DIE! Microsoft, DIE!

Redmond's day of reckoning is coming, and you read it here first.

Every journalist worth his or her weight in gall dreams of covering the collapse of a mighty and powerful figure, whether politician, celebrity, or corporate titan.

To succeed in the modern world is to invite the relentless and bloodthirsty attention of the press, whose members gain far more fame by covering catastrophe than by covering success. (Hence the longevity of Whitewater, which will be remembered as the longest and most futile search for Pulitzer Prizes in all of history.)

So it is with Microsoft. Once viewed in the media as a gangly corporate kid, a romantic David taking on an army of Goliaths, the company now is the Godzilla of Goliaths, reviled by customer, competitor, ally, and regulator alike. Scarcely a day goes by without at least one news story focused on a legal or commercial development that surely will lead to the imminent Death of Microsoft. The company in the past has been said to be on the verge of collapse because of Altair, Apple, IBM, the federal courts, Novell, OS/2, an Apple-IBM alliance (remember Taligent?), the federal courts, RISC technology, Borland (remember Philippe Kahn?), Lotus, the federal courts, Netscape, the IBM purchase of Lotus, the federal courts, the Internet, Java, the Net computer, the US Department of Justice….

See end of article for related links.

Years of putative doomsdays later, the company is stronger than ever. At the end of February, it crossed the $200 billion line in market capitalization—a line only one other corporation, the venerable General Electric, has ever crossed. The company is so solidly entrenched in its position of power that the dream of a high-tech start-up now has shifted from outsmarting and defeating Microsoft to growing into a company interesting enough to be acquired by Microsoft. As the company’s power grows, so too the fascination with its “impending” collapse—yet it is nearly impossible for anyone but the most fervent Mac zealot to imagine a truly plausible Death of Microsoft scenario.

Not that there aren’t people out there trying. Roam through the Internet and you can find all kinds of ruminations like this one: “Concurrent with these disasters, a major earthquake wiped out the Redmond area, destroying the Microsoft Corporation. Bill Gates, who now sells fish at Pikes Place Market in Seattle, was ruined. But the biggest impact was on the worldwide Internet network. With the death of Microsoft, very few network connections remained. Windows 95 is no longer functioning, and people seeking technical support are put on hold for an average of two years.”

One feels the trail to a Pulitzer growing cold.

But thanks to the miracle of modern alternative journalism, we are able to conjure up some surprisingly reasonable and suitably delectable scripts detailing everything from the overnight collapse to the gradual decline of a company that arguably ranks right now as the greatest corporate success story of all time. Every success, after all, is only the first half of a parabolic curve, and Microsoft—remarkable as it and its fortunes are—is destined to be no different. (We are also assuming here a Law of Business Physics that states, “The faster the rise along a curve, the faster the fall.”) Here, in ascending order of plausibility, is a list of items that can be variously described as the Top 10 Ways Microsoft Will Die, or One Hack’s Search for a Pulitzer.

So read on, place your bets… and sell that Microsoft stock before it’s too late! (Interested sellers can contact buyers at fmoody@seattleweekly.com.)

10. Millennium

To judge from widespread hysterical press coverage, this looked like a sure Microsoft killer at first. Computers everywhere, it has been reported, will die at midnight on January 1, 2000 when computer clocks, which generally compute years by using only the last two digits (99 instead of 1999, for example), will crash and burn when suddenly sent back to the Dawn of Time (00).

Two years before the event, the world is bracing itself for millennium-bug-related lawsuits—indeed, two have already been filed.

Microsoftphobes, though, will be disappointed: It turns out that PCs for the most part will be unaffected. The real problem is with COBOL-programmed computers, which rule in the world of elevators, airplanes, air-traffic-control towers, hospitals. . . . When the clock ticks over to 2000, the trick is to be out of emergency rooms and off of airplanes and elevators. So unless you can seriously entertain the possibility that someone will be trapped in a Microsoft elevator and file a lawsuit that brings the company down, you will be better off with…

9. The temp time bomb

Much of Microsoft’s wealth is built on the backs of “temporary” workers, many of whom have worked for the company for years. The most reliable estimates place temps at one-third of Microsoft’s total workforce.

The use of temps saves Microsoft millions each year. As the US 9th Circuit Court of Appeals put it in a ruling last October, “Large corporations have increasingly adopted the practice of hiring temporary employees or independent contractors as a means of avoiding payment of employee benefits, and thereby increasing their profits.”

The court went on to rule, in Vizcaino et al. v. Microsoft, that Microsoft owed an unspecified number of temporary workers the right to participate in an employee stock-purchase plan and in the company’s 401(k) plan, both formerly restricted to full-time employees. Microsoft appealed to the Supreme Court, which refused to hear the case and thus let the 9th Circuit’s ruling stand. Microsoft then sought to restrict the ruling to temps hired between 1987 and 1990, and was turned down by Federal District Court Judge Carolyn Dimmick. At the moment, lawyers for the plaintiffs are seeking to add other benefits to the ruling, and Microsoft is still trying to limit the damages as much as possible.

Microsoft, meanwhile, continues to enjoy higher profit margins and faster growth in profit than any company in history. It is locked in what Gates likes to call a “positive feedback loop”: The company’s stock price keeps rising because company profitability keeps growing; and profitability keeps growing because the rise in stock price allows the company to lure top talent Microsoftward, where employees motivated by their options work hard to cash in on the rapidly rising stock price. Should either profit margins narrow or the stock price decline, the company would crash and burn. And should Microsoft have to pay millions in back benefits to thousands of temps, abandon its current employment practices and start spending vastly larger shares of its income on its employees, profits would slip, investors would move on, the stock price would plummet, and the company would either collapse immediately or—more likely—begin a gradual decline by slowly losing market share and power to younger, slimmer, nimbler foes.

Could this happen? The plaintiffs’ attorneys insist that this lawsuit will eventually lead to Microsoft’s having to deal with the definition of a legal term—”common-law worker”—that includes contractors who have to do their work at the employer’s place of business, have to keep to a schedule, are directly supervised by company employees, and so on. By those standards, of course, thousands of Microsoft temps are common-law employees. Fold them into the total Microsoft benefits package, deathwatchers say, and the company’s house of cards will collapse.

More sanguine observers say that Microsoft will at some point have to pay millions in back benefits, rewrite its contracts, and make subtle changes in its arrangements with temps. But it will move on pretty much unbloodied, as it did in 1989 when forced by the IRS to convert a few hundred more contractors into full-time employees with relatively little impact on the company’s bottom line.

The likelihood of a temp-related company collapse, on a scale of 1 to 5? One, alas, if only because courts tend to rule in favor of a strong economy. Which brings us to…

8. Winning the antitrust battle

Everyone talks about the danger to Microsoft of losing an antitrust case. But the real danger is never losing one. Among the oddities resulting from the federal government’s intense effort to break up AT&T and IBM, after all, is this: IBM, which won its 13-year battle with the feds, grew bloated, fat, slow, and purblind—creating, among other things, the opportunity that Bill Gates exploited—while AT&T, which lost, grew more agile and efficient. If Microsoft, as is likely, wins its multifarious antitrust battle with the federal and various state governments, the victory could lead to its destruction rather than salvation. Even Bill Gates, whose ability to instill fear of competition in his troops is legendary, would find it hard to keep his employees hungry and anxious in a marketplace with no credible opponents, monitored by a federal watchdog that had been put to sleep.

Dream on. This scenario falls apart when you look at the personal-computer industry in proper context. IBM and AT&T owned markets that had no competition from outside—you could not, for example, buy some alternative communications device rather than a telephone, nor could you buy a credible alternative to the mainframe or mini-computer. Those machines were the only ones available that did what they did. But the PC is fast evolving into a mass-medium entertainment and communications device, competing with televisions and telephones for customers and users. When Gates says that his company is under assault from all manner of alternatives to personal computers, he’s right—and more to the point, his employees believe him, and work all the harder to compete and win. So the only real way to stop the company in its tracks is to…

7. Kill Bill Gates

When Gates was hit in the face by that celebrated pie in Belgium, it raised two obvious questions: Why isn’t his security better? And what would happen to Microsoft if he suddenly died?

It is impossible to exaggerate the degree to which having Gates at the helm of Microsoft drives the company’s employees to work faster, harder, and better. Every worker on every project wonders—often aloud—what “Bill” will think of his or her work. I doubt that there has ever been a company whose workers are as fervently devoted to their boss as Microsoft’s employees are to Gates. Take him out of the Microsoft equation, and you take away not only the company’s driving strategic force but its most powerful motivational force as well.

On our five-point possibility scale, the death of Gates is… well, squeamishness prevents me from writing it out loud. Even a journalist as prize-hungry as I am wouldn’t want to find himself out in front in coverage of that event. Besides, Gates is great copy—it’s a lot more fun to interview him than it would be to cover his funeral. And since the death of Microsoft would be a foregone conclusion following the death of Gates, it wouldn’t even be newsworthy. More fun would be coverage of…

6. The reincarnation of Bill

The biggest problem for those entrenched in power at the top of the high-tech industry is that the barriers to entry for new competitors are almost nonexistent. The second-biggest problem—the speed at which conditions in the industry change—is particularly disadvantageous to the Microsofts of the world, for large corporations are far less adaptable than smart kids with big ideas.

Gates is particularly paranoid about this, of course, because he was the kid who destroyed all-powerful IBM in the PC operating-systems market. Now, Gates constantly hammers on the corporate gigantism theme with his employees, hectoring them on the dangers of Microsoft becoming so big that it can’t adapt to sudden shifts in the industry.

How much bigger can Microsoft grow before it turns into a dinosaur that moves too slowly to remake itself every time the software industry changes? Already, the company is showing telltale signs of stodginess and classically corporate lack of imagination. Everything from its advertising campaigns to the morphing of boy wonder Bill Gates into a middle-aged man in a business suit testifies to the ossification of the company. So the Windows 98enabled PC may be on the verge of extinction—just as the IBM alphanumeric interface was doomed by Windows—its supplanter currently under development in some suburban garage or high school computer lab.

OK, it’s a fantasy—a 2 on the five-point scale—even if it did happen before. More likely, and likely to take more time, is the far more boring…

5. Brain drain

The software industry is more a battle for programming talent than a battle for customers. Microsoft wins because it has cornered the market on smart engineers. And it cornered that market by means of a number of things that set it apart in its early days: the unequaled value of its stock options; its free beverage policy; its location (the fabled Mount Rainier factor that made Boeing great); its free-form working environment; and its lack of a dress code. Back when the computer industry was made up of Microsoft, Apple, and a bunch of companies that required people to wear suits and ties to work, I remember asking a Microsoft engineer why he chose Microsoft’s over the 10 or so job offers he received out of college. “My choices were to come out here and wear shorts and a T-shirt to work,” he said, “or ride a train to work, wearing a suit.”

Little by little, changes in the industry have taken away much of Microsoft’s recruiting advantage. The corporate culture once unique to the company is now nearly universal in the software world. As the rest of the industry evolves, Microsoft’s advantage erodes. Even worse, the glamour of the cutting edge will shift from the older, bigger, powerful corporation to the dream-fueled start-up, luring young talent with the promise that it can shock and change the world. By comparison with that excitement, going to Microsoft will be like signing up to put on a suit and ride a train to work every day.

Likelihood: 5. Likelihood in less than 10 years: 2.5. Perhaps a quicker payoff would come from betting on…

4. Creeping complacency

Microsoft rose to the top in its industry largely by dint of hunger. Gates was a kid taking on large, established companies far more powerful than his. Microsoft’s greatest advantage in its salad days was its disadvantage: Gates was able to inspire harder work and greater effort in his troops by reminding them constantly that they were kids breaking into Dad’s boardroom.

Now, though, the company looks unassailable. Listening to Gates trying to instill fear of competition in his employees is like listening to Husky coach Jim Lambright waxing fearful about the University of Pacific. Simple human nature dictates that Microsoft employees will never work as hard again as they did in the days before World Domination. With success and power comes complacency, with complacency comes reduced effort, and with reduced effort comes the overthrow by the next Microsoft. And maybe that next Microsoft will administer…

3. Death by freeware

Once upon a time, software was free. So enthusiastic were computer hobbyists to promote the acceptance of personal computers that they wrote programs for them and either gave them away or asked users to voluntarily send whatever payment they deemed fair.

There still exists a freeware “business model” in the software world, and press attention to it was resurrected a few weeks back when Netscape announced that it was giving away the source code to its browser, Netscape Navigator. The model works like this: A company develops a software product and gives away its code in the hopes that legions of other developers and companies will modify the code, add components to it, and build applications on it in such numbers that the original product becomes a de facto standard. The developer of the source code then makes money by providing support and service to client software companies and customers of the various manufacturers of the various related products.

The UNIX operating system, developed at Bell Labs in the 1970s, is the most widespread freeware in use today. The best-known modern variation on the freeware model is RealNetworks, which gives away its RealAudio and RealVideo streaming software, and makes its money selling RealNetworks servers to Web sites whose need for the servers is driven by user demand.

It occurs to me that, given the intense love among thousands of software programmers of the freeware concept, Netscape might revive the model in a way that would cut into Microsoft’s profit margins and start luring consumers away from Windows computers and toward cheaper machines. But then, you talk long enough with freeware-savvy Microsoftphobes, and they eventually admit that the move to freeware is among the last resorts of a desperate company. In other words, this is one of those notions that is more nostalgic than realistic—a 2, at best. Smarter money is being placed on . . .

2. Slow growth

Microsoft’s success is a time bomb whose megatonnage goes up in direct proportion to the company’s success. This is because of the pitiless and irrational behavior of the stock market, which rewards the company not so much for the size of its profits as for the rate of growth of its profits. The better the company does, the better it is expected to do next quarter. It is held not to a general standard, but to a unique standard it has established for itself. This means, among other things, that Microsoft could slow down to a profit performance only double that of the best Fortune 500 companies and be punished rather than rewarded by the market. Its stock price would plunge, resulting in a loss of talent as programmers choose to go work for lesser companies whose steeper stock-price climb translates into better options. The resulting loss of talent, in turn, would bring on a downturn in productivity and quality, and the company would inexorably slide into mediocrity.

This chain of events strikes me as both inevitable and relatively near in the future, for the simple reason that Microsoft has been growing faster than the personal-computer industry in general since the industry’s beginnings. It doesn’t take much of a mathematician to determine that such a state of affairs can’t last forever.

That day of reckoning, in fact, may be looming on the immediate horizon. Microprocessor-maker Intel, the hardware counterpart to Microsoft, shocked the high-tech world early in March with the announcement that earnings were below predictions. Its stock price dropped precipitously – from $87 to $75 – in a single day, and analysts are predicting widespread ripple effects throughout the technology industry. Reports in the Web publication of record for the computer industry, c/net’s news.com, hold that the computer industry, having sold machines to 40 percent of America’s households, has hit a wall of consumer resistance. “Getting into that other 60 percent of households is going to be tough,” observed Michael Slater, founder of MicroDesign Resources, to c/net. “The PC market has run into a fundamental problem in that these systems are not as easy to use as consumers expect them to be.”

A look at the five-point scale puts this scenario at 3—with the caveat that it will take 10 years or so for the company to die, or even slip to no. 2. Which forces me to pin my Pulitzer hopes on…

1. The machine with a new soul

Picture this: You’re in a room at Microsoft talking with one of its executive VPs about an idea you have for personal computers. It is a legitimate breakthrough—an innovation that promises to make the PC as easy to use and as indispensable as a toaster. At some point, Gates walks into the room, and his executive tells him what you and he have been talking about. “It’s interesting,” Gates says dismissively, “but how will it help us sell more copies of Windows?”

I saw this happen once, and have heard of so many other, similar episodes that I am convinced this question is something of a mantra at Microsoft. And in it can be found the seeds of the company’s death.

Gates’ strenuous efforts to the contrary notwithstanding, Microsoft is now well into a critical shift in its identity. It has nearly completed a change from a cutting-edge company to one dedicated first and foremost to protecting its existing franchise. The core question, “How can we make computers more useful to more people?” has been replaced with “How can we sell more copies of Windows?”

You can see evidence of the effects of this change in the two fastest-growing computing markets: that for the Web browser and that for the handheld portable computer, or personal digital assistant. Microsoft’s rush into Internet applications is an attempt to make the Net, which is operating-system independent, subservient to Windows. It hopes to sell more copies of Windows by making the Net a feature in the Windows operating system. To get to the Net, Microsoft hopes, you will have to buy a Windows machine. Similarly, the company’s strategy in the PDA market is to try to force a slimmed-down version of Windows—called Windows CE, it gives PDAs the look and feel of a Windows desktop machine, and allows handhelds to interface easily with desktop computers—to become the PDA-industry standard.

Rather than coming up with something better than Windows (the way 3Com did with its non-Windows PalmPilot, which owns 70 percent of the handheld market), the company is dedicated to making more and more of the world run on Windows. As a result, Microsoft is using more and more of its PC market power to shut out any talent or innovation that threatens its cash cow. In all likelihood, the inventor of a non-Windows product that will render the PC obsolete already has tried to sell his idea to Microsoft and been turned away.

Because Microsoft’s de facto (as opposed to illegal) monopoly gives it the marketing power to shut out Windows-threatening innovators from the PC hardware platform, new alternative platforms are destined to emerge. Instead of competing for operating-system sales in a PC-only market, Microsoft soon will find itself competing in a variegated computer-hardware market with Microsoft-free alternatives to the PC. And Microsoft will be at a disadvantage in this new battleground because of the Windows footprint, its outsized demands for computing power, and because the company is in defensive rather than all-out attack mode.

You can already see the beginnings of change in the computing marketplace. Two or three years ago, the PC was the only digital show in town. Now, more and more non-PC devices are being developed for digital communication. Software for digital cellular telephones allows cell-phone owners to send and receive e-mail and browse the Web. Television set-top boxes allow TV viewers to access the Internet. DVD players turn televisions into interactive movie-viewing machines. Inventors are developing gasoline pumps equipped with screens that allow customers to download road maps. There currently are some 90 million PCs in the world; by the turn of the millennium, there will be 50 million or more non-PC computing devices in use around the world.

It seems laughable now to predict in such detail such a rapid downfall for Microsoft. But if anything is inevitable in the rise-and-fall story of a great company, it is just such a downfall. And it has happened often enough in recent history to all but guarantee that it is about to happen again. AT&T’s protection of its long-distance franchise led to its breakup; IBM’s protection of its mainframe franchise led to its decline at the hands of Microsoft; and Apple Computer’s protection of high profit margins through proprietary control of the Mac system caused it to crash and burn. In all three cases, innovation was stifled in order to protect current technology. So in the light of that history and Microsoft’s present behavior, the company is doomed.

Pulitzer Prize committee take note: This writer has set a new journalistic standard by covering in advance the death of history’s greatest company. Microsoft died in the year 2001 when an inventor, turned away in 1998, went off and developed a new computing-and-communication machine that made the PC obsolete. With full Web access, the machine communicates through the Internet with other machines of its kind, in audio and video, and tracks and reacts to its user’s voice and hand gestures so efficiently that it needs neither keyboard nor mouse. It costs less than $200, is easier to use than any telephone on the market, and has more raw computing power than any personal machine yet devised. And at the press conference announcing the launch of his product, the inventor gave thanks to Microsoft for forcing him to “think outside the Windowframe.”

Related Links:

Microsoft’s year 2000 resource center


Microsoft vs. sum


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