A Surreal Halloween

Microsoft Rebooted
by Robert Slater

(Page 2 of 5)

October 31, 2002. The atmosphere that afternoon at Microsoft's main campus in the Seattle suburb of Redmond was surreal. It was Halloween and the costumed children of employees roamed the corridors trick-or-treating. Then word began to spread among the adults of a sudden, new development in "the DOJ trial," and suddenly employees huddled in groups of twos and threes to vacuum up every fresh detail. Inches below them, but seemingly worlds apart, delighted children giggled and gazed curiously at one anothers' costumes, oblivious to the nerve-wracking drama affecting their parents.

For the adults, the dreaded moment was imminent. It had been four years and five and a half months since the U.S. government had brought its antitrust suit against Microsoft. And Microsoft's legal team had just learned that U.S. District Judge Colleen Kollar-Kotelly planned to issue her fateful decision at 1:00 p.m. Eastern time the next day.

The question before Judge Kollar-Kotelly was whether to accept or reject a settlement hammered out a year earlier by Microsoft and the U.S. government along with nine states. Already, the courts had found that Microsoft had used its monopoly status in the operating software business to force companies to do business with it. Already, one court had ordered Microsoft to be split in two; but a higher court had then shelved that notion forever, or so it had seemed at the time. Nine other states not party to the proposed settlement were asking the U.S. district judge to impose harsher penalties on the company; Microsoft's worst fear was that the judge might use their recommendations as a springboard for eviscerating the software titan.

Before the crisis, the company had risen to become the most valuable company in America. Just sixteen days earlier, Microsoft's market capitalization had reached $265.1 billion, passing General Electric to gain the top spot. In 1999, Microsoft had become the first company to exceed $500 billion in market value. Its cofounder, chairman, and CEO, Bill Gates, had become unquestionably the best known business figure of the era. Blocking out the deafening giggles of the small children, Gates's executives worried that nothing less than the future of the most visible, most profitable, and most controversial high-tech enterprise in the world was on the line. Tomorrow would certainly be a historic turning point for Microsoft.

Although the Microsoft Windows operating system along with its productivity software was running on more than 90 percent of home and business computers, an outraged Gates had continuously insisted that his company was no monopoly. He further argued that, despite what the Government had charged, his company had broken no law. Brimming with confidence that Microsoft would be exonerated, he refused to talk settlement of the case for most of the trial. (But eventually realizing how much the trial had damaged Microsoft's reputation, Gates buckled ignominiously and the November 2, 2001, settlement was to follow.) Now, on October 31, 2002, the question in the minds of those Microsoft executives hovering over their costumed children was whether Judge Kollar-Kotelly would ratify the settlement. For her to reject the settlement would mean that Microsoft's nightmare would continue and might get worse.

The fifty-nine-year-old judge had been appointed to the bench by President Bill Clinton and had a reputation as a meticulous jurist. She had replaced U.S. District Judge Thomas Penfield Jackson as the judge handling the case; upon taking over, she immediately urged the sides to get into settlement discussions. Asking few questions, she had given little insight into her leanings during public arguments.

In agreeing to the settlement, Microsoft had affirmed that it would not participate in exclusive deals that could harm its competitors, and it would not offer different contract terms to different computer manufacturers. With the settlement terms in place, Microsoft had already begun to comply with other terms by distributing technical data and releasing an update to Windows XP that permitted the removal of Microsoft icons from that operating system.

The Inner Sanctum

As adults and children frolicked noisily in the corridors, Brad Smith, Microsoft's senior vice president for law and corporate affairs, was meeting around a conference table with twenty colleagues on the fourth floor of Building 34, headquarters for Bill Gates and other members of Microsoft's senior echelon. Smith always seemed to have a smile on his face. He was normally sociable and talkative, but not now. Now he was sober and without the usual smile. He looked nervous and worried. Not far away from Smith's gathering were the offices of Bill Gates and Steve Ballmer. This was the inner sanctum of Microsoft, where almost no one treaded uninvited.

Inside those offices were Ballmer and Gates, two men whose lives had been upended by the trial and who had high hopes that the end was in sight. They too had solemn looks and they too were more edgy than usual. Nearly two years earlier, they had taken on new roles in the company, but the trial had been a large reason why they had still not fully adjusted to those new roles. Back then, Ballmer had, with Gates's approval, replaced the cofounder as CEO; and Gates had begun to devote himself full-time to overseeing the company's technology as chief software architect.

By now, Brad Smith and his associates had learned that the antitrust case was to be resolved the next day. Suddenly the jaunty laughter subsided. Scooping up their notebooks, they hustled out of the conference room to consider postverdict scenarios. Suddenly stern-faced executives reviewed the previous four years of courtroom wrangling and tried to make a quick assessment. They knew their assessments were beside the point. The betting, unfortunately for Microsoft, favored a harsh decision. Smith thought the whole scene outside the conference room door was bizarre. Stepping into the corridor and locating his wife and two costumed children, he spotted Steve Ballmer with his wife and three children. Ballmer, with his oval bald head and bulky, seemingly towering frame, was always easy to recognize. He had just lost fifty pounds, but no one would accuse him of looking gaunt. Smith gazed intently at the CEO's countenance, hoping to see Ballmer's thin lips curl up in a smile, but they did not.

He's frowning, Smith thought. This is not a good sign. A smile or the lack of one became the key measurement for Microsoft's future. Brad Smith wondered if tomorrow would bring smiles.

For Bill Gates, the Government's antitrust suit had been a disastrous ordeal. It had been his personal hell. News reports surfaced that Microsoft's cofounder had broken down in front of the Microsoft board of directors, but senior executives called such reports "overblown." Whatever the case, he could have ended the nightmare much sooner by negotiating a settlement. But he had chosen to endure it. He did so - he felt in the strongest possible terms - in order to save Microsoft from being torn to shreds, one shred at a time, by jealous, unimaginative, and rapacious rivals. He had no doubt that he could outlast them, and so he had been willing to take his chances with the courts. He had never admitted to being distracted, let alone overwhelmed, by United States v. Microsoft. But, severe distraction it had certainly been. In his own view, Gates had spent far too much time and energy on legal strategies - time and energy that could have been employed much more productively to monitor Microsoft's technology program. For those who cared deeply about Gates, the trial had been an agony. His father, Bill Gates Sr., admitted to feeling "a sense of relief after what he went through." It was no wonder.

Copyright © 2004 Robert Slater. All rights reserved. This excerpt, or any parts thereof, may not be reproduced without permission.

About the Author

Robert Slater is the author of more than twenty books, among them the recently released The Wal-Mart Decade and the national bestsellers Jack Welch and the GE Way and Get Better or Get Beaten. He was a reporter with Time magazine for two decades.