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  Microsoft's Bill Gates: Software's Hard-Liner

By Elizabeth Corcoran
Washington Post Staff Writer
Friday, November 21, 1997; Page G01

REDMOND, Wash. – Bill Gates slouches on the sofa in his office and listens intently to the question. There is silence. His brow furrows. He fidgets, he rocks. He scowls.

"That's the most . . ." He catches himself, but according to a colleague he was about to utter the classic Gates put-down: "That's the most random thing I've ever heard."

Gates, chairman of Microsoft Corp., may be one of the most powerful men in the world. But he's not a contented chief executive. In a wide-ranging interview at the company's Redmond corporate headquarters last week, Gates railed against those who see Microsoft as anything but the guys in the white hats.

There are plenty of targets for Gates's anger these days. The Justice Department is hauling his company into court. Ralph Nader, longtime representative for consumers, is badgering Microsoft about its dominance of the software market. His competitors in Silicon Valley continue to vex him, like stinging no-see-ums. And in each case, Gates takes their gripes against the company personally.

"If you had to pick a part of the economy [about which you] could say, hey, this part is working well, you'd have to pick software and the way software prices have come down," Gates said, rocking back and forth on his office sofa. "Name another place where the prices keep coming down while the products improve. Just look at the amount of R&D you get for your software dollar now versus three years ago, six years ago, nine years ago. It's wild."

Gates was unwilling to discuss the Justice Department's complaints directly in the hour-long interview, which had been arranged long before the government's complaints. What came through, however, was his frustration. Why, after all that Microsoft has done to help unleash the power of personal computers, is his company under fire?

"What is the most pro-competitive thing that's ever happened in the economy?" he demanded. "Personal computers connected to the Internet, by far." And Microsoft has helped that happen, Gates said. And if his competitors don't like it, he suggested, then they should fight him in the marketplace. "It turns out that in capitalism, firms actually pick what products they do and what features to put in those products without the government helping them to decide how to do that," he said.

Since Gates and high school buddy Paul Allen founded Microsoft in 1975, it has grown into one of the most influential companies in the world. More than 12,000 people work at Microsoft's sprawling Redmond campus, scattered throughout about three dozen buildings; the company has 22,000 employees worldwide. Microsoft's string of 22 consecutive years of profits has swelled Gates's own fortune to more than $35 billion.

As computers do things as varied as delivering local news and managing the lights in people's homes, Microsoft has found an entry to a great swath of industries: interactive television, airline reservations and, in the future, even real estate. Revenue for fiscal 1997 was $11.36 billion.

But to Gates, Microsoft is still a feisty start-up, poised to do battle against legions of giants. "The culture of this company is that it feels like the competition is always on its tail," said Mike Murray, vice president for human resources and administration. "Most of us refuse to admit we have size" and market clout, he said. "We want to be [like] a small company."

That attitude starts at the top. The key to Microsoft's success is no secret, Gates asserted: "It's because we're focused on software. That's why we're successful. Was there a software industry before we came along? No. Did it make any sense that a company could independently write an operating system when we did it? No. . . . And do we [still] think that there's quite a variety of software that's useful to write? Yes."

Last month, the Justice Department took legal action against Microsoft, contending it has violated the terms of a 1995 consent decree by using its market clout in operating-system software to boost the acceptance of its Internet "browser" software. Microsoft has countered that it's simply improving its products and giving consumers more value for their money.

The two sides are scheduled to appear before a federal court judge Dec. 5.

To Gates, Microsoft's mission is to remain a software company and to keep improving its core product, the Windows operating system, by adding new features such as the Internet browser. Every time it has done so, competitors have complained. But that's the price of progress, he suggested. Remember when Microsoft's operating system didn't use graphics? "Now you could say, why don't I freeze the operating system and not ever put a graphical interface in? Wouldn't that be more fun for the competitors?" Gates said. "And, yes, if the goal is – at the cost of innovation – to help competitors, yes, there's lots of ways to rig the game."

Economists worry about monopolies for a simple reason. When a company has a lock on a market, it usually turns lazy and complacent. Eventually, the monopolist introduces fewer innovations and raises prices, largely because it doesn't worry that such changes will cost it many customers.

By that measure, Gates thunders, how can anyone imagine that Microsoft is a monopolist?

"Why do we keep the price of Windows as low as we do?" he asked rhetorically. "If . . . an economist thought, `Oh, this is a product without competition,' and computed what the price would be, they'd get a number five to 10 times higher than what it actually is."

"Because it is a competitive area," he answered, sounding like an Econ 101 professor lecturing a not-so-bright class. Referring to the concept of "network economies," which suggests that once a product is used by a certain number of people everyone else will feel compelled to use it as well, Gates said: "Those phenomena were not assigned to Microsoft. They're just available to any product that gets out there. So we're going to keep improving the operating system."

His competitors see it differently. At Nader's conference last week in Washington, Scott McNealy, chief executive of Sun Microsystems Inc., contended that the spreading influence of Microsoft's family of operating systems winds up meaning there's less choice for consumers.

Gates dismisses such criticisms. "Why don't I raise the price of Windows? Are you really telling me I'm dumb?" Gates asked. Why not raise prices? "Because it's competitive, in the long run Windows would be wiped out. That's why. I'm either a bad businessperson or I'm right about the fact that there's lots of competition that could wipe out Windows. Those are the only two choices you have."

© Copyright 1998 The Washington Post Company

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