Microsoft "ambassador" calls it quits

Stone's departure, revealed in an e-mail Sunday sent by CEO Steve Ballmer to Microsoft employees, comes at a critical juncture for the company as it prepares for a two-front showdown in its landmark antitrust trial.

Microsoft returns to court March 6 for a hearing that could determine the fate of its proposed settlement with the Justice Department and nine of 18 states. U.S. District Judge Colleen Kollar-Kotelly must determine whether the deal is in the public interest. Microsoft's perceived behavior, particularly in relationship to its PC manufacturer customers, could be a crucial factor in approving or rejecting the settlement proposal.

Microsoft also must face the nine states and the District of Columbia, which refused to sign on to the settlement. A remedy hearing commences March 11 that could place even stiffer sanctions on Microsoft than those proposed in the settlement.

Associates of Stone, who held the title of vice president of industry initiatives, suggested she had increasingly locked horns with Ballmer over Microsoft's relationship with its partners and customers. Ballmer promoted Stone to her role as ambassador to outsiders in May 2000 as the company attempted to soften its image in light of ongoing antitrust woes.

Some analysts said they were not surprised a rift led to Stone's decision to leave. Her last day is March 15.

"Both by her reputation and personal discussions I've had with her, Linda Stone was a valuable part of Microsoft's efforts to reach out to people who don't necessarily always agree with the Microsoft party line," said Rich Gray, an antitrust lawyer based in California's Silicon Valley who is closely following Microsoft's legal affairs.

"When I look at her departure in context of some of the quotes that have come out of Mr. Ballmer recently about his attitude about Microsoft's antitrust difficulties, it leaves me with a sad feeling Microsoft is going back to its pre-defeat, internal conviction it has not done anything wrong and has no reason to change its (business) behaviors or behave towards the world any differently," Gray added.

But Gartner analyst David Smith disagreed, contending that Microsoft had been changing how it deals with other companies--something Stone, at least in his dealings with her, ineffectively communicated.

"I think this is a Linda Stone issue," he said. "It's not a Microsoft issue. I think the company has made strides in what they have attempted to do since she was there, but I never tied very much of the success they have had to her."

In his e-mail, Ballmer praised Stone, who he said had made a "real difference." "She has worked internally to help address areas where our culture needed to evolve, and she has worked externally to break down misconceptions about the company."

He went on to praise her accomplishments during the last few months. "Linda spearheaded Microsoft's successful participation in the World Economic Forum, and sponsored a major community outreach effort with local high school students," Ballmer wrote.

Judging behavior
Some analysts believe Microsoft's effort to change its behavior is a failed exercise that shouldn't have been attempted in the first place.

"It's too late in the day for Microsoft to try and become benign. Microsoft's aggressiveness is in its institutional fiber," said Hillard Sterling, an antitrust lawyer with Gordon & Glickson in Chicago. Sterling said the company had come to the realization that becoming "a kinder, gentler Microsoft" wouldn't "cut it in the public realm, the markets or the courtoom."

From Sterling's perspective, Microsoft's behavior hasn't changed much since Stone's appointment--not because of arrogance, but because of pragmatism.

"Microsoft probably realizes that it can't change a deeply ingrained sense of aggressiveness in its markets," Sterling said. "An attempt to change would be both foolhardy and irrelevant."

But one area where Microsoft's behavior could be crucial, and potentially impact its antitrust case, is how the company deals with its PC manufacturer customers.

This "will clearly be relevant in the remedy trial, to examine how Microsoft treats its customers," said Andy Gavil, an antirust professor at Howard University School of Law. "If the court is of the view that the treatment of the customers is not in accordance with the principles of settlement or requires some continued oversight, that really could affect the scope of the remedy (the judge) orders."

While competitors have stolen the media spotlight ahead of the two March hearings, they "have little, if any, credibility with the court," Sterling said.

PC manufacturers, on the other hand, are in essence what the case is about, because how Microsoft treats them impacts consumers, say legal experts. During 60 days of public comment about the settlement, which concluded Jan. 28, Sony asked the Justice Department to withdraw the deal.

Sony responded to a provision long demanded by federal and state trustbusters for uniform licensing that would prevent sweetheart deals or retaliation from Microsoft.

Sony charged that Microsoft had used the licensing changes to raise prices and usurp valuable intellectual property rights. "Requiring Sony to accept new 'uniform' provisions that may weaken Sony's existing intellectual property protections and allow Microsoft to leverage its power into other markets is contrary to the underlying principles of the proposed (settlement) Judgment," Sony wrote to the Justice Department.

The litigating states further raised the issue, adding the license situation as a new complaint against Microsoft. The states filed supporting documents from Gateway and Hewlett-Packard making similar accusations against Microsoft.

"Antitrust laws are meant to protect competition, not competitors," Gray said. "They're meant to protect the sanctity of the marketplace. Here you have the people who have to deal with Microsoft in the marketplace saying Microsoft is using its supposed compliance with the pending settlement to impose terms on them that they would never otherwise agree to. It's back to (the situation where) the ink is never dry on a deal with Microsoft that they don't find a way from under it."

But Gavil predicted PC customer complaints, however legitimate, would likely only impact ongoing litigation rather than the settlement, because the judge's "role on track one, the settlement, is more limited than it is in track two. It would not be inconsistent at all or unreasonable for her to order something completely different in track two than track one, because it's more a reflection of her authority in track two. The treatment of customers is directly proportional to the scope of the remedy."

Microsoft's own inconsistent treatment of PC makers could be a powerful weapon in the hands of state trustbusters. In July, the software titan relaxed OS licensing provisions, giving PC makers more control over the Windows desktop. This led to a landgrab in icon placement that benefited some PC makers who brokered space on the Windows desktop.

But Microsoft appeared to renege on the deal with requirements governing MSN Explorer and Windows Media Player icons.

Sony's comments and Gateway's planned courtroom appearance on behalf of the litigating states would be an uncharacteristic breaking of rank, something that did not occur in the original trial.

"These are real market participants whose suffering will potentially have a direct impact on consumers. That is a principal concern of antitrust law," Sterling said. "Computer manufacturers' complaints will ring loudly in the courtroom."