Season 2, Episode 7: PowerPoint


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Acquired returns with a classic, delving into Microsoft’s first acquisition ever: Forethought Inc, the makers of PowerPoint. Hate it or love it, you can’t deny the combined companies’ impact: by the early 90’s PowerPoint had transformed the way businesses, educators and governments communicate, ensuring job security for pointy-haired Dilbert bosses everywhere!


Carve Outs:


  • Thanks to Perkins Coie, Counsel to Great Companies, for sponsoring Acquired Season 2. You can get in touch with Gina Eiben, who you heard at the beginning of this podcast, here.

Full Transcript below: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: 00:00:32 Welcome to season two, episode seven of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

David: 00:00:40 I'm David Rosenthal.

Ben: 00:00:42 And we are your hosts. Today we are digging into the historical archives to cover the acquisition of a company you've probably never heard of, but a product that you absolutely have used, probably hundreds or maybe thousands or maybe you've even gotten your ten thousand hours with this piece of software.

David: 00:01:01 I feel sorry for you if you have.

Ben: 00:01:03 I think I may have. I think I may have.

David: 00:01:05 I definitely have, investment banking.

Ben: 00:01:08 All right. Listeners, today we are covering Microsoft's 1987 acquisition of Forethought Incorporated, the makers of PowerPoint.

David: 00:01:19 It has the honor, I was going to say dubious honor, but this really is an honor, this was Microsoft's first acquisition and Apple's first investment in another company for strategic investment.

Ben: 00:01:31 Not only that, they were within like three months of each other.

David: 00:01:31 I know.

Ben: 00:01:36 Most people don't even know that PowerPoint wasn't homegrown. I mean Word and Excel were homegrown applications, but PowerPoint was an acquisition.

David: 00:01:45 Yep, an acquisition. Not just an acquisition, a completely separate business line as we will get into, which is not to say that that is necessarily how we will categorize it on acquisition category, but Microsoft kept it as a business line, separately based in Silicon Valley, actually on Sand Hill Road in Silicon Valley was where PowerPoint was developed.

Ben: 00:02:06 It all comes full circle. All right. We will dive in more, but before we do that, listeners, if you like the show, if you've been listening for a while, if you're new and you happen to like this episode, either way, we would love a review on Apple Podcasts. It helps us grow the show and it helps us create more great content, so please take a moment. You can, in fact, you could even pause right now and do it. We don't mind, seriously. If you are new to the show, you can check out our Slack at And I would like to thank the sponsors of all of season two, Perkins Coie, counsel to great companies. We have with us today. Gina Eiben, a vice-chair of the firmwide mergers and acquisitions practice. So, Gina, on the show in episodes such as LinkedIn and ExactTarget, we've talked about companies considering multiple buyers. concurrently. Do buyers typically do the same thing when talking to multiple potential targets at the same time? And how far does this process typically go?

Gina: 00:03:11 Yes, but not in the same way. Buyers who are serial acquirers, whether they're financial or strategic, they have an acquisition strategy that requires them to be looking for targets all the time. So, they're looking at more companies and they'll actually acquire, but they're typically looking at each target for a specific need and it's less common that they're looking at multiple companies for a need that they intend to eventually satisfy with a single acquisition. So, it's not like a target that will ultimately choose only one buyer, an acquirer may do some initial due diligence on a company, decide it's not the right fit, and then decided to disengage. If they enter into an LOI with a potential target, though, the buyer typically intends to acquire absent any new issues that they might discover through due diligence or negotiations going south.

Ben: 00:03:44 Thanks Gina. And thanks for the foreshadowing on this episode. If you want to learn more about Perkins Coie or reach out to Gina specifically, you can click the link in the show notes or in the Slack. So, David, we had much teasing of the plot ahead in the intro. Do you want to take us in? How did, how did Forethought get started? How did Microsoft buy it? How is PowerPoint, the essential part of Microsoft Office today, or actually, you know, Office365, a part of the Microsoft cloud strategy. How did it all get started?

David: 00:04:20 Well, like so many other things, basically everything in modern computing, the origins of PowerPoint can be traced back to Steve Job's historic visit, his raid some might say, on Xerox PARC headquarters in late 1979 after Xerox had made a small investment in Apple Computer, and Steve got to peek behind the kimono, famously, and go see the Palo Alto Research Center of Xerox where they were developing prototypes of their vision of the office computing environment of the future. And that was famously, PARC was where the graphical user interface was developed, the mouse, the idea of networking, which of course would lead to the Internet and podcasting and us recording on Skype, and this moment right now,

Ben: 00:05:16 The most important thing created out of the Internet, podcasting.

David: 00:05:23 All comes back there, but no. So how does this relate to PowerPoint? So once Steve had seen the future of the graphical user interface, he brought it back to Apple and basically decreed that this was the direction the company was going in. But of course, Apple had been around for many years before then. There were other product lines in Apple, other computers they made that were command-line interface, like DOS before Windows, and those product groups, you know, didn't just shut down. They kept going. There was the Apple II and the Apple III that were both continuing to be developed.

Ben: 00:06:00 But David, why join the navy when you could be a pirate?

David: 00:06:06 Exactly. Exactly. You're referring of course to the, the famous Mac group that Steve starts within Apple where he flies the pirate flag in the building. People who were working on the Apple II and the Apple III were talented people. These sort of saw the writing on the wall too, that Apple was going in the direction of the graphical user interface, and first the Lisa and then the Mac, but also they themselves realized that not just was Apple going in this direction, the whole industry was eventually going to go in this direction and in particular two folks, the product marketing manager for the Apple III, Taylor Pohlman, and the software marketing manager for the Apple II, Rob Campbell, they see this future and they decide to leave Apple and start a start-up to pursue this graphical user interface future because they know it's not on the products that they are currently working on.

Ben: 00:07:01 You know, when we first start doing our research and we start on Wikipedia or we start reading the comprehensive history of this company, you always see the name of the founders, but very rarely do they actually go back before they were the founders of that company. And it seems like without fail, when we start to dig in, and particularly, David, when you start doing your research, like who are these people before? They were ex-Apple, they were ex-General Magic, or they were at Stanford Research. There's a very small number of places they could have come from and it's amazing where technology and the whole field is today. The world was just not that big. There were not that many institutions or companies, like everybody spun out of the same few places.

David: 00:07:40 There really weren't. I mean there were, the number was in the thousands of people who worked in the technology industry or at least the software industry. It just wasn't that many people, and there weren't that many companies back in the day, so Taylor and Rob, they leave, and they see the power of the future of the Xerox PARC vision, the graphical user interface interacting with applications that business users are working with directly, instead of separate computer divisions with punch cards and whatnot, but they think that that the Mac and Apple, maybe they're a little bitter because Steve kind of a kneecapped their products, but they think that the Mac is not the future. They think the future is bringing the graphical user interface to the massive numbers of IBM PC clones that are out there already and shipping in the enterprise. And it turns out that they were right about that. It just wasn't Forethought, the company that they founded, that would do that. So, they leave Apple,

Ben: 00:08:36 That's the hard part about being a venture investor, David. You can be right about everything, but if you pick the wrong horse, pick the wrong timing, pick the wrong specific nuance,

David: 00:08:45 You end up with PowerPoint. Ah, it's a nice consolation prize. Usually you don't get the consolation prize. So, Rob and Taylor, the end of 1982, they leave, they start this company, they call it Forethought as foreshadowing the graphical user interface to come. The vision is they are going to develop an operating system that is going to, like I said, bring a graphical approach, almost a Windows-like approach (some might say) to IBM clone PCs. So, they raise seven hundred thousand dollars right after they leave. There's a lot of people that are really excited about this. Shortly thereafter they raise another two and a half million dollars from VCs. They attract some great folks, New Enterprise Associates, NEA, invests, Dick Kramlich who was one of the founders of NEA, a very well-known VC at the time, he invested, he joins the board. Also, as an independent board member, they get Bob Metcalfe who was the inventor of Ethernet at Xerox PARC, and by that point in time he was the chairman of 3Com. So he's their independent board member; literally Bob Metcalfe, of Metcalfe's law, is the independent board member of this company.

Ben: 00:09:57 There were like eleven people in technology. This is incredible.

David: 00:09:59 It's totally incredible. So high flying, huge vision. There's just one problem, that a year later Microsoft announces Windows. While this is now the fall of 1983, they've been working on this for a year, and while Windows wouldn't actually ship, Windows 1.0, I believe, until 1985,

Ben: 00:10:21 It still doesn't seem like a good bet. What do you do, right?

David: 00:10:26 What do you do, and in particular, in the case of Forethought, it's not just that the 800-pound gorilla just stepped into the ring with you and is definitely going to crush you, even if you could compete. Apparently, development is really not going well. And, it's kind of a mess. And the, "Foundation" was the name of the operating system that they were building, it wouldn't even compile. They couldn't demonstrate it. It was just in development hell. So, at this point they've burned through about two million dollars of the three million dollars, just over three million dollars, that they had raised. They made no meaningful progress. They have no prospects. The VCs and the board, basically they issue an ultimatum. They say: you have to (this is now the spring of 1984), we're going to schedule essentially a demo day. You are going to demonstrate this operating system that you are building. We're going to evaluate it. We're going to bring in outside experts and we're going to see if there's anything here that we can use. Those VCs, they really hold your feet to the fire. They do the Demo Day, there's nothing, but there is some tiny, tiny flicker of good news and exactly how this happens, even though he wrote a whole book on the topic, I'm still not entirely clear, but somehow there's a guy who doesn't even work at the company named Robert Gaskins and he's a mid-level manager at Bell Northern Research, which is sort of the California division of Bell.

(Note: Bell Northern Research was the R&D arm of Bell Canada and Northern Telecom [later NorTel Networks], with principal laboratories in Ottawa and in Palo Alto.)

Ben: 00:11:45 It's one of the five companies in technology in this area.

David: 00:11:47 Yeah, one of the five companies in technology. He gets connected with the folks at Forethought and again, he's like a mid-level manager, he's not part of the company, but he's really excited also about the future of the graphical user interface, and he wants to join the company. So even though the market for the company has just been completely swooped in by Microsoft and the coming Windows product, the product is in development hell, he wants to join, and he has a vision for what he thinks can be a sort of a "restart" of the company. The term pivot wasn't around yet, but that he wants to bring to the company.

Ben: 00:12:27 And this is a good time to say to Bob, thank you so much for being super-gracious and emailing with us to help us research this episode. For folks who haven't read it, and I would imagine if you are as surprised as I was when I first found out that PowerPoint was an acquisition, you probably haven't read it, but Bob wrote a fantastic book about how this all went down and kind of PowerPoint as a case study and really Forethought as a case study and gave us some really great quotes that we'll pull out later in the narrative. So, if you're interested in what we're talking about here, definitely check out Bob's book.

David: 00:12:58 Yeah, we'll link to all of it. It's, uh, I love the title. It's called "Sweating Bullets."

Ben: 00:12:58 So good!

David: 00:13:04 It's the definitive history of building PowerPoint and Bob is just, um, well a few more Words about Bob, because he's a pretty interesting guy. He had been a grad student at Berkeley and he was doing an interdisciplinary Ph.D. in English, Linguistics, and Computer Science, which is quite the combination. He ends up dropping out to join Bell Northern Research because he wants to go work in industry and in computer science. This is the mid-seventies. He knows this is going to be the future, it's sort of like Masa, of Softbank, when he met with the head of McDonald's, he said go work in technology. This is actually at Berkeley kind of right around the same time. And then after PowerPoint he'd go on, and he retired, he'd become sort of like the world historical expert in the concertina, which is a musical instrument that was developed in England in the 1800s. He's, really a renaissance man. So, a big thank you to Bob for writing this book and all the blogs; all of this material for this episode comes from him and it's all primary source from him. So, thank you.

David: 00:14:09 So, Dick Kramlich, who as I mentioned, of NEA, was on the board, and he says (you know, I can totally empathize with this, being in a VC company that, you know, is going nowhere, but there's something and there is someone who wants to do something interesting), he says, yeah, sure, you know, this guy Bob, he may not be the most accomplished manager or have the best resume, but he's got some sort of vision to do something, and rather than just taking the one million dollars that's left in the company back, let's see what you can do. The board makes the decision to hire Bob in, and they give him five percent of the company, and they basically turn him loose on creating his vision for what an application for the graphical user interface could be. But there's just one kind of twist to that, which is that Rob Campbell, who was one of the original founders and was the CEO, he doesn't leave, he remains the CEO of the company, of Forethought, and Rob basically goes and builds a wholly separate company doing software publishing because remember, this is back in the day when to actually distribute software, it wasn't just like you developed it and then you like put it on the internet or in the app store and anyone can buy it, you had to actually market it.

Ben: 00:14:09 … literally ship it …

David: 00:15:27 You literally had to get discs manufactured, put in boxes with paper manuals, and shipped to computer stores. And so, there was actually a publishing industry just like there is a publishing industry for authors and books to do all this. So, Rob goes and he starts a publishing division of Forethought. Now the idea was that the company would build up the muscle in software publishing by publishing other developers' software so that by the time the application that Bob Gaskins was working on was ready, they would be able to publish it themselves without having to have a third-party publisher. That was the idea. So Rob goes, he gets a couple developers that he's going to publish their software, the first two don't really work out, and then he signs up a database program for DOS called Nutshell that they were going to repurpose and redistribute for the Mac, and they decided to come up with the name for it of FileMaker.

Ben: 00:16:25 FileMaker, and for any long time Apple nerds out there, this should be a name that's come across your desk a few times.

David: 00:16:33 If you go to today, it still exists. The website informs you that it's FileMaker, an Apple subsidiary. FileMaker is now owned by Apple.

Ben: 00:16:43 One of the very few Apple subsidiaries, and a long, long time subsidiary. And it's kind of incredible, they keep it a subsidiary and run it under its own brand. This is like this weird corner of Apple that you never hear about when you think about their, you know, four products in three sizes that are neatly shrink wrapped and well understood.

David: 00:16:59 Four products, three sizes, plus FileMaker. And the history on FileMaker, I mean, this is kind of incredible that within one roof, now the developers of FileMaker were always a third-party company and Forethought was just publishing the software, but FileMaker would go on to be acquired by Claris, which was the spinout from Apple that was run by Bill Campbell, "the Coach" Bill Campbell, who was one of the most legendary figures in the valley. Again, it all comes down to, there weren't even thousands of people, there were probably like 10 people working in technology at this point in time. Bill would then acquire the developer of FileMaker and FileMaker into Apple a few years, actually, I think within a year of when Microsoft acquired PowerPoint and Forethought. But that is a story for another day. For today, back to the application side of Forethought. So, it turns out that Bob had not just any vision for the company, he actually had the right vision for the company. So what he saw was that everybody knew that graphical operating systems, graphical user interfaces and operating systems, were coming, but this was going to enable essentially a huge wave that would wash across the whole technology industry and you would be able to, on top of that, build applications that were enabled by now having a graphical computing environment that you couldn't do before, and the vision of what application to build that he comes up with is business presentations. Up until this point, when you made a business presentation, you would do it using slides, literally photo slides like overhead projector, you know, put the slides in like the scene in Mad Men with the Kodak Carousel. You had an art department, a Corporate Art Department, that would make presentation slides, and then you would put it in your Kodak Projector. And that's how you would lead a meeting.

Ben: 00:18:51 It's nostalgia, David. It's nostalgia.

David: 00:18:51 The Carousel.

Ben: 00:18:51 It might be the best scene in television, like flat out.

David: 00:19:02 So good. It's so good. But Bob, so he sees this, and he says the Carousel is going the way of Mad Men, this is going to be the future. People are going to make these presentations themselves, enable the business user, who's the, uh, it feels weird even to describe this, in that there was once another way of doing this, like if you are the presenter, you are making the presentation, you can actually now make it yourself and present it yourself when you used to have an art department and have to do it for you.

Ben: 00:19:30 There's this thing called "Absolute PowerPoint" by Ian Parker. It's like a super-old website floating around. Or did you find the thing at all about Whitfield Diffie?

David: 00:19:41 No.

Ben: 00:19:43 OK. So, there's a guy named Whitfield Diffie, and I believe he was in the Bell Northern Research center. Folks who have studied computer science may know Diffie from Diffie-Hellman encryption. I'm going to probably get the details wrong, but if I remember right, it was a precursor to the RSA encryption, which is the sort of basis of most secure transactions that happen today. But there's a great, great excerpt from this piece. At Bell Northern, Diffie was researching the security of telephone systems in 1981, preparing to give a presentation with 35mm slides. He wrote a little program, tinkering with some of the graphics software designed by a BNR colleague that allowed you to draw a black frame on a piece of paper and then it goes on to point out with a few days of effort Diffie had pointed the way to PowerPoint. And it was, it's incredibly at Bell Northern Research sort of coming up with this concept of maybe software can help us do this thing that, you know, we have to do manually right now and use a little bit of software to get there.

David: 00:20:45 Wow. I can't believe I missed that in all the research because that is literally, I mean Gaskins comes from BNR. That's the germ of the idea right there.

(Note: The discussion in the show of Whitfield Diffie's involvement in the idea for Presenter / PowerPoint is incorrect. Whitfield Diffie is awesome and responsible for many great things, but graphical presentations software isn't one of them. We've replaced the link to the faulty source (the 'Absolute PowerPoint' New Yorker article) with a better one from the director of the Center for Software History at the Computer History Museum. We apologize for the error!)

David: 00:20:51 So, the first thing Gaskins does, the board—basically, he's not the CEO, but he's basically given CEO-like oversight of the core part of the development part of the company, the non-publishing part of the company. He fires everyone except for one person because all the engineers that they have, they're all systems engineers that are all, you know, coding in machine language trying to build up this operating system, he keeps one, and then he hires a really great developer that he knew, that he had tried to recruit into BNR, named Dennis Austin. And then Dennis and Bob go on, the two of them basically like a preview of the modern, lean startup team, like they basically build PowerPoint together, with Bob as the PM and Dennis as the engineer.

New Speaker: 00:21:40 Dennis, at the time, was actually working at another NEA portfolio company that had just shut down (Dick wasn't on the board, one of his partners was on the board) and this tells you about the prospects for Forethought and what NEA thought of the company. The board member at the other company that had just shut down, that Dennis was working at, tried to stop Dennis from going to Forethought because he was like, that is a sinking ship. You don't want to join that. Our firm has no faith in this company, you're throwing your career away. But Gaskins was still able to recruit him, and he writes about this because he was able to do it because there just weren't that many companies out there that were working on applications for graphical user interface operating systems. So, if you believed that was the future, you know, you're only bet—and Bob also talks about this is why he joined Forethought himself despite it being a sinking ship—there just really weren't that many opportunities to do this. It was like when the iOS app store launched and there were only like three places where you could write iOS apps.

Ben: 00:21:40 There kind of were, like there was Craig Hockenberry at The Iconfactory, and, actually just a few people, there was whoever made Super Monkey Ball.

David: 00:22:57 Yes, Super Monkey Ball. That was a port from consoles, I think, actually.

Ben: 00:22:59 Ah, I didn't know.

David: 00:23:02 Yeah, I wonder what, it'd be fun to go back and see like what the first native companies and apps for iOS were.

Ben: 00:23:21 You know why Twitterrific came out so early, that Iconfactory Twitter client? So Craig Hockenberry, when Apple announced their "sweet solution" for developers to be able to build web apps and there not being an app store, Craig was one of the people who basically cracked open the iPhone and figured out how to reverse-engineer the API surface and know what the Apple engineers were doing to build the native apps, and he wrote Twitterrific as a jailbroken app, so then he was sort of ready because when they released the SDK, I mean it was a much more …

David: 00:23:46 So, he had already been essentially building iOS apps before the SDK comes out.

Ben: 00:23:49 They just had to rebuild it on public documented APIs.

David: 00:23:54 That's awesome.

Ben: 00:23:55 Yeah, yeah, yeah.

David: 00:23:57 What would be the equivalent today? I'm going to guess that's the billion-dollar question.

Ben: 00:24:01 I mean, it depends if you're long crypto or not.

David: 00:24:04 Good question. Probably also a topic for another episode. We definitely have to find some crypto transactions to cover. That'd be a fun one.

David: 00:24:17 Right, back to the PowerPoint story. So, it takes them about three years to develop PowerPoint within Forethought, beginning with just Bob and Dennis, and then eventually growing the team over time, but because they're doing this in a startup, you would think they are also publishing FileMaker. FileMaker becomes very successful software on the Mac, but unfortunately, they don't have a really great deal with FileMaker. They're actually losing money on it and they're losing money on the other software they're publishing too. Not good deals. They keep having to raise money all along, so from NEA and their existing investors, new investors, they're basically constantly pitching. Bob is spending his time either laying off people, pitching for money, or building PowerPoint. Probably in that order.

Ben: 00:25:00 Wow. Do you know how much money they raised?

David: 00:25:02 I actually don't know the total amount that they raised, but when they do finally sell the company to Microsoft, the total price of the sale is fourteen million, and the VC's get twelve million. So only two million goes to common. I don't think that was all twelve million of liquidation preference. Like there was probably some participation in there too, but you have to imagine they raised at least six million, if not more, if they're going to get twelve million for the preference,

Ben: 00:25:30 Or quickly catapulting toward, I wonder what they raised from Apple's strategic investment group.

David: 00:25:36 Well, right, so they're raising money, they're talking with Apple all along because Apple is starting to launch this strategic investment group, but Apple's worried that they're not going to be able to actually ship the product, so they don't want to invest unless they're actually going to ship this strategic product for Mac. So, they keep waiting and waiting. And Apple actually only finally ends up investing just about, I think two or three months before Microsoft acquires the company.

Ben: 00:26:01 Yeah, it's in January of 1987.

David: 00:26:06 January of 1987. They shipped the product in February of 1987. And then the acquisition happens over the summer.

Ben: 00:26:13 Boy, really, really believing in them. Apple, not until it's absolutely clear that they are literally printing floppy disks and shipping them in one month, that's when we will invest in you.

David: 00:26:24 Sounds like most VCs, right?

Ben: 00:26:27 Yeah, I mean, at that point it's impressive that they managed to get there without getting the check. And I guess they took the check on, you know, we'll need to rent production after this first run.

David: 00:26:37 Well it's also like, are you really going to turn down Apple, which is at that point in time, the only platform that you were shipping your software for, because developing for Windows is a nightmare, especially at that day and age. So, Apple invests January 1987. February of 1987, they do a big launch event, they're finally ready to ship what was initially "Presenter," was the name for the project over the past few years. But then they had a trademark issue right before they're about to ship, so they changed the name to PowerPoint.

Ben: 00:27:09 Shocking that you pick a term as generic as "Presenter" and expect that to skate through trademark review.

David: 00:27:15 But it's again, it's like, you know, back to the early days of iOS apps, remember, like Camera+, and like all the super-basic-named apps. So, they change the name to PowerPoint right before they shipped the product. February 1987, they do a launch event. They haven't actually shipped it yet. Microsoft and Bill Gates get wind of the momentum that's building behind this product and they actually reach out and very explicitly say they want to acquire the company even before the product ships.

Ben: 00:27:48 And to be clear, what the product is at this point, like we say it when the product ships, it's software that allows you to make black and white printouts on transparencies so that you can put them on overhead projectors. The PowerPoint you're envisioning is very different than this PowerPoint. Like we talked about 35mm slides. They're not even there yet. They're not even in color yet. Like, this is a program that helps you lay out your transparencies for overhead projectors.

David: 00:28:15 Yes, but apparently, up until this point in time, Microsoft and Bill Gates of course knew that software applications for graphical user interface operating systems were going to be a huge market. They were working on many of them internally, like Word and Excel. Bill Gates also knew that presentations was going to be a big market. His vision for how Microsoft was going to attack it was they were going to add the option to print an outline to Word.

Ben: 00:28:48 In Word, that's so great. So, Jeff Raikes is the executive at Microsoft and there's a great excerpt here that Jeff Raikes wrote. He goes, "I thought, software to do overheads. That's a great idea. I came back to see Bill. I said, Bill, I really think we ought to do this. And Bill said, no, no, no, no. That's just a feature of Microsoft Word. Just put it into Word, and I kept saying, Bill, no, it's not just a feature of Microsoft Word, it's a whole genre of how people do these presentations, and to his credit, he listened to me and ultimately decided to go forward and buy this company in Silicon Valley called Forethought for the product known as PowerPoint." And here we are today. It's like, it's how freaking businesses communicate internally, like it's how the military communicates. It is the de facto way for people to get ideas across to other people. You can hate that, you can love that, it can be your tool of choice or it can be your nemesis in an organization. You know, it's not that long ago, like it's the late eighties and the belief was eh, that's a feature of a word processor.

David: 00:28:48 It's a feature of Word, yeah.

David: 00:29:51 I was going to save this till the end, I think it's like the most fun idea to this whole thing. Forethought has this tragic history of a company. They're always perpetually raising money. They're doing bridge round after bridge round after bridge round, it's impossible to raise money. The irony is that because of PowerPoint, like PowerPoint becomes the vehicle by which more money is raised in the history of humankind over the next 30 years than has ever been raised in mankind's history until that point. And the irony is the company that made it could not raise money. Uh, so great. But it also reminds me of the Dropbox episode and Steve Jobs telling Drew Houston that, you know, it's a feature, not a product.

Ben: 00:29:51 Ten-billion-dollar feature.

David: 00:30:39 I guess there was no Jeff Raikes around in Apple in whenever it was, 2010, to still tell Steve that, uh, no, this is a product not a feature.

Ben: 00:30:50 No. Did your research get into the talks that Microsoft was having with another potential company?

David: 00:30:56 Only a little bit. Supposedly, there were two other companies that they were evaluating once Jeff Raikes had convinced Bill Gates that this actually needed to be a product within the suite of productivity applications Microsoft would make for Windows, but they evaluated that PowerPoint was the best.

Ben: 00:31:14 So apparently Dave Winer had a company called MORE, and Microsoft actually issued a letter of intent to purchase them and ended up walking that back. They basically took it back the same day that they gave Forethought their offer to acquire them, and basically, on April 28th, 1987, this is right after Forethought had shipped the first run of PowerPoint, a group of Microsoft's senior execs went and spent a day at Forethought to hear about the initial PowerPoint sales on Macintosh and what their plans for Windows were, and that day, as soon as they all got back to Redmond, that next day they sent the letter withdrawing their earlier letter of intent to purchase.

David: 00:31:14 Mmm, interesting, interesting.

Ben: 00:31:14 Which is totally crazy.

David: 00:31:56 Well, that makes sense, because what I did research was the back and forth on the acquisition from the Forethought side. So, this was end of February, Microsoft reaches out to Forethought, says, we want to get into this market, we want to buy you, we want to do this fast. A couple of weeks later, in mid-March, Jeff Raikes and Jon Shirley, who was then the president of Microsoft, come down to Silicon Valley, Forethought is based in Sunnyvale at this point, and they have dinner. They offer 5.3 million to buy the company in cash. The Forethought board meets and decides, they haven't shipped the product yet, this is still a couple days before they shipped the product, and decides, you know, that's not that much money. The VCs had probably put at least that much money into the company. They're like, we'll roll the dice, we'll ship the product. They shipped the product in mid-March, and it's a huge success, it sells a million dollars in its first month.

Ben: 00:32:53 They instantly sold out all ten thousand they had printed.

David: 00:32:56 Which is, it's just so crazy to be literally sold out.

Ben: 00:32:59 Yeah, sorry, you can't get the bits anymore. They're sold out.

David: 00:33:03 You can't get the bits any more, they're sold out. Only so many bits. Uh, um, so then after that, that's when Microsoft comes back down and meets with them in April. And then immediately after that, I guess they cancel the LOI that they had with MORE to acquire them. They decided PowerPoint is what they've been looking for. They need to acquire Forethought and then they come back with a much-improved offer.

Ben: 00:33:31 Can you imagine being Dave Winer in that situation. What a bummer.

David: 00:33:36 Ah, total bummer. Uh, what could've been, what would have happened otherwise? So interestingly though, the offer that they come back with, this is, you know, VCs sometimes do things to hurt themselves, they come back with an offer to acquire Forethought for twelve million dollars, but in Microsoft stock. The board is happy with the offer, but they believe that Microsoft stock is overvalued because it was up 6x in the past year and they didn't want to take Microsoft stock. They wanted cash. Now …

Ben: 00:33:36 Were they public?

David: 00:34:09 Yeah, Microsoft had gone public the year before.

Ben: 00:34:09 You can just sell the stock, what's the big deal.

David: 00:34:14 Of course you could sell the stock, or you could hold the stock and make billions of dollars. But you know, there we are, VCs,

Ben: 00:34:14 Cash is king, David, cash is king.

David: 00:34:22 Cash is king, cash is king. So, the board says, no, we don't want this billions of dollars of upside in Microsoft stock. And they called themselves venture capitalists. There also were a bunch of other weird terms in there, like particularly, they wanted the whole company to move up to Redmond and join Microsoft in Redmond, in Seattle. Uh, the team didn't want to do that, they wanted to stay in Silicon Valley. So they go back to Microsoft, they have the boards negotiate, because there are still VCs on the Microsoft board at this point in time, and Microsoft comes back with fourteen million in cash and the acquisition gets done, in early summer, and in particular the company and Forethought as part of the negotiation, they get to stay in Silicon Valley, not just keep developing PowerPoint themselves there, but they get made into a whole official business unit of Microsoft, the Graphics Business Unit of the Applications Division, and they have a mandate to hire and build and run that whole division out of Silicon Valley. So after the acquisition closes, as we mentioned at the top of the show, they move the company from Sunnyvale up to Sand Hill Road, to tony Sand Hill Road, where all the venture capitalists are, right next to Stanford, and they move into the Quadrus complex on Sand Hill Road, uh, take over the whole complex, that then is the complex, after Microsoft leaves, where Benchmark has their, I think, their first and long-time office, Shasta is there, many other VCs, August Capital Is there, and August Capital was the VC investor in Microsoft, are all there in that complex. It had been something else before Microsoft, but Microsoft made it into a tech complex.

Ben: 00:36:07 Wow. Wow. And there's a big lesson in here, but this is one of the great quotes from Bob that he sent over. I don't think I'm spoiling anything here in this opening line. I think you guys know the end of the story, but: "PowerPoint has been so very successful after its acquisition, and mostly, as far as I can see, because Microsoft in 1987 lacked any technology or experience to try to manage us, manage its first distant location, and so accidentally avoided smothering its new product while providing what was really vital to us: money, industry clout, strategic tips from Bill Gates and Mike Maples (senior) during confusing times for Windows developers."

David: 00:36:46 Uh, and was it ever, um, yeah, we'd have to say once again, thank you. Thank you Bob. for your email to us, and for writing the book about this. Listeners, you can tell we're geeking out over this because it's so cool to have such primary sources for Acquired. So yeah, that's what happens. I mean, Microsoft really does leave PowerPoint alone. It's the original Facebook style acquisition and even though PowerPoint would ultimately come to be in 1990 with the launch of Windows 3.0, the Office bundle is introduced, and PowerPoint comes to be bundled with Word and Excel and sold together as a set,

Ben: 00:37:27 which actually was launched first for the Mac in 1989. The three together.

David: 00:37:27 Oh, really

Ben: 00:37:36 Yes. PowerPoint became a component of the Office suite for Mac and then in 1990 for Windows.

David: 00:37:39 Ah, interesting. Well that was because Windows 3.0 didn't launch until 1990. And Bob also talked about, this is really getting into the weeds of both history and technology here, but before Windows 3.0, like it was impossible to develop for Windows. Like it was, nobody outside of Microsoft essentially could write applications for it. It was so buggy. And so the PowerPoint group, again, being independent, refused to ship a version of PowerPoint for Windows until a stable version of Windows came out. So, you could get Word and Excel on Windows 2.0, but you couldn't get PowerPoint simply because Bob and the whole group was like, no, we're not shipping for this piece of crap operating system.

Ben: 00:38:19 And the amazing thing is it took a while to get it all integrated. So you had Word and Excel that felt very similar, but then you had PowerPoint 4.0 that was starting to actually converge, but it still looked quite different from the original Word and Excel on Windows. And it wasn't actually until PowerPoint 95, which used the version number of PowerPoint 7.0, where they actually totally converged and used the same version number. And the reason it went from 4.0 to 7.0 was to catch up with the Excel and Word version number. So, there was never a PowerPoint 5.0 or 6.0. It's the Windows 9 of PowerPoint.

David: 00:38:19 The iPhone 10.

Ben: 00:38:19 The iPhone 9.

David: 00:38:19 The iPhone 9.

Ben: 00:38:19 Yeah.

David: 00:39:09 Well, that is the story, more or less, of PowerPoint.

Ben: 00:39:12 And I'll throw out a few numbers just to understand the ramp here, a little bit. So, PowerPoint has been phenomenally received since day one. It was overhead projectors and then it was 35mm slides and it was in color and then they started to actually find a way to make, it was actually, it was like a video basically, that was projected out. Let's see. The third version for Windows and Mac in 1992 introduced video output, a virtual slideshow to digital projectors, which would over time, of course, completely replace physical transparencies and slides. But the sales numbers are quite staggering. So that first ten thousand at a hundred bucks a pop sold out right away. That was in 1987. And then it comes only for Mac. It comes out in Office in 1989. And then for Windows in 1990. By the last six months of 1992, PowerPoint revenue alone, not Office bundled, was running at a rate of over a hundred million dollars annually. Incredibly fast-growing business. In 1997, there's a couple more great stats here, so fast forward another five years, there's over twenty million copies of PowerPoint in use and that the total revenues from PowerPoint over its first decade, from 1987 to 1996, was over a billion dollars. I'm going to stop before we get to a cloud world cause that's when the accounting gets a little funky inside of Microsoft. But in 2009 there was a group called MBD which was Microsoft Business Division I believe, which included Dynamic CRM, but that was a smaller group, did 18.9 billion in revenue and 12 billion in operating income. So, you know, enormous behemoths. It's a frickin' Windows-sized business for Microsoft, having Office.

David: 00:40:59 This is the power of, if you recognize a massive wave like this, which is like the deployment of a fundamentally new technology mode of interaction and what that can enable, you can build enormous businesses as an application on top of it. I mean, this is the same story as Uber, right? This is the same story as Instagram. It's just in an office environment and with PCs.

Ben: 00:41:27 It's incredible that there was instant product-market fit, even as the product changed so dramatically. The world wanted exactly what PowerPoint was—the first, second and third times. And it just, it occupies a, not only was the niche enormous, the market for digital presentations, but PowerPoint right now owns 95 percent of that market. That is, that is unreal.

David: 00:41:53 Which is funny. Like in tech, we think like, oh, lots of people use Keynote now, and like, you know, Keynotes great. Like we use Keynote a wave, but like we're such a small piece of the overall market.

Ben: 00:42:12 And you know, it's funny, while I

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