Ending the Paper Chase

By THOMAS MCCARROLL/REDMOND

There is plenty of clutter in the spacious office of William Gates. Overlooking a 260-acre campus dotted with magnificent fir trees, the room contains a forest of paper. His desk is completely covered by scattered piles of documents; next to it the matching beige credenza is buried under small mountains of loose letters, memos and newspaper clips. Even the floors are littered with the stuff. But if the co-founder and chief executive of computer-software powerhouse Microsoft has his way, this pulp potpourri will soon recede. "I don't want to get rid of all paper," says Gates in his Redmond, Washington, headquarters. "I just don't think we should proliferate it by passing it around."

This week America's richest and most famous computer nerd will unveil his latest venture: an office software system that could connect computers, phones, copiers, fax machines and printers into a seamless digital web, thus permitting them to exchange information and circulate documents electronically. The system -- based on Microsoft's wildly successful Windows software -- could lead to a new wave of advanced office machines that would, for example, allow someone to write a memo and instantly send it to the computer screens of his staff members, the photocopier down the hall, his boss's printer, and the fax machines and computers of his division managers around the world.

Microsoft is only a software maker, of course, and the linchpin of Gates' strategy is getting the manufacturers of these machines to modify them so they will run his new programs. Judging by the blue-chip companies that will be sharing the dais with him when he unveils his system this week at the Hotel Macklowe in midtown Manhattan -- Hewlett-Packard, Ricoh, Compaq Computer, Minolta, McCaw Cellular, Canon, NEC and Northern Telecom -- he seems to have made remarkable progress. Says Paul Saffo, a research fellow at the Institute for the Future: "This may not be it, but it is one more step toward the Holy Grail of the paperless office."

This is not the first time a successful high-tech company has tried to fully automate the contemporary office. Xerox tried during the 1960s and '70s using networks of word processors, printers, telephones and copiers. After losing a bundle, a humbled Xerox staged a full retreat back to paper and ink, and now calls itself "the Document Company." Another office-of-the-future hopeful, Wang Laboratories, recently placed a huge bet on expensive paper-scanning and imaging systems to stamp out paper. Customers balked, Wang abandoned the office-equipment business and filed for bankruptcy last year. IBM also tried and failed, as did oil giant Exxon, which ended up selling off its office- automation division in 1984 after investing more than $2 billion in it. Microsoft could be next, warns Richard Shaffer, editor of ComputerLetter. "Here's yet another company pursuing the elusive dream of the paperless office," he says. "It might also be in for a rude awakening."

If anyone can pull it off, however, it may be Bill Gates. A Harvard dropout who parlayed a single computer program into a software empire, Gates, 37, is the most powerful -- and most feared -- person in the industry. With a personal net worth of $7 billion, he is the richest self-made billionaire in history and was, until recently, the most eligible bachelor in America (last month he became engaged to Melinda French, 28, a midlevel executive in charge of Microsoft's desktop-publishing business). Though Gates is famous for his lack of pretension, his habit of flying in coach class and his easy accessibility, he can also be brash, imperious and brutally blunt. He has been known to publicly dress down his managers, and more than once has reduced fresh-out-of-college employees to near tears by berating their thoughtful presentations at staff meetings with such withering lines as, "That's the dumbest idea I've ever heard of in my life!"

Despite his frail frame, Gates has plenty of muscle. The company he co- founded, Microsoft, accounts for nearly 40% of the PC software industry's revenues of $8 billion and commands 90% of the crucial market for system- control software. Microsoft's disk operating system, known as MS-DOS, is now installed on about 60 million IBM-compatible personal computers, or 75% of all the PCs in the world. Competitors claim Microsoft abuses its market power, but the company was cleared of all antitrust charges in a Federal Trade Commission probe in February. Last week a federal judge dismissed Apple's $5.5 billion copyright-infringement lawsuit against Microsoft as well.

The key to Microsoft's office-automation strategy, however, is the operating system known as Windows, the follow-on program to DOS. Introduced in 1985, Windows makes PCs easier to use by replacing the arcane written commands of DOS with friendly pictorial instructions, called icons. Microsoft has sold more than 25 million copies of Windows, which ranks second only to DOS in total sales. Last month the company launched Windows NT, a program designed to allow office computers to be linked together.

With its announcement this week, Microsoft seeks to extend Windows beyond desktop personal computers to telephones, copiers, printers and fax machines. Since these markets dwarf the PC business, the company stands to collect enormous revenues by licensing its software design to office-equipment vendors that will make the new machines that run the Microsoft At Work system. The combined sales of copiers, printers, telephones and fax machines, for instance, topped $60 billion last year, in contrast to $38 billion for PCs. Analysts project that Microsoft could generate at least $200 million in royalties from those licenses by the year 2001. While some devices will be rolled out within six months, most won't be on the market for at least another year.

The potential risks are enormous too. "We're putting our name and reputation on the line here," concedes Gates. "If we don't pull this off, it could jeopardize our future initiatives." Previous office-automation efforts failed, largely because customers did not want to be wedded to one vendor's hardware. Although the Microsoft system will let users mix and match printers, copiers, phones and faxes of competing manufacturers, some customers will be reluctant to dispose of their existing hardware and invest in expensive new gear.

Says Shaffer: "There's going to be plenty of resistance. Many will see this as yet another part of the computer industry that is being turned over to Microsoft." He adds, however, that Microsoft's sheer power carries a certain cachet: equipment vendors may jump on board to avoid being left behind. "Microsoft now fills the bully role once played by IBM," he says. "It is taking the lead and hopes everybody will be too intimidated not to follow."

Gates, as usual, radiates infectious confidence, in spite of the fact that the office battlefield is littered with some of the mightiest names in corporate America. "The probability of success is extremely high," he says flatly, with the confidence of a man who has made a great deal of money betting on the right technology. "Otherwise, I wouldn't do it."