Bill, Tragedy May Be Averted if You Act in Time

To: Bill Gates <[email protected]>

Cc: Janet Reno ,

Jim Clark ,

Andy Grove

Subject: Breaking up Microsoft

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Here we go again, Bill. The Justice Department antitrust investigators are back, scrutinizing your proposed acquisition of WebTV Networks. They might stop you from buying the company, just as they stopped you from buying Intuit Inc. a couple of years ago.

Now, I know you consider these government lawyers to be beneath contempt. They’ve been alternately clueless and spineless in their dealings with you over the years. Except for the Intuit case, their investigations have been much ado about nothing.

But this issue isn’t going to go away, Bill. I know it’s hard for you to see now, what with the fawning adulation you currently inspire from so many quarters, but not everyone is going to be supportive of Microsoft getting ever more powerful. There’s going to be a backlash, and it could be a lot more damaging than you imagine.

There is, though, a way you can get out in front of this. It’s a radical proposal, sure, but it’s the one way that you can go down in history as a truly creative business visionary, rather than an Information Age robber baron who peaked in his 40s: You should break up Microsoft voluntarily.

I’m sure this strikes you as completely ridiculous. The company is doing extraordinarily well, and all signs point to continued success. The government has never given any indication that it intends to take drastic action. The world’s rich and powerful are beating a path to your door. If ever there was a company that ain’t broke, it’s Microsoft in 1997.

But that, Bill, is exactly why you should be worried. Success on this scale has the perverse effect of obscuring the things that will be critical to continued success. The decline always begins just when things look like they couldn’t be better. Ask John Akers, your old nemesis at IBM. Or read some Greek tragedies. Hubris, they called it back then. Ego that blinds.

OK, maybe you think I’m off the deep end here. Think about it, though: All these chief executives and assorted other big shots--the vice president!--show up at your house when summoned, as they did this month. They listen respectfully to your vision of the future. They treat you like a king.

But Bill, these people do not love you. They have huge egos, and agendas of their own. They will turn on you in a second when it’s in their interest. The same goes for all those smart people who work for you. For now, everyone has golden handcuffs hefty enough to stock Fort Knox, but that could change with something as commonplace as a drop in the stock market.

We are in one of those moments of history where wealth and power are revered, but this is always a cyclical thing in America. Sooner or later, populist resentment of the new techno-plutocracy--starting with the No. 1 techno-plutocrat--will start to emerge. Affection for the underdog will return. It won’t matter whether the perceived underdog is really deserving of sympathy or not. These turns of the popular zeitgeist are not always rational.

Let’s say, for example, that you succeed in putting Netscape out of business. You will undoubtedly point out that Jim Clark and Marc Andreessen and the rest are hardly impoverished, and that they lost fair and square in the marketplace. The facts of the case won’t matter, though. You’ll be big, bad Microsoft, able to annihilate a feisty upstart not because you were better, but because you had an unfair advantage.

Politicians will take notice. They might start to see votes in going after Microsoft. At this level, antitrust is a political rather than a legal issue, and no one--not even you--can win a fight with the federal government when it’s sufficiently roused. I know you think that only competitors and communists don’t like Microsoft, but even if that’s true now--and, frankly, I don’t think it is--I promise you it won’t always be true.

And, Bill, there are other problems with your current situation. Microsoft is getting to be a very big company, and many of the new businesses are in areas you don’t know anything about. I certainly see why you’d consider the media business an attractive target, what with all these dinosaurs like big daily newspapers trundling about in a fog. (Their publishers are so awe-struck that they even believe you when you tell them, as you did a few weeks ago, that you’re not getting into their business! What a bunch of rubes!)

But don’t kid yourself, Bill. This media stuff is harder than it looks. It’s conceivable you’d be able to spend everyone into oblivion--$9 billion is an awful lot of cash. But you’re enough a student of business history to know that companies usually get themselves in trouble when they get away from their core talents. And you need the media as your ally, Bill. Being on the cover of Fortune every third issue really does help sell software.

In this age of nimble start-ups and decentralized organizations and authority pushed down as low as possible in the organization, Microsoft is going the other way. All your operations are centralized in Redmond, Wash. All important decisions are made by you and your small cadre of longtime loyalists. The best interests of certain business units are subordinated to the interests of others. This is asking for trouble.

My guess is that you simply think you’re smarter than other executives and thus will be able to deal with such issues better than they do. That’s one of the characteristics of hubris, Bill. You should take a lesson from another very smart guy, Andy Grove of Intel. His motto is “Only the paranoid survive.” Your behavior doesn’t look very paranoid at all.

So, Bill, acquire some fear. The government is coming to get you. The stock market is heading for a fall. The troops are getting restless. The media sharks are circling. The intra-company conflicts are mounting. The half-wired masses are starting to see that the technology revolution is disproportionately benefiting a narrow elite.

Here’s what you do. Instead of waiting for the government to act--in which case it would almost certainly force you to split the operating systems business and the applications business into separate companies--you should split it up yourself, but in a different way.

Put Microsoft Network, the associated media businesses and the consumer software operations into a new company, and spin it off to shareholders. If it were voluntary, no one would mind if you kept, say, a 10% or 15% stake for yourself. This new company could go ahead and buy WebTV and otherwise do whatever it takes to try to become the dominant force in digital media.

Microsoft could then keep the operating systems, the business applications and the tools business together--that’s where the real leverage lies anyway. The company could continue its drive to dominate corporate computing unencumbered. The consumer and media businesses could get the kind of management they need. Both companies could operate in a normal fashion without the government poking its nose in all the time.

Now you’d have two ways to continue building your wealth. And when the history is written, you’ll go down not as the John D. Rockefeller of the Information Age--he was widely hated, remember, and the government broke up his company, and it took two generations of descendants to repair the family reputation--but as a new kind of entrepreneur who pulled off the unprecedented feat of remaking his business empire in midstream.

Let me know what you think.

Regards,

jw