High Stakes

andreas.com FAQ: Highstakes

HIGH STAKES, NO PRISONERS, by Charles Ferguson, (1999. Random House. 392pages, 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. fromMIT in sociology. He worked as an semi-conductor industry analyst and laterwith Oracle, Apple, and other Fortune 500 clients. In the early 90s, he gotthe idea for a information publishing tool that later, as the web arose,developed into a web page editor and publishing software. He started Vermeerto develop the tool, played Netscape and Microsoft off against each other,and sold his company to Microsoft for $130 million, enriching himself andhis team of engineers. High Stakes describes these events.

High Stakes is actually three different books. First, it’s an account of howhe built the company, the strategy that went into developing the software,and how software depends on a number of teams and projects. This is ahandbook for anyone who is planning a startup. Ferguson talked to severaldozen venture capital (VC) firms to secure funding for his company. In manycases, VCs were ignorant about technology. He talked to CEO candidates anddescribes his failure in the one who was CEO of his company. The CEO wasonly interested in increasing his personal wealth, even to the point ofscrewing the employees out of their money. He names and describes quite afew people. He describes how well-known law firms made strategic blundersthat cost millions of dollars. He also describes many of the pitfalls instock options. VCs and the board can revoke stock options at any time, sothat loyal employees who have made enormous contributions can be literallystripped of their stocks. Steve Jobs did this to the engineers at Pixar. Healso 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 webarose and Jim Clark found Marc Andreesen and started Netscape. It was a bitby coincidence that they decided to make a browser instead of their originalproject. Prodigy, Compuserve, AOL, and MSN struggle with the web and onlyAOL survives. Microsoft almost by chance became aware of the web andembarked on their corporate restructuring. Gates’ understanding of thetechnical and marketing aspects is not a trivial matter: Ferguson describescountless CEOs, VPs, and corporate board members at other companies who areeither wholly ignorant about technology or simply don’t care about their owncorporations. He also writes about the GeorgeGilder/SUN/Wired/Netscape/Forbes ASAP/Marc Andreesen hype club. Fergusondescribes the market forces, the leaps in technology, and the main players.

The book is also a set of analyst papers and case studies. Netscape madesevere mistakes on several levels. Jim Clark and John Doerr made a fataldecision in hiring Jim Barksdale, affable but technically ignorant anduninterested in the company. Barksdale did not develop a technical strategyand left technology to the engineers. That was a serious mistake: theengineers were led by Marc Andreesen, Chief Technical Officer (CTO), who wastwenty-two years old and had never held a real job. He had no idea how todevelop a major engineering project and the result was a student hacker teamthat produced spaghetti code. This crippled future versions of Netscape. Inmarketing strategy, Netscape also blundered by wasting resources on Java (afailed 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 ordistribution strategy. Netscape also was unable to work with outsidedevelopers, partners, and other groups. In short, Netscape was unable todevelop a viable corporate structure to develop and distribute a productthat could compete on the market. It was at heart just a freeware program.

Microsoft is also analysed. Ferguson describes in detail the meetings withMicrosoft, the negotiations, and how Microsoft relentlessly entered the webmarket in order to seize it. He discusses Microsoft’s role in the computermarket in general and how this affects other companies. He also discusseswhy SUN, Apple, SGI, and others want to stop Microsoft: they want topreserve their proprietary systems in which they once made huge profits, ineffect, their own mini-monopolies. Apple and SGI have been effectivelypushed out of the market; SUN has only a few years left. Microsoft hassocial and economic costs as well. He discusses the anti-trust efforts ofthe Justice Department and the FTC, along with personal descriptions of thekey people, and their strategic shortcomings and failures. The Antitrustdivision 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 zeroinnovation, and is a major impediment to internet development. Yes,telecommunications. They have local market monopolies and no incentive toimprove. They are very good at bribing industry analysts to prevent furtherantimonopoly action.

Quite a few people are going to look at the index to see if they’re in thereand what Ferguson says about them. Ferguson has enough millions that hedoesn’t care if he can’t eat lunch in Palo Alto anymore; he’ll just buy hisown restaurant. Some of his personal descriptions of people are very funny(Larry Ellison: “a seriously random number.”) Ferguson is not without faulthimself; at times, his excessive paranoia and lack of tact get him into badsituations 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 thedirector-level and board-level, and those who work in Silicon Valley. Thelast three chapters alone (the case studies of Netscape, Microsoft, andtelecommunications) will serve as the blueprint for many startups.

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

(c) Andreas Ramos 1999. You may distribute this in part or in whole towhomever you please. Please copy.