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Gates stands tough
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March 3, 1998: 8:06 p.m. ET
Microsoft chairman says his company is just trying to remain competitive
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NEW YORK (CNNfn) - Brushing aside a constant barrage of criticism Tuesday, Microsoft Corp. Chairman Bill Gates denied his company was a monopoly and said he was merely trying to stay competitive in a constantly-changing software sector.
Gates, appearing as part of a panel of software industry chiefs in Washington Tuesday, staunchly defended his company, noting people had the same complaints about International Business Machines Corp. 30 years ago, only to be proved wrong when IBM lost its lead to smaller rivals.
"People who feared IBM were wrong," Gates told a packed Senate Judiciary hearing on competition in the computer industry. "Technology is ever-changing."
"All operating systems, including IBM's, Sun's, Apple's and many others are including Internet browsing capabilities," said Gates. "The beauty of the Internet is its openness. It cannot be controlled or dominated or cut off because it is simply a constantly changing series of linkages."
The Redmond, Wash.-based software giant is currently being investigated by the Justice Department for alleged antitrust activities. A group of 27 states is also gathering information about the company's business practices.
Gates, speaking in measured tones during the four-and-a-half hour hearing, said the Information Superhighway was littered with companies who once had a strong product but were quickly made obsolete and he doesn't intend for that to happen to Microsoft.
"There is competition," Gates contended. "Can any Microsoft endure future competition without innovation? The answer is no. We've got to keep changing."
Committee Chairman Orrin Hatch (R-Utah) grilled Gates during the proceedings, asking if he put any limits on content providers from advertising or promoting Netscape.(181K WAV) or (AIFF)
Scott McNealy, president of Sun Microsystems Inc. (SUNW) disagreed with Gates' assertion. McNealy has been a vocal critic of Microsoft and has been battling with Gates over what he feels are unfair practices being used against Sun's Java programming language by Microsoft.
"Microsoft has a monopoly in computer operating systems," stated McNealy, referring to the company's approximate 90 percent share of the personal computer market with its Windows operating system. That share, he said, makes "Microsoft the gateway to the Internet."
Microsoft enemies and allies
McNealy and others, including the U.S. Justice Department, are concerned Microsoft, which bundles its Internet Explorer Web browser with Windows 95, is using that market strength to push its own products and shove aside rival products.
The Justice Department last year filed suit against Microsoft, accusing the company of having a monopoly in the personal computer operating systems market. The government also claims the company violated a 1995 consent decree aimed at increasing competition in the software industry.
Microsoft's strength elicited comments from Jim Barksdale, CEO of Netscape Communications Corp. (NSCP), who, while declaring himself an "admirer" of Gates, has engaged in a David versus Goliath effort in the browser wars with his company's Navigator browser application.
While saying that "nobody wants Microsoft to be inhibited from their marvelous innovation," Barksdale said he was merely looking for enforcement of existing antitrust laws.
At one point, Barksdale called for a show of hands to make his case against Gate's company.
"How many of you use Intel-based PCs in this audience?" Barksdale asked the audience. Most hands were raised.
"How many of you use a PC without Microsoft's operating systems?"
When all hands went down, Barksdale turned to the panel and said, "Gentlemen, that is a monopoly."
Sun's McNealy said his company was exploring the possibility of a civil antitrust claim against Microsoft ""We've been looking for the right kind of case to build if that so presents itself but we do not have a case to bring right now," McNealy said.
Netscape's Barksdale said his company would probably not pursue such action. "I don't think my company could afford it."
The one who came closest to being an impartial observer on the panel was Stewart Alsop, a partner at New Enterprises Associates, a venture capital firm.
Alsop backed up the anti-Microsoft contingent, saying "Microsoft has a monopoly over the desktop operating systems."
Gates was not without his allies on the panel, however. Dell Computer Corp. (DELL) Chairman Michael Dell said Microsoft's size and efforts at standardization have brought down software prices.
"We believe standardization has helped both Dell and our customers," said Dell.
Gates denied that Microsoft was arrogantly ignoring the consent decree and other related laws. "Microsoft follows the rules. Microsoft is subject to the rules," he said.
Gates said that rather than pushing its own platforms to the exclusion of others, its standardization process has given various software firms a standard base from which to make integrated applications, spurring growth and lowering prices.
Things got tense during the discussion when McNealy accused Microsoft of aggressively raising prices of its upcoming Windows 98 OS upgrade and its server software while "dumping" Internet Explorer on the market.
"We see some predatory pricing practices that only monopolists could engage in," said McNealy.
Gates did not let the remarks stand, however, saying if McNealy really believed he had no chance, Sun would not be attempting to push its own operating system.
"Outside of this room, Mr. McNealy has a plan to replace PCs. This is a very competitive business and I don't think it's fair to just come into this room and say 'No, Mr. McNealy's Java OS has no chance of displacing Windows.'"
Hatch did his homework
The hearing was widely anticipated by not only software professionals but by many outside of it as well as some of the industry's sworn enemies squared off. The Judiciary hearing was forced to move from its usual meeting room to a larger conference room due to the widespread interest in the panel.
Sen. Hatch, chairman of the Judiciary Committee and the one responsible for calling forward the panel in the first place, was unwilling to let up on Microsoft, a company he has criticized often in the past.
Hatch apparently did his homework for the hearing, including having Senate staffers make calls to Dell's sales operations while posing as ordinary customers.
Hatch said that Dell sales staff failed to mention Netscape Navigator as an application option in the purchasing of Dell PCs and, when asked about Navigator, the sales people said Microsoft licensing agreements prevented Dell from offering Netscape products.
Dell defended his company's standard offering of Microsoft's Internet Explorer browser by saying that the demand for Navigator among its business customers did not warrant offering the Netscape product.
For Gates, the hearing marked the first time the software titan appeared before a congressional hearing but not the first time Gates was on Capitol Hill. As a teenager, Gates served as a congressional page but, after discovering that political life was not for him, he went on to form the world's largest computer software company instead.
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