How Microsoft Conquered Washington By spending lots of money--of course--but also by doing lots of creative lobbying you don't know about.
(FORTUNE Magazine) – For a couple of embarrassing years in the mid-'90s, Microsoft's primary lobbying presence in D.C. was "Jack and his Jeep." As the software giant's sole in-house lobbyist, Jack Krumholtz, then 33, had to battle endless traffic jams to get from Microsoft's suburban sales office to Capitol Hill. "Early on I spent most of the day in my Jeep Grand Cherokee on my cellphone," Krumholtz says. "I hit an all-time low on the day I was parked on a Capitol Hill side street reading through my mail with the laptop on the steering wheel."
No longer. After the Justice Department filed its antitrust suit in 1998, Microsoft--a company famous for its disdain of government--undertook the largest government affairs makeover in corporate history. The company now boasts one of the most dominating, multifaceted, and sophisticated influence machines around, one that spends tens of millions a year. It's no great surprise that one of the country's wealthiest companies can bankroll a beefed-up lobbying operation when it faces a crisis. But what few people realize is that Microsoft has reached the very highest ranks of lobbying so quickly. Says David Hart, a lobbying expert at Harvard's Kennedy School of Government: "Microsoft has joined the top tier"--with such longtime heavyweights as Philip Morris, Lockheed Martin, and AT&T.
Most companies content themselves with playing defense in Washington: They fight back when regulators hurt their businesses, block bills they dislike, and occasionally prod lawmakers to pass bills that will help them compete. Not only is Microsoft doing all three of those things well, it is also doing something that only a handful of other corporations even attempt. It is getting to government officials early and stopping them from asking the questions that could eventually cause it harm. Microsoft execs say privately that they believe they could have prevented the antitrust suit had they co-opted the policy debate sooner. So their goal now is, in essence, to win silence on issues that matter to the company--the real goal of any truly sophisticated lobbyist. And on issues from privacy to piracy, Microsoft may well be succeeding.
To achieve its aims, Microsoft has done many of the things you'd expect. After making some serious missteps in late 1998 and early 1999 (such as trying to deprive the Justice Department of antitrust funding), the company quickly found its footing. It now has 15 high-powered government affairs staffers led by Krumholtz in downtown Washington--three times more than in the average corporation's D.C. lobbying shop--and dozens more in every major state. It retained a dream team of outside federal lobbyists, including Haley Barbour, the former Republican Party chairman, and Jack Quinn, former White House counsel to President Clinton. It began contributing heavily to right-wing, free-market think tanks, such as the Cato Institute and the Heritage Foundation. And Microsoft and its employees gave a whopping $4.6 million to federal candidates and parties, Republican and Democrat alike, in the 2000 election--more money than any other company but AT&T and more than double that of its biggest rival, AOL Time Warner (the parent of FORTUNE).
Spending all that money, of course, engenders resentment. Microsoft's lobbying is "an attempt to undermine a law enforcement effort [the antitrust suit]," says Ed Black, president of the Computer and Communications Industry Association (funded by such Microsoft foes as Sun Microsystems, Oracle, and AOL). "It borders on obstruction of justice." Microsoft denies that it lobbies to dissuade law enforcement officials from pursuing the antitrust case.
But political donations and other trappings of traditional lobbying are just part of Microsoft's formula. The company has also been having immense success in Washington by doing lots of things you don't expect. For example, it has launched a Website designed to ignite grassroots support that's the envy of the influence-peddling world. Microsoft's Freedom to Innovate Network (FIN) started in the summer of 1998 "with five boxes of supportive letters to Bill Gates that we found in a storage room," says John Kelly, the company's director of external affairs. Microsoft solicited additional advocates by putting a link on Microsoft.com, by culling the thousands of e-mails Gates receives each day, and by promoting the FIN at the Comdex computer show in Las Vegas. Today more than 250,000 people are signed up and willing to approach their lawmakers on Microsoft's behalf. In the last two months of 2001 alone, hundreds of e-mails were sent to 30 lawmakers identified by the FIN as key to passing a Microsoft priority, fast-track trade authority, which could help the company increase its sales abroad.
On another front, in its last fiscal year Microsoft donated $36.6 million in cash and $179 million in software to good causes--many of which helped the company get cozy with politicians, from Senator Hillary Clinton to House Speaker Dennis Hastert, who support the charities. But Microsoft has found even more creative ways to insinuate itself into legislators' good graces. House Majority Leader Dick Armey is among the many lawmakers who are hopelessly confused by fast-moving tech issues and who eagerly take advantage of regular teaching visits to Capitol Hill by Microsoft experts. "I'd been trying to figure out broadband for a year; I was going nuts," Armey confesses. "So I talked to Microsoft, their technical guys. They helped me understand." In addition to one-on-one sessions, the company conducts brown-bag lunches for Congress' 178-member Internet Caucus and has hosted about 200 lawmakers, aides, scholars, and presidential wannabes at tutorials in Redmond, Wash.
Have Microsoft's efforts paid off? Consider the triumph of the translators. At a 2000 meeting of state attorneys general, several attendees voiced concerns about privacy invasions by way of cookies, those electronic earmarks that get attached to the computers of consumers who visit certain Websites. The attorneys general implied that they would take legal action to solve the problem. Microsoft was ready. Its newly expanded government affairs division includes people whose job it is to translate what politicians want into the jargon of software engineers. For two days, the Microsoft translators negotiated with the company's engineers and the government officials. The result a year later was Microsoft's Internet Explorer 6.0, an updated browser that gave consumers better control over cookies--and silenced the legal threat. "It was a win-win," says Brad Smith, Microsoft's deputy general counsel.
An anti-cookie lawsuit isn't the only problem that Microsoft has been able to head off. The company has also helped stall federal privacy legislation by trumpeting P3P, an international protocol Microsoft helped develop that automates how much personal data Internet users can keep hidden from Websites they visit. And the company has been able to wangle significant government assistance in key areas. One of Microsoft's major headaches, for example, is copyright violators--people who share Microsoft software and sell illegal duplicates. The company's lobbying was instrumental last year in tripling the federal government's budget for cracking down on such piracy. Microsoft also spearheaded the effort to persuade the Bush Administration to commit more than $70 million to improve cybersecurity in the wake of the Sept. 11 attacks, which helps Microsoft by discouraging software theft and encouraging people to feel safe on the Web.
Despite all this, Microsoft still probably couldn't have done what it says it could have--avert an antitrust suit. That's just arrogance. After all, this emblem of American technological prowess is also one of the most scrutinized companies in the world. But what Microsoft has done in Washington in the past few years just gives it new cause for arrogance--it has created a model for influencing government that other companies are sure to follow.
REPORTER ASSOCIATE Melanie Nayer