Microsoft 3.0

Baldwin Louie — Mon, 30 Jul 2001 18:00:00 -0400

Last week, Lawrence Lessig and Donald Luskin each wrote a column marveling at how little Microsoft seemed to have learned from its antitrust ordeal. Even though a federal appeals court overturned Judge Thomas Penfield Jackson's order to break up the company in June, it unanimously affirmed Jackson's finding that Microsoft had used monopolistic practices. Nonetheless, Lessig and Luskin pointed out, the company was recklessly plunging ahead with new, aggressive tactics as if it had never been sued at all.

There's another way to look at Microsoft's behavior: as a corporate extension of the "Version 3" phenomenon that has long applied to its software.

Version 3, the idea that programs aren't quite right until the third release, has in fact been slightly generous as it applies to Microsoft software. "Version 10" is more like it - or at least that's the conclusion to draw from the recent release of Office XP. This collection of "productivity" programs includes what is, by Microsoft's internal count, the 10th version of Word, and it is by far the best. No doubt I am biased, since I worked for several months on a team designing the changes that appear in this release of Word. But I suspect that most users will share my relief that countless annoyances that had vexed them over the years have been removed. The aggressive and error-prone "auto-correct" features have been tamed. Formatting, styles and revisions are simpler to understand and control. Even the infuriating "you seem to be writing a letter" paper clip has been deep-sixed.

By the third release of its programs Microsoft has typically solved the major problems, and its behavior since the appeals court verdict should be understood as Version 3 of a legal-political strategy. It is a big step forward from the original release, but with some fine-tuning still to go.

The original versions of Microsoft's corporate persona, which lasted for most of its first 25 years, displayed pure aggressiveness. If the company had been an animal, it would have been a shark. Everything about its bearing reminded other creatures that it thought of them as prey. Ten years ago, this attitude took the form of "error" messages in Microsoft software, giving users a deceptive cue that they might destroy their hard disks if they loaded competitors' software. Two years ago, it showed up in Bill Gates' haughtily disastrous videotaped deposition and, a year ago, in his company's prideful refusal to make a compromise with the Justice Department like the one it will now have to accept.

But since the appeals court's ruling, the company has tried to present itself as a tiger, not a shark. Both creatures are powerful and potentially lethal. But tigers are considered more beautiful, and after a good meal they can appear safely languid, even cuddly. The cuddly aspect of Microsoft's current behavior is nothing like the awkward charm offensive of recent years, in which Gates would pose, sweater-clad, among schoolchildren. Instead it is reflected in the company's decision to avoid fights that in other times it might have invited. In June it decided to remove "SmartTags" from the forthcoming Windows XP rather than argue that they could provide the basis of a new annotation system for Web browsers. In July it quietly began settling suits with state attorneys general, building toward a likely larger settlement with the federal government. And by its own standards it did precious little gloating about the outcome in the appeals court.

These conciliatory gestures were significant precisely because they did not compromise the company's real competitive power. In Version 1 of its corporate personality, Microsoft looked exactly as aggressive as it was. Now it has learned the virtues of a less threatening appearance - while intensifying competition on all significant fronts. It is still intent on beating America Online in the instant-messaging market - and in drawing more subscribers to MSN. It is intent on displacing RealNetworks as the standard for digital-music players; on preventing Kodak from entering the digital photography market; on using HailStorm and Passport to place itself in the commerce market; and so on.

The corporate evolution is several versions behind that of its software, but this latest evidence of the company's ability to reinvent and reposition itself commands respect. The whole saga of American business presumes a life cycle in which companies run out of energy as certainly as aging humans do. When familiar brands - Montgomery Ward stores, American Motors cars, Wang computers - go out of business, we're tempted to view this as a natural process of decline. The established companies that avoid this fate are therefore more interesting than startups, like Catherine Deneuve or Clint Eastwood versus their starlet counterparts.

In the 1970s, General Motors was the symbol of bloated, indifferent American manufacturing. In the 1990s it restored its dominance, in part by making itself an "info-tech" company through its OnStar system. In the 1980s, IBM was being humiliated by upstarts. Now it is back as the single greatest force in the technology-hardware business. At the beginning of this decade, the cloud over Microsoft was not just the antitrust action but also the increasing sense that the company had lost its edge, could not attract the brightest talent, was in middle-aged decline. That Microsoft could have made such judgments seems naive - while at the same time learning to compromise rather than fight its way out of its legal difficulties - will rank as one of its great survival achievements.

Microsoft's reemergence, arguably stronger than ever, is part of the modern process through which the tech economy has become divided into a handful of superpowers, each with its associated states. Through MSNBC, Microsoft is allied both with the NBC television empire and the Newsweek-Washington Post print operation. AOL is of course allied with the powerful Time Inc. magazines, Warner Bros. studios, CNN and others. Rupert Murdoch's News Corp. holdings, Michael Eisner's Disney - increasingly they divide the world of media and technology amongst them.

In such a world the rules for competition are especially important, to keep the great powers from ganging up on each other or from preemptively squashing future aspirants. Six months into the Bush era, only one prominent administration official has addressed this subject. That is Michael Powell, Bush's chairman of the Federal Communications Commission, and about the time of the appeals court ruling he made a speech in Washington revealing some of his thoughts about high-tech competition.

Powell had been stung by press reports suggesting his views were an unnuanced version of laissez-faire, in which whatever result the market produced was by definition good. His speech was an attempt to offer refinements. Even this presentation had its unnuanced aspects. For instance, Powell said nothing whatsoever about the central competitive issue now before the FCC: the charge that regional Bell companies are trying to stamp out new competitors, especially DSL firms like Covad, by deliberately making it hard to use the Bells' local phone lines.

But Powell did suggest there was reasoning and not just reflex behind his views, and he even suggested that there were circumstances in which the market might fail. We could think of this as Version 2 of his philosophy of competition. The tech world looks forward to Version 3.

James Fallows is also the national correspondent for the Atlantic Monthly.

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Microsoft 3.0