One question from Warren Buffett made Bill Gates completely rethink Microsoft

pulse

February 7, 2017 7:17 PM

At a January event to celebrate 25 years of friendship, Bill Gates revealed that a question from Warren Buffett helped make Microsoft a powerhouse of the '90s.

Warren Buffett and Bill Gates.

A small tech company launched in Albuquerque, New Mexico, might never have become Microsoft, the global giant, if not for a question Warren Buffett posed to Bill Gates in the early 1990s.

In a January conversation between the billionaire philanthropists to celebrate 25 years of friendship, moderator Charlie Rose asked each what surprised him the most about the other. Gates eagerly fielded the question.

"One of the first questions he asked me was, 'Hey, Microsoft is a small company, IBM is this huge company, why can you do better? Why can't they beat you at the software game that you're playing?'" Gates told the audience at Columbia University.

That was in the early 1990s, several years before Microsoft hit its peak as the largest company on the planet. (Adjusted for inflation, the company's 1999 valuation of $613 billion eclipsed Apple's market value in 2014 by about $200 billion.)

Throughout those early years, Gates and his cofounder, Paul Allen, spent much of their time thinking about how to make the software as good as it could be. No one had really thought to focus on gaining a competitive edge in the market.

Gates started incorporating the idea into his thought process.

"Every day I was thinking about, 'OK, what advantage do we have? What do we do?'" he said.

Throughout most of the 1990s, Microsoft gained its edge over competitors through easy-to-use interfaces in home computers, notably with its Windows operating system. It began tapping into a base of nontechnical customers that other companies largely ignored. And by 1995, Gates alerted Microsoft employees to the incoming "internet tidal wave," as his internal memo dubbed it, setting the company on course to dominate how people would surf the web for years to come.

He and Buffett, a businessman 25 years Gates' senior, also began talking more about the ways finance related to the technology industry Gates was building with Microsoft.

"I didn't understand banking — why some get ahead and some don't," Gates said. "And so I found somebody whose model was rich enough that it helped me understand things that I really wanted to know, and we could laugh about things that were a surprise to us."

Even today, Gates said, his relationship with Buffett is built on curiosity — though Gates is often the one doing the probing.

"I'd say his humility and his sense of humor really stood out in this incredible way," Gates said. "I mean, he enjoys what he does, and he shares that with other people. And even when I ask questions that are pretty naive that he's probably been asked 50 times, he's very nice about it."

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