Saving Face: The Recasting of Bill Gates

by Wendy Goldman Rohm

If anything, Bill Gates' resignation as CEO of Microsoft and his company's settlement in early January of the Caldera antitrust suit were brilliant public relations moves. Both will go a long way to prevent the further tarnishing of Bill Gates' and the company's image.

In the case of Caldera, Microsoft got off easy, settling the suit by paying some $275 million in damages. Caldera had sued Microsoft for anticompetive conduct in the DOS market that hurt sales of Digital Research DOS in the early 1990s. (DR DOS had been purchased by Caldera from Novell, which acquired Digital Research and the DR DOS in the mid 1990s.) For years, Novell chief Ray Noorda had urged the Novell board to sue Microsoft for killing competition in the DOS market, but Novell wanted to avoid protracted litigation with the software giant. It wasn't until Noorda left Novell and founded Caldera in 1996 that he was able to purchase DR DOS from Novell and sue Microsoft for its monopolistic practices. The recent settlement was a victory for Noorda, who had been portrayed by Microsoft as having a vendetta against the company and having no grounds for the suit. (In court filings over the years since the suit was filed, Caldera demonstrated to the presiding Judge Dee Benson that the grounds for the case were solid, in the face of numerous motions to dismiss filed by Microsoft. Microsoft realized it was fighting a losing battle, and could not tolerate further damaging evidence being made public--especially since the trial was scheduled to begin February 1, before the judge ruling on US versus Microsoft had issued his "Conclusions of Law." Further evidence of predatory acts that would come to light in the Caldera trial would only damage the company further in the eyes of antitrust decision makers who were still pondering remedies in the case brought by the Justice deparment. What's more, had the Caldera case gone to trial, Microsoft faced a possible jury verdict of up to $3 billion.

Clearly, the evidence that would have been revealed in court promised to hurt the software giant even more than any monetary fine. That evidence-- collected by Caldera attorneys--who are now vacationing victoriously in Tahiti--promised to be even more damning than the mountains of monopolistic missives made public by the Justice department during its antitrust trial.

How did all this reflect on Bill Gates personally, moving him to step aside as CEO and leader of the company's day-to-day operations? He apparently had the good sense to do this voluntarily. But looking at the Caldera evidence in conjunction with the detailed picture laid out by the Justice department and in Judge Jackson's findings of fact in the government's antitrust case, Microsoft had good reason to remove Bill from the limelight.

The act was a face-saving measure for the man as well as for the company. Gates, who has always been thin-skinned, according to his closest confidants, was enormously embarrassed and insulted by the feds' attacks on his personal activities at the company. Removing himself to the pristine role of "technology guy" would help restore him to legendary status, and promised to win back the world's admiration and adulation.

Restoring the gleam to the icon meant keeping Gates' hands out of the company's most public strategies and deal-making--at least for the sake of appearances. A reading of Judge Jackson's "findings of fact" --which summarizes just a small portion of the evidence presented by the Justice department during the antitrust trial--reveals just how dirty Gates' hands have been, as the master conductor of Microsoft's scores of antitcompetitive campaigns.

It was Gates who tried to bribe the CEO of Intuit with a $1 million payment, for the promise to distribute Microsoft's IE versus Netscape's Navigator. (Gates wrote in his own email to other Microsoft executives, discussing his offer to the Intuit CEO: " I was quite frank with him that if he had a favor we could do for him that would cost us something like $1M to do that in return for switching browsers in the next few months I would be open to doing that.")

It was Gates who met with Intel's Andy Grove and demanded that he "not ship" Intel's NSP software, which he felt was a threat to Microsoft's operating system dominance. And it was Gates, at a meeting at Intel's headquarters on August 2, 1995, who threatened Grove, telling him Microsoft would not support Intel's next generation of processors as long as Intel was working on platform-level software that competed with Windows.

It was Gates who threatened to cancel Mac Office if Apple refused to make Internet Explorer, versus Netscape's Navigator, the default browser on its computers. Gates wrote to his colleagues, ""Apple let us down on the browser by making Netscape the standard install." He then told his colleagues about his coy phone call, in which he asked Apple's then- CEO Gil Amelio "how we should announce the cancellation of Mac Office . . .." It was Gates who, during Microsoft'santicompetitive campaigns against Sun's Java, sought to prevent other companies from supporting the rival technology. Gates, for example, told Intel CEO Grove in June 1996 that he did he did not want the Intel Architecture Labs cooperating with Sun to develop methods for calling upon multimedia interfaces in Windows.

Go further and compare Judge Jackson's findings of facts with Microsoft's proposed Conclusions of Law, filed with the court on January 18. Then compare some of the Caldera evidence collected under subpoena-- in preparation for trial--with Microsoft statements and rebuttals in its "Conclusions," and you will glimpse a company that is grasping at straws-- desperately trying to reweave the fabric of its own history and undo the actions of its own CEO.

During the federal antitrust trial, and in the Caldera court filings , Bill Gates and his lawyers have continually asserted the Microsoft won in the marketplace based on the innovations it was providing to customers and the merits of its superior products. But a look at Gates' own secret memos and communications with his top executives provides a completely different picture. The evidence showed, in competing with Netscape, for example, Microsoft determined that it could not win based on the "merits" of its own products. Executives wrote of the need to leverage Windows, to gain an advantage over Netscape, and the only way to do this was to combine Internet Explorer with Windows so that it could not be removed.

In the Caldera case, when faced with competition from a superior DOS, on November 29, 1989 Bill Gates wrote to his executive staff, complaining about the threat that DR DOS posed. "DR DOS is as good as our DOS," he wrote. And a few months earlier, Microsoft had gone to DR DOS, similar to how it had approached Netscape, in an attempt to get it to leave the market to Microsoft. Jochaim Kempin, the same executive who had forced OEMs into contracts that would not allow them to remove IE from Windows, in close alliance with Gates and Ballmer, offered a deal in an attempt to get Digital Research, the original developer of DR DOS, to stop competing with Microsoft.

"We basically offered DRI a certain amount of money for the use of [DR DOS] technology, and we proposed to them instead of taking money that we would license the MS DOS so they could resell MS DOS," Kempin wrote. DRI did not like the deal, and instead offered to sell the technology to Microsoft for $30 to $40 million. Microsoft refused, and no deal was made. Similar to how Microsoft responded when Netscape spurned its attempts to get it to stay out of the desktop PC market with its software, Microsoft embarked on an all-out war to destroy DRI.

Gates himself began instructing his staff to find ways to "break" DR DOS. Programmers then began to implant fake error messages in various Microsoft products, and other fabricated bugs to make DR DOS malfunction when used with Microsoft Windows and other products. Again, these programming efforts--as the evidence shows powerfully--were undertaken not to provide customers with "innovation" or better products, which has been Microsoft's mantra when speaking to the press about the antitrust case, but were done to destroy competition and damage the innovations of other companies.

Of particular interest, in light of the class action suits filed recently that accuse Microsoft of overcharging customers for its products, are the emails written by Gates as early as 1989, that show him obsessing over the fact that healthy competition from other products forces him to lower prices, which he would have preferred to keep as high as possible. On May 18, Gates sent a memo to his executive staff about "Operating System Strategy," and his concerns about revenue. "The DOS gold mine is shrinking...primarily due to low prices, IBM share and DR-DOS.... I believe people underestimate the impact DR-DOS has had on us in terms of pricing."

On August 6, 1989, he went on, "DOS being fairly cloned has had a dramatic impact on our pricing for DOS. I wonder if we would have it around 30-40% higher if it wasn't cloned. I bet we would!"

By turning Windows into an "operating system," and combining it with DOS, Gates killed many birds with one stone. He was able to double the price of the operating system to OEMs, and eliminate competely any competition in the operating system market, forever enabling him to set prices however he wished.

Such evidence would have been expanded and orchestrated in the press on a worldwide basis, had the Caldera trial gone forward. If Microsoft lost, the entire basis of its operating system empire would have been in question--opening the company up to scores of additional lawsuits. The Caldera case questioned the foundation on which Microsoft had established its monopoly position--something the Justice case never did. The Justice department lawsuit questioned Microsoft's practices in MAINTAINING it monopoly position, one that it assumed had been acquired through legitimate means. (According to the antitrust statutes, having a monopoly is not in itself illegal if that position was acquired through "superior skill" and appropriate competitive conduct. What is illegal is if a company establishes and/or maintains its monopoly position through illegal and predatory practices.)

Many of Microsoft's arguments filed yesterday, in its Conclusions of Law, are moot--as if it is trying to magically undo the most basic legal prededents established by antitrust law in this country. The text of that court filing smacks of "damage control," the essence of what also fueled Bill Gates' stepping back from his role as CEO, and the entering into the Caldera settlement.

More than any time in the company's history, it makes sense for Microsoft to agree to a settlement with the Justice department--and one that is meaningful and far-reaching. The current threat of breaking up the company is a big stick being wielded by state attorney generals and Justice, in an effort to ensure that the software giant will agree to change its business practices in a substantial way that will level the playing field far into the future.

Microsoft will shine much more brightly, antitrust regulators argue, if it would only agree to compete fairly and stop the predatory conduct it has been engaged in for more than a decade. If it does not agree to this, it will be forced to by Judge Jackson and perhaps even broken up. From a public perspective, Microsoft will win the most by willingly entering into a settlement with Justice. By doing so, it will spare taxpayers' expense for continued litigation, and restore the company's tarnished patina--and that of its chairman-- while ensuring healthy competition in the industry at large.

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