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Gates at my Alma Mater

This week Bill Gates came to my alma mater to speak. I have to admit that I was less than thrilled to have UCSD roll out the red carpet for him, but it's understandable since he is the richest man in the world and runs the richest company in the world. I started to think about the young people who would be in attendance though, and that they were in diapers when Microsoft started. They've grown up in a Microsoft-only world, that's the only thing they know and few have any perspective about how Microsoft came to dominate the PC business. In the absence of information otherwise, they'll assume that it was through healthy, free enterprise -- which I don't believe is true.

Anyone who tracks the PC business, recognizes that Microsoft has clearly been on a propaganda campaign for the last few years to clean up their image. They have been spending big money in an effort to do so on TV, in print and public appearances. They would like the world to think of Microsoft as an innovative company and of Mr. Gates as a visionary and a philanthropist. Mr. Gates is clearly very smart and Microsoft is a vicious competitor, but I'm not so sure the facts indicate they are innovative or visionary. So I've put together a two-page background on Mr. Gates and Microsoft to add some historical perspective to the debate, which I passed out to those in attendance. I hope you find it helpful to form your own conclusions.

Fact Sheet On Bill Gates and the Microsoft Corporation

Q: Can you provide some background on Bill Gates?

A: Bill Gates was born in 1955 and founded the Microsoft Corporation in 1975 with Paul Allen. Mr. Gates was CEO and Chairman of Microsoft until 2000, when he gave up the CEO title to Steve Ballmer. During that time, Microsoft became the largest and richest software company in the world, with $46 billion in the bank and adding nearly one billion per month to that total. It has made Bill Gates the richest man in the world with an estimated wealth of $54.44 billion dollars or $187 for every man, woman and child in the United States.

Q: Can you provide a brief history of Microsoft?

A: In the early 1980s, IBM asked Microsoft to produce an operating system for their upcoming "personal computer." That product became MS DOS and made billions for Microsoft. Microsoft followed that up with Microsoft Windows and the components of Microsoft Office (Microsoft Word, Microsoft Excel and Microsoft PowerPoint).

Q: Doesn't that make Microsoft the most innovative PC software company?

A: Virtually every successful Microsoft product was either purchased from another company, or a direct copy of an existing company's successful product. Microsoft's first major success, MS DOS, was purchased from another company and renamed from QDOS. Microsoft Windows was a copy of Apple's innovative Macintosh operating system. Microsoft Word (1983) was a copy of Wordperfect (1982). Microsoft Excel (1985) was a copy of Lotus 1-2-3 (1983). Using revenue from their monopolies, Microsoft purchased PowerPoint (from Forethought), Frontpage (Vermeer), Visio (Shapewear), IE (Spyglass), IIS (Spyglass) and SQL Server (Sybase) .

Q: The history of PC software is made up of companies borrowing ideas from others, so what is wrong with that?
A: To some degree, almost all technology companies build on existing ideas. Microsoft, however, has often engaged in wholesale copying without adding much. With many of the original companies gone or withering, Microsoft is embarking on a calculated plan to rewrite history and position themselves as the original innovator. For example, Microsoft now claims that they are the sole inventor of "windows" and no other company can use that term -- in spite of the fact that Microsoft Windows was such a close copy of the Apple Macintosh that it triggered a lawsuit upon its release (See http://law.richmond.edu/jolt/v1i1/myers.html).

Q: Even if they're not innovative, Microsoft's products are used so widely that they must be making great products, which makes Microsoft a great company, right?
A: Normally, when a company enjoys success it's a sign of a good company serving their customers. While Microsoft employees have surely worked hard, their success has been tainted by decades of illegal actions by Microsoft's management to secure, maintain and extend their monopoly position.

After the success of MS DOS, a competing product emerged called DR DOS, causing MS to lower their prices. Bill Gates wrote in an e-mail, "I believe people underestimate the impact DR-DOS has had on us in terms of pricing" (May 18, 1989). So Gates gave orders to executives at Microsoft to purposely sabotage DR DOS. "Make sure it [DR DOS] has problems running our software in the future." And where it didn't have problems, programmers were instructed to create bogus error messages saying that it did. The tactic worked and DR DOS was forced out of business, leaving the Microsoft monopoly. Years later, MS paid more than $100 million to settle this case -- long after DR DOS was no longer a threat (See www.drdos.com/fullstory/factstat.html).

With the MS DOS monopoly as a foundation, Microsoft continued a series of illegal actions designed to extend their monopoly to additional products, including Microsoft Windows and Microsoft Office. For example, they stifled competition by threatening and extorting computer manufacturers to enter into licenses agreeing to only carry Microsoft products. By the time the Justice Department caught up to them and filed two antitrust cases for a wide range of unfair and anti-competitive actions (1993, 1996), Microsoft had cemented a massive monopoly which gave them hoards of cash to fight any company -- or even the government. Microsoft settled the first case, agreeing to change its illegal marketing practices and was found guilty in the second case (See www.washingtonpost.com/wp-srv/business/longterm/microsoft/documents.htm).

Q: Isn't this just a case of the losing companies complaining because they couldn't compete?
A: Over the last 20 years, it is difficult to find another company which exhibits such a lengthy pattern of illegal behavior designed to thwart competition. E-mail from a MS executive said it best, "It seems clear that it will be very hard to increase browser share on the merits of IE [Internet Explorer] 4 alone...It will be more important to leverage the OS asset to make people use IE instead of Navigator" (2/24/97). There have even been cases where Microsoft has stolen technology which has put companies out of business, such as San Diego's Stac Electronics. A jury found MS guilty and ordered them to pay $110 million (See www.vaxxine.com/lawyers/articles/stac.html).

Q: Where does Microsoft make their money?

A: Microsoft makes money largely from two product lines: operating system (Microsoft Windows XP) and office suite (Microsoft Office). Virtually every other venture that Microsoft has embarked upon has not generated a profit -- including WinCE, Xbox, MSN, WebTV, Sidewalk, MSNBC, etc. (See http://biz.yahoo.com/e/l/m/msft.html).

Q: If most product lines lose money, how can they generate such large profits?
A: Through illegal tactics, Microsoft has been able to secure and keep a monopoly which allows them to charge very high rates for their software. Enabled by the monopoly, Microsoft's profit margins are 5 times greater than the average from top 500 US companies. If Microsoft faced meaningful competition, their profits would be more in line with the rest of corporate America and software would cost 1/5 what it does today (See http://research.businessweek.com/scoreboard.asp).

Q: Aren't all of these actions ancient history? Since Microsoft has been under government scrutiny, haven't we seen improved corporate behavior?
A: Microsoft's massive war chest and unchanged management team means more corporate wrongdoing. This makes it extraordinarily difficult for competition to emerge. Just last week, an e-mail was revealed in which Microsoft executives disclosed a $180 million fund designed to thwart Linux by giving away Microsoft software and services -- the same successful strategy they used to put Netscape out of business (See www.iht.com/articles/96369.html). In another example, over the past year, Microsoft has spent millions in legal fees in an attempt to shutdown a San Diego Linux company, Lindows.com (See www.lindows.com/opposition).

Q: But doesn't Microsoft do a lot of good?
A: The charitable giving that Microsoft advertises is usually a business tactic, where they give away software in an attempt to gain traction in a market, such as they do with schools. The software costs them just pennies to reproduce, but they advertise the full retail value for tax and PR reasons. Microsoft rarely gives actual cash (See: www.nytimes.com/2003/05/26/technology/26SOFT.html).

Q: Hasn't Mr. Gates given away billions of dollars?
A: Nearly 20 years after starting Microsoft and only after antitrust issues emerged, Mr. Gates created a foundation and moved billions of dollars of stock, tax free, into this new organization, which he controls as the sole trustee. Mr. Gates' PR folks have convinced major publications to carry as many as 5 stories in 3 days about the multi-billion dollar foundation in an attempt to bolster Mr. Gates' image (See http://theregister.co.uk/content/4/28039.html). By repeatedly trumpeting the formation of the foundation, then announcing individual initiatives and finally announcing individual grants, readers are left with the impression that billions of dollars are routinely dispersed, but that is simply not true. In 2001, the Gates Foundation collected more money in interest from their holdings than they dispersed in grants (See: www.fdncenter.org).

More troublesome, Mr. Gates has used monies from the foundation he controls, in concert with Microsoft's corporate goals. In an attempt to sway Cox Communications to use Microsoft software, Microsoft agreed to financially back them in November, 2001. Two months later Mr. Gates purchased $500 million dollars of Cox stock using $200 million of funds from his non-profit foundation (See www.eureka-boston.org/readings/gates_foundation.htm). In another example, MS gave hundreds of millions to thwart Linux growth in the Indian government, while also making funds available from the Gates foundation to Indian government initiatives (See http://news.com.com/2100-1001-965378.html).

Q: What can we expect Mr. Gates to talk about?
A: Mr. Gates will likely spend some time speaking about the importance of innovation and open standards. However those are just platitudes, since their actions achieve exactly the opposite. Their monopoly is built upon proprietary formats that they have no intention of publishing (e.g. Microsoft Office file format specifications), because that would allow competition. Furthermore, they have attempted to squash any standard which they believe threatens their stranglehold -- such as MP3, HTML and Java. An internal MS document entitled "Strategic Objective" had this to say about Java: "[Lets] Kill cross-platform Java by growing the polluted Java market."

In spite of the conciliatory comments Mr. Gates conveyed, Microsoft will continue to use their monopoly powers to destroy other companies - which limits competition and innovation and keeps software prices high. "Do we have a clear plan on what we want Apple to do to undermine Sun?" (Bill Gates e-mail 8/8/97) A series of recent leaked internal memos reveal an ongoing attempt by Microsoft to discredit and derail the latest perceived threat - Linux. (See www.opensource.org/halloween/)

Microsoft is engaging in a calculated and comprehensive effort to rewrite history. In doing so, they position themselves as an innovative company and Mr. Gates as a visionary and philanthropist. Please research those claims for yourself on the Net, use the sources listed in this document to determine for yourself, the veracity of their claims.

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