That “other thing” was the small matter of a federal order that Microsoft must be split in two like a stick of firewood, as a result of illegally abusing what Judge Thomas Penfield Jackson had deemed a monopoly position in computer software. But Ballmer and his partner, Microsoft chairman Bill Gates, were confident (and most observers agreed) that the U.S. Court of Appeals would overturn Jackson’s adoption of a government-suggested plan without holding evidentiary hearings. And last Thursday Gates and Ballmer got their wish–at least as far as the breakup went. Only a half hour before the 125-page decision was publicly released at noon, EDT, the word arrived at Redmond. Gates called Ballmer, who was vacationing at a campground at Lake Shasta, Calif. “We got it,” he said, and began taking Ballmer through the document section by section. There was not much in the way of congratulations, since “Bill tends to focus on things that don’t go as well,” says Ballmer. A case against Microsoft stood, but any penalties would come from adjustments to Microsoft’s behavior, not its basic structure. A few hours later, in a press conference led by Gates with participation from Ballmer from a Red Lion Inn on the way back from Shasta, both used the same image to describe the feeling: “A cloud has lifted” from over Microsoft.
But this ruling was far from a clear victory for the Softies. Yes, there was a rejection of the count that Microsoft attempted to monopolize the browser field, a remand to district court of the issue of whether Microsoft illegally “tied” its browser to Windows and the overturning of Judge Jackson’s half-baked breakup–as well as a removal of Jackson from the docket because of his ethically questionable press interviews while the case was pending. But Microsoft’s foes at the Department of Justice were happy, too. “We won more than I thought we would,” says one senior official, so much so that at the end of the day the key litigants left work early for a celebratory drink. What did they toast? More than half the ruling is devoted not to vindicating Microsoft, but re-establishing–this time with impeccable credibility–the crux of Justice’s case: that the company is a monopoly that acted in an illegal and anticompetitive manner in order to maintain that monopoly.
In coldly reserved language–with the occasional jab to the gut–the seven judges stripped naked the various dodges and dissembles that Microsoft used throughout the trial to justify its vicious tactics. Example: Microsoft always claimed an absolute right to restrict computer makers from placing icons for competitors’ software on the opening screen of Windows, justifying the practice on the grounds that Windows was Microsoft’s sacrosanct intellectual property. “That is no more correct,” wrote the court, “than the proposition that use of one’s personal property, such as a baseball bat, cannot give rise to tort liability.” Ouch.
While Gates and Ballmer professed “disappointment” that the key count against them had been reaffirmed, their competitors breathed a tentative sigh of relief. With Microsoft still on the hook, they figured, there’s at least a chance that someone will stop them from taking over the world–again.
Their fears are based on a striking barrage of initiatives, products, research projects and outright jihads that constitute a raging return of the dominant Microsoft of old. If you listed them all on a PowerPoint slide, it would contain more bullets than Bonnie and Clyde. When Ballmer recently addressed more than 200 venture capitalists in Redmond, he laid out the areas the company would be focusing on in the years ahead: pretty much everything.
This year will see the release of Office XP, the best-selling software application, as well as Windows XP, a major new upgrade of the operating system. Their features dovetail with larger Microsoft initiatives, key among them .Net, an ambitious plan to build an operating system not on computers but on the Internet itself. Microsoft will then transform its business model to focus on subscription-based services, chief among them a suite of Web services (calendar, address book and so on) known as Hailstorm. In addition, Microsoft is readying a breakthrough keyboardless Tablet PC, and competing in the game market with its own console, the X-Box.
“I feel we’re really back in the saddle now,” says longtime executive Jeff Raikes. But Bill Gates says the theory that during the trial Microsoft tempered its behavior, only to come storming back now, is “nonsense.” Instead, he contends, the illusion that Microsoft was backpedaling during the past few years was simply a function of product cycles and preparation for the Next Big Thing. While competitors were envisioning a world with a less dominant Microsoft, the busy beavers in Redmond were gnawing away. “A lot of our things are coming to fruition now, but who we are is more constant than the lens the world views us through,” he says.
Still, competitors, partners and even some former employees report that Microsoft is proceeding with the hardball attitude that got it in trouble to begin with. “With Hailstorm, .Net and other things, they are still trying to tie the rest of the world to where they have their monopoly,” says Mitchell Kertzman of Liberate, a Microsoft competitor. “They haven’t been deterred,” says Tom Miller, attorney general of Iowa, one of the states suing Microsoft. “They won’t change their tactics. Winning is their top priority.”
So what happens next? In theory, any of the parties can appeal the ruling to the Supreme Court. Though Microsoft hasn’t ruled that out, such a course is unlikely, as the appeals court was probably its best imaginable venue. The obvious choice is a settlement, and it’s logical to think that the pro-business Bush administration would be happy to see this case go away.
Oddly, in the immediate aftermath of the ruling, it appears that the two, or perhaps three, sides are further apart than ever in finding common ground for settlement. Microsoft contends that the case against it has been narrowed drastically, and the death penalty is off the table; therefore, any concessions it makes should fall well short of a series of restrictions discussed in settlement talks held last year. But the Feds believe their own position is strong. They’ve averted their worst-case scenario, a total rejection of the case by the appeals court, and shown that Microsoft is indeed a monopoly. Meanwhile, the state attorneys general will be demanding that any settlement require significant changes to Microsoft’s current strategy.
The other possibility is that the case will simply go on. Lawyers will prepare for a reboot of the tying count under a new district-court judge (presumably one less likely to host the media for sub rosa tea sessions), and eventually hearings will be held to determine a new remedy. Some skeptics think Microsoft might pursue this tactic so it can postpone the penalty phase, proceeding with its strategies relatively unimpeded at a crucial time.
“I don’t buy into that [stalling] theory at all,” says Ballmer, who says he wants this mess to go away ASAP. It’s business, but it’s personal, too. Ballmer as well as Gates has deemed the legal charges as a personal affront. So it must have provided a measure of satisfaction that the individual singled out for the sharpest verbal whipping by the appeals court was not Bill Gates, but Thomas Penfield Jackson; his unethical behavior was “deliberate, repeated, egregious and flagrant.” The court even considered whether Jackson’s actions justified tossing out the entire case, but ultimately decided that the jurist’s decisions were not fatally polluted by his misconduct.
That was too bad for Microsoft, because last week’s ruling bestows a devastating finality to Jackson’s key conclusion: the company is indeed a monopoly, and it did indeed engage in unlawful, predatory actions to maintain that monopoly. “Do I think of myself as a monopolist? No!” Ballmer says. “But I accept what the court says.” How should being considered a monopoly affect Microsoft’s behavior? “I wish I could tell you. There’s no handbook.” In other words, it’s still cloudy over Microsoft.
