Michael Robertson sounds off on what's happening in the software marketplace.
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Date Published: May 27, 2003
This week Bill Gates came to my alma mater to
speak. I have to admit that I was less than thrilled to have UCSD roll
out the red carpet for him, but it's understandable since he is the richest
man in the world and runs the richest company in the world. I started to
think about the young people who would be in attendance though, and that
they were in diapers when Microsoft started. They've grown up in a Microsoft-only
world, that's the only thing they know and few have any perspective about
how Microsoft came to dominate the PC business. In the absence of information
otherwise, they'll assume that it was through healthy, free enterprise
-- which I don't believe is true.
Anyone who tracks the PC business, recognizes that Microsoft has clearly
been on a propaganda campaign for the last few years to clean up their
image. They have been spending big money in an effort to do so on TV, in
print and public appearances. They would like the world to think of Microsoft
as an innovative company and of Mr. Gates as a visionary and a philanthropist.
Mr. Gates is clearly very smart and Microsoft is a vicious competitor,
but I'm not so sure the facts indicate they are innovative or visionary.
So I've put together a two-page background on Mr. Gates and Microsoft to
add some historical perspective to the debate, which I passed out to those
in attendance. I hope you find it helpful to form your own conclusions.
| Fact Sheet On Bill Gates and the
Q: Can you provide some background on Bill Gates?
A: Bill Gates was born in 1955 and founded the Microsoft Corporation
in 1975 with Paul Allen. Mr. Gates was CEO and Chairman of Microsoft until
2000, when he gave up the CEO title to Steve Ballmer. During that time,
Microsoft became the largest and richest software company in the world,
with $46 billion in the bank and adding nearly one billion per month to
that total. It has made Bill Gates the richest man in the world with an
estimated wealth of $54.44 billion dollars or $187 for every man, woman
and child in the United States.
Q: Can you provide a brief history of Microsoft?
A: In the early 1980s, IBM asked Microsoft to produce an operating system
for their upcoming "personal computer." That product became MS DOS and made
billions for Microsoft. Microsoft followed that up with Microsoft Windows
and the components of Microsoft Office (Microsoft Word, Microsoft Excel
and Microsoft PowerPoint).
Q: Doesn't that make Microsoft the most innovative PC software company?
A: Virtually every successful Microsoft product was either purchased
from another company, or a direct copy of an existing company's successful
product. Microsoft's first major success, MS DOS, was purchased from another
company and renamed from QDOS. Microsoft Windows was a copy of Apple's
innovative Macintosh operating system. Microsoft Word (1983) was a copy
of Wordperfect (1982). Microsoft Excel (1985) was a copy of Lotus 1-2-3
(1983). Using revenue from their monopolies, Microsoft purchased PowerPoint
(from Forethought), Frontpage (Vermeer), Visio (Shapewear), IE (Spyglass), IIS (Spyglass) and SQL Server (Sybase) .
Q: The history of PC software is made
up of companies borrowing ideas from others, so what
is wrong with that?
A: To some degree, almost all technology companies build on existing
ideas. Microsoft, however, has often engaged in wholesale copying without
adding much. With many of the original companies gone or withering, Microsoft
is embarking on a calculated plan to rewrite history and position themselves
as the original innovator. For example, Microsoft now claims that they are
the sole inventor of "windows" and no other company can use that term --
in spite of the fact that Microsoft Windows was such a close copy of the
Apple Macintosh that it triggered a lawsuit upon its release (See http://law.richmond.edu/jolt/v1i1/myers.html).
Q: Even if they're not innovative, Microsoft's
products are used so widely that they must be making great products, which
makes Microsoft a great company, right?
A: Normally, when a company enjoys success it's a sign of a good company
serving their customers. While Microsoft employees have surely worked hard,
their success has been tainted by decades of illegal actions by Microsoft's
management to secure, maintain and extend their monopoly position.
After the success of MS DOS, a competing product emerged called DR DOS,
causing MS to lower their prices. Bill Gates wrote in an e-mail, "I believe
people underestimate the impact DR-DOS has had on us in terms of pricing"
(May 18, 1989). So Gates gave orders to executives at Microsoft to purposely
sabotage DR DOS. "Make sure it [DR DOS] has problems running our software
in the future." And where it didn't have problems, programmers were instructed
to create bogus error messages saying that it did. The tactic worked and
DR DOS was forced out of business, leaving the Microsoft monopoly. Years
later, MS paid more than $100 million to settle this case -- long after
DR DOS was no longer a threat (See www.drdos.com/fullstory/factstat.html).
With the MS DOS monopoly as a foundation, Microsoft continued a series
of illegal actions designed to extend their monopoly to additional products,
including Microsoft Windows and Microsoft Office. For example, they stifled
competition by threatening and extorting computer manufacturers to enter
into licenses agreeing to only carry Microsoft products. By the time the
Justice Department caught up to them and filed two antitrust cases for
a wide range of unfair and anti-competitive actions (1993, 1996), Microsoft
had cemented a massive monopoly which gave them hoards of cash to fight
any company -- or even the government. Microsoft settled the first case,
agreeing to change its illegal marketing practices and was found guilty
in the second case (See www.washingtonpost.com/wp-srv/business/longterm/microsoft/documents.htm).
Q: Isn't this just a case of the losing companies
complaining because they couldn't compete?
A: Over the last 20 years, it is difficult to find another company which
exhibits such a lengthy pattern of illegal behavior designed to thwart
competition. E-mail from a MS executive said it best, "It seems clear that
it will be very hard to increase browser share on the merits of IE [Internet
Explorer] 4 alone...It will be more important to leverage the OS asset
to make people use IE instead of Navigator" (2/24/97). There have even
been cases where Microsoft has stolen technology which has put companies
out of business, such as San Diego's Stac Electronics. A jury found MS guilty
and ordered them to pay $110 million (See www.vaxxine.com/lawyers/articles/stac.html).
Q: Where does Microsoft make their money?
A: Microsoft makes money largely from two product lines: operating system
(Microsoft Windows XP) and office suite (Microsoft Office). Virtually every
other venture that Microsoft has embarked upon has not generated a profit
-- including WinCE, Xbox, MSN, WebTV, Sidewalk, MSNBC, etc. (See http://biz.yahoo.com/e/l/m/msft.html).
Q: If most product lines lose money, how
can they generate such large profits?
A: Through illegal tactics, Microsoft has been able to secure and keep
a monopoly which allows them to charge very high rates for their software.
Enabled by the monopoly, Microsoft's profit margins are 5 times greater
than the average from top 500 US companies. If Microsoft faced meaningful
competition, their profits would be more in line with the rest of corporate
America and software would cost 1/5 what it does today (See http://research.businessweek.com/scoreboard.asp).
Q: Aren't all of these actions ancient history?
Since Microsoft has been under government scrutiny, haven't we seen improved
A: Microsoft's massive war chest and unchanged management team means
more corporate wrongdoing. This makes it extraordinarily difficult for
competition to emerge. Just last week, an e-mail was revealed in which
Microsoft executives disclosed a $180 million fund designed to thwart Linux
by giving away Microsoft software and services -- the same successful strategy
they used to put Netscape out of business (See www.iht.com/articles/96369.html).
In another example, over the past year, Microsoft has spent millions in
legal fees in an attempt to shutdown a San Diego Linux company, Lindows.com
Q: But doesn't Microsoft do a lot of good?
A: The charitable giving that Microsoft advertises is usually a business
tactic, where they give away software in an attempt to gain traction in
a market, such as they do with schools. The software costs them just pennies
to reproduce, but they advertise the full retail value for tax and PR reasons.
Microsoft rarely gives actual cash (See: www.nytimes.com/2003/05/26/technology/26SOFT.html).
Q: Hasn't Mr. Gates given away billions of
A: Nearly 20 years after starting Microsoft and only after antitrust
issues emerged, Mr. Gates created a foundation and moved billions of dollars
of stock, tax free, into this new organization, which he controls as the
sole trustee. Mr. Gates' PR folks have convinced major publications to
carry as many as 5 stories in 3 days about the multi-billion dollar foundation
in an attempt to bolster Mr. Gates' image (See http://theregister.co.uk/content/4/28039.html).
By repeatedly trumpeting the formation of the foundation, then announcing
individual initiatives and finally announcing individual grants, readers
are left with the impression that billions of dollars are routinely dispersed,
but that is simply not true. In 2001, the Gates Foundation collected more
money in interest from their holdings than they dispersed in grants (See:
More troublesome, Mr. Gates has used monies from the foundation he controls,
in concert with Microsoft's corporate goals. In an attempt to sway Cox
Communications to use Microsoft software, Microsoft agreed to financially
back them in November, 2001. Two months later Mr. Gates purchased $500
million dollars of Cox stock using $200 million of funds from his non-profit
foundation (See www.eureka-boston.org/readings/gates_foundation.htm).
In another example, MS gave hundreds of millions to thwart Linux growth
in the Indian government, while also making funds available from the Gates
foundation to Indian government initiatives (See http://news.com.com/2100-1001-965378.html).
Q: What can we expect Mr. Gates to talk about?
A: Mr. Gates will likely spend some time speaking about the importance of
innovation and open standards. However those are just platitudes, since
their actions achieve exactly the opposite. Their monopoly is built upon
proprietary formats that they have no intention of publishing (e.g. Microsoft
Office file format specifications), because that would allow competition.
Furthermore, they have attempted to squash any standard which they believe
threatens their stranglehold -- such as MP3, HTML and Java. An internal
MS document entitled "Strategic Objective" had this to say about Java: "[Lets]
Kill cross-platform Java by growing the polluted Java market."
In spite of the conciliatory comments Mr. Gates conveyed, Microsoft
will continue to use their monopoly powers to destroy other companies -
which limits competition and innovation and keeps software prices high.
"Do we have a clear plan on what we want Apple to do to undermine Sun?"
(Bill Gates e-mail 8/8/97) A series of recent leaked internal memos reveal
an ongoing attempt by Microsoft to discredit and derail the latest perceived
threat - Linux. (See www.opensource.org/halloween/)
Microsoft is engaging in a calculated and comprehensive effort to rewrite
history. In doing so, they position themselves as an innovative company
and Mr. Gates as a visionary and philanthropist. Please research those
claims for yourself on the Net, use the sources listed in this document
to determine for yourself, the veracity of their claims.