World War 3.0

By Ken Auletta

The recent explosion in the valuation of tech stocks was largely fed by talk of a New Economy. In the New Economy, we were told, giant improvements in technology would improve productivity to such a degree the economy would be able to grow at a much faster rate without the usual inflationary pressures or market dislocations. Technology became a wave that everyone wanted to ride as stock prices, especially those of tech stocks, quickly rose far beyond any relation to their present value.

Whether the New Economy is just another bubble of investor enthusiasm or something real is still hard to say. In the anti-trust case brought by the U.S. Department of Justice against Microsoft, however, it was (or is, since the case is currently being appealed), very much a fact in issue. Specifically, the case asks whether players in the New Economy will still have to obey the rules of the old.

In hindsight, there should never have been a trial. Microsoft could have avoided going to court if they had agreed to settle for terms far less onerous than what they were willing to accept later. For this, their executive is to blame. You can call it arrogance, or the hardcore business philosophy of Silicon Valley’s “warrior culture,” but fighting the government was a mistake.

And it was not the last. In court, Microsoft pursued the disastrous strategy of claiming that their aggressive business practices – like the “bundling” of an Internet browser with their Windows operating system – were in no way a response to competition but rather part of an altruistic desire to improve the lives of consumers. With such patent nonsense as the company’s official line, there was little difficulty in making Microsoft witnesses, including Bill Gates, appear evasive and dishonest.

Even worse than their testimony, however, was the response of top Microsoft executives to the court’s findings of fact and law. In various national media the company’s leadership continued to insist they had done nothing wrong – even as the court was considering the remedy for their misconduct!

How did so many smart people, with such expensive counsel, make so many mistakes?

If anyone can answer that question it’s Ken Auletta. Most reporters can only dream of the kind of access Auletta received while covering the trial as a media correspondent for The New Yorker. In his reconstruction of the case he is able to draw on firsthand interviews with all of the major players, including Bill Gates, David Boies (lead counsel for the defence), and presiding judge Thomas Penfield Jackson. Unfortunately, his account of the trial is not entirely objective, and is finally unconvincing in its conclusions.

Auletta’s main theme, for example, is that Microsoft, and Bill Gates in particular, behaved in a manner that was immature. Yet whenever he tries to get someone involved in the case to say that Microsoft was childish or Bill Gates a child, they invariably draw back.

And for good reason. The point is not that Bill Gates is a child. You don’t have to read between the lines to hear what Auletta is really saying:

Gates has, after all, never had a boss, never been reprimanded or fired, never been forced to conform to the norms of superiors or to temper what he says, never been poor, never served in the military, and never really endured business adversity.

Auletta takes all of this as evidence of Gates’s stunted development, his immaturity, but what he is really saying is that Gates just hasn’t earned it yet.

To say that Bill Gates hasn’t earned his wealth is problematic. Such a view cannot be expressed openly in a country like the United States. In the land of the free to get rich, it would be heresy to suggest any kind of common-sense limits on the accumulation of personal wealth.

Yet perhaps we should question whether anyone, however smart or hard-working, and however much they have enriched the lives of their fellow citizens, can ever be said to have earned a net worth in the neighbourhood of 70 billion dollars (US). Whether Bill Gates managed to acquire this kind of wealth by abusing Microsoft’s monopoly position in the market is almost beside the point.

In fact, even anti-trust law may no longer be applicable. The speed of change in the New Economy has led some to suggest that short-lived monopolies will become the norm. Microsoft has a dominant position in the PC software market, but if the future is wireless where will they be? Large corporations may have difficulty adapting to changes in the market and lose their innovative edge.

A final legal ruling in the Microsoft case isn’t expected before 2002. And even with a friendlier administration now in office, Auletta suggests that they may lose even if they win. On the other hand, you could look at what Microsoft will gain from the delay and argue that they will win even if they lose. In either case the market will ultimately pick a winner. By then the law will be irrelevant.

Review first published February 17, 2001.


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