Indeed, on Monday, April 3, Jackson’s ruling arrived, and his language was withering. There was Microsoft’s “oppressive thumb on the scale of competitive fortune.” There were its anticompetitive actions that “trammeled” the process that normally encourages innovation and consumer benefit. And there was the damning conclusion that by abusing its Windows monopoly in an attempt to rule the Internet, Microsoft quite literally broke the law. Bad as March was, April was crueler.
Within an hour of the judge’s slapdown, Bill Gates, lit by kliegs in the company TV studio in Redmond, Wash., flashed an icy, inappropriate smile as he vowed to win on appeal. Though much of the public takes his side (a NEWSWEEK Poll indicates that only about a third of Americans agree with the judge), shareholders dropped Microsoft’s stock price by 15 percent on Monday and Tuesday, with Gates personally taking a hit of about $12 billion, enough to buy an aircraft carrier and match the gross national product of Bolivia. But that is only a taste of what could happen if Gates is wrong about what he calls his “strong case on appeal.” He and CEO Steve Ballmer might have to implement a list of unsavory remedies imposed by Jackson, as well as defend against more than 120 civil suits by various competitors and class-action lawyers who gobbled up Monday’s ruling like Iditarod dogs snarfing kibble. Surely, the decision to roll the dice on a winning appeal stands as one of the biggest gambles in the history of business.
But that is not the only significant threat to Microsoft’s future. Though the firm continues to rake in profits from its still-unchallenged franchise players Windows and Office, competitors seem to be everywhere, fueled by a new sense that the giant’s day will soon be over. AOL Time Warner will be unchallenged in its online customer base and hold vast cable-television assets and last week unveiled a newly refurbished Netscape Navigator, reigniting the dormant browser wars. Across the Pacific Rim lies Sony, which has recently taken to referring to itself as the “first broadband entertainment company”: its PlayStation 2 game console cum digital-delivery systems is poised to invade the United States this fall. Down in the Silicon Valley, Sun Microsystems insists that its geeksperanto languages Java and Jini will tie together all sorts of devices, ranging from network servers to oven ranges, making Windows irrelevant. And all over the world, mobile-phone makers are adding Web features to their gizmos.
It’s only the iceberg tip of a massive mobilization, buoyed by a collective conviction that by the time the final resolution of the antitrust trial rolls around, this new, distributed paradigm will rule, and legal issues about operating systems and browsers will seem as quaint as manual typewriters. Bill Gates gets apoplectic at these usurpers crowing that their collective efforts can rope Gulliver–while insisting that a government prosecution is essential.
Now here’s the bad news for competitors, Macintosh addicts and folks who just like to put Bill Gates on their dartboards: all this pressure has only made the ‘softies work harder. As medieval kings of England well knew, nothing curtails the dogs of doubt quite as much as a crusade, and Gates’s second big gamble is to launch what might be the riskiest move of his career–refocusing the entire company and its products to take advantage of what he sees as the “next generation of the Internet.” How important is it? “If we’re wrong,” says Microsoft sales chief Jeff Raikes, “we’re toast.”
The current rubric for this effort is “Next Generation Windows Services,” with an emphasis on that final word. The Microsoft vision is to replace the bulk of its software with a collection of dynamic “services” that makes it easy for customers to access and manipulate information spread out over the Web. In Microsoft’s telling, the Web you know and love is severely limited: you can view pages but can’t really fool around with the information it offers. By making use of a recent standard for creating Web pages called XML, however, it’s possible to use that data as smoothly as you can massage the numbers in your own little spreadsheet at home. A whole new set of possibilities open where minutiae stored in the bowels of Web-connected databases get integrated into your life. Want to travel? Your personal calendar could take into account the weather in destinations you’re scheduled to visit, as well as whether seats remain for discount fares on your favorite airline. And if your stockholdings increase, you may automatically upgrade your hotel reservation to a suite. Another benefit of XML is that by unhooking data from a fixed page view, it can effortlessly display the same figures, facts and trivia in devices ranging from mobile phones to e-books.
To accommodate these changes, Microsoft engineers are busily rejiggering familiar programs like Windows and Office so that your software itself, and even the information you once kept snug in your disk drive, will be spread over the Web. These days, Redmond is in full jihad, and its troops are totally on message. Sit with them and you keep hearing the same phrases, the same examples, the same put-downs of competitors, the same giddy exclamations that this is a “bet the company” moment very much in the spirit of Microsoft’s tardy, but ultimately triumphant, Internet initiative of 1995.
“That’s why we have a resurgence of energy, just like we had after Windows 95,” says Gates. “People are saying, ‘Hey, I’m being picked to do the new user interface,’ or ‘Hey, I’m being picked to do the new development tools.’ That’s very motivating.” Microsoft’s top leaders even shrug off the apparent exodus of key executives in recent months. “We still have better people than anyone around,” says Ballmer. “And while some people have been real losses, a high percentage of [the departed] were pushed, and I’m excited we did that.”
These days the motivation is truly intense, as everyone prepares for Forum 2000, a late-spring confab, where the initiative will be formally rolled out. A lot of the unresolved questions about the effort will be answered then… like whether Microsoft will have coined a zippier name than NGWS. (Gates says that the ungainly temporary moniker is intentionally awkward, to ensure that something better will replace it.) A more crucial decision is what sort of business model Microsoft will use to collect money on these services. Rest assured they will not be free: none of this stuff about giving it away and sticking ad banners over the menu bars. “Believe me, if you give customers a good experience they will be happy to pay,” says Ballmer. “I’m not sure they’d pay 30 or 40 bucks a month, but they’d pay 10 bucks a month.”
That’s only the beginning of the advantages for Microsoft if this gamble pays off. Right now the company reaps only about a fifth of its income from small business: the problem is that it doesn’t upgrade enough. But with a subscription/services model, the money flow is constant. The upgrade is continual.
But perhaps what excites Microsoft most about the effort is that it will put Windows in the center of Internet action. The Redmondites make no bones about it: these services will work best for Windows users, and certainly the creators of those services will be those firmly in the Windows camp. “We are investing heavily on that,” says Microsoft developer VP Tod Nielsen. “If you want to do the Internet, the best way will be on Windows.” This kind of talk makes Microsoft’s opponents wonder whether the company has learned anything from the whole DOJ debacle. But when you think about it, such a course was just about genetically predetermined. That’s Microsoft’s DNA. Just as plumbers attack problems with wrenches and carpenters with hammers, Microsoft uses Windows.
In any case, the NGWS effort is pervading Microsoft’s plans to dominate beyond the desktop. “In order to move into the future, we have to break the PC mind-set,” says Jeff Raikes. And Microsoft folk love to point out that no other company is taking such a hard-core, long-term approach. “They’re so busy chasing the Windows headlights that they don’t see the big picture,” says Microsoft’s Charles Fitzgerald. For every competitor, there seems to be some version of the plan designed to fend off the threat. To counter Sony’s PlayStation 2, there is the X-Box, a flashy game console introduced last month by Bill Gates himself at a game-developer conference. It’s due in 2001. To answer AOL, Microsoft is revamping its MSN service around, well, services. Instead of all that clunky, low-profit content, it will be a launching pad for NGWS. Cutting deals with Ericsson, AT&T and British Telecom, the ‘softies hope to make Microsoft Mobile Explorer a ubiquitous means of wireless browsing. And Microsoft is even taking another run at the handheld world, with a new set of PocketPCs slated to launch next week, still hoping to unseat the Palm operating system that has so far kicked Microsoft’s stylus. “There have been less than 10 million Palm units sold,” says Microsoft consumer visionary Craig Mundie. “That’s a rounding error in units and revenue for us.”
Not surprisingly, competitors aren’t exactly tossing hosannas at Microsoft’s initiative, especially since they feel they are cooking superior solutions to the same problem. “It’s more sticky, proprietary goo,” says Sun Microsystems chief scientist Bill Joy of NGWS. Ken Rhie, head of ThinkFree, a start-up making a service-based suite of tools, thinks that few outsiders will join the NGWS effort. “First of all, nobody likes Microsoft,” he says. “And even if they do, those Windows platforms are like Mack trucks–even if they chop it down, it’s just Mack truck junior.” Mitchell Kertzman, a longtime Microsoft foe now heading software company Liberate, thinks that Gates’s approach will be self-defeating. “If Microsoft has a weakness, it’s the fanatical religious belief in Windows,” he says. “I think that Windows is so inappropriate for some devices that it might be their downfall.” And Bob Young, chairman of Red Hat Software, insists that the future Web belongs to the Open Source movement: “People want control of the technology, and that’s a model Microsoft doesn’t cater to,” he says.
At least that’s the view from the Valley, where the dot-com slicks, the device geeks and the Sun worshipers cheer on the Justice Department while figuring that Gates & Co. are a paradigm too late and a microbrowser too short. And while Microsoft’s leadership vociferously rejects that view, they at least know that it’s out there. Last month, at the PC Forum conference held at an Arizona resort, Steve Ballmer addressed the digital elite with a speech self-mockingly titled “Will Microsoft Matter?”–clearly a rhetorical question to him. Afterward, however, it is pointed out that in the previous day’s session, the Microsoft threat–once an all-consuming obsession to this crew–was never mentioned. And even Ballmer’s speech, delivered in a relatively subdued volume for a man who once blew out his vocal cords yelling “Windows! Windows!,” failed to inflame the crowd. Not even a stray brickbat. Could it be, he is asked, that Microsoft won’t matter?
“I should have been more clear,” says the CEO, who then begins to crank up the decibel rating to triple digits, approximately the volume of pneumatic drills and shuttle launches. “There are hard problems out there,” he says, as the windows begin to rattle in his hotel bungalow. “You show me anybody who thinks they can play the game with us and I’ll show you they’re wrong.”
Outside, desert fauna are dashing to high ground.
“I believe that,” he continues, “with great conviction and passion. I know we matter and our day is not passed. I know that and we will prove that. "
Any competitors viewing such resolve would have been excused for thinking that Microsoft’s big software gamble was a done deal, and only calling out the cavalry would rescue them. But then, they’ve already called out the cavalry: a guy in a robe who just signed his name to a devastating ruling. Unfortunately for Bill Gates and Steve Ballmer, Judge Thomas Penfield Jackson believes that Microsoft matters very much.
As it awaits the remedy phase of the antitrust trial and plans its appeal, Microsoft faces competitive challenges like never before. Formerly minor players have grown, and small upstarts are creating new technologies that threaten Windows’ dominance.
