What Would Consumers Do?

Microsoft Rebooted
by Robert Slater

(Page 5 of 5)

Judge Kollar-Kotelly's judgment of November 2002 had ended the legal cloud hanging over Microsoft, but her seal of approval on the settlement had by no means returned the company's once-lofty image to what it once had been. Indeed, all of the assaults and allegations remained like a festering wound and it would take far more than the end of the courtroom battle to heal the wound.

Too many of Microsoft's critics had felt vindicated by the courtroom testimony; too many had been dismayed at the settlement, believing that it lacked the necessary teeth to curtail the predator. And too many had been distraught at the failure of Microsoft to admit to any wrongdoing before, during, and after the settlement. In short, the end of the trial meant that Microsoft could move forward in more or less the same configuration as in the past. Even if the settlement had imposed new restraints on the company, making it easier for consumers to choose non-Microsoft products, those same consumers could continue to purchase Microsoft products.

The question of how consumers would react to the more constrained Microsoft would take some time. A more burning question had to do with whether all of the other groups in the outside world, including its shareholders, Wall Street, the high-tech community, the federal government, and the media, would continue to keep Microsoft embattled, or whether those groups could be persuaded to drop their weapons.

Until now, although some of these groups had certainly tried their best, they had not brought Microsoft down. They had not induced the company's millions of customers to turn away from Microsoft products. But they had shown that they could seriously impair the company's ability to concentrate on building and distributing great products. Until now they had proved a serious distraction.

But what might happen in the future? If any of these elements stepped up their battles with Microsoft, at some point consumers just might stand up and take notice; consumers might begin to regard Microsoft as the enemy. They might decide to boycott its products. Until now, the company had been delighted to discover that its consumers had remained loyal to the company and to its products. Some 600 million people were using Microsoft's Windows operating system; and 400 million were using its productivity package of applications known as Office, the latter of which in 2003 was bringing in almost one-third of the company's sales and profits.

Even if they had not been madly in love with those products and had groused about the products' quality, customers had not defected because of the allegations. Still, Microsoft feared that eventually the negative effects of the trial would affect customer loyalty to its products.

Was there something Microsoft could do to prevent that from happening? The answer was yes. It could work hard to improve its reputation among the high-tech community, the government, the media, and the like. It could labor vigorously to show these critical factors in the external world that Microsoft had turned over a new leaf; that it was no longer a monopolistic predator; that it was, in effect, a new company, a kinder and gentler company.

Would this be a smart move on Microsoft's part? Of course, it would. But too many employees wondered why it was necessary to repair the company's reputation. The mere suggestion that Microsoft was interested in repairing its image smacked of heresy. After all, this was a company that had bathed itself in innocence, and that had acted as if the whole world had been wrong and that it had been right.

Don't Blame the Trial

To get around the point, once it was decided that changes would be made, Microsoft executives argued imaginatively that factors other than the trial had caused the reforms. Some, like Microsoft board member Jon Shirley, saw the trial as an important role in curbing some of the excessive zeal that had existed before the proceedings: "The trial matured people; it's certainly caused a tempering, not of enthusiasm, but in the way that you compete; the way you talk to your customers; it's not the wild wooly West when Microsoft was a tiny little company." Shirley was the company's chief operating officer from 1983 to 1990; prior to that he had been with Tandy Corporation for twenty-five years, last as vice president for computer merchandising.

But the preponderance of Microsoft executives pointed to those other factors as far more important in explaining the need for the reforms. That rationalization proved useful because it kept those executives who had all along insisted upon the company's innocence from having to explain later why, if the company had committed no misdeed, reform was even necessary. Time after time, Microsoft executives insisted that the changes had to do with the sheer size of the company (numbering then around fifty thousand employees), with the souring of the American economy, with the slow-down in Microsoft's phenomenal growth rates, and with the dot-com revolution - anything but the trial.

Whatever the cause of the reform, some, most likely a tiny minority, had wanted these changes for quite some time. But their plaintive cries were drowned out by those who thought Microsoft had been doing just fine. When the company was founded in 1975, as a new start-up, its culture was anchored in certain traits that came in time to define how all start-ups should behave. Aggressiveness, competitiveness, a lack of discipline - these were the qualities that had launched Microsoft into the heavens. When that tiny minority preached reforms that would make these traits less crucial to the company's culture, almost no one listened. The majority clung to these trappings of a start-up and refused to let them go. No one had the foresight, no one could quite believe that these same qualities that had propelled Microsoft into the stratosphere, if not tamed, might land it in legal entanglements. And yet that is precisely what had happened. Hence, the delay in taming those traits, the delay in putting its start-up mode to rest, had kept the company from imposing the kind of order that should have kept it out of the courtroom.

With the trial behind it, Microsoft faced a monumentally important choice: It could hew to the start-up mode. It could keep proclaiming its innocence of any wrongdoing. In doing so, it would be saying, "We're simply not going to change the way we do business." In short, the company could do nothing.

Or it could shed its start-up trappings, play down its professions of innocence, and act as if the company needed to change its ways. To abandon its start-up mode characterized by all that zeal without admitting to any wrongdoings might not get Microsoft too far. But company executives were finally coming around to the view that the trial had been a turning point, it had been an eye-opener. One of those executives acknowledged that the trial, if not the main driver of the company's rebooting, had certainly been a distraction and a serious impediment: "Trying to get our message across had become a lot harder for a time because people kept saying, 'Aren't you that well-known felon?' Everything was seen through the lens of the trial." In the end, executives took a key decision. Changes would have to be made. Microsoft would continue to admit to no wrongdoing; but it would, at long last, put an end to its start-up mode.

What was required at this crucial crossroads in Microsoft's history was not the launching of a new operating system or new software application; it was, at bottom, something far more fundamental to the enterprise: a complete revamping of the way the company did business.

Even if Bill Gates and Steve Ballmer were to decide to recast Microsoft so totally, nothing would be guaranteed. No matter how much kinder or gentler Microsoft became, no way existed of ensuring that the public would forgive and forget. One thing was certain: Microsoft was in for a long journey and this was only the start.

Even as the ink was drying on the settlement agreement, Gates and Ballmer (Gates grudgingly, Ballmer far more enthusiastically) decided to reinvent their company. To be sure, reorganizations had taken place at Microsoft before, but they would seem cosmetic compared to what the two leaders had in store. Gates and Ballmer planned to reshape the most fundamental pillars of the company, starting with their own leadership; then, the structure of its businesses; next, the kind of people it hired; and finally, its world-famous culture.

Carrying the Torch

Steve Ballmer was left to carry the reform torch mostly on his own. While playing his part in carrying out the reforms, Bill Gates said very little in public about the importance of those reforms. He may well have felt that by transforming itself, Microsoft was all but acknowledging its guilt of the various transgressions alleged by the Government.

In the end, Gates played a major role in the reinventing of Microsoft; but what he did was far more passive than what Ballmer did. While it may seem contradictory to assert that Gates played a major role and was at the same time passive, no contradiction exists. For without adopting that passive role, the reinventing of the company would not have taken place.

* * *

In the making of the new Microsoft, by far the most important changes came in the leadership sphere.

Bill Gates had ruled Microsoft essentially as a one-man show from its founding in 1975 until the start of 2000. He had been its chief technologist, chief executive officer, chief financial officer, and chief operating officer, all wrapped into one. Because Gates had personally created the Microsoft culture that had yielded such great numbers, no one quarreled with his leadership. It was simply a given that Bill Gates would rule Microsoft for as long as he wished.

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.