The Jihad Defense

The answer to the question How can Microsoft be so stupid – allowing itself to be brought to the brink of breakup? is that, not impossibly, it is being incredibly smart.

The company seems stupid, of course – stupid on an epoch-shaping scale, crowned-heads-of-Europe stupid – because it has so stubbornly and arrogantly, with a kick me sign, put itself in harm’s way. Certainly, it appears to have had no strategic awareness whatsoever that (a) perception figures into the law, (b) what happens in courtrooms is unpredictable, and (c) the evidence has been almost entirely damning.

Throughout the trial, I have taken an informal poll of the people I know who regularly make sorties to Redmond. “Are people at Microsoft prepared for the worst?” I have asked. The answer has been, singularly, that no one in Redmond has ever, even to a spouse, quite likely even to himself – not even as the mountain of e-mails documenting threats and bullying and near extortion and meanness of competitive spirit of all sorts stacked up in the middle of the courtroom (hello!) – acknowledged the possibility that Microsoft might not prevail. In Redmond, they scoff.

Even defining what exactly the worst case might be involves a high level of dissonance. The worst-case scenario, in Redmond, is not over, done with, broken-up, transformed, finis; it’s appeals that go on so many technology generations into the future (when quite possibly there will be a more sympathetic Republican administration) that it’s really not worth anyone’s time to worry about. (“It’s important to remember,” said Microsoft president Steve Ballmer last week, both soothingly and obdurately, “that the court’s findings are only one step in a long legal process.”)

A few months ago, I was matched as a speaker with a Microsoft lawyer at, of all places, a bar-association symposium. I wasn’t counting on a sympathetic audience – a hall full of lawyers (anti-trust specialists at that). But they laughed merrily as I insulted and ridiculed Microsoft’s legal team (just mentioning Sullivan & Cromwell got a big hoot). I enjoyed myself. Everyone, apparently, is willing to acknowledge the obvious: Microsoft’s defense was absurd and hilarious. Still, amid the laughter, the Microsoft lawyer didn’t blink. He didn’t hear the taunts. He was like a guard at Buckingham Palace. He was in another world.

This stoicism and implacability and sense of way-out-there righteousness suggest either an incredible performance on the part of everyone at Microsoft, along with its outside lawyers, advisers, and consultants (from lawyers to programmers, everyone knows the line: “We must protect our right to innovate”), or a substantial problem with reality – or both.

“Microsoft understands, even epitomizes, the most coldhearted business principle: you only make money off people who are weaker than you or stupider than you.”

Indeed, from a distance, this all looks quite mad, actually. But I wonder.

We non-Microsoft people see business in an old-fashioned way. Most of us are looking (pathetically) from the perspective of the old economy. In the old economy, people are attached to the corporations they work for in more or less formalistic, functional, and tangential ways. I work for such-and-such; it pays me; I show up for x number of hours a day; management sucks, but it could be worse. Even to the degree that IBM created a corporate culture – the songs, the country clubs, the white shirts – it never went so far as to suggest there was something beyond job security and the corporate ladder to believe in.

In Microsoft, we began to see something else. In this model (the jihad model, you might say), which has been replicated by hundreds of other successful technology enterprises, the company transforms itself and its employees into “us” and everyone else, competitors, lay people, the casual Luddite, the rest of America, into “them.” It’s one of Microsoft’s key assets (an asset that every technology company now tries to develop): the maniacal loyalty of its staff. It results in round-the-clock work hours, war-footing secrecy (loose lips sink products that haven’t shipped), and near-ideological fervor (business-model discussions are the closest I’ve come to the left-wing hairsplitting of my youth). Such loyalty and devotion hardly come cheap – they cost a hefty part of a company’s value in stock options. (Although this turns out to be a self-financing: The more options you issue, the more loyalty you engender, the more devoted your following, the more your stock price goes up.) But even more important, it doesn’t end with just the money. To maximize the value of your asset, you have to convert economic devotion into emotional devotion as well.

Microsoft’s core business, in other words, is attitude – nationalism on a corporate level. (Propagating an operating system is the equivalent of war.)

The difference, therefore, between Microsoft and Standard Oil or AT&T or IBM is that in its antitrust battle with the Justice Department, Microsoft has been defending not just stockholder value and executive fiefdoms but a way of life. A philosophy. A reason for being. Even a place – the near-autonomous state of Redmond. Indeed, my guess is that the trial, and Microsoft’s puzzling obstinacy, has, in the end, strengthened rather than weakened Microsoft culture (if Microsoft culture has been weakened by anything, it’s the attraction of dot-com wealth, which is even greater than Microsoft wealth, and dot-com jihad-ness, which is even more warriorlike, but that is another story).

The point, which Microsoft seems clearly to understand (either strategically or instinctively), is that it would hardly be very smart to settle or compromise when you’re running a holy war. Martyrdom, if you analyze the economic benefits of devotion, beats compromise.

Which is part of the continuing disconnect here for the objective, old-world observer. This case could have been settled long ago; this case could have been settled far short of the remedies Microsoft is now facing. Indeed, Microsoft could even have accepted what it has made the Maginot Line of the dispute – the linking or de-linking of browser to operating system – with minimal consequences to its business.

But it held, willfully and blindly risking the farm.

This, then, is either one spectacular act of capitalist self-destruction (finally Marx is proved right), or, contrarily, these guys have something really crafty up their sleeves and know exactly what they’re doing.

Certainly the stock market, over the course of last week, appeared to think so. If, during the trial, we have seen Microsoft stay resolutely in character – “we are absolutely right, you are absolutely wrong; we represent the future economic health of the nation, you would risk all that” – then why should they be expected to cut and run now? As likely, they will do what Microsoft does.

After all, these guys are not only son-of-a-bitch business guys and technology holy warriors but great (among the greatest) game players. This aspect of the Microsoft character has been hidden by Microsoft’s ill temper and sullenness during the trial (who knows if this wasn’t by design?). But everyone who has ever done any kind of business with Microsoft knows that its method (Machiavellian, Bismarckian, Nixonian) is to trick the other fellow (a “history of mischief and perfidy,” as Ralph Nader put it the other day).

The company is founded on a trick, remember – it persuaded IBM to fill its PCs with an operating system that Microsoft would continue to own (this Trojan-horse move today represents the zenith of business accomplishment; all companies either aspire to it or frantically try to protect against it).

More than anyone else, Microsoft understands, even epitomizes, the most coldhearted business principle: You only make money (real money) off people who are weaker than you or stupider than you. And very often, conveniently, the people who are stronger than you are stupider too.

As we enter into the final settlement period, Microsoft, in many ways, comes into its own. This is what these guys live for. This is the Microsoft sweet spot. If you’re weaker, they merely squeeze you harder. If you’re stronger, they outwit you.

It is worth noting that, going into this phase, Gates, the religious figure, the imam, is receding, and Ballmer, the real game player, the negotiator, the politician, is stepping forward.

In a column on the Wall Street Journal’s editorial page last week, Ballmer reiterated the company’s core position: “We cannot compromise on the government’s demands… . The current lawsuit would have Microsoft ignore the most important recent development in computing – the Internet – by shipping a version of Windows that omits the critical Internet capabilities.”

Keep your eye on that ball.

The overwhelming thrust of the government’s case is the depiction of Microsoft as a company that will use the lever and the threat of its dominant position to get its own way (effectively making itself into a taxing authority and protection racket). Microsoft, on the other hand, has consistently and dramatically insisted that the trial is about the browser’s integral relationship to the operating system. This connection, this integration, represents the freedom to innovate, the freedom to design one’s own products, the freedom to develop software without the government specifying features and functionality. And Microsoft has said again and again – and Ballmer is saying once more – that it will never, ever compromise on this point.

Are you following the ball?

What Microsoft has done is to raise the bar – raise it higher and higher. We will never … We could never … We must never … Take this from us and you take the essence of who we are . . .

Now, let’s assume everyone wants a settlement. The judge does not want to impose a remedy, because who would want to take responsibility for that? The Justice Department does not want to risk appeals that might push this into a Bush administration. What’s more, the Justice Department already has its victory. Microsoft, for its part, is motivated to avoid the brand (the red-hot kind of brand rather than the marketing kind) of monopolist and all the litigation that could invite.

Clearly, though, the government needs that browser de-linked. The link is the most visible symbol of Microsoft’s power. So count on it: Over the next several weeks, Microsoft will make linkage the insurmountable stumbling block of its negotiations with the government. It will push the government to the precipice of demanding the breakup of the company (at the same time, we’ll see a rash of stories about why a breakup isn’t so bad for Microsoft; not punishment but victory; not a Microsoft divided but a Microsoft multiplied; indeed, three dominance-driven companies run by Redmond-inculcated religious warriors).

And then (still following?) Ballmer folds. He comes back into the room from his final call with Gates and agrees to do what the company has said it would rather be broken up than ever bow to: It will de-link. Explorer, which, as it just happens, claims an overwhelming share of the browser market, will no longer be inexorably tied to Windows.

The government will stand proud. Microsoft will accept its martyrdom.The people out in Redmond, playing their roles, will even be properly penitent. Gates will announce he’s stepping out of the role of manager and into the role of statesman. You’ll even be able to use Netscape if you want.

Let the infidels believe they have won.


The Jihad Defense