Bill Gates, Uncensored

The success that made Microsoft Corp. the most powerful player in the computer industry and Chairman William H. Gates III the richest man in America has always put the company and the man at the center of controversy. Federal investigators spent four years trying to nail down allegations that the $5 billion software giant competes unfairly, but stopped short of bringing charges. It looked like the issue was laid to rest when Microsoft agreed to a Justice Dept. consent decree last summer. But Stanley Sporkin, the federal judge reviewing the agreement, has questioned whether the Justice Dept. pursued every avenue in its probe--leading to a new round of suits and the revival of allegations about Microsoft's aggressive tactics.

In an exclusive interview with BUSINESS WEEK San Francisco correspondent Richard Brandt, an exasperated Bill Gates offers his side of the story--and vents at the press, competitors, and his other tormentors.

Q: Do you think Microsoft is being treated unfairly?

A: When I come in to do my job, it's about: How can we make

Microsoft Office better? How can we make NT better? Is it

moving forward, are costs

coming down? Are consumers getting benefits from it? Take

Microsoft prices: They keep coming down. You don't read any

of that.

We have been very successful in business. You wouldn't know that from reading the articles about us. I guess we'll get some good press when we're not doing well as a business, when our products are not popular. It seems strange to me that we help our customers, that we are willing to take risks on long-term visions, and that is being completely ignored.

Q: What about the criticism from within the industry?

A: There are a few competitors who will speak up anytime they can get

a pulpit. That's not surprising. I'm not aware of any criticism of any kind from 95% of the software companies.

Q: Which competitors do you lump in the vocal 5%?

A: Lotus, Novell, Sun, Apple--If you ask those companies, they'd each probably say we're their No.1 competitor.

And people who fought Windows, who fought the Macintosh, they're the ones who are getting the pulpit to speak out. Take Sun Microsystems. Sun is funding Gary L. Reback [Sun declines to comment on its relationship with this Silicon Valley lawyer who filed briefs with Sporkin on behalf of several companies] and saying they're concerned about retaliation? Help me with that one. No reporter seems to get it. It's a joke. Sun's prices are being brought down because the PC industry is so much more competitive than the industry they're in.

Q: One of the recurring charges by competitors--and central to your current legal battle with Apple Computer Inc.--is that you have withheld advance copies (so-called beta releases) of new operating systems to stymie competition. Do you have an obligation to treat everyone the same?

A: When a company's doing a new, innovative product, there's no obligation for it to share that with competitors. That's been firmly established, whether it was Kodak doing new film or IBM doing new computers. There's no obligation for us to give anything to competitors before we give it to customers.

If you're sharing that stuff too freely, you have to wonder what kind of

collusion is going on. Competitors

are not encouraged to share things. They are encouraged to compete.

Q: What about charges that you retaliate against companies that act against you? Apple says you withheld betas it needs to make the Macintosh more compatible with Windows.

A: There's an interesting asymmetry here. When Apple said it wanted to license Windows to make it part of the Macintosh, we said why don't you license Macintosh as an optional thing to run on Windows? For proprietary reasons, they won't give our customers that choice. So there's an asymmetry there.

We've made Windows 95 broadly available. We've provided the betas that people wanted with the exception of a few operating-systems competitors. Ask Lotus how many betas they've had. We sent them 356 beta products during calendar '94. Even Apple [an operating-systems rival].

Apple sued us to shut down Windows [claiming Windows violates Apple copyrights]. It would have basically destroyed our company. And yet, despite their [action] against us, we are their most serious developer.

If your question is, does Microsoft know how to turn the other cheek when we get slapped, the answer is yeah, just look at the track record. And look at today. Ask anybody who says the various unfounded things they've been saying. Are they getting Windows 95 betas? Have we been great about how we've treated the industry, even these competitors? The answer's yes.

Q: Windows, which now ships with 85% of all personal computers sold, gives you incredible leverage....

A: Are you saying we could never fail?

Q: No, but given the momentum you've got, software makers are assuming that Windows 95 compatibility will be essential to their survival.

A: You take a very simplistic view of this industry to say that. I'm sorry, it's just wrong.

Q: So there's no guarantee that Windows will always be the software that others must be compatible with?

A: It won't be. We take risks when we do new versions. We come up with new ideas and they may or may not be successful. Seriously, this is one of those jokes, right? You're saying that if we never updated Windows that it would still be successful?

Q: No.

A: No, I think that's what you just said. Anyway, there are plenty of people doing Windows-compatible things. You know that. Windows compatibility isn't just available here.

Q: Still, doesn't your strong position in operating systems give you a huge advantage in entering new markets--for example, online services? With Windows 95, millions of PC owners will be able to connect to your new Microsoft Network simply by clicking an icon.

A: That's almost like BUSINESS WEEK coming out with a new magazine! [Laughs.] No, really, this has got to be investigated. I think these media companies get some advantage.

We are a software company. Our job is to try to use whatever efficiencies we can to create new products that are attractive to consumers. There's a lot of integration in the world of technology that is done on behalf of the consumer.

Q: In the process of adding these new features, though, you sometimes wind up giving away in the operating system things that rivals have to charge for. That's one reason critics say Microsoft should erect a "Chinese Wall" between its applications and systems businesses.

A: We ship a product called Windows that gets richer and richer. It has always included application content. The Windows product is not just an operating system. Nor is there any fixed boundary. Is the graphics interface part of an operating system? Is integrated communications and E-mail part of an operating system? More and more, it is. The operating system keeps improving in order to keep this field growing. I don't even know what distinction you're trying to draw there.

Microsoft does get an advantage because of the risks we took in developing Windows. Just like any company that took risks and did well, we're entitled to the success that comes out of that.

Q: Reback, the lawyer representing some of your competitors, claims that because you agreed to stop certain practices in the consent decree, you are implicitly admitting to illegal practices.

A: The first thing to know about a consent decree is that it involves absolutely no admission of anything in any way. So your question is, did we do something wrong? Absolutely not. Have we at any time thought that we did anything wrong? Absolutely not.

Q: What do you think of the job done by investigators from the Federal Trade Commission and the Justice Dept.?

A: A lot of government resources were put in, a lot of paper was reviewed, a lot of time was spent. It was certainly thorough. It's quite novel that both groups spent resources investigating this. I'm not aware of another case like that. But they did their job. They took the time to learn what was what. Every crazy thing that anybody said about us was thoroughly looked into.

Q: Now Judge Sporkin seems to say that not everything was looked into, that more needs to be explored.

A: I don't understand. Sporkin doesn't have that much data. There's nothing that wasn't explored.

Q: What happens next?

A: This [consent decree] will get entered or it won't get entered. But meanwhile, we're doing exciting stuff, forward-looking stuff. Other companies are as well. You really have to ask yourself, why has this industry been so successful in the U.S.? Is this an industry where it's time to start getting the regulators more involved? Is this marketplace working? Is it moving forward, are costs coming down? Are consumers getting benefits from it? That's what should really be getting the visibility. Because this marketplace is moving ahead.

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