It all comes to a head next week. Microsoft gets its day in court, yet again. And the company will be bombarded before appellate judges this time with the charges that it bullies competitors and–in Judge Stanley Sporkin’s view, anyway–has become a potential threat to economic well-being. Ouch! After more than four years of antitrust torture, even battle-hardened Microsoft executives are feeling the sting. They admit to worrying–just a little–about the effect of all this on partners, customers, and employees.
And worry they should. Look what happened to IBM and AT&T during their years on the investigatory rack. They ran up huge legal bills. Their executives suffered a persistent distraction. Even worse, the scrutiny in both cases subjected both to pernicious impacts: The years of legal wrangling worked like a slow-growing cancer on their morale and business practices–eating away at their competitive edge. “These cases can be tremendously burdensome,” says Luke Froeb, an assistant professor at Vanderbilt Univ ersity’s Owen Graduate School of Management. “They just keep dragging on for years.”
Decades is more like it. IBM fought three separate government antitrust cases, culminating with a 13-year investigation that ended with a dismissal in 1982. No one argues that these cases caused IBM’s financial crisis three years ago. “But it was a major nuisance. It cost them a lot of money and a lot of time,” says Franklin Fisher, a professor at MIT who co-authored a book about the third case, “Folded, Spindled and Mutilated.”
How bad was it? Listen to Glenn Henry, president of Centaur Technology Inc., who was in charge of development for IBM’s System 38 minicomputer in the 1970s. Because of legal concerns stemming from the third case, he and his colleagues had to be ultra careful about what they said or wrote. All documents were saved. So even the merest suggestion that they planned on dominating a market was forbidden. “It wasn’t that you couldn’t think it,” quips Henry. “You just couldn’t write it down or say it in a meeting.”
All this tiptoeing around became a terrible burden, according to another former IBM executive, who worked closely with former Chairman John Akers. The executive, who asked for anonymity, says it’s frustrating for highly competitive executives to sheath their verbal sabers. “It dramatically affects the company’s competitive approach,” he says. “It became counterproductive to go after the market, so they pounded on each other.”
There was plenty of internal squabbling at AT&T, too. The company’s antitrust case lasted eight years, during which its ranks were divided between those who welcomed competition and those who fought for things to remain the same. The antitrust case wore the company down. “It’s dispiriting,” says Louis Galambos, a professor of business history at Johns Hopkins University and co-author of the book “The Fall of the Bell System.” In 1982, then-CEO Charles Brown sued for peace and settled out of court. “He want ed to get on with the business of running a telephone company,” says Galambos.
Microsoft just wants the long battle to be over, too, but it’s not about to crumble. An appeals court panel meeting next Monday could end the case by rejecting Judge Sporkin’s objections to what he claims is an easy-does-it settlement between Microsoft and the Justice Department. But, if the appellate judges go along with Sporkin, the case could drag on for years.
Microsoft has a lot to lose, even in the short term. The proposed merger with Intuit, while not directly related, could be rejected because of concerns over the antitrust case. Potential partners could shy away from a Microsoft alliance. And consumers might start to see Microsoft as the Darth Vader of the computer industry.
So far, though, it’s been not much more than a public relations black eye. Thirty resellers told Microsoft executives at a meeting last month that they haven’t seen a backlash from customers. And no potential partner has backed out of a deal with Microsoft–not publicly at least. Still, Microsoft executives fret. “I worry,” says Executive Vice President Steve Ballmer. “We want companies to come to us with their technology. We don’t want them to stop talking to us.”
To prevent that, Microsoft has launched an energetic damage-control program. A handful of executives including Ballmer and ISV czar Cameron Myhrvold hit the road to tell their side of the story. A key message, and one that marks a real switch: They’re going to be more sensitive to their role in the industry. For starters, the company promises to train its employees better. The goal is to avoid incidents like the recent one where a young staffer mistakenly told Compton’s NewMedia that it would be barred fro m The Microsoft Network. Company executives are also going to great lengths to explain their elaborate (and costly) ISV and OEM support programs. “We want to be a more predictable animal, and less frightening,” says Ballmer.
Could this mean we’ll be seeing a less aggressive Microsoft? The company seems to have backed off a little bit. For instance, late last month, after hearing complaints from resellers, it decided not to offer encrypted software applications on the CD ROM version of Windows 95. But, overall, it’s the same old Microsoft. “We don’t rest on our laurels,” says Mike Murray, senior vice president of human resources. “We’re hard core about this business.”
But Microsoft will have to show amazing stamina to retain its sharp competitive edge if this case wears on. Even if the company wins the antitrust settlement case on appeal, observers expect that it will face the threat of new investigations and lawsuits as long as it remains so dominant.
“There’s potential, as this drags on, that you could have something like IBM,” predicts Galambos, of Johns Hopkins. Now, that’s a prospect to keep Bill Gates awake at night.