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Gates would later boast to friends that he told Vice President A1 Gore during a meeting in May that if the government tried to break up Microsoft, he would move the company and all its employees overseas, out of reach of U.S. control. Although the vice president’s office denied that any such ultimatum was delivered, a White House source confirmed that Gates made his threat to move the company at that private meeting. The source further said that the vice president had been told much the same thing earlier in the year by Microsoft’s number two guy, Steve Ballmer, a personal friend of the vice president.
Such threats, real or rumor, in the end really didn’t matter. Bingaman’s legal team on the Microsoft investigation had decided by late spring that the best attack against Microsoft was one that focused specifically on the way Microsoft licensed its operating system—charging a processor a fee on every computer sold, regardless of whether it came installed with Microsoft’s operating system.
Breaking up Microsoft into two companies—one for operating systems and one for applications—was out of the question. Novell, ironically, had made the government’s antitrust case against Microsoft more difficult to press by acquiring WordPerfect and Borland’s Quattro Pro. Like Microsoft, Novell now owned both an operating system (its networking software) and applications. Also, the Justice Department had learned its lesson when it failed to break up IBM after spending years in litigation and millions of taxpayer dollars. Bingaman’s team believed that the department would suffer the same fate if it attempted to split Microsoft. But the government lawyers were convinced they had more than enough evidence to file suit against Microsoft on the licensing issue. Thus, everything else was taken off the table.
The case had become increasingly frustrating for Gates. In Junje, he had complained to a Wall Street Journal reporter that Justice was still requesting documents about Microsoft’s business. “We’ve sent them something like a million pieces of paper,” said Gates, “and they need a million more.” But later in June, Bingaman called Bill Neukom, Microsoft’s chief legal counsel, and suggested that they meet in her office to talk about the case. Several recent stories by industry writers had reported that the government was broadening its investigation of Microsoft. Neukom was told just the opposite by Bingaman, who said that her department was preparing a fairly narrow legal case that would focus on just a few areas of concern, such as Microsoft per-processor licensing fee. She suggested settling the case without a trial, but if Microsoft did not agree, she was prepared to file suit.
Bingaman told Neukom that he cOuld meet with Attorney General Janet Reno if he wanted, which he did, for more than an hour. Reno, who had given the okay to Bingaman to file suit if an agreement could not be reached, also urged Neukom to settle the case.
According to a Microsoft executive, even though Neukom was the lead attorney in the case for Microsoft, he did nothing without the approval of Gates. “When Neukom told Bill that Justice wanted to settle, and that Microsoft might escape without too much damage, Bill gave the go-ahead to start talking,” the executive said. “But Bill made it clear that he would have the final say on any settlement. He was determined to get the best deal possible. Anything else and Bill said he would fight a suit in court for as long as it took.”
Sam Miller, a San Francisco trial lawyer hired by Bingaman in December 1993 to begin preparing the government’s case against Microsoft, said the case was strong. “Microsoft clearly went way over the line in its per-processor licensing arrangement,” he recalled. "We had legitimate grounds to bring a suit. Novell’s operating system was being excluded. There was a serious potential for damages. That’s why Microsoft caved in.”
Following the meeting, the first round of serious talks between Neukom and Bingaman took place in Brussels, at the headquarters of the European Commission that was also investigating Microsoft in response to the complaint from Novell. Neukom had insisted that the commission be involved in the negotiations between Microsoft and the Justice Department. The week of July 4, when Bingaman had planned to be on vacation with her husband in New Mexico, she and a small group of lawyers from her department met in Brussels with lawyers from the commission and from Microsoft, including Neukom. The talks lasted a week, but broke off without an agreement.
Meanwhile, Bingaman had given Microsoft a deadline: settle the case by Thursday, July 14, or the antitrust suit would be filed. A few days before the deadline, the talks reconvened in the United States. And despite intense, nonstop talks among the parties, the Thursday deadline passed with no deal.
“These guys don’t react to stiff warnings,” Bingaman would later tell the New York Times in describing the last-minute negotiations. At 3 a.m. Friday, some three hours after the deadline had passed, Bingaman phoned Gates personally to try to end the stalemate. Gates was in Idaho, attending a private conference for some of the nation’s top business executives. He was awake in his room when Bingaman called. She told him that he had to agree to the consent decree now, or the next morning the suit would be filed. Gates asked for more time. “We’re through,” said Bingaman. She hung up the phone and went home to sleep.
The next day, Friday, July 15, Bingaman and lawyers from Justice, Microsoft, and the European Commission continued meeting in her office to reach a settlement. About 3 RM„ Bingaman placed another call to Gates. They talked by speaker phone for more than an hour. “He’s the ultimate decision maker,” she would tell the Washington Post. “I just wanted to get this settled with him.”
The negotiations went back and forth. Lawyers representing the parties sometimes left Bingaman’s office to huddle privately and then return. Finally, Gates said the words Bingaman had been waiting to hear: “I can live with that.” Gates then told Bingaman that Neukom had his authority to sign the consent decree. Nearly five years after it began, the government’s antitrust investigation against Microsoft had come to an end. The signed consent decree was filed later that evening in U.S. District Court in Washington, D.C. Lawyers for the European Commission flew home with a nearly identical agreement.
“I just went home,” Bingaman told the Post. “It was a weird feeling 1 wasn’t certain it was going to happen.” The next morning, Saturday, Bingaman met with reporters to announce the terms of the settlement, which both Bingaman and Reno praised. They boasted that the government had stood up to Microsoft and won an important victory. “Microsoft is an American success story, but there is no excuse for any company to try to cement its success through unlawful means, as Microsoft has done with its contracting practices,” Bingaman said.
Reno added that the settlement had “leveled the playing field” for Microsoft’s competitors. “While the company fairly and lawfully climbed to the top of the industry’s ladder, it used unfair and illegal practices to maintain its dominant position.”
Bingaman later talked about the settlement in more detail. “We brought the case that we could, based on the law and on the facts as they exist. I am proud of this case. I am proud of the result.” She noted that Microsoft would remain under super vision for six and a half years to verify that it was complying with the terms of the consent decree.
“We got 100 percent of what we would have gotten at trial and on appeal; and we got it now, not three or four years from now,” said Bingaman.
To the end, Microsoft refused to acknowledge publicly that it had done anything wrong. “The agreement is not that the allegation is true. Our agreement with the government is that we are willing to accommodate them in these reasonable ways,” said Neukom.
In a conference call with reporters, Gates said that the case had become a major distraction and that was why he agreed to settle. He added that the settlement was vindication for Microsoft’s practice of not requiring the so-called Chinese Wall between its operating and application divisions.
Reporters wrote that Microsoft had gotten off with what amounted to a slap on the wrist. Computer makers would now be able to offer customers a choice of rival operating systems, such as Novell’s DR-DOS and IBM’s OS/2, but that would hardly make a dent in Microsoft’s business, since most computers sold would still be sold pre-installed with DOS and Windows. Because that’s what the public wanted.
Wall Street saw the settlement the same way: as a success for Microsoft and a black eye for the Justice Department. In the days following the settlement, Microsoft’s stock rose several points.
Gates would later tell friends that he wished his mother could have lived to see the case settled. Mary Gates had died a month before the settlement. She knew the emotional toll the case had taken on her son over the years.
But it’s not over till it’s over, and the consent decree was still subject to approval by a federal judge. The Microsoft detractors would get their day in court, presided over by a bluntspeaking federal judge known as Attila the Hun.
The industry was still buzzing over what was generally regarded as Microsoft’s “skate” from the Justice Department when Gates teed up with Bill Clinton for a round of golf in August on Martha’s Vineyard in Massachusetts. Clinton was on his annual vacation with his family, while Gates and his wife were visiting Katharine Graham, the Washington Post publisher, who had a summer home on Martha’s Vineyard. Also playing in the group was Gates’s wife Melinda, Warren Buffet—a longtime friend of both Gates and Graham—and financier George Stevens.
Although they had played golf together before, Gates and Clinton had little in common. Gates liked the president, but found he could not talk to him about anything technical, which was generally a prerequisite for forming a relationship with Gates.
After golf, they all had dinner at Graham’s house. Gates had become closer to Graham since the death of his mother. “I think Bill saw her as taking the place of the mother he had lost,” said a friend of the Gates family. “Bill was having a hard time dealing with the death of his mother. Melinda was there for him, of course, but Katharine Graham reminded him of his mother.”
Although it did not come up during golf or at dinner, Gates was doing better in the polls than the president. A recent survey by Opinion Research Corporation had found that Gates was number two on a list of the executives whom Americans most admired; Clinton was number five. Heading the list was Lee Ia- cocca, the retired chairman of Chrysler. Ross Perot, the onetime presidential candidate, was third, followed by Donald Trump. Earlier in the year, Gates’s company had tied with Coca-Cola as America’s third most admired company in a survey of more than 10,000 business executives by Fortune magazine. Rubbermaid came out on top, followed by Home Depot. Obviously, Microsoft’s rivals had a much more negative opinion of Gates and Microsoft than the rest of the country did.
On October , Gates sent his second e-mail memo to Microsoft’s executive staff about the Internet. Titled “Sea Change Brings Opportunity,” the memo called upon all of Microsoft’s product managers to think about adding features to existing products to take advantage of the capabilities of the Internet. And he reminded his staff that Microsoft’s continued growth depended not only on opening new markets, but on getting Microsoft’s customers to buy product upgrades. “It takes even more guts to bet on the ‘Sea Change’ when you are the market leader, but it is the only way to position yourself for massive upgrades.”
But Gates himself was still not ready to bet the company on the Internet. A week after his sea change memo, and still fresh from the settlement with the Justice Department that did little to curb Microsoft’s appetite, Gates dropped a bombshell on his competitors. Microsoft, he announced, planned to buy Intuit, the maker of the best-selling Quicken financial software program. It was the one area in which Microsoft had tried to compete and failed. Its own financial product, Money, had captured only about 22 percent of the market. Quicken controlled about 70 percent. Once Gates decided, in May, that Microsoft would be unable to catch up, he initiated secret negotiations. Microsoft agreed to pay $1.5 billion, which from Microsoft’s point of view was a bargain. It would not only gain Intuit’s 7 million customers, but it would establish itself as the major player in on-line banking.
The Justice Department wasted no time in letting Microsoft and the industry know that it planned to take a careful look at the proposed merger. Bingaman was about to get a second crack at Gates and Microsoft. The proposed merger was announced on October 13. Some 24 hours later, a new threat to Microsoft’s dominance appeared on the Internet, one that would prove to be far more serious than the one previously posed by Quicken.
The Sleeping Giant Awakens
Netscape’s epic battle against Microsoft began with the sounds of cannon fire, breaking glass, and croaking frogs. On October 14,1994, six months after Jim Clark and ,Marc Andreessen formed Mosaic Communications and hired five members of the Mosaic development team away from the National Center for Supercomputing Applications (NCSA), a test version of the company’s first browser was posted on its Internet Web site. Called Mosaic Navigator, it was free to anyone who wanted to download it off the Internet for a journey of exploration around the World Wide Web. After working around-the-clock shifts, members of the exhausted browser development team watched as the first downloads were loggedon to a PC screen, each accompanied by playful programmed noises such as cannon fire. It would not be long before the noise resonated all the way up the West Coast to the Silicon Forest of Redmond, where industry giant Microsoft was finally starting to awaken to the Internet spring, like a bear coming out of hibernation.
Borrowing a page from the NCSA marketing book, Andreessen and Clark had decided to give the company’s browser away for free in order to get it onto as many computers as possible. (Those users who wanted customer support could buy the software for $99.) Their business strategy was simple: create demand; use the Web to reach customers directly; set the standard in cyberspace; turn the tables on Microsoft.
Conway Rulon-Miller, who had joined Mosaic Communications as vice president of sales in early October, learned at his first sales meeting about the giveaway plan for Mosaic Communications. “I had fierce fights with Andreessen,” he would later tell Business Week. “I said, ‘Excuse me, I might have trouble doing a revenue plan for you.’ ” But Clark and Andreessen understood that the revenue stream would come not from a browser, but from lucrative Web server software that would be used by companies doing business on the Internet. Mosaic Communications planned to sell its server software for $1,495, or $5,000 for a secured version needed by companies dealing with confidential information such as credit card numbers on the Internet.
A couple of days before Mosaic Communications released its browser, Andreessen told reporter Jared Sandberg of the Wall Street Journal that Mosaic Netscape was ten times faster than the version of Mosaic he had helped develop at the NCSA at the University of Illinois. Andreessen also said that Mosaic Netscape had been completely rewritten from scratch and did not contain a line of the original software code.
A curious thing happened when Dave Thompson at the NCSA began playing around with one of those rewritten-from- scratch copies of Mosaic Netscape that he had downloaded off the Net. It was so similar to NCSA Mosaic that it caused a conflict with his computer’s operating system. He found he could not run Mosaic Netscape and NCSA Mosaic at the same time. “The operating system would complain that I was trying to run two copies of the same program,” said Thompson. “It really looked bad in terms of copying code. The outside may have looked different, but the inside didn’t.”
Thompson knew a little something about NCSA Mosaic. His former colleague, Marc Andreessen, was getting credit for developing the browser technology that made it so much easier to navigate around the World Wide Web. Fame and fortune were just around the corner for Andreessen, who would be described by some in the media as the next Bill Gates. The idea behind Mosaic, however, had started not with Andreessen but with Thompson’s curiosity over some junk mail.
“The whole story about how Marc Andreessen invented Mosaic and all that is a complete fallacy,” said Mike Tyrrell, an executive at Spyglass, which licensed the Mosaic browser from the NCSA in 1994 and subsequently licensed it to Microsoft. The real Mosaic story began in November 1992. At the time, Thompson was working for Joseph Hardin, who headed the center’s software group of about a dozen programmers. Their task was to develop software tools that scientists could use to look at the streams of data that came from supercomputers.
One day Thompson received a mailing from O’Reilly Associates, a publisher of technical reference books, about a hypertext interface for the Internet called the World Wide Web. Thompson wanted to know more, so he did a search using Archie, a database identifying the location of Net contents. He found what he was looking for at the CERN research lab in Switzerland, where Tim Berners-Lee had created the World Wide Web based on a universal hypertext language. Thompson found two browsers available for free from CERN, and he downloaded both. One was a text-based browser developed by CERN; the other was an X/Windows interface called Viola, developed by a former Berkeley student, Pei Wei. Thompson played around with the browsers and downloaded some documents off the Web.
"To see the hypertext interlace applied to the Internet was a pretty cool thing," Thompson said. “I thought, ‘Wow!’ ” He also thought it might be what the center needed—another big hit, because it had been several years since Tim Krauskopf, who had gone on to found Spyglass, had developed NCSA Telnet for connecting PCs to supercomputers and put the center on the map. Hardin’s software team had been looking for something new, and now Thompson believed he had found it in his junk mail.
