The Truth, The Whole Truth, and Nothing But The Truth
The untold story of the Microsoft antitrust case and what it means for the future of Bill Gates and his company.
By John Heilemann
I. THE HUMBLING
The judge in Chicago wanted his signature. Just two little words on the bottom line: Bill. Gates.
It was early last March, three full months after the formal mediation between Microsoft and the Justice Department had started, and Gates knew he didn't have much time. Any day now, Judge Thomas Penfield Jackson would unveil his verdict in United States v. Microsoft, one of the largest antitrust actions in American history. Nobody doubted what the outcome would be: In November, Jackson had disgorged a 207-page "findings of fact" that was searing in its tone and staggering in the totality of its rejection of Microsoft's version of events. If the verdict fit the findings, it was going to be ugly - maybe ugly enough to bring about the company's dismemberment.
Microsoft's last hope for averting disaster lay in the hands of a different judge - the judge in Chicago, Richard Posner. Posner, the chief justice of the United States Court of Appeals for the Seventh Circuit, was a conservative jurist with a towering reputation as an antitrust scholar. Soon after Judge Jackson issued his findings of fact, he asked Judge Posner to step in as a mediator. For anyone else, trying to forge a peace between these combatants would have been a fool's errand. But given Posner's stature, Jackson hoped - prayed - he might just pull it off.
Every week since the end of November, Posner had summoned a team of lawyers from the DOJ and from Microsoft to his chambers in Chicago. Meeting with each side separately, he had, in effect, "retried the case," said one participant - rehearsing the arguments, reviewing the evidence. Gates himself had flown out to meet Posner and spent hours on the phone with him afterward, delving into the details of Microsoft's business. "The guy's super-smart," Gates told me later, bestowing on Posner his highest plaudit. By February, the judge had begun producing drafts of a proposed consent decree, which would put certain limits on Microsoft's conduct. After presenting each draft to the opposing parties, Posner solicited their comments and criticisms, then cranked out another draft to push the ball forward. For a month or so, it went on like this, back and forth, to and fro - until they arrived at Draft 14. With Draft 14, Posner seemed to think he'd come close to crafting a settlement Microsoft would accept, but which restricted its behavior in significant ways. So in order to show the DOJ that Microsoft was serious, Posner asked Gates to put his name to the proposal.
There were those at Microsoft who thought Posner naive. The government would never be satisfied, even if the company were to sacrifice its firstborn - or, something rather more precious, its source code. Others simply thought Draft 14 too draconian. But although Gates could see the skeptics' points, he was anxious to put this whole nightmare behind him. He swallowed hard and scrawled his signature.
The skeptics were right: It wasn't enough. Yet Posner still believed that a settlement could happen. For another month, he kept churning out drafts - Draft 15, Draft 16, Draft 17. In the last week in March, Posner asked Jackson for 10 days more; he was near, very near, to securing a deal. (So certain was Judge Jackson that the case would be settled, he took off on vacation to San Francisco.) By March 29, Draft 18 was complete. It reflected the DOJ's final offer.
In Gates' office in Redmond, the chairman's inner circle convened for one of the company's most fateful debates. Throughout the mediation, Gates had relied on this handful of people: Microsoft's newly elevated CEO, Steve Ballmer; its general counsel, Bill Neukom; and the senior executives Paul Maritz, Jim Allchin, and Bob Muglia. The document before them required that Microsoft set a uniform price list for Windows; prohibited it from striking exclusive contracts with Internet service and content providers; forced it to open its application programming interfaces. And although Draft 18 would let Microsoft add new features to Windows - features like Web browsing, which had provoked this lawsuit in the first place - PC makers would have the right to demand versions of the operating system without those features; and they would also be able to license the Windows source code, so they could modify the desktop, integrate rival software, or add features of their choosing.
There were critics who would say this was all trivial tinkering, modest stuff of marginal utility. But the Microsoft high command didn't see it that way. Even for those among them who'd been asked by Gates to be devil's advocates in favor of settlement, Draft 18 was a bridge too far. It was not a proposal that Gates could sign on to.
In Silicon Valley and in Washington, DC, Gates' decision to reject Draft 18 was seen as the latest blunder in his three-year battle with the federal government. It was an act of bloody-mindedness, of myopia, of hubris. But when I visited Gates recently in Redmond and asked him about his refusal to settle, he displayed not the slightest hint of doubt. The son of a lawyer, steeped in the language of contracts, Gates knew a bad deal when he saw one; and this was a deal that would have wrecked his business. Gates was aware that the courts were imperfect, and he considered Judge Jackson's more imperfect than most. But Gates had "faith," he told me, "that in the final analysis, the judicial system will come up with absolutely the right answer."
Whatever the logic of Gates' gamble, its immediate effect was swift and irrevocable. On March 31, Microsoft sent material to Posner that would form the basis of Draft 19, which he then read by phone to the DOJ. The very next afternoon, April 1, still four days shy of his self-imposed deadline, the mediator declared his mediation a failure.
In public, and even more pointedly in private, Microsoft blamed the breakdown on the coalition of state attorneys general who were the DOJ's partners in prosecution. In the crazy final days of the negotiations, the states had sent Posner a set of their own demands - demands considerably in excess of the DOJ's. In his only public statement on the talks, Posner was ambiguous about the precise cause of their collapse. Citing only "differences among the parties," he praised the professionalism of Microsoft and the DOJ, but made no mention of the attorneys general. However, in an early working version of Posner's statement that few people ever saw, the judge went out of his way to rap the states on the knuckles for their left-field intercession - while at the same time making clear that the truly insurmountable gap was "between" Microsoft and the DOJ.
With the mediation kaput, Jackson hustled back from the coast and delivered his verdict on April 3. It was nearly as gruesome as everyone expected. A month later, the DOJ and the states asked that the court split Microsoft in two. A month after that, Jackson agreed, ordering exactly the breakup the government requested.
It was the spring in Redmond when illusions were shattered, when old verities crumbled and the stock price tumbled, when everything that was solid melted into the air. By the time Jackson handed down his breakup order, Microsoft's Nasdaq value had been chopped nearly in half since March - wiping out more than $200 billion in wealth. Competitors crowed. The press piled on. Private class-action antitrust lawyers began to swarm. In the middle of June, Microsoft announced with great fanfare its grand new Internet strategy, and an industry that had so long hung on its every hiccup, that had trembled at the sound of its virtual footsteps, dismissed the initiative as half-cooked vaporware - or, more charitably, yawned. Three months later, in mid-September, a yearlong exodus of top executives reached its peak when Paul Maritz announced he was leaving the company. Even for the truest of true believers, faith had become a scarce commodity.
Gary Reback was known as a guy who got paid to complain about Bill Gates - the rough Silicon Valley equivalent of drawing a salary for breathing.
The humbling of Microsoft is the last great business story of the 20th century and the first great riddle of the 21st. There are fancier ways of putting it, but the riddle is this: How did it happen?
Perhaps no corporation in history has ever risen so far so fast. Having celebrated its 25th anniversary this summer, Microsoft is no longer a babe in the woods. Yet among the totemic firms of the past century, from Standard Oil and US Steel to General Motors and General Electric, none attained such stature, power, or profitability in such a breathtakingly short span of time. Even in the computer industry, where the awareness of Microsoft's ascent is acute, people often forget just how quickly it happened. As recently as 1992 or 1993, the company, though plenty influential, was hardly seen as an omnipotent leviathan. Five years later, that had changed. In the autumn of 1997, when the Justice Department first took after Microsoft in a serious way, Gates' many rivals in Silicon Valley applauded. But their pleasure was tempered by a perception that Microsoft was so indomitable, and the government so "dynamically anticlueful," as one digital quip-merchant put it, that nothing much would come of the DOJ's pursuit.
Theories abound as to why things turned out so spectacularly otherwise. Some now maintain that it was more or less inevitable; that Microsoft's business practices, once brought to light, would be enough to convict it in any court in the land. As a DOJ lawyer once said to me, "It was the stuff they did before the case was even filed that sealed their fate." Others suggest that Microsoft's history was bound to catch up with it in other respects; that its enemies in the Valley were lying in wait, ready to strike at the first opportunity. (Not surprisingly, this is a theory that Gates seems to favor.) Still others dwell on the tactical errors - on the ineptitude of Microsoft's lawyers and its halting incompetence in the realm of high politics. And still others focus on Gates himself; on his arrogance, and the insularity and isolation of the culture he'd wrought.
There are kernels of truth in each of these theories, but even taken together they fall short of eureka. What they fail to capture is the sometimes random confluence of forces: the way people with disparate agendas and mixed motivations came crashing together to produce an outcome that now seems obvious.
All through its conduct, the Microsoft trial was compared to a war. "The War of the Roses," said Judge Jackson, or "the fall of the House of Tudor. Something medieval." But war is hell not just because it's so bloody. War is hell because it's so unpredictable, so chaotic, so hot and dusty and shot through with confusion. The Microsoft trial was a war that neither side actually wanted to fight, in which unexpected alliances arose and old enmities surfaced at the most inopportune moments. It was war in which one hand rarely knew what the other was doing and carefully planned offensives ganged aft agley. Coincidence, timing, and blind shithouse luck all played their parts. And so did large acts of cowardice and small acts of courage, often committed by unknown soldiers.
This is the story of the generals in that war, of Bill Gates and Bill Neukom, Joel Klein and David Boies. But it is also the story of the unknown soldiers - people you've never heard of, whose stories have never been told. It's the story of Susan Creighton, the sweet-tempered antitrust lawyer who was Netscape's secret weapon. It's the story of Mark Tobey, the Texas crusader who took up the case when the Feds were still sleeping. It's the story of Mike Hirshland, the Republican Senate aide who found in Microsoft an unlikely passion, and it's the story of Dan Rubinfeld, the economist whose theories pushed the DOJ where it didn't want to go. It's the story of Steve McGeady, the Intel apostate who took the stand against Gates. And it's the story of Mike Morris, the lawyer from Sun Microsystems who mounted a lobbying campaign that brought together some of Microsoft's most powerful opponents, and that was one of the Valley's most closely guarded secrets - until now.
Acting sometimes in concert and sometimes alone, these anonymous characters and countless others like them accomplished things that had once seemed impossible. They thrust Silicon Valley neck-deep into the swamps of Washington, DC. They put the high tech industry's dirty laundry on display for all to see. They made antitrust law into national news. And they felled a giant that had once seemed invincible.
This is the story of the end of an era - and also of more than one kind of innocence.
II. THE CASE THAT ALMOST WASN'T
Though no one at the company knew it at the time, Microsoft's troubles with the Department of Justice began in earnest in the spring of 1996, with the literary aspirations of two amateur authors in Silicon Valley. Since 1990, when the Federal Trade Commission opened the first government probe into its practices, Microsoft had been under the antitrust microscope more or less constantly; not a year had passed without it receiving at least one civil investigative demand (CID) for documents. As one federal inquiry morphed into the next, Gates and Ballmer gradually came to see the investigations not merely as legal scrutiny but as a kind of proxy warfare (and, later, as nothing less than a vast high tech conspiracy) instigated by their rivals in the Valley and elsewhere. Yet as suspicious as they were about the source of their regulatory entanglements, Microsoft's leaders could not have dreamed that so much damage would be unleashed by a quiet woman who called herself a "law-and-order Republican," a shrill man who was regarded by some as mildly unhinged, and the book they wrote together - a book that was never published in any form, and whose contents, but for this story, would still be shrouded in secrecy.
Susan Creighton and Gary Reback were not, however, your typical wannabe wordsmiths. They were lawyers and antitrust specialists with the Valley's preeminent law firm, Wilson Sonsini Goodrich & Rosati. They were passionate, smart, articulate, and angry. They had been retained by Netscape to tell the world, not to mention the DOJ, about the myriad ways in which Microsoft was endeavoring to drive the pioneering startup six feet under. And they were rapidly approaching the end of their rope.
It was Reback who served as the duo's frontman. Throughout the computer business and the government, he was known as a guy who got paid to complain about Gates - the rough Silicon Valley equivalent of drawing a salary for breathing. Over the years, he had amassed a client roster that included some of the industry's most prominent firms - from Apple and Sun to Borland and Novell, though not all of them admitted it - and had earned a reputation as Redmond's most relentless and strident critic. (The cover of Wired 5.08 declared him "Bill Gates' Worst Nightmare.")
In Reback, Microsoft faced an adversary with a rare combination of technical savvy and antitrust expertise. As an undergrad at Yale, he had worked his way through school programming computers for the economics department; as a law student at Stanford, he had studied antitrust under the late William Baxter, who, as head of the DOJ's antitrust division under Ronald Reagan, would oversee the breakup of AT&T.; Now in his late forties, Reback wore sharp suits, wire-rimmed glasses, and a perpetually pained expression. When he talked about Microsoft - which was pretty much constantly - his demeanor was fretfulness punctuated with blind outrage. His voice teetered on the edge of whine. "The only thing J. D. Rockefeller did that Bill Gates hasn't done," Reback would wail, "is use dynamite against his competitors!" Crusader and showboat, egotist and quote machine, he had a taste for avant-garde economic theories and a tendency to level extravagant accusations without much hard proof to back them up. He was, in the strictest sense, a zealot: a man both fanatical and fanatically earnest in his beliefs. Later, when the DOJ decided to go after Microsoft, a government lawyer was assigned to "deal" with Reback. "His heart's in the right place," this lawyer told me. "But he's twisted. He leaves me these voicemails in the middle of the night, raving about all kinds of stuff. He really needs some help." History might well have judged Reback a marginal figure, just another Gates-hating ranter, were it not for one inconvenient fact: Almost everything he claimed turned out to be true.
Reback's history with Microsoft was long, tangled, and not without its ironies. In the early 1980s, he secured for Apple the copyright registration for the Macintosh graphical user interface, a copyright that would eventually be at the center of a protracted lawsuit with Microsoft. Not long afterward, a bearded, elfin entrepreneur from Berkeley appeared on Reback's doorstep and asked for help in selling his fledgling software company. The company was called Dynamical Systems Research; the entrepreneur, Nathan Myhrvold. After Apple passed up the deal, Microsoft stepped in, buying Myhrvold's firm and Myhrvold along with it. Forever after, Reback was convinced that this transaction was pivotal to the rise of Windows, a conclusion that filled him with no end of guilt.
From then on, Reback became an anti-Microsoft missionary. As first the FTC and then the DOJ looked into the company, he peppered the Feds with briefs alleging a litany of predatory sins. In July 1994, the DOJ sued Microsoft for violating the Sherman Antitrust Act - but then dropped the suit after entering into a consent decree with the company. The consent decree contained only a few mild curbs; Gates himself summarized its effect bluntly: "nothing." At the behest of a clutch of Microsoft's rivals in the Valley, who saw the decree as a Potemkin remedy, Reback spearheaded a spirited, but ultimately futile, campaign in federal court to scuttle it.
Indeed, all of Reback's warnings went unheeded, with one exception. That fall, after Microsoft announced its plan to take over the financial-software firm Intuit for $1.5 billion, Reback, working primarily on behalf of an anonymous client (it was, in fact, the database company Sybase), prepared a white paper on the deal for the DOJ. Replete with novel economic concepts such as "network effects" and "increasing returns," the paper argued that if the merger weren't stopped, Microsoft would come to rule online financial services as it had the PC desktop. Reback was warned by the DOJ's chief economist that his analysis might be rejected as "totally preposterous." But it wasn't. In April 1995, the government moved to block the deal, and, rather than wage a costly battle, Microsoft bailed.
It was two months later, on June 21, that Reback received a call from Jim Clark, the chair of one of his firm's newest clients, Netscape. Earlier that day, Clark said, a team of Microsoft executives had visited Netscape's headquarters, met with its CEO, Jim Barksdale, its technical wunderkind, Marc Andreessen, and its marketing chief, Mike Homer, and offered them a "special relationship." If Netscape would abandon much of the browser market to Microsoft; if it would agree not to compete with Microsoft in other areas; if it would let Microsoft invest in Netscape and have a seat on its board, everything between the two companies would be wine and roses. If not ...
"They basically said, OK, we have this nice shit sandwich for you," Mike Homer told me later. "You can put a little mustard on it if you want. You can put a little ketchup on it. But you're going to eat the fucking thing or we're going to put you out of business."
The next day, Reback phoned Joel Klein, the former deputy White House counsel who had recently been named the second-ranking lawyer in the antitrust division, and persuaded him to send Netscape a CID for some detailed notes Andreessen had taken during the meeting. A few weeks later, Reback flew to Washington with Clark, Andreessen, and Homer to state their case in person. The DOJ lawyers listened politely, jotted a few things down, said thanks - and then promptly forgot about it.
Thus began a pattern that would repeat itself again and again over the next two years. By the following spring, Barksdale & Co. were hearing a stream of reports about Microsoft's efforts to "cut off Netscape's air supply" - a phrase that would later acquire talismanic status - not least that Microsoft had threatened to cancel Compaq Computer's Windows license when Compaq tried to replace Internet Explorer with Netscape Navigator on some of its machines. With the browser war turning vicious and Netscape's complaints to the government getting nowhere, Reback and the company's general counsel, Roberta Katz, decided that desperate measures were in order. They would put Netscape's story down on paper, find a publisher, and present their plight in the bookstores of America.
Reback and Creighton's white paper read less like a legal treatise than a true-crime potboiler, a high tech Executioner's Song.
Penning this opus would fall to Susan Creighton. Cerebral and literary where Reback was blustery and verbal, Creighton was a Harvard- and Stanford-educated attorney who had clerked on the Supreme Court for Justice Sandra Day O'Connor. On May 1, Creighton sat down at her desk at home, surrounded by reams of documents, her infant child perched on her lap, and began tapping away.
Three months later, Creighton emerged with a 222-page piece of anti-Microsoft agitprop (with charts and tables courtesy of her husband, a local professor and desktop-publishing enthusiast). The tome would eventually bear the dust-dry title "White Paper Regarding Recent Anticompetitive Conduct of Microsoft Corporation," but it read less like a legal treatise than a true-crime potboiler, a high tech Executioner's Song. Creighton spun the tale of Microsoft's 20-year rise to power; of how it had employed a blend of strategic brilliance and nefarious tactics to destroy its competitors and hence "to acquire virtually complete control over what is arguably the most important tool in the American workplace"; and of how, faced with a potent new challenger, it had "engaged in a variety of anticompetitive acts that surpass its previous illegal conduct." The white paper accused Gates and his lieutenants of first attempting to divide the browser market with Netscape, and then, when that failed, of using their muscle with Internet service providers and OEMs - original equipment manufacturers, as PC makers are known - to shut down Netscape's distribution channels. Creighton accused them of illegally tying their browser to Windows. And of predatory pricing. And of exclusive dealing. And even of offering "secret side payments potentially amounting to hundreds of millions of dollars" to distributors to keep Netscape software off their customers' desktops.
Even more incendiary was Creighton's hypothesis as to Microsoft's motives. With help from Reback and Garth Saloner, a leading-edge Stanford economist who had assisted in drafting the Intuit white paper, Creighton put forward a nuanced theory of "monopoly maintenance": that Microsoft's primary objective was not to dominate the browser market for its own sake, but rather to protect its dominance over operating systems. What Gates realized, Creighton argued, was that the browser was more than just another software application - it was potentially a rival platform that held out the possibility of turning Windows into a commodity, and, as Gates himself put it, an "all but irrelevant" commodity at that.
"This is, at bottom, a very simple case," the white paper concluded. "It is about a monopolist (Microsoft) that has maintained its monopoly (desktop operating systems) for more than ten years. That monopoly is threatened by the introduction of a new technology (Web software) that is a partial substitute - and, in time, could become a complete substitute - for the monopoly product. Before that can happen, the monopolist decides to eliminate its principal rival (Netscape), and thereby protect its continued ability to receive monopoly rents. The monopolist is aided by the fact that circumstances are ideal for its predatory strategy: The monopolist has vast resources, while its rival has very modest ones; barriers to entry are high; and, once the rival is out of the way, the monopolist's road ahead looks clear."
When Creighton and Reback delivered the white paper to Netscape, the reaction was curiously schizophrenic. On one hand, Creighton remembers, "Barksdale and the others said to us, 'Thank you! Someone has finally put into words what we've been trying to say; it's like we've found our voice.'" Yet the white paper made chillingly clear just how dire Netscape's situation was. "As people saw what their position looked like in black and white, there was increasing concern about making it public," Creighton says. "They said, 'Jesus, there's no way we can let this get out.'" In particular, Barksdale was worried about the reaction of Wall Street. "My fear was that people would read it as the whinings of some sad-sack loser," he told me. "What would the markets think if we said, 'Well, if the government doesn't help us, we're doomed'?"
And so it was determined that the Netscape white paper would have an audience of one: the DOJ. Creighton was crestfallen; Reback, enraged. For not only had the DOJ already demonstrated its lack of interest in Netscape's ongoing evisceration, but now Joel Klein had been named the acting head of the antitrust division. Reback had no love for Klein, whose first major victory at the DOJ had come in 1995 when he defended the government's consent decree with Microsoft against Reback's challenge in federal court. Reback's suspicions, along with those of many in the Valley, only deepened when soon thereafter Klein took the lead in deciding that the DOJ would do nothing to halt Microsoft's plan to put an icon for its fledgling online service, the Microsoft Network, on the Windows 95 desktop.
For a brief moment, Reback's pessimism seemed mistaken. In September 1996, not long after the white paper was shipped off to Washington, the DOJ announced it was opening an investigation into Microsoft's Internet activities. Years later, after their triumph in court, Klein and his allies would point to this as evidence that, as soon as Netscape came forward with credible allegations, the DOJ jumped on the case like a dog on a bone. But this was revisionist history on a massive scale. The DOJ's investigative team consisted of a couple of lawyers working part-time on the matter in the San Francisco field office. In the course of the next year - a year in which, for all practical purposes, Netscape was reduced to rubble - those DOJ lawyers sent a single CID to Microsoft, limited in scope to the company's dealings with Internet access providers, and a single CID to Netscape. The San Francisco team, whose leader was a bookish fellow named Phil Malone, drove Reback to distraction. "One of them actually said to me, 'browser, schmowser,'" Reback recalls.
If Klein wouldn't act of his own volition, Reback and Creighton decided, they would simply have to goad him, or bait him, or shame him into doing it. The Netscape lawyers began lobbying anyone willing to lend them an ear. The FTC. The Senate Judiciary Committee. The European Commission. They drafted new white papers, these less secret. And they trawled for allies among firms outside Silicon Valley - American Airlines, Walt Disney, publishers, banks - which might one day find themselves reliant on, or beholden to, Microsoft.
The most promising nibble came from an unlikely pond: the office of the Texas Attorney General. Reback, of course, knew that Texas was home to a thriving high tech economy, and to two of the world's biggest PC manufacturers, Compaq and Dell. What he wasn't aware of was that it was also home to a populist, reformist assistant attorney general named Mark Tobey, who'd become suspicious of Gates' power after reading a story in Time magazine about the browser wars. Within weeks of examining the white paper, Tobey issued a set of CIDs to Microsoft and Netscape. When the documents arrived, he was fast persuaded the case was worth pursuing. From then on, Tobey became Reback's staunchest ally in lobbying states' attorneys general to look into Microsoft's behavior.
At first, the AGs were more than reluctant, but as the summer of 1997 unfolded, Microsoft seemed intent on giving them reasons to change their minds. First there was an article in The Wall Street Journal in which Reback's old friend Nathan Myhrvold was quoted as saying that Microsoft's strategy for Internet commerce was to get a "vig" (short for "vigorish," bookmakers' slang for a cut of the action) from every transaction on the Net that used Microsoft technology - every transaction on the Net, that is. Then came stories that Microsoft was negotiating a similar arrangement with cable-television firms when it came to digital TV. Then there was Microsoft's investment in Apple, a deal which marked the official end of what was once computing's fiercest rivalry and demonstrated that Steve Jobs' company was dependent on Bill Gates' for its very survival, and which was seen in the Valley as a mortal blow to Netscape, whose browser was being ousted from its last refuge, the Mac desktop. Suddenly, Reback's alarums were being met with the most welcome three words an agitator can hear: "Tell us more."
His campaign finally starting to catch sparks, Reback submitted to the DOJ a second Netscape white paper - in which he and Creighton contended that Microsoft's goal was to gain a chokehold over all of online commerce - and then quickly orchestrated a series of secret meetings with many of the allies he'd managed to round up, arranging for the DOJ's Phil Malone to witness the proceedings.
For two solid days in the last week of August, Reback turned Wilson Sonsini's Palo Alto offices into a kind of anti-Microsoft three-ring circus. In one conference room, lawyers on the staff of the Senate Judiciary Committee's chair, Orrin Hatch, huddled with an assortment of Silicon Valley executives, collecting leads and gathering evidence of Microsoft's alleged malfeasance. In another conference room down the hall, the general counsels to a number of Microsoft's competitors, including Netscape, Sun, and Sabre - the airline industry's computerized reservation system, which Microsoft planned to take on with its travel site Expedia.com - held brainstorming sessions to map out a wide-ranging political campaign against Redmond on the Hill, in the statehouses, and in the press. The meeting would prove to be the birth of ProComp, an anti-Microsoft lobbying outfit in Washington, DC.
But neither of these was the center ring. That was in the law firm's main conference room, where Mark Tobey, seated beside Malone, Reback, Creighton, Katz, and representatives from the AG's offices of several other states, conducted the first-ever depositions in what would become US v. Microsoft. There, Andreessen, Homer, and other Netscape executives laid out detailed accounts of many of the incidents in the white papers, including, most important, the June 1995 meeting at which Microsoft had allegedly made its market-division proposal. Asked by Tobey why he'd taken notes on the meeting, Andreessen replied, "I thought that it might be a topic of discussion at some point with the US government on antitrust issues." (During the trial, Microsoft would cite the comment as evidence that the meeting was a setup, and Netscape and the DOJ would retort that Andreessen was just being sarcastic. "Bullshit, on both counts," Andreessen told me. "I'd read all the books. I knew their MO. We were a little startup. They were Microsoft, coming to town. I thought, Uh-oh. I know what happens now.")
Malone sat silently and took it all in. For the past year, he had been in charge of the DOJ's desultory inquiry; now he was watching as a state-level law-enforcement official - from Texas, no less - seized the initiative in an investigation of the world's second most valuable corporation. Although Reback was taunting him mercilessly - "Phil, whaddaya think? That didn't sound like a market-division proposal, now did it?" - Malone somehow managed not to lose his composure. Until the very end, that is.
"When the depositions were over," Reback recalls, "Tobey goes up to Malone and says, 'This looks like the endgame. The only remedy I can see is to break Microsoft up.' And Malone turned purple. Purple! Here the DOJ isn't doing anything, and Tobey is saying, Hey guys, it's over. I really thought Phil was about to have a coronary."
For Reback and Creighton, the August meetings at Wilson Sonsini marked a turning point. The lawyers from the Senate Judiciary Committee were leaning their way, and had started talking about the possibility of holding hearings on competition (or the lack thereof) in the software industry - and even, perhaps, of summoning Gates himself to Capitol Hill. Tobey and the states, a contingent that had grown to include Massachusetts and New York, were in hot pursuit. With the founding of ProComp, Microsoft's congenitally disorganized competitors seemed for once to be getting their act together. And, through the good offices of a shaken Phil Malone, the Netscape attorneys had fired a loud, bracing shot across the DOJ's bow.
The message was clear: The Microsoft matter wasn't going away. The real question, however, remained: Was Joel Klein finally ready to listen?
"Microsoft is a company run by engineers. Engineers like simplicity. They don't like nuance. That's how Bill sees the world. And if it's how Bill sees the world, it's how Microsoft sees the world."
III. THE ACCIDENTAL TRUSTBUSTER
Mike Hirshland thought not. Hirshland was Orrin Hatch's number two staffer on the Senate Judiciary Committee. He was barely 30, garrulous, and wicked smart, a former clerk for Supreme Court Justice Anthony Kennedy. He was also a diehard Republican, a free-marketeer, and therefore a man instinctively averse to government meddling in the affairs of commerce. But what Hirshland had learned about Microsoft's behavior troubled him deeply. Returning to Washington from the Valley in the fall of 1997, he began calling up computer manufacturers such as Compaq and Internet service providers such as EarthLink to see if the allegations in the white papers about Microsoft's exclusionary practices held water. After a few weeks of poking around, he was convinced that "this was pretty damn serious."
On a gorgeous autumn day, Hirshland and the Judiciary Committee's chief counsel went down to the DOJ to meet Klein and his deputies. "They told us, 'If what you're basing this on are the Netscape white papers, forget about it,'" Hirshland recalls. "They said, 'A lot of those leads just didn't pan out. Reback? You can't trust that guy; he makes stuff up. And besides, we're not really sure that tying the browser to the operating system is illegal anyway.'"
"What about all the exclusionary contracts?" Hirshland countered. "What about the OEMs? The ISPs? EarthLink? AOL? Gateway? Compaq?" Klein and his team fell silent. "Next thing you know," Hirshland told me, "they had their notebooks out and were writing everything down."
Afterwards, Hirshland and his boss walked back to the Hill. "Jesus Christ, that was all news to them!" Hirshland exclaimed. "Those guys aren't going to do jack."
This was not a unique assessment in the fall of 1997. Joel Klein had been around Washington a long time, and a fairly clear consensus had emerged as to what kind of an antitrust chief he was likely to be. Klein was brilliant, scholarly, and sophisticated; also careful, cautious, and pathologically pragmatic. Politically astute and avowedly pro-business, he was nobody's idea of a tough-talking trustbuster in the tradition of Teddy Roosevelt or William Howard Taft. He would only take cases he knew he could win. And so, therefore, he'd leave Microsoft alone.
In his early fifties, Klein is short and slight, with a perpetual tan and a shiny bald pate. He walks and talks softly, and seems on first inspection to carry no stick at all. The son of a postman, he grew up in Queens, hoping to be a professional athlete. Robbed of that dream by the cruelties of genetics, he focused on academics, graduating magna cum laude from both Columbia University, where he majored in economics, and Harvard Law School. After stints as a clerk to Justice Lewis Powell and an advocate for the mentally ill, he went on to be a founding partner in a boutique Washington law firm specializing in complex trial and appellate work. In the 1980s, he earned a reputation as one of the most accomplished Supreme Court advocates of his generation, arguing eleven cases before the Court and winning eight - a record he may yet have the chance to improve in the Microsoft case.
For Klein, who had wanted badly to be Solicitor General, the antitrust post was a consolation prize - and a prize, in the end, that was almost denied him. Having sailed through his confirmation hearings in the spring of 1997, he hit unexpectedly turbulent waters in the Senate when his name came up for final approval, in large part because of his approval of the controversial merger of the phone giants Bell Atlantic and Nynex. "We've got an antitrust fellow here who rolls over and plays dead," said Senator Ernest Hollings of South Carolina, one of several who put a formal hold on his nomination. With The New York Times calling Klein "a weak nominee" and editorializing that the administration should withdraw him, and with his opponents obstinate and apparently committed, he seemed for a moment to be in serious trouble.
What few people knew was that one of those opponents was Gary Reback, who lobbied Senator Conrad Burns of Montana to put a hold on Klein as well. On Capitol Hill, where the only thing that moves faster than a senator sprinting toward a TV camera is confirmation scuttlebutt, word spread quickly about Reback's maneuvers, and found its way, inevitably, to the ears of Joel Klein. "Of course I heard," Klein told me later. "It did make me smile when Microsoft said I was carrying Netscape's water."
Yet even if Reback's finaglings didn't hurt Netscape's cause, they certainly didn't help. "The situation wasn't good," says Christine Varney, who became Netscape's chief Washington counsel that fall and was an old friend of Klein's. "Netscape found itself in a position where its principal antitrust lawyer had fought tooth and nail to defeat Joel's nomination, and now, lo and behold, Joel was the antitrust AG. As I said: not good."
In the DOJ's antitrust division, Klein was surrounded by lawyers so sober they made him look impetuous. But there was one dissenter to the hypercautious consensus: Dan Rubinfeld, a joint professor of law and economics at UC Berkeley, who had just taken over, at Klein's invitation, as the division's chief economist. Another small bald man with a low-key demeanor and a high-pitched metabolism, Rubinfeld seemed at first glance no more likely than his boss be eager to take a whack at Bill Gates. As a private-sector consultant, Rubinfeld had a lengthy record of appearing as an expert witness in corporate lawsuits, almost always on the side of the defense. In fact, years before, Rubinfeld had served as Microsoft's main expert in its prolonged, and successful, copyright litigation with Apple. "I had no anti-Microsoft bias when I got here," he told me. "I knew those people well. I respected them. I had spent a lot of time up there." Rubinfeld paused. "Though I don't expect I'll get another invitation to Redmond anytime soon."
When Rubinfeld took a look at the white papers, what struck him wasn't so much the catalogue of abuses they accused Microsoft of perpetrating as the clarity of Reback and Creighton's analysis. Since the 1970s, antitrust economics had been dominated by the free-market orthodoxies brought into vogue by a group of University of Chicago scholars such as Milton Friedman and Ronald Coase, who argued that the market functioned so well that government intervention was unnecessary and even harmful. As an academic, Rubinfeld was part of a growing vanguard of "post-Chicago School" economists who rejected those orthodoxies; Garth Saloner, the Stanford professor who worked with Creighton and Reback, was another. Like Saloner, Rubinfeld had spent the past few years thinking about dynamic high tech industries and had embraced the new economic ideas, from network effects to technological "lock-in," being advanced to explain how such industries work - ideas at the heart of the Netscape briefs.
The more Rubinfeld studied the situation, the more he worried about the impending launch of the new version of Microsoft's browser, IE4, which was designed to be more tightly bound to Windows than any previous browser had been. "Nobody would fight over which browser is on the desktop," Saloner told Rubinfeld at a meeting engineered by Reback. "This is about control of the gateway to electronic commerce. This is about somebody" - Microsoft - "potentially owning commerce. We're talking airlines, cars, banks, you name it."
At Rubinfeld's urging, Klein called Phil Malone in San Francisco and told him to send another CID to Microsoft. Broader than the CID a year earlier, it focused particularly on the company's OEM licensing agreements with respect to IE4. As the Microsoft papers began to pour in, the DOJ was startled not only by what they said but by the sheer baldness of how they said it. Two emails sent in late 1996 and early 1997 from Jim Allchin, Microsoft's top Windows executive, to Gates' third-in-command, Paul Maritz, stood out. In one, Allchin began, "I don't understand how IE is going to win. The current path is simply to copy everything that Netscape does packaging and product-wise. Let's suppose IE is as good as Navigator/Communicator. Who wins? The one with 80% market share ... My conclusion is that we must leverage Windows more." In the other, he wrote, "You see browser share as job 1. The real issue deals with not losing control of the APIs on the client and not losing control of the end-user experience ... We have to be competitive with [browser] features, but we need something more - Windows integration."
Soon the investigators also had in hand evidence supporting several key allegations by Hirshland about exclusionary contracts with OEMs and ISPs, and especially about Microsoft having threatened to revoke Compaq's Windows license if it removed IE in favor of Navigator.
Yet even then, a debate raged in the DOJ about what to do. There were many voices who urged Klein to hold his fire; to investigate further and bring a broad lawsuit, if it was justified, later. Rubinfeld disagreed. Under the 1995 consent decree, Microsoft was prohibited from requiring OEMs to license any other product as a condition of their Windows licenses. But according to Microsoft's marketing plans, that was exactly what it intended to do with IE4. Indeed, the DOJ now had proof that Microsoft had been doing the same for some time with IE3. Why not simply sue the company for violating the consent decree, Rubinfeld asked, and put off any decision about a broader case until later? "The browser market hasn't tipped yet, but it's really close," he said. By filing a narrow case now, perhaps the DOJ could keep that from happening.
Klein had entered the DOJ with little background in antitrust. But in the past two years, he'd learned enough to know that the issues of "tying" and bundling were some of the murkiest areas in antitrust law - areas made even murkier by the subtle and abstract nature of the product in question: code. Still, it was hard for Klein to imagine a clearer case of illegal tying than the one Microsoft was planning with IE4, nor one more manifestly at odds with the letter and the spirit of the consent decree. Moreover, he was aware that in the few months since his confirmation the political winds around Microsoft had shifted appreciably. He knew that the contingent of states looking into the company, which seemed to swell by the week, was charging ahead, and was likely to take action whether he did or not. After a few more conversations between his staff and Mike Hirshland, he knew that the Senate Judiciary Committee was planning to hold hearings. He knew that Democrats on the Hill still had doubts about whether he had the stomach to joust with big business. And, while he still was far from sure about bringing a broader suit, he sensed in his gut this was one he could win.
And so, on October 20, 1997, Klein stood next to Attorney General Janet Reno, with flashbulbs popping and cameras whirring, as she announced that the DOJ was not only seeking an injunction against Microsoft for violating the consent decree, but was asking a federal court to impose a fine of $1 million a day - the largest civil fine in Justice Department history - until the company stopped tying its browser to Windows. "Even as we go forward with this action today," Klein added, "we also want to make clear that we have an ongoing and wide-ranging investigation to determine whether Microsoft's actions are stifling innovation and consumer choice."
Out in Silicon Valley, Gary Reback heard that, laughed, and wondered if Klein was just blowing smoke. "This filing is a fine first step, but it's only a first step," Reback muttered to me over the phone. "All we can do is hope that it's just the first shoe to drop."
What no one could have guessed - not Reback, not Klein, and certainly not Gates - was that, for Microsoft, it was the start of a hailstorm of footwear that would continue, amazingly and unabatedly, for the next three years.
"Bill said, 'Of course, I have as much power as the president has.' Melinda's eyes got wide, and she kicked him under the table, so then he tried to play it off as a joke. But it was too late."
IV. THE SHADOW OF THE MAN
The morning the news from Washington broke, Gates was in the high desert outside Phoenix, attending a high-end high tech conference called Agenda at the famously opulent Phoenician Hotel. That night, rather than mingle with the rest of the industry's A-list - Andy Grove, John Chambers, Steve Case, Scott McNealy - at the official dinner, Microsoft's CEO retreated to a private supper with a handful of friends. When the conversation turned to the DOJ, he explained in a tone at once dismissive and defiant why the government was wrong, why Microsoft was right, and why, in the end, he had nothing to worry about. Gates held forth at some length on these subjects, but it was a single sentence from his former girlfriend, the Silicon Valley venture capitalist Ann Winblad, who had spent the better part of the day holed up with him in his room as he absorbed the details of the case, that most perfectly captured his reaction to the lawsuit:
"These people have no idea who they're dealing with."
The next day, the man the government was dealing with took his turn on the Agenda stage. Dressed in a madras-plaid shirt and a pair of khakis, Gates laid out his company's arguments in unequivocal terms: that the consent decree specifically allowed Microsoft to develop "integrated products," and that IE was just such a product - fundamentally melded into Windows. "There's no magic line between an application and an operating system that some bureaucrat in Washington should draw. It's like saying that as of 1932, cars didn't have radios in them, so they should never have radios in them." The central question, Gates contended, was this: "Is one company excluded from innovation, or not?"
From the audience, Gates was asked about public opinion, about the growing sense, not only in Washington but in the industry at large, that Microsoft was wielding its power too wantonly. "You're sort of asking us if we're going to change, to start telling engineers, 'Slow down, slow down. Go home,'" Gates replied. "No, we're not."
Through most of the session, Gates was calm and collected, if occasionally curt. Then Rob Glaser, a former protégé of his at Microsoft and now the CEO of the Web media-streaming firm RealNetworks, stepped up to the microphone. "Bill, do you really think there is no limit to what should or should not be included in the operating system?" Glaser asked. "If there is a limit, who should set it? Microsoft? The Justice Department?"
"Look, look, this is called capitalism!" Gates snapped. "We create a product called Windows. Who decides what's in Windows? The customers who buy it."
For Gates, the Q&A; at Agenda was a gentle preview of what lay ahead. Although the DOJ was the primary provocateur, it wasn't the only one. The European Commission had opened an investigation of its own. Soon, the Japanese government would do the same. Ralph Nader, the old economy's hoariest rabble-rouser, was organizing an anti-Microsoft summit in Washington, featuring some of Redmond's most vocal foes. One of them was Sun CEO Scott McNealy, who had just filed a separate lawsuit over Microsoft's use of the trendy software technology Java, in which Sun accused Microsoft of breach of contract, trademark infringement, false advertising, and unfair competition.
Thus in the fall of 1997 did Microsoft find itself subject to a degree of public scrutiny unlike any it had received in its 20-year history. Its reaction was telling.
First there was Steve Ballmer, standing on a stage in San Jose a few days after the DOJ's filing, bellowing, "To heck with Janet Reno!" Then there was Microsoft's first formal response to the case, a legal memorandum which labeled the DOJ's arguments "perverse," "uninformed," "misguided," "misleading," "wrong," "just wrong," "simply wrong," and "without merit," and which suggested that the government was acting not on behalf of consumers but the company's competitors.
Then there was the business with the ham sandwich. When the DOJ issued its reply brief to Microsoft's memorandum, one passage stood out. "Microsoft asserts that 'integrated' means whatever Microsoft says it means," the brief said. "Indeed, in its discussions with the government before the Petition was filed, Microsoft flatly stated that its interpretation of the [consent decree] would enable it to require OEMs to put 'orange juice' or 'a ham sandwich' in the box with a PC preinstalled with Windows 95."
This was true. At a meeting with the DOJ before Klein pulled the trigger, Richard Urowsky of the New York firm Sullivan & Cromwell - Microsoft's primary outside legal counsel - had let his flair for the dramatic flourish run away with him. Even today, three years later, Microsoft's legal team still fumes over what it calls the government's "ham-sandwich leak." "It was taken totally out of context," a Microsoft lawyer tells me. "What he said was, 'We could put in a ham sandwich, but nobody would buy it.' It was a perfectly legitimate thing to say. People wouldn't buy it if we put a ham sandwich in the OS. It was a metaphor for consumer choice." Unfortunately for Microsoft, Urowsky's declamation, repeated endlessly in the press, was taken as another sort of metaphor entirely: a metaphor for its arrogance, for its unwillingness to acknowledge any limits to its power.
As autumn began to fade into winter, Microsoft was being roughed up in the media, and the company's reaction seemed to grow only more clumsy and paranoid each day. The trend reach new heights at its annual shareholders meeting, when Gates lashed out at the "witch-hunt atmosphere" being ginned up by his enemies in the Valley and in DC. All through its history, Microsoft had been adroit, even masterful, at presenting its image to the public; now it seemed to be melting down. The sight was so strange, so unexpected, I was sure the press accounts were conjuring an exaggerated impression. There was no way the company could really be as rattled as it seemed.
Then I went to see Steve Ballmer.
Ballmer is Gates' best friend, a classmate of his at Harvard who worked briefly at Procter & Gamble and spent a year at Stanford's business school before joining Microsoft in 1980. He has worn a number of official hats at the company, but, unofficially, he has always been Gates' number two. If Gates is Microsoft's ego, Ballmer - beefy, boisterous, a natural-born cheerleader - is its rampaging id.
Even so, I was unready for what occurred when we met on a chill December afternoon in San Francisco, where Ballmer had come to deliver a speech to some customers. Sitting in a windowless conference room at the Westin St. Francis hotel, I asked Ballmer about an internal Microsoft document concerning Microsoft's licensing of Java, which had come to light in the DOJ's investigation. In it, PaulMaritz stated that the company's goal was to "get control of" and "neutralize" Java, whose cross-platform raison d'être was seen as posing a threat to Windows. Scott McNealy had told me he considered the document prima facie evidence that Microsoft had signed its contract in bad faith. I asked Ballmer if McNealy was right.
"Sun is just a very dumb company," Ballmer began.
"We always honored our license. We always intended to. We always have." His voice quickly rising, Ballmer continued, "Sun wasn't confused. We weren't coming in there saying, Hallelujah, brother! We love you, Sun! We said, We don't like you as a company - nice people; I like Scott - and you don't like us! We said, Hey Sun, you want to get on the back of us and ride, baby, ride You want on? OK, here's the terms!"
Ballmer's face was beet-red now, and he was screaming so loudly that, had there been any windowshades, they would have been rattling. Up on his feet, leaning across the table so that his face was no more than 6 inches from mine, pounding his meaty fists on the tabletop so hard that my tape recorder leapt and skittered, he roared, "Nobody was ever one little teeny tiny bit confused that we and Sun had this wonderful dovetailing of strategic interests! Those sub-50-IQ people who work at Sun who believe that are either uninformed, crazy, or sleeping!"
I took this as a Yes.
Extending a long middle finger to the government and your competitors is not conventional behavior among the top executives of most blue-chip companies. But, of course, Microsoft was different - self-consciously so. Populated by an army of young men (mainly), most of them unusually bright, many of them abnormally wealthy, working endless hours and pulling frequent all-nighters, Microsoft has always retained the air of a fraternity - a fraternity of rich eggheads, but a fraternity nonetheless. For years, Softies were wont to sport buttons that read FYIFV: Fuck You, I'm Fully Vested. Another favorite acronym, meant to suggest how far the company would go, in Ballmer's words, to "get the business, get the business, get the business," was BOGU: Bend Over, Grease Up.
Machismo, callowness, and profanity are not exactly unique to Microsoft. What is unique, however, is the intense insularity of the Redmond culture. Situated hundreds if not thousands of miles from its competitors and partners, staffed mostly by folks who have never worked anywhere else, Microsoft is the frat house from another planet. Time and again, its engineers express apparently genuine surprise and a lack of comprehension that other high tech companies harbor deep and abiding suspicions of their employer. Even Ballmer, a sharp guy despite all the hollering, was quoted this past June in Newsweek saying, "People say a lot of things about us, but never has anyone said we're untrustworthy." Hello?
At the very heart of the Microsoft culture is technology - an assertion that will sound either axiomatic or ludicrous depending on your prejudices. To most Americans, Microsoft is more than a technology culture; it is the technology culture. In the Valley, though, the view is different. There, even among some Microsoft allies, it is an article of faith that the company is incapable of innovating; that it is a copycat, a "fast follower," an assimilator of breakthroughs achieved elsewhere; that its products, despite their awesome popularity, are crashingly mediocre.
No matter what outsiders may think, Microsoft executives fervently believe that their company does in fact innovate, a belief they support by pointing to the extraordinary $3 billion the company spends each year on research and development, in areas ranging from voice recognition to artificial intelligence. Yet starting in the early 1990s, the company also devoted vast resources to buffing its image, waging multimillion-dollar advertising campaigns and carefully orchestrating press coverage to turn Microsoft, Windows, and Gates himself into household names. One of the clearest indications that Microsoft was becoming as much a marketing culture as an engineering culture came in 1994, with the hiring of Robert Herbold as chief operating officer. A mild fellow of middling age, middling stature, and a certain bland charm, Herbold was a computer-science PhD who had risen to become the top marketing executive at Procter & Gamble. He spoke the lingo of branding, of corporate identity, of making "deposits" in the "key mental bank accounts" of customers. On arriving at Microsoft, he quickly implemented the full complement of consumer-research techniques that he'd used at P&G;, from extensive polling to focus groups.
As Microsoft began its recalcitrant flailing in the fall of 1997, I couldn't help wondering what Herbold was thinking. Here was his company, violating every conceivable rule in the big-brand handbook of crisis management. Consider: What would McDonald's do if it found itself in similar straits? What would Coca-Cola do? Or Disney? Answer: Their CEOs would appear on the DOJ's doorstep and ask, in voices sugary with solicitude, What can we do to make the problem go away? Yet this approach never seemed to have occurred to anyone at Microsoft. A few months later I visited Herbold in Redmond and asked if it made sense to interpret the company's belligerence as a sign that Microsoft had failed to internalize the idea that its success rested on its image as well as its technology.
"Yeah, it does," Herbold said. "But there comes a point in any company's life where, if a fundamental principle as to how you operate is being threatened, you have no choice but to stand tall." Like Gates and everyone else I spoke to at Microsoft, Herbold was adamant that the consent-decree case threatened to undermine the company's ability to innovate. If thwarting that meant extreme and even potentially self-destructive measures, so be it.
"Always keep in mind, Microsoft is a company run by engineers," a departed Microsoft executive, himself an engineer, said to me later. "Engineers like simplicity. They like clarity. They like rules. They don't like nuance. They don't like shades of gray. They're totally binary. Ones or zeros. Black or white. Right or wrong. Innovate or not innovate. That's how Bill sees the world. And if it's how Bill sees the world, it's how Microsoft sees the world.
"Remember, no one has ever accused Microsoft of being a democracy."
Gates "was going through a period where he kept saying, 'I hate my job. I hate my life. I hate this situation. I don't know what to do.'"
Nowhere in the annals of modern business has Emerson's aperçu that "an institution is the lengthened shadow of one man" held more abundantly true than at Microsoft. From the moment the company was founded, everything about it - good and bad, strong and weak - has been a pure crystalline reflection of Gates' mind, his personality, his character. In the computer industry, few founders have been able or willing to stick with their firms as they've grown, guiding them from birth to maturity. Scott McNealy is a notable exception; so is Larry Ellison, of Oracle. But although McNealy and Ellison are both forceful and dynamic CEOs, neither has ever come close to exerting the type of hold over his company that Gates has always maintained over Microsoft.
Gates inspires this intense following without being, in any conventional sense, a charismatic or especially winning figure. What he is, is very smart, and in the Microsoft culture that he himself has engendered, smartness is valued above all. "There are probably more smart people per square foot right here than anywhere else in the world," the former Microsoft executive Mike Maples has said. "But Bill is just smarter."
The slavish fealty accorded Gates at Microsoft draws gales of derision from critics and competitors. Netscape's former counsel, Roberta Katz, says it was the "blind obedience, the willingness to suspend all judgment and follow the party line, all this zombielike devotion to the Maximum Leader" that led Microsoft inexorably to its fate in the courts. "It's the whole voice-of-God thing," says Bill Joy, Sun's chief scientist. "They're always asking, What would Bill think? As if Bill's the oracle. As if Bill knows best. It's hard to be creative in that kind of environment, and it's very hard to do clean-sheet work, because all the old stuff is the oracle's stuff, and who's going to tear that up to start fresh? It's why they can't innovate no matter how many smart people they hire." Gates, says Joy, is "the low priest of a low cult."
While the notion that Gates is a technological genius is a central part of his public legend, the depiction elicits eye-rolling (and less charitable responses) in computing circles, where his technical gifts are regarded almost universally as solid but unexceptional. "Neither Bill nor Paul &##91;Allen] was tremendously technically sophisticated when they started Microsoft, and they're not now," says David Liddle, the former director of Allen's now-defunct think tank, Interval Research, and a friend of both men. In 25 years working in software, Gates personally has made no significant contributions to computer science. He holds but one patent. Yet at Microsoft, top-flight scientists speak of his technical fluency in tones of awe. Gates, they say, is a fox and not a hedgehog; a technologist whose strength is breadth, not depth. Craig Mundie, the Microsoft executive who has spent more time recently with Gates discussing the future of technology than anyone, told me, "Bill's great gift is synthesis: his ability to accumulate a huge amount of information and then synthesize it on a grand scale."
In a way, the myth of Gates as a mighty technologist has overshadowed his rightful claim to genius as a businessman. Of course, Gates is often credited, and justly so, with being among the first to discern that software could be the basis of an enterprise; with having appreciated that software, not hardware, was where the serious money would be made in personal computing; and with having shrewdly persuaded IBM, when it asked Microsoft to provide an operating system for its first PC, in 1980, to allow his firm to retain the rights to that software, MS-DOS. But Gates' insights were far more sweeping than that. Before he arrived on the scene, the computer industry had always been organized vertically. That is, it consisted of companies like IBM and DEC that built their own machines, designed and manufactured their own chips, and developed their own operating systems and applications, all of them proprietary. Side by side with Intel's CEO, Andy Grove, Gates envisioned a different structure, a horizontal structure, in which specialized competition would take place in each layer of the industry: chip company versus chip company, software company versus software company, computer company versus computer company. He figured out, again with Grove, that the position of maximum power and profit in this new structure came from owning one of two critical industry standards: the OS or the microprocessor. And, finally, he understood that Microsoft's control of the OS standard could be leveraged in ways that would give the company enormous advantages in competing for other software markets.
Gates' strategic foresight was twinned to a tactical discipline and a single-mindedness that were unusually fierce. For a long time, he seemed oblivious to the marginalia of corporate life, the perks and the status symbols, that distract so many executives. His office was modest. He disdained titles. He flew coach. And while he never suffered from a deficit of ego, he was relatively immune to intellectual vanity, keeping close tabs on ideas and trends gaining currency beyond Microsoft's borders. "He carefully reads the wind and weather," Liddle says, "and he does not have false pride about admitting he's wrong" - as he did most famously in turning Microsoft around in the mid-1990s after initially missing the emergence of the Internet.
Nor was he prone to technical vanity. Where other high tech CEOs wasted time and money pursuing perfect, elegant solutions, Gates refused to let the great be the enemy of the good, or even to let the good be the enemy of the minimally serviceable. Over and over, he attacked new markets with the same pragmatic sequence of moves: Dive in fast with a half-assed product to establish an early foothold, improve it steadily (even Microsofties joke that the company never gets anything right until version 3.0), then use clout, low prices, and any other means necessary to gobble up the market. About the extent of Microsoft's appetites, Gates and his lieutenants were unabashed. "My job is to get a fair share of the software applications market," Mike Maples said in 1991, on the eve of the launch of Office. "And, to me, that's 100 percent."
Gates' hunger for new conquests left a trail of bloody bodies strewn in Microsoft's wake. Digital Research. WordPerfect. Novell. Lotus. Borland. Apple. "Bill [had an] incredible desire to win, and to beat other people," ex-Microsoft executive Jean Richardson recalled in the PBS documentary Triumph of the Nerds. "At Microsoft, the whole idea was that we would put people under."
But while Gates' style of competition was at once relentless and remorseless, it seemed to be fueled as much by anxiety as by cruelty. Long before Andy Grove made "Only the paranoid survive" the watchphrase of Silicon Valley, Gates was living the mantra at Microsoft. "Bill runs scared much more than people think," says William Randolph Hearst III, a Valley venture capitalist and one of Gates' closer friends. "He does what he does out of fear, not sadism. The history of business is full of guys looking out the 50th-story window of their corporate headquarters, seeing some little pipsqueaks down below, and going, 'Oh, forget it; how could they ever threaten us?' And then getting their clocks cleaned. Bill just knows he doesn't want to be one of those guys."
Or, as Gates himself said to me one day in his office, "The fact that you can't name the place you're going to die doesn't mean you shouldn't pay attention to your health."
The mortality of skyscraper-dwelling overlords was a phenomenon with which Gates was intimately familiar. When his company's partnership with IBM began, Big Blue was arguably the exemplary corporation of the modern age. It was 3,000 times the size of Microsoft and had defined commercial computing for three decades. "It's easy to forget how pervasive IBM's influence over this industry was," Gates recalled. "When you talk to people who've come into the industry recently, there's no way you can get it into their heads: IBM was the environment." Then the men from Armonk met Gates, and everything changed. By the early 1990s, not only had IBM's hegemony been shattered, but the company was on the ropes - losing billions of dollars a year, laying off employees by the thousands, struggling for its very survival. Meanwhile, Microsoft was ascendant. In January 1993 it surpassed IBM in market value and never looked back; a few weeks later, IBM's board tried in vain to recruit Gates to become the company's chair. The role reversal was complete: Microsoft was now the environment.
The fall of IBM was a seminal experience for Gates and Ballmer, shaping their perspectives in countless ways, both obvious and subtle. "If you asked me where I learned more about business than anyplace else, I wouldn't point to school, I wouldn't point to my two years at Procter & Gamble, I wouldn't point to Microsoft," Ballmer told me. "I would point to my 10 years working with IBM." With the passage of time, he and Gates would come to extol and emulate IBM's strengths - its devotion to research, its attentiveness to customers. But during Microsoft's formative years, their opinions were somewhat less favorable.
"We hated IBM," says Peter Neupert, a former Microsoft executive who worked with Big Blue on the joint development of the operating system OS/2 and is now the CEO of drugstore.com. "We hated their decisionmaking process, which was incredibly bureaucratic and stilted. We hated their silly rules and requirements; the red tape was unbelievable. And we had zero respect for their engineering talent. The core of Microsoft is: Great talent matters. We had a great team; theirs was big, slow, and sloppy." (Among the OS/2 coders, IBM stood for Incredible Bunch of Morons.) "We fought bigness at every stage. We had no processes. We had no planning department. Anything that would slow decisions down was rejected by design. Bill wanted to preserve a freewheeling style, where you made decisions fast and didn't get bogged down. It all comes from his programmer orientation. The people who were rewarded most at Microsoft were cowboys and misfits - the guys IBM would never hire. That was a point of pride."
If IBM provided Gates with an object lesson in the perils of gigantism, it also offered him a case study in how debilitating a constant fear of government intrusion could be. From the early 1950s until the early 1980s, IBM had been continually under investigation by, or in litigation with, federal antitrust authorities. In 1956, the company had signed a consent decree that forced it to license its patents at a "reasonable" price to all comers; and in 1969, the DOJ had launched its landmark 13-year lawsuit accusing IBM of illegal monopolization of the computer industry - a lawsuit which, despite being dropped in 1982, saddled the company with a legacy of competitive restraint and legalistic caution that played no small part in its vulnerability to the PC revolution that Microsoft spearheaded. "Every decision they made - on products, packaging, marketing - was based at least in part on legal constraints or perceived legal constraints," Neupert recalls. "It was screwy." And it made a large and lasting impression on the boys from Redmond. "Bill thought a lot about it. The question was: How important are we going to let the lawyers be at Microsoft? In dealing with IBM, they'd have lawyers in technical meetings. Ludicrous."
Gates' answer to the question was: Not very. It would prove fateful. In 1985, the year before Microsoft went public, its legal department consisted of Bill Neukom and two other employees. In the next 15 years the department would steadily expand to more than 400 employees, 150 of them attorneys. Yet despite all those warm bodies, through the 1980s and most of the 1990s Microsoft failed to adopt an official antitrust-compliance policy or a comprehensive antitrust-training regime for its employees.
Today, Microsoft's lawyers are at pains to deny that this is so. They produce documents listing an array of programs (Executive Competition Counseling, Consent Decree Training, Legal Road Shows) intended "to ensure that Microsoft employees understand and comply with legal obligations under US and other antitrust laws." Antitrust training has even been incorporated into the "Microsoft 101 training vehicle" for all new employees - although that incorporation took place in 1999, well after the company's imbroglio with the government began.
Ballmer recently insisted to me that Microsoft has had "antitrust audits, antitrust reviews, antitrust training" since the mid-1980s. "Now, do we train every Tom, Dick, and Harry in the company?" he said. "No. But it's not every Tom, Dick, and Harry that's making the decisions." Yet in dozens of interviews with current and former Microsoft executives, I found few who could recall having received antitrust training, and of those who could, even fewer who remembered anything they'd been taught, beyond the vague instruction to "obey the law." (On the stand in the trial, Paul Maritz would testify that he knew of no antitrust-compliance policy at Microsoft.)
To trustbusters such as Joel Klein, Gates' unwillingness to implement a thorough antitrust program was a plain sign of his immaturity as a CEO. "Major corporations in America have these things - they just do," Klein told me. "It's just sensible; it's just prudent." Even in high tech, the absence of such a program at Microsoft has long raised eyebrows, including those of Gates' ally, Andy Grove. Grove, who would no more concede that his company has a monopoly on PC microchips than he would admit a fondness for New Age management techniques, instituted a far-reaching antitrust regimen at Intel as long ago as 1986. For years thereafter, he periodically raised the issue with Gates, and then complained to other Intel executives about Gates' "pigheaded" refusal to follow suit. Yet something more complex and calculating than mere pigheadedness was at work. To Gates' way of thinking, being without an antitrust program may have carried with it certain legal risks, but the risks of enacting one were even greater. "Bill's thought was that once we accept even self-imposed regulation, the culture of the company will change in bad ways," a former Microsoft executive told me. "It would crush our competitive spirit."
Morris' top-secret "Project Sherman," which comprised a superstar group of antitrust authorities, would span three months and consume $3 million of Sun's money.
Or, as Gates himself put it to another of the industry's leading CEOs, "The minute we start worrying too much about antitrust, we become IBM."
Years later, when bemused analysts and commentators tried to explain the behavior that got Microsoft into such hot water with the government, one theory in particular came into vogue: After years of seeing itself as David, the feisty underdog doing battle with the industry's behemoths, Microsoft had failed to realize that somewhere along the way it had become Goliath - and that Goliaths were subject to a stricter set of rules than Davids were. The truth, however, was slightly different. Gates hadn't failed to recognize anything. After witnessing the collapse of IBM up close and personal, he was determined not to let Microsoft fall prey to a similar syndrome, and had repeatedly taken explicit steps to preserve the company's Davidian attitudes and attributes in spite of its mass and muscle. The result was a culture built on a willing suspension of disbelief; a culture whose public posture was, in 1997, neatly - and ridiculously - summed up by COO Bob Herbold thus: "Think about the technology business in its broadest sense. Microsoft is a small but important player in that very large industry."
In private, though, when the man who ran Microsoft let down his guard, he betrayed no confusion about what he and his company had become. A close friend of Gates' recalls a dinner with him and his then-fiancée (now wife) Melinda French back in 1993. "We were talking about Clinton, who'd just been elected, and Bill was saying blah, blah, blah about whatever the issue was," this friend remembers. "Then Bill stopped and said, 'Of course, I have as much power as the president has.' And Melinda's eyes got wide, and she kicked him under the table, so then he tried to play it off as a joke. But it was too late; the truth was there. If Bill ever thought of himself as a scrappy little guy, he didn't anymore."
By the middle of the 1990s, Gates may have been as powerful as the president in some ways, yet he remained as paranoid as a speed freak at the end of a very long binge. The proximate cause of his paranoia was Netscape. In May 1995, in a now-famous memo titled "The Internet Tidal Wave," Gates argued that the startup's browser held the potential to "commoditize the underlying operating system" - Windows. What worried him, Gates told me, wasn't merely the threat posed by the browser or other forms of middleware but the sudden momentum Netscape had gained in the industry. "Lightning struck," Gates said. "There was a belief that they were the exciting thing, they were the coming company. You'd go to their developer conferences, go to Marc Andreessen's press conferences, read the article about what flavor of pizza he ordered. That phenomenon was getting developers to pay a lot of attention to the Netscape browser." He added, "Expectations are a form of first-class truth: If people believe it, it's true." And people were believing in Netscape.
As was Microsoft, in a sense. When Andreessen and his colleagues first started talking about turning their lean little browser into a full-blown platform, the idea struck Gates and Ballmer as perfectly plausible - not surprisingly, since Microsoft had pulled off the same trick in the course of ten years with Windows, which was originally nothing more than an application running on top of DOS.
The only thing that surprised Microsoft about Netscape's strategy was the brazenness with which the upstarts shouted it to the world. Nathan Myhrvold told me, "There's a good analogy to bicycle racing. In bicycle racing, you don't want to be first until the end. What you want to do is draft the guy in front of you. And then, in the last minute, you dart out. The middleware gambit is about drafting the leader." Yet here was Andreessen publicly proclaiming in the summer of 1995 that Netscape's plan was to reduce Windows to "a poorly debugged set of device drivers." "They didn't save it up," Myhrvold said. "They fucking pulled up alongside us and said, 'Hey, sorry, that guy's already history.'"
The tactic drove Redmond into a rage. The day after Andreessen's quote appeared in the press, John Doerr, the prominent venture capitalist and Netscape board member, received a chilling email from Jon Lazarus, one of Gates' key advisers. In its entirety, it read: "Boy waves large red flag in front of herd of charging bulls and is then surprised to wake up gored."
The consent-decree case resulted from Microsoft's very first thrust: the decision to bundle and then integrate IE into Windows. Even apart from its effect on Netscape, Gates firmly believed that Web browsing was a natural addition to any OS, one that would serve consumers and make computing easier. Adding IE to Windows for free, he told me, was "the most defensible thing we've ever done." It was also indisputably legal, he said. When Microsoft had bargained with the DOJ (and with the European Commission, which was simultaneously pursuing its own investigation) over the consent decree in 1994, Gates had taken great care to be sure that the provision on tying was worded broadly enough to give Microsoft unfettered freedom to put new features into Windows. Indeed, when Neukom presented Gates with a proposed draft of the decree which stated that Microsoft would not be prohibited from "developing integrated products which offer technological advantages," Gates barked, "Remove those last four words!"
Gates, Neukom, and the rest of Microsoft's legal team were therefore stunned when the DOJ filed the consent-decree case. It seemed to them that the Feds were either woefully unaware of the negotiating history of the decree (given that the deal was cut under Klein's predecessor) or had willfully chosen to ignore it. Equally maddening was the premise of the DOJ's claim: that because Explorer was distributed to PC makers on a different disk from Windows, and because it was also marketed as a standalone product, it was by definition not "integrated." At a meeting with the DOJ that fall, Klein held aloft the two disks and said, "See? Two separate products." To Microsoft, the gesture was glaring evidence of Klein's technological cluelessness. Once IE and Windows were installed together, they fused into one seamless whole; the fact that they were distributed on separate disks, as software products often are, was irrelevant. "It's all just bits," Neukom said to me later. "Antitrust law isn't about how you distribute the bits; it's about how the bits relate to each other."
Klein may have been clueless about the commingling of code, but the DOJ's argument found a friendly pair of ears on the large round head of Thomas Penfield Jackson. Jackson was the gruff, grandfatherly federal judge who had somehow lucked into hearing the consent-decree case. After nearly two months of legal volleys, on December 11 he issued a stopgap split decision that cut sharply against Microsoft. On one hand, the company had offered a "plausible interpretation" of the term "integrated" and a "reasonable explanation" as to why its behavior was kosher under the consent decree; so Jackson rejected the government's motion to fine Microsoft $1 million a day. On the other, though the judge remained undecided on the merits of the case and needed more time to sort out the issues, he found that the DOJ "appears to have a substantial likelihood of success" and that "the probability that Microsoft might also acquire yet another monopoly in the Internet browser market is simply too great to tolerate indefinitely until the issue is finally resolved." And so Jackson handed down a preliminary injunction ordering Microsoft to "cease and desist" from requiring PC makers to install IE as a condition of their Windows licenses. Until the case was decided, Microsoft was to offer them a browser-free version of the OS.
Microsoft's response was flagrant, provocative, and ill-considered. Having maintained all along that removing the browser code from Windows would break the OS, the company decided to comply with Jackson's order in a remarkable fashion: by offering OEMs a choice of either a two-year-old version of Windows without IE or a current version that simply didn't function. Joel Klein was livid. "Usually the phrase 'contempt of court' is metaphoric," he sputtered to me. "In this case, it was literal."
Microsoft's maneuver led to the consent-decree case's most famous - and famously comical - incident. Before a packed courtroom, Judge Jackson announced that he and his clerks had been doing some hacking, and had found that IE could be uninstalled with no noticeable harm to Windows in "less than 90 seconds."
A few weeks later, in mid-January, after another hearing in which Jackson heaped scorn on Microsoft and its witnesses, the company backed down. In consultation with the DOJ, it agreed to offer computer makers a version of Windows that still contained some IE code, but in which the browser was disabled and hidden from view. Today, Gates and his lawyers still refuse to admit that this was what they should have done in the first place, not least because most PC manufacturers would have continued (and in fact did continue) to take the version of Windows that included IE. "Do I wish we'd found a more politically, personally, atmospherically palatable response?" one of Microsoft's senior lawyers muses. "Sure. But we couldn't then and we still can't."
"Maybe we should have gone to the DOJ and said, Hey, this won't work. Why don't we go to the judge and try to figure it out?" another Microsoft attorney tells me. "But we were in an adversarial situation, remember. And we were trying to make a point that was lost on the court."
The price of making that point would prove to be greater than Microsoft could ever have imagined. Two and a half years later, when Jackson issued his order that the company be split up, he cited its "illusory" and "disingenuous" compliance with his injunction in the consent-decree case as evidence that Microsoft was "untrustworthy" and that conduct remedies alone weren't sufficient to rein in its power. And even in the short term, the damage was severe. In America and abroad, in the news columns and in editorial cartoons, criticism, sarcasm, and even mockery suddenly appeared where once there'd been little besides adulation. For the first time ever, Ballmer acknowledged that the company's polling and focus groups had begun to show that the negative publicity was taking a toll on Microsoft's image. "It's not cataclysmic, but it's clear," he said.
At the same time, Microsoft's insolence seemed only to have emboldened the DOJ and the states as they turned their attention to the question of whether to launch a full-scale antitrust action against the company. If anyone had a doubt that they were serious, one piece of news should have instantly dispelled it: that Klein had retained David Boies, the famed New York litigator who had successfully defended IBM against the government's antitrust charges in the 1970s and 1980s, as a consultant.
The gathering storm was unlike anything Gates had ever weathered. Competitors had been assailing him and his company in every fashion imaginable for more than a decade. But what was happening now ... this was different. This wasn't business. This was the government, an adversary not unknown to Gates, but one against whose slings and arrows his defenses weren't nearly so robust.
In the months ahead, it would often be said that, for a company of its importance Microsoft had paid dangerously little attention to politics over the years. As recently as 1995, the company had no government-affairs office in Washington, DC. Yet Gates didn't think of himself as a political innocent. He had never been partisan, but who was these days? He had issues he cared about - trade, immigration, encryption, taxes - and had lobbied on behalf of. He had even dabbled a bit in the art of the schmooze. He had golfed with Bill Clinton on more than one occasion. He had dined with Newt Gingrich back when that meant something. He had hosted Al Gore on a visit to Microsoft. (For a time, Gore's daughter Karenna had worked at >Slate.) More to the point, Gates believed that he and Microsoft had delivered to this administration perhaps the greatest political gift of the postwar era: the new economy. Who had done more than he had to spark the PC revolution? What company had done more to provide the underpinnings of the information age?
Reback assembled a Murderer's Row of Valley executives, financiers, and technologists who would parade before the Project Shermanites during a single daylong session.
Directly and indirectly, Microsoft had generated untold wealth. In Windows, it had built a platform on which much of the high tech economy stood. It had created products on which millions of workers relied. It had propelled the Nasdaq to improbable heights. And now, after all this, after all he had done, the government that should have been showering him with praise and gratitude was casting him as a villain, a scoundrel, a grasping monopolist. It was crazy, infuriating. And it was starting to get under his skin.
As the consent-decree contretemps wound to a close, the blind outrage that had colored Gates' mood for months remained intact, but increasingly it was overshadowed by something darker. Among his small circle of close friends, word began to spread that Gates had fallen into a deep blue funk. "His own government suing him, that's not chocolate sundae," his father would later tell Newsweek. "He was concerned, he was angry, he was distracted from things he'd rather be doing." Actually, it was much worse than that. According to one old friend, "He was going through a period where he kept saying, 'I hate my job. I hate my life. I hate this situation. I don't know what to do.'"
Seeing Gates so demoralized disturbed his friends. It also worried the Microsoft board. On January 24, the directors (who included Steve Ballmer, Paul Allen, the ex-Microsoft president Jon Shirley, venture capitalist Dave Marquardt, Mattel CEO Jill Barad, and a Hewlett-Packard executive named Richard Hackborn) gathered for their monthly meeting. It was a gray Saturday just 72 hours after the company had come to terms with Jackson and the DOJ on the preliminary injunction, and the board expected that much of the meeting would be taken up with discussion of the consent-decree case and the broader suit that the government was contemplating. At least a few of Microsoft's directors were hoping to raise another issue as well: the possibility of promoting Ballmer to president from his current position as executive vice president of sales and support - in order, as one board member put it to me, "to take some of the burden off Bill's shoulders." Yet it was only when Gates began to speak that anyone fully realized how great the burden had become.
Looking haggard, as though he hadn't slept in days, Gates plunged into an extended and emotional tirade, railing at the DOJ, castigating the judge, bemoaning the sheer irrationality of what had befallen his company. Everyone in the room was familiar with Gates' outbursts, which were, after all, a signature of his leadership style. But this was a different brand of diatribe - more stream-of-consciousness than usual, and far more personal. His voice quavered; his body quaked. And where Gates in full lather was normally condescending and sometimes cruel, now he was seized by unbridled self-pity. The DOJ was demonizing him. The press hated him. His rivals were conspiring to take him down. The political establishment was ganging up on him. His enemies were legion; his defenders, mute.
How had this happened? What could he do?
Gates' eyes reddened. "The whole thing is crashing in on me," he said. "It's all crashing in."
And with that, the richest man in the world fell silent, and began to cry.
V. THINGS FALL APART
It was said by admirers and antagonists alike that Gates was endowed with a greater ability than perhaps any CEO in history not only to see several chess moves ahead but to do so on several chessboards simultaneously. Yet no matter how many chess games are being played, the same rules apply from board to board. Knowable rules. Fixed rules. The trouble for Gates and Microsoft was that the ordeal they now confronted was less like a chess match than a piece of improvisational theater, where the stage is full of actors armed with different scripts, motivations, and objectives. Careering around the proscenium, this motley cast - Microsoft, the DOJ, the states, Silicon Valley, Judge Jackson, and the rest - would at times stay in character; at times not. At times they would read out well-rehearsed lines; at times they would extemporize wildly.
For Microsoft, the most baffling of subplots was the one playing out in the realm of politics. Starting in 1997, a number of Valley figures had begun building bridges to Washington, DC, in a manner unprecedented in the high tech industry. The institutional form this outreach took was a bipartisan organization called TechNet, whose cochairs were Netscape's CEO, Jim Barksdale, and John Doerr, the venture capitalist who had funded not only Netscape but Sun, Intuit, @Home, and an array of other Microsoft rivals, and who was famously tight with Al Gore. In Redmond, suspicions ran rampant that Barksdale, Doerr, and other TechNetters were using their newly minted access in the capital to lobby the administration and Congress to take on Microsoft.
These suspicions weren't entirely unfounded. In the fall of 1997, TechNet had arranged a trip to the Valley for the White House's then-deputy chief of staff, John Podesta, during which executives repeatedly raised the Microsoft issue with him. And according to someone close to the group, on at least one occasion, a Valley figure spoke about it with President Clinton. How did Clinton respond? "He expressed sympathy with our point of view," this person said. "But then, this was Clinton, so it could have been meaningless."
The effects of such lobbying was probably nil. Though Silicon Valley is a rich vein of campaign cash, the politics of pursuing Microsoft were highly fraught. "It's a no-winner," says Greg Simon, a Gore campaign official who once served as the vice president's cyberpolicy guru. "People say, 'Why are you going after them? Do you want to kill the goose that laid the golden egg?'" Still, Microsoft was right to worry that their foes were playing the influence game more adroitly than they were. For if mining the muddy Clintonite middle yielded few tangible (or at least public) results for the Valley, it hit paydirt among those with more concrete ideologies.
On the left there was of course Ralph Nader, but more unexpected, and more influential, was the support the Valley stirred up on the right. Most notably, Netscape and ProComp together reeled in Robert Bork, the conservative jurist whose 1978 book, The Antitrust Paradox, was a sacred text for Chicago School economists and the generation of conservative judges named to the bench by Nixon and Reagan, because of its potent arguments that antitrust enforcement was only justified in the rarest of cases. Bork was initially skeptical of Netscape's complaint - until he took a gander at the first white paper. There he found that Susan Creighton had cited a case in support of her arguments that was also cited conspicuously in Bork's own book. "You're right, I wrote this," Bork said. "And it applies, perfectly."
Among the relatively few executives in Redmond with a background in politics, the Valley's success in nailing down support at both ends of the political spectrum was troubling. As one executive said to me, "If Ralph Nader and Bob Bork agree about Microsoft, my God, there really is no political risk in going after us."
Enter Orrin Hatch. In February, Hatch announced that he was planning to hold a hearing on Microsoft - and to invite Bill Gates to attend. The idea belonged to Mike Hirshland. Assuming Gates showed, the hearing guaranteed adulation from Silicon Valley and a copious quantity of TV time - and thus promised to feed Hatch's twin joneses, for campaign cash and national publicity. To assure that Gates felt he was being treated fairly, Hatch set aside a full hour for a briefing with Gates the day before the hearing, despite his normal practice of never - ever - allotting more than 20 minutes for any meeting.
On the drizzly Monday afternoon of March 2, Gates arrived with an entourage of nearly a dozen at Hatch's first-floor office in the Russell Senate Office Building. The decor of Hatch's digs was classic early-modern senatorial drab - blue carpet, dark wood, flag in the corner. Hatch was on the Senate floor, casting a vote, but soon he strode in and apologized for being late. Gates stared at the clock on the wall, turned to the chair of the Senate Judiciary Committee, and said coolly, "Well, given that we're starting 15 minutes late and I'm only going to have 45 minutes now, we should get right to it."
Hatch, thunderstruck, said nothing.
It went downhill from there. When Gates told Hatch that the DOJ was trying to force Microsoft to remove IE from Windows, Hirshland piped up and said he was mischaracterizing the government's position. Whipping around, Gates snapped, "You don't know what you're talking about." When Gates demanded to see a summary of the questions he might be asked, Hirshland handed him a list of broad categories. Pointing to one topic, Gates wailed, "If you ask about that, this will be a kangaroo court!" Then Gates inquired about the seating arrangements for the hearing. When he was told he'd be seated between Barksdale and McNealy, Gates leapt to his feet and exploded, "No! No! No! If you put me between them, I will not appear at this hearing!"
Hatch, by now more amused than annoyed, leaned back and said, "OK, OK, we'll put you on one end of the table and we'll let you speak first. Happy?"
Compared with the prelude, the hearing itself was a bit of a letdown. Hundreds of gawkers lined up outside to catch a glimpse of Gates decked out like a kid in a wedding - in a suit and tie and decent leather shoes, his hair freshly cut and plastered down. Gates' handlers had studiously prepared him, putting him through mock hearings in which a Microsoft lawyer posed as Hatch and two Microsoft executives played McNealy and Barksdale. Even so, Gates' performance ranged from passable to poor. He was often evasive. He repeatedly contended that Microsoft was not a monopoly, a statement met with pervasive skepticism. And, in the hearing's final minutes, an actual moment of drama arose, in which a dogged (and well-briefed) Hatch was able to extract an admission from him that Microsoft's contracts with Internet content companies barred them from promoting Netscape's browser.
To many observers, and especially those ill versed in the kabuki that passes for communication inside the Beltway, Hatch's convocation seemed to have accomplished little or nothing. But the senator's message wasn't lost on Klein. Two weeks after the hearing, Klein told me, "I knew there was political support for taking on Microsoft. That was not a shock to me. But the Senate hearing provided a real sense of comfort. The politics of this thing were becoming clearer. Microsoft goes up to the Hill and says they don't have a monopoly, and people just say, That's silly."
To other politicos, silly was an understatement. Jeff Eisenach, the head of the Progress & Freedom Foundation, the think tank once known as Gingrich's braintrust, said to me at the time, "When Gates walked out of that hearing, he was a lot closer to a broad Sherman Act case than when he walked in. When you're the richest man in the world and not a single senator speaks up on your behalf, you know you've got problems."
"In all my years practicing antitrust law, I have never seen such powerful people so scared," Michael Sohn told Klein and his team. "It utterly amazed me."
For two of Gates' most outspoken rivals, the Hatch hearing was a day at the circus: the media circus. Barksdale had a ball. Silver-haired and Southern-fried, with courtly manners and a hint of hambone, Netscape's CEO seemed vaguely senatorial himself. He began his opening remarks by turning to the gallery and asking, in his best Mississippi drawl, how many people in the room had a PC. Maybe three-quarters of them raised their hands.
Barksdale asked, "How many of you use a PC without Microsoft's operating system?"