Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence (38 page)

And in closing:

You get measured in selling more hardware and I firmly believe if you had less conflict with IBM’s software directions you actually could sell more of it.

Leaving this subject behind, let me explain how Jackson believed we had harmed consumers. Amazingly, he gave us credit for charging zero dollars for IE, therefore reducing costs to consumers and forcing Netscape not only to match our price but also to improve Navigator. In the same breath, he accused us of doing this to defend our turf, meaning the famous and ghostly barrier to entry. Our actions therefore “have also caused less direct, but nevertheless serious and far-reaching, consumer harm by distorting competition.” He offered no empirical data to proffer his statement, which, by now, is no longer surprising.

Concluding his findings, he wrote that our “prodigious market power and immense profits” had been used to harm firms insisting on pursuing their own interest in competing with our core products. We had hurt these companies and “stifled innovation. The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self-interest.” A speculative, galaxy-shattering accusation, without naming any specific product, company, or independent market data.

Our legal team had arrived at dark suspicions about Jackson’s incompetence much earlier and was less surprised by how he had failed to see how the monopoly case in front of him required sophistication beyond a run-of-the-mill Chicago school specimen. Before him, in my view, was a case for wide-open rumble-tumble competition, potentially leading to a network-driven natural monopoly. In general, not a valid concern for antitrust enforcers, as insightful commentaries in several law books remark.

VERDICT

I spent a great deal on Jackson’s finding of facts—a 141-page document—analyzing and rebutting mostly the parts related to my old business. He erred profoundly, but the public damage was impossible to undo. Instead of delivering his verdict pronto, Jackson encouraged the parties to again engage in settlement talks. With the finding of facts hanging like a Damocles’s sword over our heads, he introduced Chief Justice Richard Posner of the Chicago appellate court as mediator. Posner was a good choice and, for the moment, a promising sign. He was one of the leading antitrust experts in the country and was in the process of publishing, as mentioned earlier, a highly respected and often-referenced antitrust bible. Yet even this sagely experienced judge could not bridge the rift between the stubborn state AGs and the DOJ. Despite MS’s best intentions to settle the case, and after agreeing with the DOJ on several drafts, the mediation fell apart—the overreaching State AGs to blame. A frustrated Posner informed Jackson of his failed attempt, and on April 3, 2000, Jackson swiftly published his conclusion of law, convicting MS of violating the Sherman Act by illegally monopolizing the OS market for Intel-based PCs and maintaining that monopoly illegally with anticompetitive measures. He then ordered the commencement of an expedited penalty phase.

In lieu of rambling on at length about his verdict, allow me to reference just a single issue that will cast a clarifying light on his character. Admonished by the appellate court in regard to the IE/Windows tying argument and strongly cautioned not to engage in tech-product design, he audaciously contested the higher court’s earlier verdict. Bluntly, he questioned the legal test the appellate court judges had applied when deciding the prior case. To prove he was the better judicial thinker, Jackson pitted their logic against highly respected, nuanced, and cleanly defined Supreme Court decisions.
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The appellate court had instructed him not to put “a thumb on the scales” of computer design and innovations. Remembering that he naughtily countered with the childish admonition that MS had indeed put her thumb on the scales of competitors’ innovations. Therefore, he revisited the validity of MS’s plausibility claim, in regard to IE integration, and erroneously applied the Supreme Court’s conclusions in the aforementioned cases. According to him, it needed to be judged “upon proof of commercial reality, as opposed to what might appear to be reasonable” benefits users obtained through that integration. Explaining “the commercial reality is that consumers today perceive OSs and browsers as separate products, for which there is different demand.” Consequently, he found MS guilty of defending a monopoly through illegal tying, primarily because software can be “comingled in virtually infinite combination.” Let’s leave this for the appellate court to answer.

MS’s reaction to Jackson’s verdict was predictably swift, despising his ruling and promising an appeal. By now Jackson was talking intensely on record to reporters while banning them from publishing his remarks until the case had been fully concluded. During several appearances, Bill and Steve boldly insisted on no wrongdoing. Not terribly smart or diplomatic, though certainly understandable. In Jackson’s view, these defiant public statements by our top commanders indicated we respected neither his judgment nor his intelligence, wading out into the dark, marshy terrain of character assassination
.
Touché!

Meanwhile, a new administration had taken over Janet Reno’s department of questionable justice. Republican President Bush had been ushered in with the help of the Supreme Court after a much-contested election outcome in Florida and Boies losing contender Al Gore’s case in the Supreme Court. With the old staff still mostly in place and no change of heart forthcoming, the Feds marched on, asking Jackson to use the most drastic measure he had in his repertoire to remedy our perceived antitrust violations. Stunning the IT world, he swiftly complied and ordered the breakup of the company, denying us, as required by federal rules, an evidentiary hearing in regard to the harsh antidote.

To evade a regular review by the abhorred appellate court, he made use of his privilege, which allows judges in antitrust cases to send a verdict straight up to the Supreme Court for confirmation. Rarely does this ever happen. With the Supreme Court being able to pick and choose a case, he hoped for the best. Most judges would have known that a case riddled with so much upended detail and blurred uncertainty had no chance in hell to get accepted. Simultaneously, and to our utter surprise, he softened his stance at MS’s request and, in last–minute, stay-off execution disbelief, suspended his breakup order. Our relief could be heard from sea to shining sea and certainly reverberated in Washington, DC. We remained, for now, one company. As expected by most legal experts, the Supreme Court declined to take the case, enabling us to file an immediate appeal. Let the final ballet of justice begin.

MY LAST HURRAH

A NEW CEO

With calendar year ’99 coming to a close, we were getting ready for Windows Millennium (ME). Its primary new feature, the “system restore” aspect, finally compensated for badly written application programs. NT had further matured and was now called NT 2000 professional workstation. One year later, its underpinning would be used for all Windows versions. After eight years, we had finally unified its code base, naming the two Windows products appropriately: Home Edition and Professional Edition, targeting consumer and business users with different feature sets at different price points.

This next version, called XP for
eXPerience
, was the last Windows version I helped to launch and sell—in itself a stable OS, but vulnerable to rampantly growing security attacks via the Internet. The Linux camp and the hacker community, especially, encroached on and slashed into it at will. We struggled mightily keeping it safe and protecting it from viruses through releasing a multitude of security upgrades. The good news: XP’s retail and OEM versions employed nearly bulletproof antipiracy measures through encrypted log-in sequences controlled via the Internet. Except for still less protected enterprise versions, a long arduous journey was winding down to a happy ending as my departure drew closer. Our developers and their management had finally enacted the right measures.

With undiminished intensity and stamina, my group had grown to 550 employees while the company has exploded to around 50,000. Like in all other segments of MS, valuable employees had left, but nearly all of my managers had stayed on. People liked working in my group and being part of what they considered a focused, well–guided, and no-nonsense elite sales team reaching beyond $20 million annual sales revenues per rep. I had rotated my managers through varied assignments over the years, educating them to understand and accept different cultures and their unique business dealings. My management style had created a group of empowered and closely knit leaders who understood how the company wanted her OEM business to succeed. Yes, even then we sometimes had healthy disagreements. They enhanced how we pursued our cause. I wanted managers with strong egos and brimming ambitions, focusing their energies to move the business forward and not fight or blame each other as I had observed in other parts of the company.

By the end of ’99 and in the spring of ’00, we conducted business as usual during a truly unusual time. After Jackson had issued his finding of facts, the sword of a potentially devastating verdict hung over our heads. Our policies had not changed one iota, except our moves were now watched not only by the outside world but also equally closely by our own legal department. Not a healthy environment to do business in even if you closed your eyes. There was nervousness in all parts of the company, and people showed signs of being palpably afraid. Auftragstaktik was being kissed good-bye! Receding slowly into the archival dustbin of MS’s legend. I made it my personal responsibility to ensure that the OEM group did not fall into this yawing pit of fear and loathing. In my group, the pillars of trust and empowerment were there to stay. My people knew how far they could go when they needed to reach, and I made sure they were never undercut. As far as I was concerned and regardless of what the judge had propagated, we were on solid grounds, and the company would eventually find her way out of the crisis.

The only strange altercation I experienced was an internal one. Steve, putting his foot down, instructed me to share revenue recognition for the fast-growing system-builder business with the subs. He no longer wanted to endure their persistent and nagging complaints—another political move no doubt. With Bill distracted and growing moodier by days, there was no way to fight his edict. I swallowed my pride and agreed to the dreaded accounting changes. They did not improve the business one iota and fostered no friendships inside the company apart from saving time arguing. Going one step further, he suggested that by next fiscal year, I should give the subs sole control of that business. My passionate answer: “Over my dead body as long as I am running OEM!” The subs had gotten a hold of a little finger and were now looking for the rest of the hand. My group had done the brunt of the work, and now our fastest-growing segment was to be transferred to a bunch of managers eager to revel in its success, potentially destroying its structure, hard-won stability, and pricing integrity. My fervently presented arguments hit a nerve. Steve then tried to mollify me by promising that pricing would remain under my control. I told him, “Dream on!” I had no desire to play an internal policy enforcer role. In the end, he relented, leaving the business within my domain until I left my post.

Steve could have easily avoided this conflict by identifying an alternative business goal he wanted me to pursue, such as doubling this business within two years. I might have concluded that this could only be achieved by handing the business responsibility over to the subs, and I would have done so immediately. Absent this, he insisted and settled upon an accounting change, which only served to artificially bolster subsidiary revenues. The command-and-control system I liked best was then for sure not his.

Right after the judge published his finding of facts and threatened to break up the company, the board named Steve Ballmer CEO. Bill, still chairman, added the title chief software architect
to his name, indicating he was from now on responsible for strategizing and planning the development and delivery of leading-edge software products. Having grown sick and tired of the persistent public humiliation, he was in full retreat. For the first time ever, a rift between him and Steve could be spotted. Not superobvious to outsiders, but the rumor mill had it nailed. In an angry aside, Steve told selected people he did not need Bill any longer to run the company! True to form. I was convinced he could manage her complexities, but could he lead and initiate meaningful change?

From then on, he grew more eager than ever to build his own team, engaging me seriously into succession planning. He proposed promoting Jeff Raikes to head MS’s sales force and asked me how I felt about reporting to him. Surprised about his change of heart, I felt obligated to remind him of our understanding. I had not changed my mind about leaving OEM in ’01, but in good old Steve Ballmer style, he had gotten impatient, probably emboldened by his newly gained title. Jeff Raikes—one day to assume the reins of the Gates Foundation—had the two stamps I mentioned earlier on his forehead. His intellect and management skills were held in highest regard by Bill and Steve, and they both considered him a personal friend. Credentials in hand, he had methodically scaled the company ladder, performing reasonably well in his assignments. I had no reason to disrespect him but believed he lacked the adequate experience of running a large sales force. At heart he was a marketing executive, knowledgeable of and practiced at running a product group—so I objected.

The concurrent Caldera antitrust lawsuit settlement, with MS coughing up nearly $300 million, did little to help my standing. I suspected the OEM group and maybe me personally were being blamed for the costly outcome. Undermined by the preliminary ruling in the current case, the sweetheart settlement Ray Noorda received was the result of a developing no-balls attitude and a weakening defense team.