Microsoft File: The Secret Case Against Bill Gates
Authors: Wendy Goldman Rohm
Venue:  (1998)

From the Book: Introduction Is Microsoft's rise as the world's most powerful and successful company in the computer and information industries a classic example of the free market at work? Is Microsoft's success and the failure of other companies the result of the creative destruction that makes capitalism so strong and unique? Or was there another force at work? This book will show that Microsoft, under the leadership of its founding genius, Bill Gates, has engaged in a pattern of predatory business practices over the past decade that have all but killed the market in operating systems and applications software, and now likewise threaten to stifle free competition in the Internet and electronic commerce arenas. What has happened to Netscape is just the most recent example of an alarming pattern that becomes evident from an analysis of the strategy and tactics of Bill Gates and Microsoft since the early days of the software industry. ---------------------------- The seeds of this book were planted back in 1989 in a Las Vegas parking lot, during an off-the-record interview with a senior vice president of a major U.S. computer manufacturer. It was November, a huge high-tech conference was under way, and meeting rooms and restaurants were full to capacity. I'd set up office under the Vegas sun with a couple of folding chairs in a back lot, out of range of the crowds and chaos. A number of CEOs and senior executives would meet with me that day for a series of articles I was planning. I had not expected what I was about to hear, however. What the executive, and many others, told me almost ten years ago was the beginning of the story of the efforts of one man and one company to create and maintain monopoly power in what should be the world's most dynamic, imaginative, and competitive industry. What would follow, over the years of interviews and research, was their account not only of how Gates came to dominate markets in the United States but how his market power was leveraged worldwide. What Microsoft and Bill Gates are doing today at the close of the twentieth century parallels what John D. Rockefeller and Standard Oil tried to do at its beginning. For Rockefeller, fuel--oil--drove the century. Out of it emerged an entire culture and lifestyle. World powers were built on it: the economy became virtually synonymous with it. Rockefeller changed the world, just like Gates has. Gates, however, is succeeding far better than Rockefeller. For Gates, it's no longer oil flowing through pipes that makes the world run. It's information. Like Rockefeller, Gates has shrewdly identified the choke points and has managed them well. He knows the significance of infrastructure and market penetration. They're both more important than immediate profit--which comes in a payoff of unimaginable lasting power, once the monopolist has gained control. Like Rockefeller, Gates at various points has expressed his opinion that since he created markets, he should rightly own them. To both men market share was everything. Never mind all the short-term freebies and price cuts they had to give. Both knew it would all pay off down the road, as competition was eliminated and they were increasingly free to operate as they pleased. Gates, like Rockefeller, knew how to cut off his competitors at the pass. Rockefeller nabbed oil shipments by planting his agents all over the globe. His motto was, "The coat-oil business belongs to us." If dealers bought a mere barrel of oil a year, they had to buy it from him. Likewise, Gates has left no stone unturned. For some time--until the feds partially put a stop to the practice he had computer makers pay a royalty to Microsoft on every machine they shipped, regardless of whether any Microsoft software was on it. Gates tried to make sure that no alternative from any company, large or small, would ever gain any penetration in his market. Intelligence was important to Rockefeller, as it was to Gates, and both were quite good at it. The goal: to control the infrastructure and access to all routes to market. Like Rockefeller's did, Gates' profits, relentlessness--and monopoly power--have pushed him on into new fronts. Rockefeller spread out to railroads, shipping, steel, gas, copper, not to mention banking and trusts. Gates leveraged himself from computer operating systems to applications software, into the Internet and, now, the travel business, financial services, the media, and beyond. Gates historically has slashed prices or given products away and pushed computer makers into contracts that made it difficult for them to stray to another product, no matter how superior. But that's not all. Gates slashed the information pipeline for his competitors, That is, what has unfolded in recent years for those attempting to compete with Gates is the equivalent of what the teamsters did in Rockefeller's day: They sought to sabotage the pipeline by dragging it to the surface and cutting it so the oil would spill. The pipeline had to be guarded. For his part, Gates slashed through his competitors' information channels, making it impossible for them to reach the market, to make products that would run on machines controlled by him. With the proliferation of computer networks, the world is so much easier for Gates to navigate, digitally, than it was for Rockefeller, who was often hindered literally by the physical restraints of his markets. The Microsoft File will show, from inside offices around the world, Gates' campaigns to stymie free competition. It will provide a peephole into how key business deals are kept off the books; how psychological warfare is waged between those vying for power within the hierarchy of the Gates empire; and how Gates used a smokescreen of technological complexity to control the market and the scrutiny of Microsoft's activities. At the same time, the federal government will be exposed for its fumbling of an important case. The players and their personalities and motives will be seen in the context of a circuslike atmosphere in which warring armies of attorneys, politicians, and corporate officers played out their personal dramas behind the scenes. There are many who would offer one piece of advice: Let Bill Gates alone. And why not? That would be easy enough. The man and his great corporation have created thousands of jobs worldwide and catalyzed the creation of hundreds of companies that make products to run off the personal computers he has enabled with his operating system since the early days of the market. Why mess with Bill? His dominance has created standards in a marketplace that would otherwise have been chaotic, runs the argument. Gates' contributions to a new industry, like Rockefeller's, are unquestionable. But less obvious is the hidden record--that shows how Gates restrained trade and inhibited the innovation of others who got in his way. Microsoft's activities behind the scenes and intentions in the marketplace are spelled out in the secret communications within his inner sanctum. The feds have collected a partial picture of what was going on, under subpoena, through continuous investigations--still ongoing. The record shows a classic monopolist, uncannily similar in strategies and intentions and ethics (or lack thereof) to John D. Rockefeller. What has been Gates' intent? To build great products, as he contends publicly, or to lock up the entire marketplace to increase his ever-swelling coffers? Only Gates' own secret communications, and the tales of those who tangled with him tell the full story. A portrait of Microsoft's strategies for market domination--from the early days of the industry to the current competitive battles in the space--is also painted by an e-mail trail. The resolution of Microsoft's dominance of the market will have enormous impact on the burgeoning world of electronic commerce. Will it unfold freely, making it possible for all would-be participants to play in the market? This resolution will not only affect market dynamics but will have an enormous impact on how we run our lives; how and what type of information will be accessible to us via the Internet, what our options will be in the future in personal banking and purchasing goods over electronic networks and the Internet, and who will be in control of the most basic backbone of communications---broadcast, Internet, cable--in the future. Will this be in the hands of a range of innovative companies driven by the customer, or will it be controlled by Bill Gates? What Gates is doing now, as you read this book--his attempt to control electronic commerce and the Interact--is only a continuation of the tactics he has practiced and perfected since the early days of the DOS market. ------------------------------- In the process of creating this book, I conducted hundreds of interviews--in person and by phone and e-mail--over the past five years both inside the federal government and within the major corporations that were involved. These ranged from talks with chairmen, CEOs, and chief counsels, to midlevel managers and administrative assistants, and allowed me in many cases to closely reconstruct events. As in any investigative endeavor, because of the sensitive nature of the material being covered, some allowed me to use information they provided but did not want to reveal that they'd been interviewed, while others were willing to go on record. Several scenes in the book were written based on my direct observation of the events, while other scenes were constructed from the accounts of those who were present or were briefed in detail and closely tied to or were otherwise familiar with the events. Also backing up my presentation of events are hundreds of pages of documents I collected in the course of researching this book. At one point during the creation of this book, Bill Gates engaged in an e-mail correspondence with me over the period of several weeks. I also had a number of face-to-face encounters with him, during one of which he told me that he was "not allowed" to talk to me. Other Microsoft executives, including senior vice president and corporate officer Mike Maples told me that, although they wanted to talk with me, they were "not allowed to." This, they said, was an edict from Microsoft's corporate communications and legal departments. Before this book went to press, Microsoft was presented with the opportunity to respond to a wide range of the allegations presented in it. A top Microsoft official told Random House that the corporation chose not to respond and had "no comment" on the thorough list of questions that was submitted. Other than that, Microsoft declined to officially participate in the creation of this book, although I had a number of Microsoft sources and documents. As author Ken Auletta aptly pointed out in his Greed and Glory on Wall Street, "no reporter can with 100 percent accuracy re-create events that occurred some time before... A reporter tries to guard against inaccuracies by checking with a variety of sources, hut it is useful for a reader--and an author to be humbled by this but journalistic limitation." I have tried to present events as they unfolded, by necessity sometimes from one side, based on the accounts of those who were active in the emergence of the power plays that have shaped an entire economic and digital era. Wendy Goldman Rohm