MS Wha-

He had good reason to fret. Signs that Microsoft would be missing the boat in the next decade were already emerging. That very moment at Microsoft’s headquarters, in Redmond, Washington, a group of executives were developing a device that, in 10 years’ time, would transform a multi-billion-dollar industry: an electronic reader that allowed customers to download digital versions of any written material—books, magazines, newspapers, whatever. But, despite its multi-year head start, Microsoft would not be the one to introduce the game-changing innovation to the market. Instead, the big profits would eventually go to Amazon and Apple.

The spark of inspiration for the device had come from a 1979 work of science fiction, The Hitchhiker’s Guide to the Galaxy, by Douglas Adams. The novel put forth the idea that a single book could hold all knowledge in the galaxy. An e-book, the Microsoft developers believed, would bring Adams’s vision to life. By 1998 a prototype of the revolutionary tool was ready to go. Thrilled with its success and anticipating accolades, the technology group sent the device to Bill Gates—who promptly gave it a thumbs-down. The e-book wasn’t right for Microsoft, he declared.

“He didn’t like the user interface, because it didn’t look like Windows,” one programmer involved in the project recalled. But Windows would have been completely wrong for an e-book, team members agreed. The point was to have a book, and a book alone, appear on the full screen. Real books didn’t have images from Microsoft Windows floating around; putting them into an electronic version would do nothing but undermine the consumer experience.

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The death of the e-book effort was not simply the consequence of a desire for immediate profits, according to a former official in the Office division. The real problem for his colleagues was that a simple touch-screen device was seen as a laughable distraction from the tried-and-true ways of dealing with data. “Office is designed to inputting with a keyboard, not a stylus or a finger,” the official said. “There were all kinds of personal prejudices at work.”

Kurt Eichenwald on Microsoft's Lost Decade