By 1990, Microsoft owned the ground beneath every PC. MS-DOS ran the machines, and Windows 3.0 had just turned the graphical desktop into a mainstream hit. But there was a different kingdom Microsoft did not yet rule: the software people actually opened once the computer booted. The spreadsheet on every accountant's screen was Lotus 1-2-3. The document on every secretary's desk was WordPerfect. Those two programs were so dominant that, for most office workers, they simply were the personal computer.
Microsoft wanted that kingdom. And it would take it not with a single better product, but with a bundle — and with impeccable timing.
The incumbents who owned DOS
Lotus 1-2-3, released in January 1983, was the first true "killer app" of the IBM PC. It was fast, it was reliable, and it sold IBM machines by the truckload to businesses that needed to crunch numbers. Throughout the 1980s it was simply the standard; a spreadsheet meant 1-2-3. WordPerfect, out of a small company in Orem, Utah, had done the same thing to word processing, dethroning the earlier leader WordStar with a clean screen and a feature list serious writers loved. By the end of the decade WordPerfect was the market leader, its blue editing screen a fixture in law firms and newsrooms everywhere.
Microsoft had entries in both races, but they were also-rans on DOS. Its real advantage was that its applications had been built, from early on, for the graphical world. Excel launched on the Macintosh in 1985 and reached Windows in 1987. Word for Windows arrived in 1989. PowerPoint came in through an acquisition: in 1987 Microsoft bought Forethought, the small California company whose presentation program it was — the first time Microsoft had swallowed a company to fill a gap in its lineup. Individually, none of these had toppled the DOS champions. Together, and pointed at Windows, they would.
One box, three programs, one price
The idea was almost boringly simple: sell the applications together. Microsoft had tried the concept first on the Macintosh in 1989, and on October 1, 1990 — barely four months after the Windows 3.0 launch — it shipped The Microsoft Office for Windows. Inside were Word 1.1, Excel 2.1, and PowerPoint 2.0, three programs in one box for a single price well below the cost of buying rival products one at a time.
That pricing was the whole strategy. A business that needed to write documents and build spreadsheets would otherwise buy WordPerfect and Lotus 1-2-3 — two separate purchases from two separate companies. Office offered both, plus a presentation tool nobody had thought to bundle, for less than the pair. For a corporate buyer outfitting hundreds of desks, the math was brutal and obvious. And because all three programs came from the same company, they started to look and work alike: the same menus, the same shortcuts, the same way of copying a chart from the spreadsheet into the memo.
Caught on the wrong side of the screen
The bundle might not have mattered so much if the timing had been different. But Lotus and WordPerfect had made the same bet, and it was the wrong one. They had grown up on DOS, their fortunes tied to that blinking prompt, and they were slow — fatally slow — to move to Windows. When Windows 3.0 exploded into millions of homes and offices in 1990, Microsoft's Office was already there, native and polished. The Windows versions of 1-2-3 and WordPerfect arrived late and, at first, rough, chasing a platform their rivals had helped design.
Competitors muttered that Microsoft's applications group enjoyed an unfair edge — that living under the same roof as the Windows team gave it secret knowledge of how the operating system worked. Microsoft insisted a wall separated the two, and the darkest version of the accusation was always more industry folklore than proven fact. But the simpler truth was hard to argue with: Microsoft had bet on the graphical future early, bundled its bets together, and priced them to win.
The results were a rout. WordPerfect Corporation, the proud leader of the 1980s, was sold to Novell in 1994 and then passed on to Corel two years later, a fraction of its former self. Lotus was swallowed by IBM in a $3.5 billion takeover in 1995, its once-untouchable spreadsheet fading into history. By the mid-1990s the questions "which spreadsheet?" and "which word processor?" had collapsed into a single answer: Microsoft Office. The suite that started as a discount bundle had become the default furniture of working life — and one of the most profitable products in the history of software.
Next time: Microsoft and IBM's partnership finally shatters, and the two giants go to war over the future of the operating system.
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