Fortune Magazine
Fast Forward
Will Microsoft's new principles be its undoing?
In seeking to placate regulators and still-angry customers, Microsoft could be setting itself up for a long-term decline.
By David Kirkpatrick, FORTUNE magazine senior editor

(Fortune) -- In the early years of the U.S. Justice Department's antitrust assault on Microsoft in the 1990s, I occasionally opined that, for better or worse, Microsoft (Charts) was likely to end up as some sort of regulated utility. I saw Microsoft's Windows as central to modern life, and believed that something so critical would inevitably come under governmental oversight.

Ironically, on Wednesday Microsoft essentially resigned itself to such a fate when it announced an extraordinary set of voluntary 'principles... to promote competition'. The company permanently adopted many of the temporary restrictions the DOJ had ordered in resolving the antitrust action. Those restrictions would otherwise have expired in 2009.

It's ironic because Windows in fact has become much less central to modern life since Microsoft agreed to the antitrust decree. Today, the "window" represented by a web browser is far more important to how we use computers. The Internet itself is our operating system and when we access information it comes, in many cases, not from the hard drive controlled by Windows but from some remote server to which we are connected by the Internet. That is, for example, how you are likely reading this article.

I was never in favor of the DOJ's actions against Microsoft. Whatever the company's misbehavior, I have consistently believed that its virtues far outweighed its faults. Without it, we would not have had a personal-computing revolution or, accordingly, an Internet one. By having the technology and marketing smarts to place "a computer on every desk and in every home" as the company's founding mantra so presciently put it, Microsoft changed the world.

When the government went after Microsoft, it struck me as self-defeating behavior. At the time, the U.S. was in the midst of the biggest economic boom in its history - the period we look back on now with ruefulness as the dot-com bubble. Why, I asked then, should the government go on the attack against the most successful company in the country's most successful industry at just the moment when that industry was transforming the economy? The complaints of a few competitors never struck me as sufficient cause, and in retrospect still don't.

But who cares what I think? The Clinton Justice Department did what it did, opening the door to copycat action by the European Union, which is still on that warpath to this day.

So now Microsoft is truly chastened and changed, for all kinds of reasons. One is the continuing legal assault in Europe. Another, though, is the totally different environment in which it operates. Today sharing, openness, and interoperability are simply what customers expect and demand.

Nonetheless, some of the principles Microsoft has pledged to adopt are almost shocking, coming from this long-arrogant company. "Microsoft Corp. recognizes the important role its Windows® desktop operating system products play in the information economy and the responsibilities that come with that role," the principles begin by saying. (And they do include that registered sign.)

The company commits to disclose various interfaces and software techniques which heretofore it has kept to itself. It aims, it says, to enable any software company to develop software on a level playing field with Microsoft itself.

"We want the developer community to know that it is free to develop, support and promote products that compete with any part of Windows," the principles state. So not only will Microsoft reveal how the Windows operating system communicates with components like a web browser, it will go further and disclose how the company's own applications interact with its operating system. This will give competitors access to much of the same information Microsoft itself uses in developing applications.

Microsoft also commits to a variety of actions that will benefit its computer-company customers - the main distributors of Windows. It will make permanent several key processes temporarily required by the DOJ, like making available a set price list for Windows based entirely on volume.

In the past, PC companies might have gotten better prices in exchange for promoting, say, Microsoft's web browser or MSN online service. No longer.

While in general I can't find fault with any of this and it is probably good for the world, I can't be so certain it will, in the long run, be good for Microsoft.

The whole thing reminds me of a portentous conversation I recently had with a longtime IBM veteran. He described to me just how damaging he believes the government's antitrust assault was on that one-time industry monopolist, back in the 1980s. He explained how IBM (Charts) had been one of the most aggressive companies on the planet. Salespeople were essentially ordered never to lose a sale.

But once the government sunk its claws into IBM, its culture changed "180 degrees," he said. Sometimes products were even priced a little bit higher just to ensure that competitors would have room to operate under IBM's umbrella, he recalled with bitterness.

As a result, he believes, from that time until the mid-1990s, IBM followed an almost continually declining trajectory. Only upon the arrival of Lou Gerstner in 1993 did the company regain some self-respect and a competitive edge.

Microsoft's new contrition and cautiousness gives me one more reason to worry that it, too, could be on a path to decline. In business, aggressiveness and taking no prisoners is one quality that makes companies great. When they have to worry too much about helping others compete, something precious is lost.


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