(FORTUNE Magazine) – DEAR BILL:

You are being completely random. I never thought I'd have to say this to you, of all people! But your recent response to the Department of Justice is a disaster. It's randomness at its worst.

As you know, I've been a student of Microsoft ever since you and I first met in 1983. I have enormous respect for the company's competitive approach to product development, marketing, and even innovation. (Your interface design needs work, but we'll leave that alone just now.) I've watched Microsoft take on one competitor after another and, by focusing on the essential technologies that affect customers, defeat nearly every single one--Digital Research, Lotus, IBM, Novell, and a host of others.

So I've learned how Microsoft competes. That's why I consider your response to the Justice Department so disappointing: It's the first time you've let your ego get in front of the interests of the company. Hence, you are being random.

(For the benefit of my loyal readers, I need to step aside here and explain "randomness," as defined by Bill Gates. Gates is the ultimate programming machine. He believes everything can be defined, examined, reduced to essentials, and rearranged into a logical sequence that will achieve a particular goal. Anything that doesn't work this way, anything illogical, is "random." In the world of Bill Gates, being illogical is the most serious sin.)

Here's why you are being random: The United States is arguably the most powerful entity on this planet. You might be able to make a case for China, given how many people live there, but the U.S. still has an edge on your basic wealth and energy. And yet you decide to treat the U.S. as just another competitor. You are acting as if the Department of Justice is only the latest in a long string of companies that have tried to unseat Microsoft in one business or another.

This is the essence of the randomness! Bill, the United States is not a company. It is a country. It has all the perquisites that come with being a country: the right to exercise eminent domain; the ability to organize armies of well-armed and well-trained soldiers; the ability to levy taxes, print money, and regulate banks. In other words, the U.S. can do what it damn well pleases, as long as a reasonable number of its citizens want it to do what it pleases to do, and as long as no other entity is powerful enough to stop it.

It now pleases the U.S. government to challenge Microsoft's right to tell personal computer manufacturers exactly how much software must be installed with the operating system. It chooses to do this because it thinks there are enough people in the country who want it to challenge Microsoft. Ergo, Microsoft should walk very carefully as it responds to this challenge.

What amazes me is that you have decided not just to disagree with the U.S. but to give it the finger in public, to embarrass and demean the individuals leading the government's efforts. Why, for instance, did your spokesman need to dismiss the government as "poorly informed" on this issue? Why?

Your executives claim Microsoft can't obey Judge Jackson's order--to offer computer makers a version of Windows 95 that does not include Internet Explorer--without crippling the operating system. The judge then uninstalls Explorer without harming the operating system. Petulantly, your executives say that isn't what he told them to do. Why is this necessary?

I haven't met one person who agrees with you on this issue. Whatever the general public may think, it's easy for me to sum up opinions of knowledgeable industry types: Microsoft is a bully. Microsoft is trying to hoodwink nontechnical people. Microsoft is showing disrespect to the judge and to the federal government. At the very least, Microsoft is splitting hairs, when in the past it has always focused on core issues. Not surprisingly, your every move leads more people to want the government to challenge Microsoft!

You've stepped way out of bounds, Bill. It is outrageous for you to claim that Internet Explorer is fully integrated with Windows 95. As you have made clear repeatedly in public and in private, it is crucial to you that Microsoft integrate Web browsing into the next operating system--Windows 98. In fact, many industry experts believe that your effort to do just that is the reason Windows 98 isn't Windows 97 and already in the marketplace.

What is so outrageous now is that you are claiming that, to comply with the judge's order, you must remove from Windows 95 any software related to connecting to the Internet. That's as arrogant and out of touch as deciding to name the Windows 95 desktop icon for Internet Explorer "The Internet," as if you want to trick people into thinking that your software is the only way to represent the amazing diversity and complexity of the entire Internet.

I'm sure you don't want to deceive people, but it certainly makes me wonder what's at stake. Why would you intentionally piss off the world's most powerful entity? Why would you risk Microsoft's credibility with consumers? Sure, you want to establish the principle that Microsoft controls how the operating system is designed and what does and does not get included in the next version of Windows.

But you don't need to raise your middle finger to the Justice Department to establish that principle. So there must be something else at stake. I remember when we had dinner a couple of years ago, shortly after you withdrew from the proposed acquisition of Intuit, the software company that makes Quicken. In that case, the Justice Department decided to object to the acquisition, so you called it off rather than go to court. During our conversation on how Microsoft should respond to antitrust actions initiated by the Justice Department, you told me that you'd let them have Intuit--and that you wouldn't give them anything else.

Finally, for the first time in more than 20 years of running Microsoft, you've tripped over your ego. I think you've just decided that you are powerful enough and important enough to take on the Justice Department and the U.S. government. Here's what I hear echoing through all Microsoft's responses to Judge Jackson and the Justice Department: You damned well aren't going to get anything else from Microsoft. As a result, the company has adopted a scorched-earth policy. You have decided not just to argue the case on its merits but to go for the jugular and try to discredit the opposition.

Pretty random, I think. And disastrous for Microsoft. You're going to lose popular support for Microsoft as a paragon of American free enterprise and technological superiority. And you can now expect the Justice Department to look for every possible opportunity to challenge your actions and assert control over your business, for years and maybe decades to come. Indeed, your response to the Justice Department could not be better designed to accomplish precisely what you want to avoid.

Warm regards, Stewart

STEWART ALSOP is a partner with New Enterprise Associates, a venture capital firm. Neither he nor his partnership has a financial interest in the companies mentioned. Alsop may be reached at stewart_alsop@fortunemail.com

REPORTER ASSOCIATE Rajiv M. Rao