High Stakes by Charles Ferguson

HIGH STAKES, NO PRISONERS, by Charles Ferguson, (1999. Random House. 392 pages, incl. notes and detailed index.) Review by Andreas Ramos, Palo Alto.

Charles Ferguson, the author of High Stakes, was under a nondisclosure order from Microsoft for two years, which expired in 1999. Small wonder Microsoft wanted a five-year gag order. When they read this book, they'll regret they didn't get a ten-year gag order.

Charles Ferguson has a degree in mathematics from Berkeley and a Ph.D. from MIT in sociology. He worked as an semi-conductor industry analyst and later with Oracle, Apple, and other Fortune 500 clients. In the early 90s, he got the idea for a information publishing tool that later, as the web arose, developed into a web page editor and publishing software. He started Vermeer to develop the tool, played Netscape and Microsoft off against each other, and sold his company to Microsoft for $130 million, enriching himself and his team of engineers. High Stakes describes these events.

High Stakes is actually three different books. First, it's an account of how he built the company, the strategy that went into developing the software, and how software depends on a number of teams and projects. This is a handbook for anyone who is planning a startup. Ferguson talked to several dozen venture capital (VC) firms to secure funding for his company. In many cases, VCs were ignorant about technology. He talked to CEO candidates and describes his failure in the one who was CEO of his company. The CEO was only interested in increasing his personal wealth, even to the point of screwing the employees out of their money. He names and describes quite a few people. He describes how well-known law firms made strategic blunders that cost millions of dollars. He also describes many of the pitfalls in stock options. VCs and the board can revoke stock options at any time, so that loyal employees who have made enormous contributions can be literally stripped of their stocks. Steve Jobs did this to the engineers at Pixar. He also describes how analyst white papers are based on bribes.

The book is also a history of the web from 1994-98. In that time, the web arose and Jim Clark found Marc Andreesen and started Netscape. It was a bit by coincidence that they decided to make a browser instead of their original project. Prodigy, Compuserve, AOL, and MSN struggle with the web and only AOL survives. Microsoft almost by chance became aware of the web and embarked on their corporate restructuring. Gates' understanding of the technical and marketing aspects is not a trivial matter: Ferguson describes countless CEOs, VPs, and corporate board members at other companies who are either wholly ignorant about technology or simply don't care about their own corporations. He also writes about the George Gilder/SUN/Wired/Netscape/Forbes ASAP/Marc Andreesen hype club. Ferguson describes the market forces, the leaps in technology, and the main players.

The book is also a set of analyst papers and case studies. Netscape made severe mistakes on several levels. Jim Clark and John Doerr made a fatal decision in hiring Jim Barksdale, affable but technically ignorant and uninterested in the company. Barksdale did not develop a technical strategy and left technology to the engineers. That was a serious mistake: the engineers were led by Marc Andreesen, Chief Technical Officer (CTO), who was twenty-two years old and had never held a real job. He had no idea how to develop a major engineering project and the result was a student hacker team that produced spaghetti code. This crippled future versions of Netscape. In marketing strategy, Netscape also blundered by wasting resources on Java (a failed project that consumed half of the engineering staff), UNIX versions (for a miniscule, fractured market), and Macintosh (another minor market) instead of pursuing the Windows platform. Netscape had no marketing or distribution strategy. Netscape also was unable to work with outside developers, partners, and other groups. In short, Netscape was unable to develop a viable corporate structure to develop and distribute a product that could compete on the market. It was at heart just a freeware program.

Microsoft is also analysed. Ferguson describes in detail the meetings with Microsoft, the negotiations, and how Microsoft relentlessly entered the web market in order to seize it. He discusses Microsoft's role in the computer market in general and how this affects other companies. He also discusses why SUN, Apple, SGI, and others want to stop Microsoft: they want to preserve their proprietary systems in which they once made huge profits, in effect, their own mini-monopolies. Apple and SGI have been effectively pushed out of the market; SUN has only a few years left. Microsoft has social and economic costs as well. He discusses the anti-trust efforts of the Justice Department and the FTC, along with personal descriptions of the key people, and their strategic shortcomings and failures. The Antitrust division has 350 lawyers and not a single technically-competent person. Finally, he considers various options for breaking up Microsoft.

Ferguson's last chapter covers a monopoly that is much worse, that has zero innovation, and is a major impediment to internet development. Yes, telecommunications. They have local market monopolies and no incentive to improve. They are very good at bribing industry analysts to prevent further antimonopoly action.

Quite a few people are going to look at the index to see if they're in there and what Ferguson says about them. Ferguson has enough millions that he doesn't care if he can't eat lunch in Palo Alto anymore; he'll just buy his own restaurant. Some of his personal descriptions of people are very funny (Larry Ellison: "a seriously random number.") Ferguson is not without fault himself; at times, his excessive paranoia and lack of tact get him into bad situations and he often remains there because of his abrasive personality. However, he's bright, articulate, and perceptive about the industry.

The book is essential for MBAs, VCs, startup founders, those at the director-level and board-level, and those who work in Silicon Valley. The last three chapters alone (the case studies of Netscape, Microsoft, and telecommunications) will serve as the blueprint for many startups.

There have been some reviews of this book, but reviewers who aren't technical or don't understand the computer industry will not understand the book. They focus on the zingers, the funny stories, and so on. Po Bronson and Michael Lewis also have books on the market at the moment: both of them are journalists who are trying to write a topical interest book. Lots of nutty stories, but neither of them are technical nor understand the market.