Trustbusters are bypassing the biggest tech company of them all

Regulators are circling all the tech giants but one: Microsoft. Its past battles offer clues for survival.

Bill Gates arrives with his wife, Melinda, at the U.S. District Courthouse in Washington in 2002 for an antitrust hearing. (Stephen Jaffe/AFP/Getty Images)

SEATTLE — Trustbusters are targeting the biggest names in tech, bar one: Microsoft.

That’s because the software giant learned some key lessons during its epic battle with regulators two decades ago, notably working with partners rather than using its market power to prevent rivals from emerging. Tech companies rarely complain these days about Microsoft abusing its hegemonic products, such as its flagship Windows, which still dominates the personal computer operating system business, or newly acquired ones such as LinkedIn, which rules the professional social networking market.

“Conduct is still really important under antitrust laws,” said Andrew Gavil, an antitrust professor at the Howard University School of Law and the co-author of a book on Microsoft’s antitrust history. “One thing Microsoft learned is that the corporate culture and the attitude that you have that helped you grow has to change.”

In recent weeks, the Department of Justice and the Federal Trade Commission have divvied up Apple, Amazon, Google and Facebook for supervision, an early step in potential heightened antitrust scrutiny. But Microsoft so far appears to be in the clear, even though it survived its own probe into market dominance that started in the 1990s — one of the last major antitrust cases in the United States.

President Trump said Wednesday the U.S. government “should be suing Google and Facebook and all that,” joining regulators and lawmakers pushing for closer scrutiny of those tech giants, in part because of concerns about mishandling the trove of consumer data they hold. Privacy abuses have not historically been the purview of antitrust law, but Makan Delrahim, the assistant attorney general in charge of the antitrust division, recently argued that a lack of competition can reduce the quality of some services and erode consumer privacy.

“Where competition pushes companies to develop quality elements that better satisfy consumer preferences, our enforcement can protect that sort of competition too,” Delrahim said in a speech this month.

Microsoft, the largest company in the world measured by market capitalization, has its own massive stash of consumer data, everything from information about how consumers use its Outlook email service to the job history and professional contacts of members on LinkedIn. But because online advertising isn’t the engine that drives its revenue, the company hasn’t pushed limits in its use of that data, Gavil said.

Regulators zeroed in on Microsoft two decades ago after rivals complained that it leveraged its Windows monopoly as it entered new markets and used it to erect barriers to those who competed against it. A federal judge found that Microsoft violated antitrust law in 2000, and ordered the company snapped in two.

But an appeals court reversed the breakup order, in part because the judge failed to hold hearings on a remedy. He was removed from the case after holding “secret” interviews with reporters. The subsequent judge on the case approved a settlement in 2002 in which Microsoft agreed to, among other concessions, give computers makers more freedom to include rival software on their PCs.

It took Microsoft time, but in the years that followed the settlement, the company matured. Former chief executive Steve Ballmer, once referred to the open-source operating system and Windows rival Linux as a cancer because of its threat to intellectual-property rights. Now, Microsoft actively supports Linux development and even spent $7.5 billion last year to acquire GitHub, a coding-collaboration site that’s particularly popular with open-source developers.

Shortly after the Justice Department sued Microsoft, a rankled Ballmer lashed out at the then-attorney general in a speech to software vendors saying, “To heck with Janet Reno.” Last year, Microsoft invited regulation of facial recognition technology, arguing that the companies battling for supremacy in the market couldn’t be trusted to police themselves.

The current disinterest from the Federal Trade Commission and the Department of Justice in Microsoft may also stem from the fact that it no longer holds sway over tech the way it once did. Two decades ago, software companies had to develop programs for Windows — and play by Microsoft’s rules — if they wanted to reach the vast majority of computing consumers. These days, app makers bypass Windows altogether, creating programs for mobile devices and the Web.

“The big difference between Microsoft in 2000 and Microsoft today is that there is very little lock-in with respect to Microsoft’s own customers,” said Herb Hovenkamp, an antitrust professor at the University of Pennsylvania Law School.

Microsoft spokesman Dominic Carr declined to comment on the recent regulatory scrutiny of tech companies.

Yet despite the profound pain Microsoft endured in its antitrust war, its tussle with regulators may provide a blueprint for what today’s tech behemoths should do, antitrust experts say.

The software giant vigorously fought government efforts to break the company apart, a remedy some critics believe could be justified for today’s tech giants. Remaining intact gave Microsoft the ability to survive on the vast profits from Windows, providing it with time and capital to pursue new markets, such as cloud computing, the business that’s fueling its current run.

“Contest every issue. Don’t give in on anything,” Hovenkamp said of the lessons Microsoft’s antitrust battle provides. “Lawyering up really helps.”

By doing just that, Microsoft managed to extend its fight, which began during the Clinton administration, into the Bush administration. Reno’s successor John Ashcroft didn’t share her zeal for breaking up Microsoft. The settlement was widely seen at the time as a victory for Microsoft, one that did not preclude it from tying its own products into Windows. Microsoft has continued to include its browser with Windows, but Google’s Chrome has beaten it out.

That’s why the Microsoft case is a cautionary tale for today’s trustbusters, too. There’s little doubt the antitrust trial sucked Microsoft’s executive focus away from running its business. But the long and expensive trial ended with a settlement that left Microsoft intact, and free to continue many of the same tactics about which rivals complained.

Microsoft didn’t lose out to Google, Apple and Facebook in Web search, mobile devices and social networks because it was hamstrung by the antitrust action, said Brad Silverberg, who ran the Windows division when Microsoft launched its seminal Windows 95 operating system and was a figure in the antitrust case.

“That conventional wisdom suits people’s narrative. It’s just wrong. It’s not how it happened,” said Silverberg, who co-founded Fuel Capital, a San Francisco-based venture capital firm, after he left Microsoft.

Microsoft lost in those markets because the new breed of rivals was quicker to grasp the potential of emerging technology and more innovative in creating new products and services.

It wasn’t just browsers. The software giant’s Windows Mobile phone operating system predated Apple’s iOS and Google’s Android, and yet lost to both. Microsoft’s Bing badly trails Google in Web search, even though the company debuted its predecessor, MSN Search, 15 years ago. Microsoft even took an ill-fated run at social networking with its So.cl project that allowed users to follow one another as well as favorite topics, but watched Facebook seize the market.

Microsoft didn’t compete because it was focused on protecting and extending its Windows empire.

“Microsoft didn’t lose to Apple and Google and Facebook because of antitrust,” said Silverberg. “It just didn’t have the right internal DNA.”