For Bill Gates, antitrust fight a personal crucible

With the US antitrust case against Microsoft, Gates faced company's gravest threat

One of the things Microsoft hoped to accomplish in this case was to convince the government that the tech industry was unlike any other. The company hired Richard Schmalensee, dean of the Sloan School of Management at MIT, to help make its case. A big part of his argument was that the real threats hadn't yet arrived. It was fear of these unknown threats that served to constraint Microsoft's apparent power.

Wrote Schmalensee in his direct testimony: "Much of Microsoft's future competition is unknown. It was not known in 1994 that Netscape, Java and Linux would become competitive threats to Microsoft. It is not known today who will become competitive threats to Microsoft in 2002."

Boies countered Schmalensee with MIT professor Franklin Fisher, who dismissed that warning about future threats. The notion that "a wolf might come out of the forest" to challenge Microsoft wasn't serious analysis, he said. The issue, the government argued, was about the monopoly power the company had at the time.

Gates tried to explain the threat in his deposition with Boies (download PDF).

Boise: When people used the word with you "commoditize" as in the statement that Netscape was threatening or endeavoring to commoditize the operating system, what did you understand "commoditize" to mean?

Gates: That they were creating a product that would either reduce the value or eliminate demand for the Windows operating system if they continued to improve it and we didn't keep improving our product.

The argument did not hold -- at least as far as the judge was concerned. In 2000, US District Court Judge Thomas Penfield Jackson order that Microsoft be broken up, Standard Oil-style (read the decision). A year later, in 2001, the US government -- in the interest of moving the case along -- dropped that remedy and announced a settlement under which Microsoft would agree to change some of its business practices.

Before that agreement was finalized in court, Gates, after refusing to appear years earlier, took the stand. In 2002, one of the points he raised concerned the future.

"Ten years is a very long time in the software industry," he wrote (download PDF). "Ten years ago, Windows was just beginning to become broadly successful, even as many ISVs focused on writing applications for MS-DOS and IBM's OS/2. Ten years before that, the PC industry barely existed. Given the constantly accelerating pace of innovation, I expect we will see more changes in the computing landscape in the next 10 years than in any prior 10-year period."

Six years later, Windows -- though still dominant -- is facing new platform threats, and a renewed browser war is brewing, thanks to Firefox. Meanwhile, Google looms as an ever-larger threat, as Microsoft has sought -- so far unsuccessfully -- to scoop up an Internet search company to better fit in with a new age. And Gates, his company intact, is moving on to other endeavors, looking less like Rockefeller the oil baron and more like Rockefeller the philanthropist.

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