Let's Get This Straight: The money's too good

Microsoft's staggering profits overshadow the courtroom fireworks of the antitrust trial's first week.


Scott Rosenberg
October 23, 1998 11:00PM (UTC)

| In the first week of the Microsoft trial, amid all the grandstanding and cross-examining and revelations of secret e-mails, the most significant Microsoft news broke far away from the Washington courtroom where Department of Justice lawyers are battling to nail the company for antitrust violations. The most important headline was the one that revealed the company's whopping quarterly earnings of $1.68 billion -- up 58 percent over the previous year.

Microsoft-watchers have grown wearily familiar with the company's quarterly routine of announcing strong profits and then warning that doom is just around the corner -- but this time around the company actually declared that next quarter will be great, too. The software behemoth is now sitting on a cash reserve of more than $17 billion, enough to bail out several nations' economies.

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There's nothing illegal about making obscene amounts of money, to be sure. But how is it that, quarter after quarter, Microsoft miraculously brings in the bucks -- despite market turmoil around the globe, constant change in the software industry and the frequent failure of many of its own projects? Gee, maybe it has something to do with the nature of monopoly and monopoly profits.

Microsoft lawyers complain that the government's case is built on "sound bites" ripped out of context. But the simple fact of Microsoft's overwhelming market power, and the profitability that fuels it, is the essential and irrefutable context for each bit of evidence presented in court. Justice Department lawyer David Boies opened the trial Monday with an all-out attack on Bill Gates' credibility, juxtaposing the Microsoft chairman's professions of ignorance in videotaped testimony with detailed e-mail memos that indicated Gates knew all about the issues in question. Gates is the notoriously hands-on business leader of the most successful technology company in the world; you can bet he reads his e-mail.

It's the context of Microsoft's market dominance that made the evidence the government presented on Monday of Microsoft's aggressive dealings with Intel, America Online, Sun and Apple so chilling. In a 1996 meeting with AOL officials, according to an AOL document Boies presented, Gates asked, "How much do we need to pay you to screw Netscape? ... This is your lucky day." For Microsoft, the amount was irrelevant; the company's coffers make it capable of making as many "offers you can't refuse" as it needs to achieve its goals.

In its opening statement Tuesday, Microsoft didn't try to deny that it uses its elbows a lot. But the company argued that, as a front page New York Times story put it, "the no-holds-barred tactics of [Gates'] company are not only common in the computer industry but also good for the economy." Microsoft's lead lawyer, John Warden, said that the key June 1995 meeting between Microsoft and Netscape -- which Netscape's Jim Barksdale had described as an attempt to divide the browser market -- was simply a business-as-usual kind of meeting. And maybe it was, for Microsoft; after all, in trying to persuade Netscape not to build a browser for Windows computers, the company was merely bringing to the browser wars the same tactics that had already won it monopolies in the operating system and office applications markets.

Warden, trying to make it sound as if Microsoft's opponents were crybabies who couldn't stand the rough-and-tumble of real-life competition, declared, "The antitrust laws are not a code of civility in business." Indeed they are not: They are a code of conduct for businesses that possess monopolies. Microsoft officials have never accepted the notion that, now that they sit on billions of dollars and 90 percent of the PC software market, they should or must behave any differently than they did when they were a scrappy David taking on IBM's Goliath. It is this willful pretense of ignorance about their own market position that makes them look like such hypocrites -- particularly as the quarterly earnings skyrocket.

Here's one example of the kind of hypocrisy Microsoft continually engages in: As long as the company is in its everyday, crush-all-comers and conquer-the-world mode, Microsoft pooh-poohs the challenge offered by Linux, the free operating system beloved by many geeks. But suddenly, when it's convenient for its purposes in the antitrust trial, it's willing to elevate Linux to the status of competitor: In arguing that the operating-system market is not being dominated by Microsoft, Warden told the court that "One person in Helsinki can quickly write the core of a sophisticated operating system."

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Warden conveniently failed to mention that the operating system "kernel" that Linus Torvalds wrote for Linux depends on many other free-software components contributed by a plethora of other developers to function: It's not as though the whole operating system was the product of one Finn's rainy afternoon. More important, the reference to Linux -- which is available for free on the Net or at low cost from distributors like Red Hat Software -- serves to remind the world that Microsoft's biggest weapon against Netscape was its ability to pour millions into developing a browser and then give it away free.

What Microsoft did to Netscape -- reducing the market value of its software by giving away a competing product -- is precisely what Linux's true believers hope to do to Microsoft. With, of course, the added twist that Linux is less a company than a movement, and its proponents are motivated more by passion for software than by the profit motive.

As the trial grinds on into the winter, we will hear much more about Microsoft's dealings with Apple, Sun, Intel and other competitors. And Microsoft will, as always, press for maximum advantage, even when -- as with Warden's citing of Linux -- that means contradicting its own past positions.

The habit of playing fast-and-loose to win is too deeply ingrained in Microsoft's culture for that to change now, even if it means that the company emerges from the trial's spotlight with its reputation permanently scarred. As long as next quarter's earnings continue to sparkle, it's probable that the folks in Redmond don't much care.

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Scott Rosenberg

Salon co-founder Scott Rosenberg is director of MediaBugs.org. He is the author of "Say Everything" and Dreaming in Code and blogs at Wordyard.com.

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