bill VP of Apps, but I still saw Bill and talked with him often.
Bill very often came down to Silicon Valley to review PowerPoint progress, because he considered it an important product, and because (since we were the only development group outside of the Redmond campus) he heard less about us in hallway conversations.
We would go over every detail of the code and of the business plan with Bill, and he would give us feedback on everything. This was extremely valuable; there was virtually never a time when Bill had an opinion that we thought was wrong. And Bill had in mind every detail of all the other Microsoft applications, of all of our competitors’ applications, of the various operating systems (Mac, Windows, OS/2), of all the personal computer hardware shipping or forthcoming, and of how actual customers were using all of these, so he could offer informed opinions and specific facts that were invaluable in our planning.
Bill especially was a perfect master of judging when a piece of software was adequate to ship.
He would personally review our specs, try our builds, and try our competitors, and tell us very frankly whether he thought the product concept was adequate and whether the implementation was sound enough to ship. He didn’t try to make the decision for me, but there was no one whose opinion we took more seriously.
In short, Bill Gates was just the perfect hands-on technical guru to be my boss. Things got even better when he hired Mike Maples, because Mike also knew how to manage thousands of people in a deep multi-level organization and get things done. The combination of Bill and Mike, during the first years after the acquisition, was an ideal context for success.
Part of Bill’s secret was that he had a healthy respect for decentralized knowledge. He had a strong opinion on everything, but he didn’t ignore other opinions. At the Apps Division’s executive staff retreat in early April 1989, there was a discussion of the outcome of having reorganized the division into business units the preceding September. There were still some authoritarians who thought it was too messy to have all these independent units doing different things in their own ways.
Bill had the right comeback, immediately:
“We don’t lack the power to enforce our decisions; we lack the information about what we should require.”
The Microsoft system of the time allowed our group to make repeated course corrections and get to the right final result for our product, while other products at the same time made different calls.
Gates’ belief in PowerPoint
The first breakthrough version of Windows was version 3.0, shipped in May of 1990; PowerPoint’s new version 2.0 shipped the same day, and Bill Gates used PowerPoint to demonstrate what the new Windows could do. Both Windows and PowerPoint started flying off the shelves.
Two years later, in April 1992, the next version of Windows (version 3.1) introduced proper typography and TrueType fonts. PowerPoint had contributed a great deal to that, and again a new version 3.0 of PowerPoint was shipped on the same day as the new Windows, again Bill Gates used PowerPoint to demonstrate the huge improvements in Windows and again sales blew away all expectations.
With these two versions of Windows and of PowerPoint, Windows PCs began to outsell Macintoshes by large multiples: from ten times as many (1992) to twenty-five times as many (1997) to fifty times as many Windows machines as Macintosh machines sold (2003). The success of Windows was crucial to PowerPoint, but the success of PowerPoint was also crucial to Windows.
Bill Gates was my direct boss for the first year after the acquisition, so we saw a lot of each other. It was a great experience.
We’re excited to announce that we just launched three new applications which allow you to convert files right on your desktop !
Dropbox Converter – Convert files to various formats directly within your Dropbox account.
Hot Folders – Monitor folders on your desktop & automatically convert files to other formats.
Zamzar Bash – Convert files directly from the command line.
Using the Zamzar API
These apps all build on top of our powerful file conversion API which allows you to bake file conversion into your application using a tiny amount of code and a simple REST API. Our API supports the conversion of 100’s of formats and is cloud-based to scale with your needs, whether you’re converting 1 file or 100,000.
We have made the source code for all these applications publicly available, so you can grab it, and build your own apps and tools on top of it (for both commercial and personal use).
This is part two of a series of stories by Robert Gaskins who helped invent PowerPoint at Forethought Inc. in 1984 (read part one here). It was the first significant acquisition made by Microsoft. We spoke to Robert about building a startup in the 1980s and what life was like negotiating with, and working for Microsoft. After the sale Robert reported directly to Bill Gates, heading up Microsoft’s business unit in Silicon Valley. He managed the growth of PowerPoint to $100 million in annual sales before his retirement in 1993.
This post looks at what it was like running a startup in the 1980’s and the differences Gaskins and his team experienced back then compared to running a startup today.
Here’s Gaskins in his own words …
A different age
Developing PowerPoint in the 1980s was so incredibly different that a description of how we worked in the mid-1980s doesn’t seem to make any sense, unless one remembers that the Internet was completely unknown outside a small research community in 1984.
I had access to an ARPAnet connection when I worked at the Bell-Northern Research laboratory in Palo Alto in the late 1970s, but I had no real experience with it—it wasn’t something we used every day. Lots of things about the way both startups and larger software companies worked prior to the web don’t make any sense in the current age.
A software startup in the 1980s was a more difficult problem. You had to plan ahead a great distance and “call the shot” accurately, since a considerable investment was required before much in the way of feedback, let alone sales, could be available.
Today it’s the fashion to make web services in a very “lightweight” way, to offer minimally viable web products free, and to iterate rapidly as experience is gained with initial web users. Without the web, none of that was possible.
As a startup you can get crushed by a 100 pound gorilla before you even realise it sat on you. You have to be nimble enough to avoid that whatever era you are working in, whether that’s the 1980s, or 2016. Twenty years after we started developing PowerPoint Paul Graham famously said:
The best way to solve a problem is often to redefine it
This was a path we followed at the time. We certainly had a lot of competitors who were making presentation software for MSDOS PCs and for Apple IIs—that is, for the old command-line operating systems. I drew up a table of competitors with such products, and there were more than 30 of them, mostly selling for between $300 and $700 a copy (in 1983 !) But PowerPoint wouldn’t run on those machines.
The real competitors would be whichever successful, big software companies from that world would first make the jump to Mac and Windows. Mac had early enthusiasts, but it remained underpowered for a long time and wasn’t so attractive to businesses using MS-DOS PCs. Windows—or, at least, something like Mac’s graphical platform delivered for machines that were open and less expensive—was what customers were waiting for.
We were “writing off the entire installed base of PCs,” betting that Windows and Macintosh would grow to dominance. So these existing products were not the problem.
Windows was announced at Comdex in Fall 1983, before Mac shipped. It was much slower in shipping than anyone expected, so we redirected our first version to Mac, but when PowerPoint for Mac shipped in 1987 I thought we could ship a Windows version in 1988. I turned out to be wrong: we didn’t ship the first PowerPoint for Windows until 1990, two years later than planned! By then we had very large competitors from the MS-DOS world, with massive numbers of users, who had only to ship a Windows version to take their users with them. Largest of all (over half the total market) was Harvard Graphics from Software Publishing Corporation (SPC).
There was also Freelance from Lotus Development, popular because it interworked with the Lotus 1–2–3 spreadsheet. WordPerfect was developing a presentation product to go with its market-leading MS-DOS word processor. People in the publishing industry liked Persuasion from Aldus which was a Mac product, but was moving to Windows as rapidly as possible.
But, as it turned out, PowerPoint was the first major presentation application for Windows, and it shipped in 1990 on the same day as the first adequate version of Windows—Bill Gates could and did use PowerPoint to announce Windows 3.0. Freelance and Persuasion shipped on Windows about one year later; Harvard Graphics shipped on Windows about two years later; and the WordPerfect product never really appeared on Windows in timely fashion. A year or two is an eternity in a rapidly exploding market; PowerPoint on Windows immediately became the international standard, and has defended that position for 25 years.
A rocky road
From mid-1984 to mid-1987, we faced the very real prospect of liquidation at least every six months. For three Christmases in a row, we took off a week for the holidays only after carefully calculating that we had enough money in the bank to pay our payroll taxes, accrued wages and vacations, and minimal severances, since it seemed almost certain that we would have to liquidate early in the New Year. This made the holidays considerably less festive. But we went through a dazzling series of improvisations and survived to ship a product. No one considered leaving.
What was very surprising was how long it took Windows to arrive. When Windows had been introduced in the fall of 1983, everyone (including Microsoft) expected it to ship fairly promptly; as it turned out, Windows 1.0 didn’t ship until the very end of 1985 and even so was still very sketchy, so that led us to adjust our plan and ship PowerPoint on Mac first. (This was a tough decision, because we were shipping other Mac software and we knew all too well that even Mac itself wasn’t selling very well). By the time we were acquired by Microsoft, in mid-1987, we expected (and Microsoft expected, in the negotiations) that PowerPoint for Windows could ship by mid-1988, a year later.
There’s no mystery why PowerPoint for Windows took three times longer to develop than we expected – it took so much more work to ship a Windows application than a Mac application. The version we called PowerPoint 2.0 shipped on Mac in May 1998. It had taken 34 person-months of development to get to PowerPoint 1.0 from a blank sheet of paper, and then it took an additional 26 person-months of development to design the second version with color and to ship it on Mac. Total: 60 person-months.
The initial Windows version was PowerPoint 2.0, with the same specs as on Mac, but the additional work just for the Windows version took us 185 person-months of development! Three times as much as all the work to design and ship on Mac! (And this does not include the work on an additional “graphing” module, which was developed separately.)
That was a surprise to us, and to everyone up to Bill Gates; we didn’t realize how much more mature and functional the Mac platform was. The result was that everyone (all of Microsoft’s applications, and all of our competitors) were surprised by how much longer it took to ship adequate Windows applications than anyone had imagined.
It all worked out. We had no Windows revenue for two more years, but because Windows was delayed, sales of our Macintosh version increased in the meantime. We shipped
PowerPoint 2.0 for Windows on the same day as Microsoft shipped Windows 3.0, a very major upgrade, and that got a lot of attention. Our competitors were at least one year later even than we were, up to two years or more, so we were not facing any Windows competitors. Sales of our new Windows version immediately went up to producing more than 90% of our revenue, dwarfing all our Mac revenue, and it stayed that way.
Sales – 1980’s style
We couldn’t reach potential customers directly (there was no web), so we had to groom editors of computer magazines and feed information to them, hoping they would print it in their magazines. We had to travel to the editors to demonstrate our software and leave copies for them. To get in touch with those editors, we had to maintain our own files of contact information, addresses and phone numbers, and employ a PR agency for whom that was their stock in trade. We traveled to meet industry consultants who were frequently quoted in the computer magazines, and we hired them at big prices to “advise” us, expecting them to say nice things to editors in the future.
Traveling imposed large information costs; people didn’t have mobile phones, so had to call in periodically for updates, maybe getting a short document faxed to a hotel and delivered by a bellboy. Traveling abroad could mean being completely out of touch for several days.
We advertised in the computer magazines, hoping to interest potential customers. We paid for 800-number phone lines so that potential customers who wanted information or the names of dealers could call us; some people did call, a few called every day just to chat with our people at our expense. We spent a lot of money to try to collect registration cards, so we would even know the names and addresses of our actual customers who had already spent money with us, since they bought through retailers who bought through distributors.
Beyond the poor information flow, lack of the web imposed all kinds of costs and overheads and delays. The necessity to write and print physical books about the software led to long lead times, and complicated dependencies, such as that the number of pages in the manual had to be known before the dimensions of the box could be fixed for the box design, to be sure that the manual would exactly fit without rattling. The same sorts of problems arose with all kinds of printed material that are no longer necessary because the information is now delivered over the net.
Since there was no way to deliver software over the Internet, we had to manufacture physical diskettes in physical boxes and place them in other companies’ inventory stocks (and finance that inventory). Having to sell those boxes through distributors and then dealers imposed the high cost of a field sales force, which was hard to track and evaluate. Since every product in the hands of a customer had to pay for its manufacturing and overheads at each level of distribution, there was no possibility of free or minimal-cost versions early in a product’s life, which implied some minimum level of function.
This system also imposed very high costs on making upgrades, with the result that the quality of the first-shipped product had to be high:
The cost of an update forced by a single important bug was significant even for Microsoft, and could put a startup out of business.
The software couldn’t just run on our own servers with a known configuration and the possibility of easy updates, but had to run in the unpredictable environments of the users’ own machines, a much harder problem for both development and testing. If a bug corrupted data on a user’s machine, the update had to diagnose and correct such problems all by itself, working in an unknown disconnected environment.
Lack of focus almost killed us
Now, the usual advice is that a startup should focus on one goal and focus sharply. We consciously planned to do the opposite: we built up both a publishing division and a development division, with the two working on different projects at different time depths (and, since a startup is always understaffed, almost everyone had to share their attention between the two projects).
While we developed PowerPoint, over three years, we published three other Mac products developed by others – including FileMaker. “Published” means that we consulted with the developers on design, we did the testing and bug-tracking, we wrote the manuals, we typeset and manufactured the manuals and boxes and duplicated the disks, we designed and ran advertising, we handled all PR and press tours, and we handled all sales (to wholesalers and dealers, as well as direct) and customer support, including technical support.
Immediately after PowerPoint shipped, we got acquired by Microsoft and cancelled our contracts for our published products, abandoning all that and leaving PowerPoint alone to be our sole focus of attention.
When just beginning the development of PowerPoint, at first I very much agreed with the dual-track plan to publish software developed by others as practice to build the delivery vehicle for PowerPoint, and thought it very clever. During the development, I came to feel that our actual experience showed that to be mostly wrong; the published products did not pay for themselves, but ran huge deficits that repeatedly brought us close to liquidation and very nearly killed PowerPoint.
Over three years, while we spent less than $500,000 developing PowerPoint, we spent about $2,500,000 on the losses of our published products!
Partly this was because of the poor general market for all Mac software in 1985 and 1986, and I thought we were stubborn not to recognize that fact and cut our losses on what was after all a sideshow. Because we lost so much in the publishing operation, we had to raise money about every six months, which was a great effort and repeatedly brought us very nearly to bankruptcy.
Doing it differently today
I really envy people doing software with the web. One could do much better these days. But we didn’t have it, and so we were forced to do many things that wouldn’t be sensible today.
The situation reminds me of the oft-repeated story about a high school class studying Romeo and Juliet, who are mystified by all the tragic confusion at the end. “Why didn’t Juliet just use her mobile phone to call Romeo when Friar Laurence gave her the sleeping potion, and get it straightened out with him?”
If you think about it, you realize that much of literature is built on plots that wouldn’t make sense if mobile phones existed. I’ve listened to BBC Radio 4 interviews with detective-story writers who say that they purposely write stories set in the early twentieth century, so that they can take advantage of an age before mobile phones; but that ploy is only going to work for readers who can remember what that far away time was like.
The same is probably true for descriptions of mid-1980s software startups; they can really only be understood by readers who were there.
We recently challenged students at the University of York to participate in a one-day hackathon. Their remit was simple: design and build a file conversion app that uses the Zamzar API . A few hours later, the students demoed their six fantastic applications, and the winning apps were announced.
What did the students build? Who won? Read on to find out…
In most cases, students opted to solve a problem that they had faced themselves. This was immediately apparent from the first app, GIF-T, which turns a bevy of related photos into a short montage video and wraps it up with a (virtual!) bow and gift tag. When we asked about the inspiration for their app, the developers stated that they had grown tired of receiving hundreds of similar photos from weddings, birthdays, or particularly infamous trips to their local pub. Powered by the image-to-video conversions provided by the Zamzar API, the developers of GIF-T were able to build a simple prototype and wireframes for their final application in just a few hours.
Three of the applications focused on making file conversion extremely straightforward for everyone. These included a Dropbox plug-in which allowed “hot folders” to be used for automatically converting files from one format to another, a browser plug-in for converting archive files from unusual formats (we’re looking at you WinRAR) to something more commonplace, and a UNIX command for converting files as part of a shell script.
Meanwhile, a trio of students experimented with combining file conversion with natural language processing in their automated illustrator app. The goal here was to analyse a story (in plaintext), use an image search engine to select appropriate illustrations for the story, and combine the end result into an eBook using the Zamzar API. The developers demonstrated their application using Alice in Wonderland as a source text.
The final app was the excellent and bewildering Cat Meme Generator, which combined Web 3.o design sensibilities with the ability to generate cat-related memes. We’re not quite sure why this app exists, but we’re glad that it does.
Although we were thoroughly impressed with everybody’s efforts, we awarded prizes to our favourite three apps:
The plucky winners took home prizes, and we came away thoroughly impressed with how much can be achieved with a few hours work. We’ll be releasing the source code from some of these applications in the coming days on our GitHub repo so you can extend and reuse the code in your own applications.
This is part one of a series of stories from Robert Gaskins who helped invent PowerPoint at Forethought Inc. in 1984. It was the first significant acquisition made by Microsoft. We interviewed Robert about the process of building a startup in the 1980s and what life was like negotiating with, and working for Microsoft. After the sale Robert reported directly to Bill Gates, heading up Microsoft’s business unit in Silicon Valley. He managed the growth of PowerPoint to $100 million in annual sales before his retirement in 1993.
This post looks at the negotiation process between Forethought Inc and Microsoft – why it came about, how Apple missed out, and the eventual closing of the deal which netted Forethought $14 million in cash.
Robert picks up the story …
The First Offer
“We did our launch event for PowerPoint on 22 February 1987, two months before our planned ship date. Five days later, we got a completely unexpected Microsoft offer for PowerPoint.
Bill Gates told us that Microsoft would definitely be in the presentation market one way or another, and wanted PowerPoint as the best product.
He wanted to do an acquisition of our product for cash, immediately. Developers would stay in Sunnyvale and work remotely, at least initially; all other functions would be handled in Redmond.
Three weeks later, 13 March 1987, we had dinner in Silicon Valley with Jon Shirley (the President of Microsoft) and Jeff Raikes (head of Applications marketing). They repeated a similar offer, with more details. They told us they were working on a business plan to develop a presentation product internally, and already had people assigned to it; but they wanted to accelerate their work by acquiring a product.
They offered $5.3 million to the investors, plus incentives to the developers. They were interested only in PowerPoint; they said that they expected that our [Forethought Inc] other big product, FileMaker Plus for Mac, would not be popular on Windows.
This offer seemed a positive vote of confidence in PowerPoint, but the rest of the terms weren’t so attractive; the amount of money offered would not have provided much return for our investors. Also, we had received two other serious offers of acquisition in the preceding week.
Shipping PowerPoint & Offer #2
We decided to sit tight and ship PowerPoint before taking any other step. Other possibilities were swirling around. A potential underwriter for our doing an IPO, Baer & Co., had scheduled a meeting with us. The final details of the PowerPoint software continued to come together on schedule, thanks to calmly heroic efforts by Dennis Austin (head of software design and development for PowerPoint) and Tom Rudkin (headed up the work on a future Windows version of what was being designed and implemented first for Macintosh), who were doing the development.
After that we continued to get a trickle of offers from Microsoft, usually each one better than the last, but with a changing profile of complications from one offer to the next. There was clearly some improvisation going on.
On Tuesday 28 April 1987, just about a week after shipping, we spent a whole day entertaining a Microsoft delegation at Forethought. There was a discussion about the acquisition structure. The Microsoft group had thought about it a lot more than we had and suggested three models:
A “development center” – just developers working remotely and visiting Redmond often to liaise.
A “product center” – with program management doing product specification, plus development, documentation, and testing
A “business center” – an independent business unit.
Their preference was (2), a product center, with marketing and everything else consolidated in Redmond. In any of the three choices, the developers would remain in Silicon Valley.
On 13 May 1987, after time for legal review, Microsoft faxed us a formal letter of intent.
The amount of this offer was 100,000 shares of MSFT stock, worth about $12 million at the time.
Microsoft stock was 6x since the IPO a year earlier. That was more than twice the amount offered on the 13th of March, two months earlier (pre-shipping), so we’d made progress in raising the price.
Some of the details in the letter of intent were surprising. Unlike the discussion we had just held at Forethought, the entire business now was to be completely relocated to Redmond, including development, with nothing left in California. Key personnel, to be named (but certainly including all the senior developers and me), would be required to agree to relocate to Redmond as a condition of the deal.
Also, there was a command performance: “An essential part of the technical and due diligence investigation will be Bill Gates’ meeting with Bob Gaskins of Forethought during the week of May 18 or as soon thereafter as possible … .”
I was the only person named in the letter of intent as requiring such vetting.
Multiple Offers – Apple, Borland & Xerox
We held our Annual Meeting of the Forethought Board of Directors on 10 June 1987. We discussed all the acquisition offers. First was Microsoft. I had previously prepared a written recommendation to the Board that we should pursue the acquisition by Microsoft. At the same meeting we considered acquisition offers from Apple (no offer finalized), Ansa (to merge for an IPO in the fall, to be done by Alex. Brown at a $75 million value), a “firm” offer from Borland to acquire Forethought for $18 million in cash, with action absolutely guaranteed within the week (never happened), and an immensely complex offer from Xerox (after hours of negotiations) for exclusive sales rights to PowerPoint, for which they would pay something above $18 million. The meeting ended with a summary of the agreed directions to management: “Our real agenda is to get a clean, high offer from Microsoft.”
And on Microsoft, the specific direction was: contact Microsoft immediately and see if it were possible to get a deal which was higher in value and with fewer complications. If so, accept it. If not, then get in touch with Dave Marquardt (the venture capital investor who served on Microsoft’s board) and connect him to our VC investors to continue negotiations.
The call to Microsoft resulted in a further offer which was different, but not one which was cleaner. Now the offer was to make us a “product/marketing center,” which would include development and limited marketing in Silicon Valley, for a total of 15–20 people. All else, including again all sales, would be in Redmond. The price was upped to a maximum of $15 million, but computed as a $9 million base plus a “royalty” of $75 per unit of Mac product shipped for eight months, and further bonuses for releasing Windows and OS/2 versions by agreed dates. The new offer, however, was for cash rather than MSFT stock, overcoming one hesitation of our investors.
The prospect of remaining in Silicon Valley was good, but the new idea of “royalties” seemed unnecessarily complex.
We moved on to the plan of trying to make progress through negotiations between the VCs for the two companies – Phil Lamoreaux met Dave Marquardt. His pitch was that the VCs who had invested in Forethought were interested to conclude the Microsoft offer and were able to make it happen, but (1) the offer was a little light and (2) the structure could be improved. The aim was closure, fairly quickly.
Marquardt volunteered that it was a “make vs. buy” decision for Microsoft, and they had concluded that they had to buy. They had looked at three companies, and we were the only ones left on their list, so they were also motivated to close. Marquardt would ask Jon Shirley the following day, 22 June 1987, to get involved and try to get closure within a week.
Closing the Deal with Microsoft
And three days later, Thursday, 25 June 1987, about 11:30 a.m., we got the word: Microsoft had agreed to a very clean deal, at a price of $14 million in cash. Jon Shirley said that he considered the acquisition a firm deal, subject to due diligence in the areas of accounting, legal, and technical. Contrary to previous offers, we were to be a permanent installation in California, and we would be a “Business Unit,” the first such group in the Apps Division, comparable to a few similar, self-contained organizations that already existed in the Systems Division.
As part of the Applications Division, we would report to Bill Gates as Acting VP of Applications. The transaction would be for a flat $14 million in cash, plus possibly some incentives to be defined for our employees joining Microsoft. Everyone at Forethought who would not be part of the PowerPoint Business Unit would be offered a suitable job with Microsoft in Redmond or in local field offices, or outplaced with severance, and Microsoft wanted to “go the extra mile” to be sure everyone was treated well.
We had the internal announcement at Forethought on Thursday, 9 July 1987, at 3:00 p.m. Jon Shirley and Jeff Raikes came down to be there in person. It impressed me that Jon was willing to go to so much trouble to make a brief appearance before all our people.
Joining the Microsoft family
I had dealt with Jon Shirley fairly often in the past, going back to 1983, and had always been particularly impressed by his intelligence and plain speaking. His talk on this occasion was simple and convincing, nothing canned or pompous, and very thoughtfully aimed at precisely the concerns of the Forethought people who were hearing about this, as a fact rather than a rumour, for the first time.
Jon began by saying that this was the “first major acquisition by Microsoft.” What they were looking for were great products, great people, and complementary visions, and Forethought met all three criteria.
He went on to say that PowerPoint was “not only great, but [was] a pioneering product— a major new category, a leadership product.” (I did think how much easier the preceding three years would have been if I had had that quote available to use at the beginning of the project.)
Jon said a lot of things that reassured even me. Microsoft wanted to build up a real team, here, to do graphics products. The location in Silicon Valley was important to them; not all the best people in the world could be hired in Redmond. It would be important for Microsoft to have other development centers in other locations, and this was the first. A year from now, there would be more people in the GBU than were in all of Forethought at the acquisition; within a year, we would need to move to a larger building in our area. (This specific detail confirmed to me that the “permanent unit” plan was true.)
The major assets of Microsoft were people, and the aim was to place all of Forethought’s people within Microsoft; they had “never laid off a person at Microsoft.”
Jeff Raikes stressed that we would be first-class citizens of Microsoft, even though residing in a distant part of the empire, with all the same advantages as people in Redmond: private enclosed offices for everyone, worldwide email access (a rare perquisite in 1987), all the lavish company benefits, and we would all attend the next company meeting in Seattle in October (this was true, and most impressive).
Right product, right place, right time
So, we had been fortunate to launch our PowerPoint product just at the same moment that Microsoft had become convinced that they needed essentially the same product, and when they were looking for an acquisition to substitute for their initial internal development plans. Bill’s initial thoughts on price (prior to our ship) had been about $5 million in MSFT stock, but after a very successful ship (we sold out our entire initial manufacturing run on the first day) and glowing reviews, we managed to get a valuation of three times that much (and in cash) which made the deal attractive to our long-term VC investors.
The best feature of the outcome was the comparative autonomy of the group in the first five years following the acquisition by Microsoft. Because we had been a fully functioning stand-alone company for a long time, and had more than one shipping product, it had seemed plausible (and to us seemed an achievable negotiating position) to make us the first “Business Unit” within Microsoft’s Applications Division, and to allow us to continue independently. If we had been mostly just a handful of developers, it might have been a non-negotiable and obvious move to just insert us into some existing organization in Redmond.
It was our gaining five more years of real independence, with all the clout and resources of Microsoft at our backs, that enabled us to equip PowerPoint for long-term success even beyond its original uses.
I had recommended no conditions on a deal, but I had privately hoped we could end up staying in Silicon Valley rather than moving to Redmond. To be part of Microsoft would be bliss, but to be part of Microsoft and yet be able to stay in San Francisco would be very heaven.
If we could avoid forced relocation, things would be perfect. Somehow, it worked out. I used to joke, afterward, that the whole dramatic struggle of Forethought and the whole acquisition had been merely an elaborate scheme that I used in order to get a job with Microsoft without having to move to Seattle.”