The 1995 Blog

1995: The year the future began

Recalling Bill Gates’ ‘Internet Tidal Wave’ memo, seminal document of the unfolding digital age

Internet Tidal Wave memo_1995Twenty-five years ago tomorrow, Bill Gates sent a lengthy internal memorandum to senior staff at Microsoft Corporation, declaring the internet “a tidal wave” that “changes the rules.” It was a seminal document of the early online era that figured in shaping the digital landscape of the second half of the 1990s and beyond.

The memorandum also confirmed that Gates and Microsoft were late in recognizing the promise of the internet and helped prod the software giant to confront the swaggering upstart, Netscape Communications Corporation, maker of an eponymous and highly popular web browser.

The memorandum was dated May 26, 1995, and bore the title, “The Internet Tidal Wave.” It surfaced a few years later in the U.S. government’s antitrust lawsuit that accused the software giant of uncompetitive practices in taking on and vanquishing Netscape in the “browser war” that began later in 1995.

“The Internet Tidal Wave” has been called “an epic manifesto of sorts,” but it embraced many of the themes that had been reverberating for months in Silicon Valley. Not only was the memorandum an acknowledgement that Microsoft needed to move quickly to catch up, it confirmed that Gates’ earlier thinking about the internet had been decidedly off-target.

As I noted in my book, 1995: The Year the Future Began, Gates “mistakenly thought the Internet was just a precursor to some sort of elaborate, multidimensional information superhighway. Gates said as much in his 1995 book, The Road Ahead.

Andreessen in mid-1990s

“But as Netscape’s browser demonstrated, the Web was becoming the information superhighway,” I wrote in 1995. “And the browser’s potential as a platform for software applications represented an undeniable threat to Microsoft’s Windows operating system.” Marc Andreessen, the young co-founder of Netscape who sometimes was called the “next Bill Gates,” supposedly boasted that Netscape would reduce Microsoft’s Windows operating system to a mundane set of poorly debugged device drivers.

When Netscape was founded in 1994, according to one of its principals, Jon Mittelhauser, “Microsoft didn’t even know what a web browser was, really.”

About Netscape, Gates declared in the memorandum: “We have to match and beat their offerings ….”

More broadly, the “Tidal Wave” memorandum also represents an intriguing and rather detailed assessment of the state of the internet, and its emerging capabilities, in 1995.

“I have gone through several stages of increasing my views of its importance,” Gates wrote of the internet, adding:

“Now I assign the Internet the highest level of importance. In this memo I want to make clear that our focus on the Internet is crucial to every part of our business. The Internet is the most important single development to come along since the IBM PC was introduced in 1981.”

Gates pointed out how little Microsoft content was then available on the World Wide Web. “Browsing the Web, you find almost no Microsoft file formats,” Gates wrote. “After 10 hours of browsing, I had not seen a single Word .DOC, AVI file, Windows .EXE (other than content viewers), or other Microsoft file format. I did see a great number of [Apple] Quicktime files. All of the movie studios use them to offer film trailers.”

He also wrote: “Amazingly it is easier to find information on the Web than it is to find information on the Microsoft Corporate Network.”

Gates identified an important aspect of the Web, one that was recognizable even 25 years ago, during its emergence into mainstream consciousness. “It has enough users that it is benefiting from the positive feedback loop of the more users it gets, the more content it gets, and the more content it gets, the more users it gets,” he wrote. “I encourage everyone on the executive staff and their direct reports to use the Internet.”

Gates referred to Netscape as a “new competitor ‘born’ on the Internet” whose Web browser “is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. … They have attracted a number of public network operators to use their platform to offer information and directory services.

In the memorandum’s closing paragraph, Gates told his executives:

“The Internet is a tidal wave. It changes the rules. It is an incredible opportunity as well as incredible challenge I am looking forward to your input on how we can improve our strategy to continue our track record of incredible success.”

Of course it did not significantly alter antitrust laws, which a federal court found that Microsoft had violated in taking on Netscape during the second half of the 1990s.

The federal government in 1998 brought an antitrust lawsuit against Microsoft, claiming the company had engaged in an anticompetitive practices by bundling its web browser, Internet Explorer, with Windows 95 operating software. Doing so placed Netscape at a competitive disadvantage, as the government charged and a federal judge agreed.

As Mittelhauser noted years later, “the only way you ran software back then was using Microsoft Windows,” and Microsoft “started bundling it and deeply integrating it with the operating system in ways that other folks like us couldn’t, and there was basically no way to compete against that.”

The ruling against Microsoft came in April 2000 — too late to save Netscape. By then, the trajectory of its meteoric rise and fall had been completed: Netscape had decisively lost the “browser war” and in November 1998 was acquired by America Online.

[Adapted with new material from an essay posted May 24, 2015, at The 1995 Blog]


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