To understand how Microsoft got itself in the pickle it currently finds itself in, all you have to do is listen closely to the words Bill Gates offered the world on Friday upon learning of the Justice Department’s proposal to bifurcate his company. Regardless of whether you believe Microsoft is an evil monopoly deserving of the harshest government treatment or an exemplary company unfairly targeted on account of its marketplace success, Gates’ amazing statements provide an illuminating precis of the duplicity and arrogance that wrecked Microsoft’s trial defense and now threaten to place it under the surgical knife of a court-ordered breakup.
Listen to Gates as he rails at the government’s proposals: “Microsoft could never have developed Windows under these rules. We couldn’t have developed Windows because without the great work of the Office team and the Windows team, it never would have come together.”
This statement should cause the jaws of anyone who has followed Microsoft’s history to drop. For years the company insisted that the developers of Office’s predecessor applications, like Word and Excel, worked in strict isolation from its operating system developers. Separated by a so-called Chinese wall from their operating-system colleagues, the application developers had access only to the same “application programming interface” (API) information that programmers at competing companies knew about. The division, Microsoft president Steve Ballmer declared, was “like the separation of church and state.”
Competitors complained that Microsoft kept information about “undocumented” APIs for itself, and that Microsoft programmers exploited special access to the operating system’s innards. Microsoft said, “No way!”
Now, Gates says, Windows wouldn’t even exist without precisely such cross-team cooperation.
There are several possible interpretations of his statement, none of which get Gates off the hook. If by “rules” he is referring to the proposed breakup of his company, then he’s saying Windows’ success depends on its “special relationship” with Office, after all; if the “rules” he refers to instead are the interim “conduct” rules the government has proposed, which demand that Microsoft publish its APIs in full, then Gates is saying that Windows’ success depends on the very same undocumented APIs it has always claimed do not exist.
Is Gates suggesting that the original versions of Windows, developed in the late ’80s and early ’90s, were somehow dependent on the “great work of the Office team”? Office per se didn’t exist as a total package in those days, of course, but its individual programs faced fierce competition, and these were the days in which Microsoft’s “Our applications have no inside track” claims were the loudest. Or perhaps Gates is referring only to the latter-day version of Windows, Windows 95 and 98, which evolved in an era when Office dominated the desktop application market — but then his statement that “Microsoft could never have developed Windows” is ridiculous, since Windows already existed before it was refined into its 95 and 98 versions.
No matter how you parse it, Gates’ comment reeks of doubletalk and doublethink. But don’t dare suggest that to him. As he imperiously declared Friday, the government’s proposal “was not developed by anyone who knows anything about the software business.”
That’s right: Microsoft is full of brainy people who understand the software business, and the rest of us peons out here — lawyers, Justice Department officials, Judge Thomas Penfield Jackson, reporters, competitors and software consumers — should just clam up and let it do its thing.
Gates’ message continues to be: This is our game, and we’ll make the rules as we go along. This approach was singularly self-destructive during the antitrust trial, but Microsoft is sticking to its guns in confidence that whatever Judge Jackson decides will be overturned on appeal. And if the appeals courts and the Supreme Court rule against it, well, that will just prove that they know nothing about the software business, too. Microsoft can lose a trial, but it will never lose its sense of superiority.
The saddest thing about this situation is that it proves, in fact, that Microsoft’s leaders really aren’t very smart after all — they’re victims of their own emotions. Trapped in the psychological bunker of their own corporate culture, they keep driving themselves deeper into their legal hole — when they could instead be making a reasonable case that the government’s proposed remedies are full of holes.
Because there are a million and one things wrong with what the Justice Department and its allied states have asked for. Ostensibly the government has chosen to ask for a breakup of Microsoft because plain old regulation or government oversight of the company — a “conduct remedy” as opposed to a “structural remedy” — is considered unworkable. Yet, fearful that Microsoft can delay any breakup plan, the Justice proposal also asks for a lengthy laundry list of interim rules for Microsoft to operate under that look very much like “conduct remedies.” Since everyone in charge of Microsoft firmly maintains that they have never done anything wrong, the prospects for enforcing such rules look grim — a Vietnam-like legal quagmire into which whole battalions of lawyers and engineers would be likely to disappear without a trace.
And even if somehow the division of Microsoft into two new companies, a Windows firm and an applications firm, could be made to happen so quickly as to render interim conduct remedies irrelevant, it’s hard to see how that division would make a huge amount of difference in today’s Internet-driven marketplace. Both Office and Windows are profitable but mature businesses. Either of them could be a launching pad for new, Internet-based enterprises. If Microsoft were broken up, then whichever company Gates chose to stick with would doubtless take the lead.
As it is, splitting Office from Windows doesn’t guarantee any particular new competition in the software industry. Justice and its backers keep suggesting that an unfettered new Office company would develop a version of Office for Linux, instantly giving that server-oriented operating system a whole new legitimacy on the desktop. But is there any evidence that Linux users want Office? I think what they want is Office compatibility: If they could be assured that their favorite Linux applications could read Word and Excel files they probably would have no use for Word and Excel themselves. In other words, what Linux and other rival operating systems really need isn’t the Office programs, but access to information about Office, like file formats, that Microsoft currently holds close to its chest.
All of which suggests that the government has overlooked the one remedy that could genuinely transform the software marketplace: a requirement that Microsoft publish the source code to its key products, Windows and Office. In one stroke, this would lay bare all APIs, documented or not, and create a level field for all competitors to build new products upon — establishing the groundwork for a flourishing, competitive new software ecosystem.
Microsoft would scream bloody murder, but it is doing so already. On Friday Gates declared that the Justice plan “takes away any incentive for us to do new work by saying that the intellectual property has to be given away to other companies.” (This is the quote as reported by the media; on the Microsoft press site the phrase “our work, our way” is substituted for “new work.”) Like his other statements, this one is full of bizarre ambiguities: Is he describing the breakup plan itself here, or somehow interpreting the interim conduct remedies as a requirement to give away “intellectual property”? But the only “intellectual property” the conduct remedies mention are the APIs that Microsoft has always insisted it already makes fully public!
In any case, asking Microsoft to give away intellectual property is no more or less wrong than any other kind of material fine a company might be charged once it is found to have broken the law. And surely Gates has interpreted the situation upside down: If Microsoft were required to “give away” the information at the heart of its existing monopoly, the company would suddenly have an urgent and overwhelming incentive to “do new work” in order to stay afloat.
It would still start with enormous advantages, including more cash than Croesus, a powerful brand name, a vast corps of developers and a corporate leadership that defers to no one in its esteem for its own capabilities. The one thing it would give up is any advantage based on synergistic relationships with its own monopoly products. Wasn’t that what the antitrust trial was all about in the first place?