Imagine. The full force and fury of the federal government, plus 19 states, the European Union, Japan, Israel, and Brazil, all puffed up and eager to slap down—not Saddam Hussein, not Slobodan Milosevic—but Bill Gates, the bad boy of international commerce.

With his soft, boyish face and floppy hair, villainy is a role for which Gates looks remarkably ill-suited. Nonetheless, as final arguments are submitted in the current round of legal skirmishing, the Department of Justice (DOJ) believes it has prepared a pretty convincing case against Gates, citing monopolistic tendencies, shredded antitrust provisions, and wanton bullying of the competition, all orchestrated with more than a hint of hubris. While such behavior is not wildly atypical for billionaire businessmen who brandish power in the service of self interest, it is nonetheless difficult to associate Gates with the likes of Milken, Hurwitz, Keating, and other such scum on the corporate tub. And it certainly doesn’t begin to explain the international outcry.

Few would argue with Business Week Online’s assessment that “no company has influenced the new economy as much as Microsoft.” Given the prowess and prestige of the corporation, two questions beg to be adequately answered: How did a very bright guy like Gates let it come to this? And what threat does he pose that could forge such a formidable national and international alliance?

The short answer to the first question is that Microsoft’s management was apparently operating under the hallucination that laissez-faire applied to them. The answer to the second question lies well beyond the scope of the current charges against Microsoft and requires an appraisal not of what’s on the table but what lurks beneath. After all, does anyone truly believe that all these states and nations are mobilizing against the evils of product bundling?

Gates’ legal problems have political as well as behavioral origins, and an astute cartoonist offered a persuasive explanation of his predicament. He showed Gates sitting at a conference table with a couple of lawyerly types, one of whom was lecturing the software czar. “The problem, Mr. Gates, is that you control 95 percent of the PC market, but only 2 percent of the congressmen.” That has now changed, but when the first salvos were fired in the Microsoft war, the most telling element of the unfolding drama was this: While IBM employed 26 lawyers/lobbyists in its Washington offices and AT&T employed 45, Microsoft engaged only four.

Such lack of regard for the regulatory powers of the federal government reveals an uncommon, almost charming naivete. Coincidentally, about the time the government was

poised to sue Microsoft for violating a court order and consent decree prohibiting the bundling of Internet Explorer with Windows, the late Meg Greenfield wrote a Newsweek column that explained everything Gates needed to know about the transactional relationship between government and business.

Greenfield likened government to a feudal monarchy that grants favored nobles (corporations) the right of unfettered rule over circumscribed domains in return for their patronage. Within their individual realms, the nobles are allowed to do pretty much what they please without fear of attack—provided they pay the royal piper.

Greenfield reasoned that the government, after all, has no product to sell, no service to offer, yet, like Prince John taxing his peasants, its elected officials must collectively raise hundreds of millions of dollars each year to keep themselves in power. Lacking merchandise, the government, Greenfield surmised, sells protection.

Platitudes about the free market notwithstanding, for business, the threat of regulation is real and ever present, and campaign contributions, Greenfield conjectured, have become a guarantee of safe passage, a precautionary tribute paid to dissuade surprise attacks. The more you pay, the less likely that government will harass you and the more likely your corporation will be remembered in the beneficial midnight rider or the tiny, innocuous phrase inserted in the tax code (there were over 800 such phrases in the last tax “reform” bill alone) that will magically exempt you from paying what others must.

Gates refused to play, and the government attacked. Gates, to his credit, learned quickly. Microsoft is now reportedly the biggest political contributor in the software industry. In 1997 and 1998, Gates slid $1.3 million under congressional doors. This year, Republicans openly suggested he invest $1 million more. And why not? Republicans have two potentially happy outcomes to dangle in front of Gates. With the next election, the dreaded Janet Reno goes away, and a Republican- controlled Justice Department might be much more forgiving of Gates’ competitive proclivities. Alternately, a sympathetic Congress could pass a law that overrides whatever punishment the court imposes on Microsoft. Precedent is well established: The regional Bell companies escaped restrictions imposed on AT&T through the well-funded passage of the 1996 Telecommunications Act.

Going on the offensive, Gates also bought himself some high-powered lobbying assistance, picking up the former aides of Senate majority leader Trent Lott and House majority leader Dick Armey. When the DOJ appeared to be making its case against the software giant, Microsoft’s lobbyists had the temerity, according to Orrin Hatch, chairman of the Senate Judiciary Committee, to press the Congress to cut the Antitrust Division’s funding.

Gates’ political awakening, however, may have come too late. The attacks are unlikely to stop because the government—like many other powerful interests around the globe—genuinely fears Microsoft. The government’s anxiety is not strictly about browsers or unfair competition; it is distrustful of what Microsoft is poised to become.

Federal regulators have long protected the interests of American financial institutions, interests that Microsoft also serves through its broad-based software offerings. The emerging financial world order, however, sees both benefit and threat in the
“commoditization” of its services over the Internet and is prodding the government to abate the threat. On the one hand, online commercial transactions vastly broaden and simplify the exchange of money for goods and services. On the other, they signal a subtle shift in power from historically dominant financial institutions to the software providers whose products stand between customers and the services they desire. Banks and brokerage houses, among others, are becoming increasingly dependent on third-party software products that reduce complex services to line items on a screen. Where, how, and at what cost to the provider those services are displayed on the Internet become questions crucial to the future prosperity of institutions doing business electronically.

Take, for example, a customer searching the Internet for stock purchases. She may click on an icon to get a selection of brokerage firms, but which firms will the browser

display? In what order? Which will be omitted? Which will be buried several screens down, where no one ever looks? The concern is that the benefiting company will be the one that pays Microsoft the most money for the privilege of being the default brokerage.

How vital are placement and screen position? One study tracked the tendencies of travel agents as they booked fares using online reservations systems. Fifty-three percent of the time, they picked the first fare they saw. Ninety-three percent of the time, they picked a fare from the first screen.

The DOJ sees the browser as not only an instrument of access but a means of coercing user selections and a vehicle for extorting huge amounts of money from Internet service providers. For e-business providers, the issue becomes not only who controls access to the Internet but also where the accessing user is directed, for whose benefit, at what cost, and who is included.

Microsoft’s ability to direct Internet access for its own advantage is, however, only a small portion of the threat. If Microsoft is also allowed to dominate financial applications software at the provider end, it will become the global epicenter for a wide range of financial services: the toll booth on the e-business highway. That is precisely what Microsoft is positioned to become, and why a growing number of states and nations are getting nervous.

Signs are that the Microsoft toll booth is already under ardent construction. At Microsoft’s Investor Web site, Web traffic has been used to generate fees and commissions from participating companies. Charles Schwab and Fidelity Investments were among the first to allow their customers to trade stocks through Microsoft Investor. More than a year ago, Schwab boasted of having 908,000 active online customer accounts with holdings of more than $66 billion. If Microsoft collects a piece of each transaction from Schwab and others eager to trade online, well, the numbers begin to add up fast.

In 1997, Microsoft positioned itself to control another wildly lucrative e-business opportunity: electronic billing over the Internet. For merchants, the prospect of eliminating postage and printing costs is enormously attractive. Credit card companies, utilities, and the like send out tens of millions of bills each month. How much would they pay to get the invoicing monkey off their backs?

To find out, Microsoft joined forces with First Data Corporation, not coincidentally already the largest billing service for VISA and MasterCard. The new company, MSFDC, developed applications that eliminate paper and postage and transmit bills to the customer electronically. Wells Fargo was the first to pilot the system with a dozen other big-time billers, including Chase Credit, JCPenney, and Shell Oil, poised to take the paperless plunge. MSFDC, for its part, will collect between 35 and 50 cents per transaction. The potential for profit is truly staggering. The monetary value of financial transactions over digital systems is already greater than the worldwide trade of goods and services. If Microsoft can further position itself to funnel the flow of speculative currency transfers, which alone total more than a trillion dollars a day, well, you do the math.

Not everyone, however, owns a computer, so Microsoft is hastening the convergence of media, telecommunications, and computer technologies by extending its already expansive reach to the single device found in almost every American home: the television.

Web TV, a company with 800,000 subscribers, supplies software that enables cable boxes to deliver high-speed Internet access. The company is now owned by Microsoft, and last year, it secured a contract to provide TCI, one of the nation’s largest cable companies, with nearly 6 million copies of its Windows CE software. Microsoft will be paid $25 per box and, more importantly, gain free access to 6 million homes. Keep doing the math and remember that Microsoft recently invested $5 billion in AT&T and now looks to install its software in 10 million more cable boxes.

One need not be clairvoyant to foresee that Microsoft will stuff a smorgasbord of business services into that cable box—from stock offerings to insurance, from mortgage options to airline reservations, from concert ticket sales to take-out pizza menus. The needs

of the nation funneled through one operating system, all cravings satisfied, all anxieties tranquilized.

Since its trial began, Microsoft has accelerated its communications investment strategy and now also has interests in Telewest, Qwest, and SkyTel. Scott McNealy, CEO of Sun Microsystems, perhaps Microsoft’s most vociferous critic, argues that the DOJ case misses the most important and dangerous aspect of Microsoft’s behavior: the company’s aggressive investment in other technology and telecommunications companies. It is, of course, improbable that the DOJ is unaware of Microsoft’s acquisitions, but the DOJ finds itself in a legal quandary: It can hardly seek to punish Microsoft for, on the one hand, monopolizing and, on the other, diversifying.

McNealy, however, is correct about the intent behind Microsoft’s diversification, and he would strongly agree with the assessment of Nathan Newman, project director of NetAction. Newman summarizes Microsoft’s emerging dominance of the Internet this way: “Microsoft is building an integrated financial and commercial empire where customers will use Microsoft-produced software to access Web sites using Microsoft server software, then buy products sold by Microsoft, and have the transaction processed through a bank using a system owned by Microsoft. This is a level of vertical commercial integration never before seen in the history of the country.”

From the DOJ’s perspective, that has the trappings of a major-league monopoly. And since business today knows no borders, the European Union and other nations similarly prefer not to have the infrastructure of electronic commerce dominated by a single foreign institution.

By June of this year, Gates found himself in the unenviable position of defending his company in four separate legal actions. Two software companies in Connecticut and Utah were suing over Microsoft’s alleged strong-arm tactics, Sun Microsystems was attempting to protect Java from Microsoft’s clutches, and the DOJ was pursuing its antitrust case.

But if beating back legal attacks from government and powerful business interests were not enough of a challenge for Gates, there is also an array of public interest groups aligned against Microsoft. In the court of public opinion, notables like Noam Chomsky and Ralph Nader voice fears that, as corporations come to dominate the Internet, what was once a vehicle for democratic emancipation is being transformed into little more than a rampant marketing tool.

Chomsky and many others fear what they see as a corporate takeover of media, telecommunications, and governance itself in ways that limit the public interest solely to consumerism. The increasing dominance of corporations over private individuals, Chomsky argues, is a form of tyranny.

“That’s the whole point of corporatization,” he contends, “to try to remove the public from making decisions over their own fate, to limit the public arena, to control opinion, to make sure that the fundamental decisions that determine how the world is going to be run—which includes production, commerce distribution, thought, social policy, foreign policy, everything—are not in the hands of the public, but rather in the hands of highly concentrated private power.” One of the steps in accomplishing this, Chomsky believes, is to dominate the information superhighway.

Chomsky’s concerns are echoed by Nader, who notes that when Microsoft bought Web TV, it placed its own travel service, Expedia, first in the travel menu. Sabre’s previously prominent Travelocity Web site, was moved to page six, “next to Tom’s Travel.” Business predictably declined.

But what will happen, Nader asks, “if Microsoft succeeds in its wildest dreams and determines which flower shop, which citizen group, and which car dealer appears on page one and which appears on page six? What if Microsoft could determine what information appears on page one when a person searches for information about [their elected representative] or legislation concerning digital copyright?”

Linking the survival of democracy to the control of the Internet may seem overstated, but, in the context of Microsoft’s wider ambitions, perhaps not wholly unwarranted.

For his part, Gates seems relatively unperturbed by all of the fear and suspicion directed his way, like a man who just can’t seem to assume the proper reverential posture. His testimony before Congress was combative and arrogant.

Perhaps he understood that the current litigation was narrowly focused and thus more annoying than threatening. Perhaps he discerned that this legal parry and thrust will not end any time soon. Appeals can drag on for many years. It took IBM 13 years of lobbying and litigation to convince the DOJ it was not a monopoly after all. After more than a decade of showing proper respect for the regulatory powers of the federal government, the DOJ finally dropped its case. Caesar had been satisfied.

For Gates, spreading money around while stalling by defending himself in court must seem an agreeable solution. Money, after all, is not something in short supply, and if things go according to plan, Gates will control a great deal more of it.

The government, of course, knows this too, and if this case is settled in under 13 years, that will be the biggest bombshell of all.

Power, Henry Kissinger observed, is the ultimate aphrodisiac, and by all appearances, Gates lies fully engulfed in its narcotic embrace. Having built a remarkable empire, he is well familiar with the price of achieving power. He will now discover the price of keeping it.

The seductive nature of power leads many to believe they are Zeus rather than Prometheus. Only much later do they realize that Prometheus, whether bringing fire or software to the masses, is fated to get singed.

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