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COVER STORY
Gates vs. Google, by Fred Vogelstein, page 72
Google isn't just a hugely successful search engine; it has morphed into a software company and is emerging as a major threat to Microsoft's dominance. "Google has become a new kind of foe, and that's what has [Bill] Gates so riled," says FORTUNE's Fred Vogelstein. "It has combined software innovation with a brand-new Internet business model—and it wounds Gates' pride that he didn't get there first. Since Google doesn't sell its search products (it makes money from the ads that accompany its search results), Microsoft can't muscle it out of the marketplace the way it did rivals like Netscape. But what really bothers Gates is that Google is gaining the ability to attack the very core of Microsoft's franchise-control over what users do first when they turn on their computers."

Google co-founders Sergey Brin and Larry Page, along with CEO Eric Schmidt, say that any talk about supplanting Microsoft is ludicrous. But the idea that Google will one day marginalize Microsoft's operating system and bypass Windows applications is already starting to become reality. All of which helps explain why inside Microsoft, the battle with Google has become far more than a fight over search: It's a certifiable grudge match for king of the hill in high tech. "If all there was was search, you really shouldn't care so much about it," says Gates. "It's because they are a software company. In that sense, they are more like us than anyone else we have ever competed with."

Brahmins at the Gate, by Bethany McLean and Andy Serwer, page 58
Dismayed by Morgan Stanley's falling stock price and alarmed by an exodus of top talent, eight retired bankers are pressing a public campaign to oust CEO Philip Purcell. It's the kind of open warfare rarely seen on Wall Street—mainly a battle about alleged mismanagement, but clearly a personal fight too. At its heart is one autocratic manager, Purcell, and two corporate cultures, those of Morgan Stanley and Dean Witter, which merged in 1997. Purcell came from Dean Witter, the prosaic retail brokerage. His opponents hail from Morgan Stanley, the white-shoe firm whose bankers regard themselves as Wall Street's elite.

The merger was supposed to produce a financial services powerhouse with a wide spectrum of products, and during the bull market it seemed to be working. But beneath the surface the two sides didn't try very hard to conceal their mutual scorn. FORTUNE's conversations with current and former bankers'including an extended sit-down with six of the eight dissidents—combined with analyses of financial statements from both sides, reveal a merger that's nothing short of toxic.

The Sumner of Love, by Marc Gunther, page 90
Two things have changed Viacom CEO Sumner Redstone recently. First, after an unhappy spell sharing power with Mel Karmazin, the former CBS executive who left Viacom last year, he has found in Tom Freston and Leslie Moonves two deputies he trusts. Second, he has a new wife. So now that he has achieved a modicum of balance in his life, he no longer needs Viacom to be everything to him, reports Marc Gunther, and has begun to imagine the company without him. He is also prepared to do the once unthinkable: take the company that he spent 18 years building and break it in two. One company will consist of cable networks; the remaining assets will form a company that should throw off lots of cash. "The split solves another of his problems," says Gunther. "Freston and Moonves each get to be a CEO, avoiding a bakeoff that would have been uncomfortable at best. What's not clear is whether the deal is good for the company and its shareholders."

Mickey Drexler's Second Coming, by Julia Boorstin, page 101
When Gap Inc. booted its longtime chief, Mickey Drexler, amid plummeting profits, he turned down a multimillion-dollar severance package because it contained a noncompete clause—and soon found himself at the helm of J. Crew. His success there, reports Julia Boorstin, pegs him as the rare CEO who has truly learned from his mistakes. At Gap he opened new stores way too fast; in two years at J. Crew, he has closed seven and opened just nine. At Gap he made sure stores were bountifully stocked; at J. Crew he cultivates scarcity. At Gap he spent hundreds of millions a year on advertising; at J. Crew he continues the company tradition of no advertising. Most important, in his later years at Gap he cranked out racks of too-trendy clothes, while at J. Crew he is all about the classics.

SPECIAL REPORT: INNOVATION IN MEDICINE

• The Quest for Custom Cures, by John Simons, page 107
  Drugs specifically tailored for a segment of sufferers who share genetic similarities are poised to change the world of medicine—and the business of making drugs. The dirty little secret of the pharma industry is that most mass-marketed prescription drugs typically produce the desired effect for only 40% to 60% of the patient population. Genomics promises to vastly improve the odds, and discoveries in the human genome are helping scientists identify the genetic origins of disease and gain a deeper understanding of how patients of a particular genotype respond to treatments. The payoff? Safer and more effective remedies, says John Simons.
• The Soul of the New Gene Machines, by Stuart F. Brown, page 113
  This is modern medicine's million-dollar question: Does a given human's DNA contain a mutation that researchers know or suspect is related to disease? One of many firms setting out to answer it is Illumina, a San Diego biotech. In its lab an army of high-performance machines called Oligators synthesize zillions of short, single-stranded fragments of DNA known as oligonucleotides, or oligos. Although only 17 nanometers in length, each contains enough information to make a perfect fit at just one location of the human DNA molecule's twisted, three-billion-rung ladder. Stuart Brown looks at how each oligo holds the promise of clues that could help prolong life.

DEPARTMENTS
In FIRST: A CEO Puts His Job on the Line With GM in crisis, Rick Wagoner takes over operations. Gutsy move-but is a turnaround even possible? Question Authority GM's Wagoner: It's his problem now. On the Radar Whoever prevails at MCI, CEO Michael Capellas will win big. Fast Eddie Roughs Up the Sears Staff Sears' new boss, Eddie Lampert, is squeezing suppliers, slashing spending, and cutting heads. After Greenspan: Ben Bernanke? The Princeton economist's nomination to head the Council of Economic Advisors puts him one step closer to succeeding Greenspan. CEOs See Record Perks Overall pay was up 3.4% last year, but other annual compensation rose 30%. Halliburton's Latest Headache As if the oilfield giant didn't have enough troubles: Now a feared plaintiffs lawyer wants to take over class-action suits against it. Pentagon: Years Later, Billions Short A look at a few of the most troubled military ventures. This Just In Testing rats, wasps, and yeast as bomb sniffers. In COLUMNISTS: The Great State Health-Care Giveaway Taxpayers get the bill, and it's easily hundreds of billions of dollars. Socialized Medicine? From Republicans? You bet, if the GOP wants to help CEOs solve their biggest problems. Street Life Are oil prices headed for a super spike? Value Driven Hewlett-Packard: home of the CEO pay heist. In INVESTING: Tech Stocks: They're Still Too High Mutual funds are plowing money into big tech in the belief that values abound. Don't buy into it. Profiting From the Bankruptcy Bill A new law provides an opportunity for debt collectors. Pipers That Still Pay Oil and gas stocks have soared, but bargains remain. Buffalo Soldiers A Kansas fund fields giant returns.

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For further information please contact:
Susan Brown
212-522-0133
susan_brown@timeinc.com

Amy Mahfouz
212-522-2134
amy_mahfouz@timeinc.com

 

 

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