Gates opens by escalating the internet’s importance in his own thinking, declaring it “the most important single development to come along since the IBM PC was introduced in 1981” — more important, in his estimation, than even the graphical user interface. He directs that the internet receive the highest level of priority across every part of the business and instructs that every product plan “go overboard on Internet features.”
Much of the memo is devoted to a sharp competitive assessment. Gates identifies Netscape, then commanding roughly 70% browser share, as the central threat—not merely as a rival product but as a strategic attempt to move key APIs into the browser and commoditise the underlying operating system. He flags Sun’s Java project as a parallel effort to route around Windows, and surveys threats from Novell (directory services), Lotus, IBM, Apple, SGI, and Adobe (whose PDF format had quietly become a web standard). A striking passage records Gates’ observation that after ten hours of browsing the web, he had encountered virtually no Microsoft file formats, but plenty of QuickTime and PDF.
The bulk of the memo is unusually operational. Gates lays out seven numbered directives for the Platform group covering servers, the client browser (then codenamed “O’Hare,” shortly to ship as Internet Explorer), file and window sharing, forms and languages, search, file formats, and developer tools. Five additional directives for the Applications and Content group address Office, MSN, Consumer titles, broadband applications, and electronic commerce. The directives are concrete: bundle the browser into Windows 95 itself, push OEMs to preinstall it, beat Netscape’s server offerings, integrate online and CD-ROM strategies, and reconsider MSN’s positioning given that, as Gates concedes, “the on-line services business and the Internet have merged’ — a development that might require making MSN “very, very inexpensive — perhaps free.”
The memo also reflects mid-1990s technical assumptions that have aged in interesting ways. Gates discusses 14.4k and 28.8k modems, ISDN, cable modems, and ATM backbones; predicts that quality-of-service guarantees will eventually solve real-time audio and video; and treats the convergence of CD-ROM, online services, and the internet as an open strategic question.
In retrospect, “The Internet Tidal Wave” is notable both for what Gates saw clearly—the internet’s centrality, the threat of browser-based commoditization, the merger of online services with the open web—and for the tactical aggressiveness of the response it set in motion. The bundling strategy it called for would, within a few years, place Microsoft at the center of the United States v. Microsoft antitrust case, making the memo a key document not only in the company’s commercial history but in its legal one as well.
“The Internet is a tidal wave. It changes the rules. It is an incredible opportunity as well as incredible challenge.”
— Bill Gates Primary source“The Internet is the most important single development to come along since the IBM PC was introduced in 1981.”
— Bill Gates Primary source“Most important is that the Internet has bootstrapped itself as a place to publish content. 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.”
— Bill Gates Primary source“Amazingly it is easier to find information on the Web than it is to find information on the Microsoft Corporate Network.”
— Bill Gates Primary source“A new competitor ‘born’ on the Internet is Netscape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. They are pursuing a multi-platform strategy where they move the key API into the client to commoditize the underlying operating system.”
— Bill Gates Primary source• Title: The Internet Tidal Wave
• Author: Bill Gates
• Type: Report
• Publisher: n/a
• Publication time: May 26, 1995
• Publication place: n/a