No wonder the hearing quickly turned into a MS witch hunt, with Hatch and MS competitors calling us a monopoly. “Ei incumbit probation qui dicit, non qui negat.” Innocent until proven guilty, the senator, himself an attorney, failed miserably.
Watching the proceedings of the showlike trial on TV, I admired Bill for attending the devilishly choreographed charade of pseudojustice marching toward a resolutely staged outcome. Dell’s CEO saying something nice about MS was roundly ridiculed by politicians for not offering any non-MS OS for his PCs. The proof was presented based on a single phone call one of the staffers had made, the content of which didn’t reflect Dell’s policy at all. As usual, the predisposed press was all over the blatantly manipulated event, repeating for weeks thereafter the mounting alarmist accusations leveled by competitors and Hatch-like politicians. Some called the grilling of Bill a public service in the infamous public interest. I shook my head in disbelief, thinking of all the time and taxpayers’ money they wasted!
ANOTHER ALLIANCE ATTEMPT
With the demise of OS/2 WARP, clearer heads in IBM’s PC division finally prevailed. During my reinstituted quarterly dinner meetings with the local IBM lab manager, I indicated that Bill would be interested in reconsidering a broad partnership. My message got passed directly on to the right people. Bob Stevenson, Thoman’s successor, wanted to seriously explore it. Negotiations were back on. My team and I met several times with different players from within IBM, exploring the opportunity further. Following up with Bill, we outlined a plan. Bill’s interest in working with IBM now extended far beyond the PC platform, covering database technology, mainframe issues, intranet- and Internet-integration topics, PowerPC ambitions, etc. Competing and winning against OS/2 or Lotus products had faded away.
In turn, I detailed his assessment and interest at large with IBM’s division management and asked to explore Gerstner’s willingness to engage. His people came back with “He does not like to waste his time.” I interpreted their message as “I don’t think I can really trust Bill Gates.” We refused to give up, cultivated influencers, and in the end succeeded in arranging a private assignation between the top management teams of both companies.
The meeting took place in the early afternoon of a late and humid summer day in Chicago and began with sitting down for lunch together. The IBM guys were dressed in their rigid pinstripes while we had just changed, last minute, from Cabela’s sportswear into casual business attire. Straight off, I could see that Bill was in guarded mood. Steve had expressed skepticism on the way over. Paul Maritz and I kept an open mind without being overly optimistic about the outcome of the potshot gathering. Both parties had flown in on private jets and used black stretch limousines—curtains closed—to reach the designated meeting location in a North Chicago suburb.
In marching up the bricks of the alleyway, we used a greasy back entrance and filed into a Tattiano’s-like Italian restaurant to get into a compressed meeting room. Surrounded by IBM handlers, Paul and I couldn’t help but compare the moment and the mood to how Mafia bosses may have cautiously approached their clandestine rendezvous.
After introductions, we stood patiently around a long table as Lou made a great display of symbolically removing and then folding his cape and sword. The chairman of the largest IT company in the world was in an impressive form; Bill matched him—just kidding.
Sworn to secrecy, none of its attendees ever disclosed that the meeting ever happened. MS was represented by Bill, Steve, Paul Maritz, and me. Lou Gerstner had brought his software chief, SVP Jon M. Thomson; Ned Lautenbach, a sales SVP; and Bob Stevenson, who was SVP in charge of the PC division. I had met him twice before and had not been terribly impressed. Unfortunately, the meeting took place prior to Sam Palmisano’s appointment as head of the PC division, which came about two to three months later. Its outcome may have been much, much different.
The two big boys got right into the topics outlined in the relatively loose agenda. I remained mostly a silent observer. There was a lot more gray hair on the opposite side of the table. The meeting was cordial, sometimes a bit tense. I concluded early on, and so did Paul, as we had a quick exchange during a break that any real action would not be easily forthcoming. Lou and Bill were living in different worlds. Gerstner had been a consultant for a long time in his business life. He understood how serving customers diligently could make a company successful. An insight most instrumental for him as he engineered IBM’s turnaround!
Bill’s career had been a brilliant stroke of luck, betting on the superiority of the PC concept. He had truly lent a hand in creating, growing, and nurturing the industry. Possessing no sympathies for IBM’s mainframe approach, he had nevertheless concluded that bridging both worlds promised rewards for both sides. Could he charm—or better, lure—Lou into an alliance for the good of all?
Steve understood that customers paid our bills and that only satisfied ones guaranteed our future. In this regard, he was closer to Lou than Bill and understood Gerstner’s reason for insisting on a humble customer-driven service culture. I had briefed him and the other MS participants on this subject in-depth and in detail. But none of them fully perceived the radical transformation IBM was painfully suffering through right before our eyes. To save and transform IBM and make his new service concept stick, Lou Gerstner had surrounded himself with a number of minions he knew and trusted from former work experiences. Most of his new team had no axe to grind with MS; the old crew who had lived through the divorce and the later rocky relationship was nearly all gone by now.
So there we were, expectations brimming. Would the titans clash or understand each other and bridge the gap? I noticed no personal hostility between the participants; everybody behaved. But real bridges of understanding weren’t built either. Lou came across as an empathetic GM type contrasting Bill, the futuristic visionary. Bill engaged him several times in technology discussions, but neither Lou nor his entourage could or wanted to follow along. Surprisingly, IBM’s white-haired software chief, Mr. Thomson, did not engage. For Paul and me, he was a true disappointment. He appeared to know budgets better than technology. Lou was talking in broad terms outlining business principles. His statements were kept ambiguous and not concrete enough for the MS team to seriously engage. The smallest passion for an alliance waned as the ticking clock started running out.
Steve behaved well and did not reveal his still-undiminished animosity; he tried hard to understand how these broadly worded and nonspecific suggestions could lead to a new form of cooperation. The meeting ended after approximately three and a half hours, and Paul and I got assigned the task of following up. We did so over several months with different groups inside IBM, but in the end, nothing concrete ever came out of our enduring dialogues.
No wonder we failed to find common ground to foster each other’s businesses. Lou Gerstner had put IBM on course to restore her lost leadership position. He got lucky betting on C-MOS technology for a new mainframe generation, although the real change he introduced to IBM’s culture—true to his former experience—was a new understanding of how to address and gratify customer needs. In the past, IBM’s consulting organization had refused to engage in service contracts for non-IBM products. Lou Gerstner modified this long-entrenched policy. If expertise was available, at a price, any and all IT projects were accepted, and customer preferences were no longer questioned. MS’s top management listened but could not believe that IBM had turned vendor neutral and was, from now on, willing to treat our products on equal footings. Had the ongoing war clouded our judgment?
We knew the Internet would demand opening up and embracing non-MS standards. But our primary goal was still to defend and cement success for generations of Windows to come. This centric view was causing a bunker mentality, hindering Steve and Bill to trust IBM’s promise. In a nutshell, you could say MS was still tapping bricks into her wall of defenses. IBM had started to dismantle hers to win customers back.
Examining the wide gap of practical and philosop
hical differences between two leaders allowed me to understand why no common ground was found. Bill, fond of his iconic image, presented himself as an esteemed visionary. Lou Gerstner gave the impression of a down-to-earth pragmatist. He was fully respected and at times feared by his employees when making unpopular decisions. On the other hand, Bill always looked for admiration and avoided making the tough decisions, leaving it to his subordinates.
Gerstner once told journalists that IBM did not need yet another strategy, which the press totally misunderstood and therefore ridiculed. In his book, he explained the need for strategies to be “short on vision and long on details.” As a consequence, solid strategies “start with a massive amount of quantitative analysis.” An anointed vision and gut feelings, to my consternation, were often the centerpieces of ours. In my opinion, Lou Gerstner was correct when stating “vision statements can create a sense of confidence.” They “are for the most part inspirational and play a role in creating community and excitement among an institution’s employees.” Bill and Steve reveled in them with convincing conviction. Lou played them down, considering them a necessary evil.
Observing their exchanges during our legendary meeting, I concluded the core reason why they misunderstood each other: they lived on two different planets. Both were running a successful business, though with dissimilar philosophies and principles and with antithetical disciplines. Lesson learned, mission not accomplished! The two limos idled out from the alleyway entrance and drove off into the late afternoon Chicago sunlight back to the same airport we had both arrived from and still in two vastly different directions.
Shortly thereafter, IBM appointed a new leader for the PC group. After the failed attempt to bring the big boys together a couple of months earlier, I made absolutely certain to meet Sam Palmisano at once and explore how we could improve our working climate. The rumor mill had it that Lou G. was preparing Sam to succeed him. I was full of anticipation and not at all disappointed. Sam was a class act of a manager, and we understood each other immediately. He was polite, to the point, and wanted to explore possible cross-company synergies on a small scale. Sam cracked a couple of jokes about the darker past while, at the same time, obviously wanting us to bury the hatchets. We touched briefly on the failed meeting, and he flat-out told me that Lou had considered it a waste of time. There was no reason to believe a grand alliance would come together in the near future. I appreciated his point-blank honesty. He appeared rather close to Lou, and perhaps the murmurings about Sam as his successor were right on. In retrospect, they were. We agreed to leave the past behind and make sure IBM and MS could at least work constructively on new product introductions. The first opportunity on the horizon was the launch of Windows 98, at that point less than a year away. I gave Sam my word to fully support him. As I left, he enlightened me on how IBM had survived her antitrust battles with the Feds in the ’80s, and he wished us luck accomplishing the same.
As congenial as our meeting was, it did not prevent IBM from supporting competitive products like Linux and Java or aiding to unite the industry against MS and help the Feds in any way possible to condemn us. I couldn’t care less; I wanted IBM to preinstall more Windows as long as she manufactured PCs making life as easy as possible for her PC division. I wrote Bill a short e-mail about my meeting, and he responded favorably, saying, “Make Sam your friend. If he indeed becomes CEO one day, I will have to meet him, and it would be nice to finally find some common ground.” He never gave up!
IN THE SHADOW OF THE FEDS
THE ONLY MAN BILL GATES MAY FEAR
This was how, in August of ’97, the partial headline in Wired magazine read. The article that followed was not the only one I had read about the underground conspiracy coalition led by the lone ranger of antitrust justice, Gary Reback, generously funded by our competitors. I understood the word conspiracy to mean “a secret coalition of individuals with a common goal.” Theirs was to influence the DOJ leadership and sympathetic politicians to relentlessly pursue MS and find an avenue to classify our vigorously competitive behavior violating antitrust laws. In barrister Reback’s view, we were a danger to society. As quoted in the Wired article, “It’s not just our lunch, but our carcasses that MS wants to eat. There are grave societal consequences to that strategy and a whole new wave of opportunity that MS wants to suck into its OSs to maintain its monopoly.” Pretty strong and outrageous allegations if you asked me—particularly for a lawyer.
His first actions in his fight against MS had been to deliver a brief to Judge Sporkin’s court, rejecting the 1994/95 consent decree as inadequate. When the judge’s opinion was reversed and he himself was removed from the case, the Reback group did not give up lobbying the Feds. She gained further momentum when Netscape funded her to investigate our Internet strategy. On June 23, 1995, Mr. Reback fired off a letter to the DOJ, asserting the Internet was a new platform rendering OSs useless. He cited statements made by MS executives and referred as proof to meeting notes he had obtained from Netscape. Concurring with the lofty opinions of his clients, he then demanded MS, the OS powerhouse, should be forbidden to compete in the Internet arena with an integrated Windows browser.
His arguments and actions were straight along the lines of Senator Hatch. We need to protect start-ups like Netscape, introducing disruptive technology. The DOJ’s initial response to his letters was lukewarm, encouraging him to lead his group into a guerilla war as he explained in his book Free the Market!. According to Netscape’s general counsel, he was sent “to be the government’s worst enemy. Criticize them everywhere… . Until they sue MS. Then you will be the government’s best friend.” Certainly a thought-provoking tactic—one reminiscent of the magnanimous ethical standards so many lawyers publicly bear forth into the world!
Let’s listen to him again to fully understand his provocative aim: “Microsoft’s enemy is not Netscape. It’s the consumer choice.” Obstructions of consumer choice—a nice, catchy accusation and line for the sensationalist media market, but did reality truly support this? Think about the number of reasonably priced Windows applications available by then, the millions of dollars MS actually poured into supporting competitors to develop them, how OEMs could add browsers to their heart’s content to the Windows desktop, and let’s not forget all the other vast information choices Internet-connected Windows PC users had.
Yet Reback’s relentless quest consigning the MS case to the DOJ continued. By now, the antitrust division had a new boss in Joel Klein. Enlisting the help of Susan Creighton, the conspirators dug out an old Supreme Court ruling, enlisted Robert Bork—a judge with controversial reputation after not making it to the Supreme Court—and got the Texas AG to start an investigation. The group used public statements by MS officials and depositions from the Texan investigations to further beef up their alleged monopolization case. Most of their accusations were boiled down into a still-secret 220-page document funded predominantly by Netscape. The DOJ staffers quaffed the poisonous brew with gusto and issued a document demand to Netscape and MS. A new investigation was on!
Giving IE away at no charge was the next contention. The conspirators cavalierly labeled this predatory. According to Professor Frank Easterbrook, an economic expert whose windy opinion the group adhered to, setting a zero price for a product was irrational business behavior. Mr. Reback described this in his book: “Predatory pricing inevitably harms consumers by eliminating competition.” To further prove his allegation, he quoted the opinion of an executive from Silicon Valley Company, saying, “Regardless of how good your product is, you can’t compete against free.” Think about Google, Facebook, Twitter, or Linux and think again. In the end, the nefarious mercenary lawyers backed away from the predatory pricing theory. The phrase, while catchy, was hard to prove!
Even Steve Jobs got engaged in the conspiracy by inviting Joel Klein to visit his headquarters and telling him to keep MS tied up in litigation, enabling him to gain share with the new iMac PC. Bill had mocked his new baby in public, so he joi
ned the witch hunt and not for the last time.
Tallying it all up, I estimate that the Feds got a nearly $10 million worth of indirect legal freebies from the conspirators paid for by our competitors. Sanctioning their work, the DOJ eventually built a labyrinthine case against us while Garry Reback gained considerable praise—and not to forget fees—for sinking his thirsty mandibles into the warm host hide of evil pioneer MS.
BACK IN JACKSON’S COURT
Sam Palmisano had foresight. Shortly after we met, the Feds, buttressed by Reback’s briefs and their own investigation, filed a motion in Jackson’s court, accusing MS of violating the 1994/95 consent decree. Most employees, in particular people working for me, could not believe what they read. “Microsoft unlawfully maintained its monopoly by using exclusionary and anticompetitive contracts to market its PC OSs.” Allegations and accusations—none of them proven—fueled the fire of public opinion and made my cohorts feel like criminals.
Our contracts were approved by our attorneys, and if they had been exclusionary, they would have never passed muster. On the other hand, being labeled anticompetitive sounded honorable to me. Any company struggling to win in a free market is, by nature, anticompetitive. This held true throughout the world of free commerce, from plumbers to architects and to auto manufacturers.
The Feds’ main accusation was that MS was illegally tying IE to Windows. Straight out of Reback’s secret play script came the following: “By forcing OEMs to license and distribute Internet Explorer on every PC they ship with Windows 95, Microsoft is not only violating the final judgment,33 but in so doing is seeking to thwart this incipient competition and thereby protect its OSs monopoly.” Therefore, the Feds asked the judge to find MS in contempt of court and order her to cease her tying practice or pay a one-million-dollar daily fine.
Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence Page 19