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Nader calls MS "uniquely ruthless"

Consumer advocate Ralph Nader answers critics? charges, fields questions, and discusses what makes Microsoft "uniquely ruthless."

WASHINGTON--Ralph Nader relishes being on the right side of a good fight. The famed consumer advocate made his name attacking U.S. automakers in the 1970s, calling their cars "unsafe at any speed." Now he has found a new target for his righteous ire: Microsoft.

Yesterday, Nader launched a campaign to curb what he says are Microsoft?s abusive business practices with a two-day Microscope on Microsoft conference that the software giant and Nader's critics have called one-sided. In a journalist's roundtable discussion held yesterday, Nader answered critics? charges, fielded questions, and discussed what makes Microsoft "uniquely ruthless."

NEWS.COM: The Microsoft NT users group today suggested that you were going after Gates because you are "out of touch" and may not really understand the nature of technology businesses. Is Microsoft?s business different? Are technology companies different from other companies?
NADER: That?s not the issue. The question is always: "Wouldn?t other companies behave the same way if they were like Microsoft?" Maybe, maybe not. That?s not the issue.Microsoft is the 800-pound Gorilla. Who dominates the system?

But they are saying that you simply don?t understand the technology, you?re out of touch, and that?s why you are pursuing Microsoft.
First of all, it?s not just me that?s engaged here. You saw the people at the various panels. I think they represent some of the most competent and experienced people in the field.

Microsoft said in a letter that they [the people on the panels] are all sworn enemies of Microsoft, that the cards are stacked against [Microsoft].
Well, Gates and his people could have had a significant chunk of time on the program. They were invited repeatedly; they refused. I wrote a letter last week and said, "Why don?t you send some partisans in the audience? They can ask questions." You can see there were no Microsoft questions being asked. What they want to do is boycott the conference and then tell the press: "See how one-sided it is."

You mentioned some difficulties bringing other speakers on board...Can you expand on that?
It went way beyond any executive telling me we have a nondisclosure agreement. For example, the OEMs (original equipment manufacturers) were very uncommunicative. You could hardly speak to the OEMs, and, of course, they had the nondisclosure agreements. This is beyond that. These are people who fit into the following categories: they are modest competitors, they are suppliers, they are consultants, or they are start-ups who have to deal with Microsoft in terms of connecting with their services. So you are dealing with almost an entire universe of companies in the software/hardware universe. The phrases would be: "We have to deal with Microsoft. We?re going to have to deal with a licensing agreement." I?ll go into detail on what the intimidation techniques were [tomorrow]. The important thing is that these were not suppositions. These were descriptions of intimidating techniques that are multiple, that have been used in many directions, and that have been effective.

Would these people not talk to the DOJ?
Very few people would talk to the DOJ. You all know their names: Netscape....

Is it going back to fear of retaliation?
There are companies slated for extinction by Microsoft who would not come to the conference, would not make a presentation or anything--they were terrified. I don?t want to give my presentation until tomorrow, but generally, I?ve never seen anything quite like it. I mean, in some industries you?ll see companies not wanting to talk about Westinghouse and GE Nuclear?s old shoddy equipment or whatever. But it?s the total comprehensiveness of...the intimidating techniques that are being used. And a lot of them could never be used without a huge slush-fund of money from the operating-system products. There are companies terrified that their best pool of talent will be bought up with huge front-end bonuses by Microsoft and, bingo, that?s the end. Look at the assets of these companies. Some of them come down to four or five people, four or five super genius people. I mean, it?s not like taking a salesman from Prudential who won the record last year.

If Microsoft has engaged in a lot of these behaviors for such a long time, then why did it take so long to come to the attention of a consumer advocate?
Well, it?s not like we haven?t been otherwise occupied. There are numerous industries that have taken our attention.

Why is it important now?
It?s reaching critical mass in one or more areas. The brazen goals of Microsoft, which are quotable, about how they want to drive [certain companies] out of business, how they want to be gatekeepers, [how they want to] command the choke points. It?s moving very quickly. There need to be people who are outside of the arch of their influence to provide some sort of synergy and public appraisal of what they?re doing. No sooner had we announced this conference than I got a call from Mike Kinsley at Slate [a magazine produced by Microsoft] saying, "Write an article." And I said I would, and he is inoculated from any kind of censorship. If Microsoft is going to go from conduit into content, they can?t censor their first magazine.

In many ways, what you are seeing is a conversion of traditional economic business relationships into software. That?s different from some marauder coming in with a lot of capital and, on the conventional players' playing field, pushing competitors out of business. Let?s look at it this way: Insurance companies and banks are amateurs when it comes to the manipulation of software interconnections and strategies. They?re amateurs.

So if Microsoft can pull all these companies in through the overall conversion of their transactions into software, this is where they are most dominant. So that?s a whole new unprecedented lever that a major corporate dominator can use. You haven?t seen that in steel, you don?t see that in food, you don?t see any of that. You see conglomerate mergers. You see so-called synergies that often aren?t. But you never see someone able, because of the time we live in, to pull out one major industry into another, into the arena in which they dominate.

More than that, it looks like in the alliances that they chose, in the time-tested strategy of "first a partner, then a competitor"...they are allying themselves--wherever they can---with the larger, more concentrated companies in the industry they?re entering into. They?re not working with tiny banks; they?re working with the big banks, you see. First to learn the business, to partner with them. Then, if they don't play ball, to push them away in one sector after another. And so the question is whether Microsoft is further concentrating the oligopolies in the businesses that they are now entering.

And the answer is?
There?s some indication that they are. In cable [TV], you?ll notice they bought into No. 3 in cable, but then they were thinking of making a deal with No. 1. But then, what about No. 20, or No. 30? In cable they are going for the big guys. Even in the travel reservation business--where we had a lot of experience with people first saying they were coming to the conference and then they weren?t--they are ready to cut deals. It?s a carrot and a stick. But it?s usually the stick that?s first, and then the carrot, but the stick is always there.

There?s a distinction between domination and control. Microsoft goes for control first, then, if it?s necessary to dominate, they?ll be in a better position. That?s what?s called the choke points--like the bill presentment area in banking--that?s what?s called the "tollgate collector." And as a result, you can more easily envision their success than if you say, "They want to take over banking." You think of all these bank buildings and suddenly they all have Microsoft names on them. That?s not the way it?s going to happen. They will leave increasingly the lower margin, value-added industries to the rest of the industry. Why should they bother? This is a company that experiences a 90 percent growth margin and it?s interested in very high profit margins, so it?s going to carve out the choke points. It?s going to carve out where it can get the most return for the least amount of effort, just because it moved into a control position.

Wouldn?t it want to be the supplier of the software?
Look, they?re dominant in software, right? They?re grossing this year less than Digital, which is a declining company. No, this idea that they have to grow faster and faster stems from some of the reasons mentioned today. But it also stems from the title of Andy Grove?s book, Only the Paranoid Survive. Gates and Ballmer have gotten themselves into this mindset that, if they don?t control everything, if they don?t try to control everything, they?ll control nothing. They?re mesmerized by IBM and Digital "missing the bend in the road." Remember that from [Bill Gates?s] book, The Road Ahead? And Grove is that way, too. And that leads to an incredible ruthlessness and aggressiveness on the part of those companies.

Who are some historical figures you would compare Gates to?
Gates is a composite of Jay Gould, John Rockefeller, John Peirpont Morgan, and Andrew Carnegie at their most ruthless peaks, and still they didn?t have his versatility. They didn?t have that kind of ambition. One guy was interested in furs! He wanted to dominate the fur market! He didn?t want to dominate the retailers selling the furs! You?re covering the most fascinating display of power--economic powe--in our country?s history.
If you?re successful and the campaign achieves something, isn?t there a chance of Microsoft's stock dropping, and, it being the bellwether of the NASDAQ, [that] might affect the entire high-tech sector, and thus the valuation of the entire American stock market?

That?s only if the Justice Department moved very, very comprehensively to break up the company. And that?s not in the foreseeable future. There are too many other tempting ways that the Justice Department could move that are more likely to succeed. They?re going to go with slices of anticompetitive behavior to go after.

What do you think of the whole tone of Microsoft?s response to the DOJ, saying it could do what it wants? Is Microsoft taking it to the limits? We didn?t see this with AT&T and IBM.
IBM and AT&T executives did not socialize with the president and vice president of the United States, and it could be that, from the remote post of Redmond, Washington, [Microsoft] felt that, if they can call them Bill and Al, the Justice Department?s not going to be far behind. Certainly, I sympathized with that prognostication until fairly recently. But apparently something is going on inside the antitrust department called integrity that is pushing them to pursue the enforcement of the antitrust laws. That?s one.

And the second one is this: Microsoft believes that it moves so fast that the antitrust case will be obsolete before it is even settled--three, four, five years later. They know, through their law firms, how they can delay these processes. And there will be a new antitrust chief, a new attorney general, a new president, and so on. So that?s comforted them considerably. What they?re not counting on is a challenge from the consumer, and the business consumer is the ultimate [challenge].

We?re getting letters from people, very well-articulated, just fed up with the doo-dads, the icons, this and that. They just feel imprisoned by the increasing web that?s developing them. That hasn?t been organized yet, but just remember one thing: Unlike other consumer disgruntlement in other industries, this one you have the Internet to organize people through. And while you can?t organize people through the Internet to do something about the greenhouse effect or the insurance company predicament, you can get a bigger response on issues that relate to the Internet itself. Talking about global domination doesn?t resonate with consumers. Many of them are happy with what they have. I hear from people who say, "Bill Gates won fair and square, and now these consumer advocates and the government are stepping in, and the price of my software is going to go up."

What?s the number one use of the home PC? It?s games. The simplest...[expectations] are rock-bottom. If you just wanted to drive a car in the old days, you didn?t have the expectation that it should get more than 18 miles on a gallon, that you shouldn?t be vulnerable to getting killed in a 20 mph crash. You?d say, "Hey this car drives pretty well. It?s got power. It?s got maintainability. It doesn?t fall apart halfway across country." What happens is, when the expectation level changes and people have to use it [the PC and the Internet] more rigorously, you get more of this kind of feedback. And also the more power Microsoft gets, you?ll see that some of their more restrained practices won?t be so restrained. Some people like Microsoft products, some people don?t. They all have to use them. That?s the problem.

There?s a reference in this letter from Microsoft that says, "You and your staff rejected our suggestions for several respected industry observers that could have presented a balanced view of Microsoft?s business practices and products." Do you have any response?
Yes, they wrote a letter, on November 5, which is fairly late, saying we?d like the following representatives to be on the agenda. Not in the audience. I think they included Charlie Rule of Covington and Burling--that?s their lawyer. I think they included Cato Institute, maybe Heritage Foundation, Competitive Enterprise Institute, these are all surrogates. Why should we not have the real thing, which is Microsoft? Would Microsoft want a surrogate operating system? We want the real thing.

While we?re on the letter, there?s a couple of issues they raise about the money. They suggest that ads cost $50,000, that 40 tickets were handed out by Novell. Did Ralph Nader hand the tickets out free or did they spend the $40,000?
Those tickets were free. And the $50,000 was a mistake. We put an ad in the New York Times California edition, which is $3,200. Of course they didn?t bother to check the fact. They probably advertise in the Times, and it?s $50,000 for the whole country.

Novell didn?t purchase those tickets from you?
No. We also offered free tickets to government officials, tickets to law schools and business schools in the area. Why not? There was space.

If you could have the antitrust regulators do precisely what you want, what would you have them do in the next two years?
Well, first to deal with the tying arrangements. Second to deal with the intimidation of people coming forward through the nondisclosure agreements. Take a deep look at separation, maybe separation of application and operating systems. Take a look at that. That?s one that?s a moving situation. You?ve got to be careful that you?re not obsolete. And acquisitions. For example, streaming [video over the Internet ] is going to be a major new application.

So a new little company starts up in Seattle called Progressive Networks, started by a former Microsoft executive who left on friendly terms. So he starts showing them that this is going to be a big thing. And then Vxtreme starts going into that area. In May, four anonymous calls come to Progressive saying Microsoft is going to buy Vxtreme. Then about a week later, a meeting occurs between Gates and [Rob Glaser, the CEO of Progressive] where [Glaser] was given an offer that he can?t refuse. [Glaser] was always fearful that Microsoft would turn its attention to this area and then just move him out, just replace him. So, Gates said, "I?ll give you an inflated price for 10 percent of the company. You work with us, we?ll bundle you and make you the standard." Well, the next week they bought Vxtreme. This is something the Justice Department is looking into. Now look at that series of moves. Look how fast and easy it was for a money machine like Microsoft. So now they are in control. Progressive Networks--now Real Networks--is still nominally a competitor of Microsoft?s, but how long will Microsoft tolerate it?

They are uniquely ruthless. They?ve got all the tools to dominate, starting with the cash hoard, and then the temptation, then the carrot, then we?ll make you the standard, and then discard you when you are no longer of use.

Justice complains that they don?t have the capacity to deal with this.
Here?s the deal: You?ve got 400 lawyers in the antitrust division, at most, and I would guess that they have 20 or so working on Microsoft, but they won?t say. Let?s say you wanted to really go into the interface of antitrust enforcement. They?d have to put at least a hundred lawyers on, because Microsoft's law firms would put more than that on, so it comes down to: "Is Congress going to give antitrust the budget it needs?" Well, it just so happens that in the area, you have three very powerful Republican senators critical of Microsoft, and there are some Democrats who would go along.

So you are sensing a change in the mood in antitrust?
Yes, and it doesn?t help Microsoft to make those delightfully aggressive comments. I couldn?t buy those comments. I mean...Steve Ballmer [saying], "I say heck with Janet Reno." That does not play well in terms of the motivation of lawyers in the antitrust division. It makes them work overtime.

Does it appear to you that Microsoft thinks itself above the law?
I think it believes it's above the law, it?s up there, fast-moving. Where does a $38 billionaire chairman of a company compete? Anywhere he wants.

You said they are "uniquely" ruthless? You?ve used the word unique several times.
It?s the browbeating. It?s extraordinary. When you see that kind of browbeating, that is a symptom of something much more aggressive in terms of structural retaliation. It?s fascinating. Nobody can be bored by this. This is one of the most intricate, dynamic business strategies in multi directions in the history of the world. One can say, without exaggeration, it may be one of the most, short of the British Empire, in terms of its ambitions.

It?s hard to say how exactly this is going to play out. It?s not that they?re going to control the nightly news, but they?ll have so many tight oligopolistic alliances that what they say becomes more and more influential with those that deliver the news.

How do you get consumers to care about these very abstract notions?
You mean without resorting to car metaphors? [laughs] Well, you equate it with something they know, like what if you couldn?t buy your own phone? AT&T used to just give you your phone, you couldn?t buy your own phone.

And eventually, it will result in pricing inefficiencies, there?s no doubt about that. I mean, why should they restrain themselves? Right now they are moving into banking and giving away their software free and playing the undercutter. But predatory pricing in the supermarket...was just temporary until they drove out all the competition and raised the prices....

Is this the start of a backlash against Microsoft?
Is that a rhetorical question?

No. Consumers have been incredibly passive about this. Will there really be a consumer movement?
This is a little different. You?ve got people both inside and outside the industry upset about this. I don?t think the Justice Department would have moved if only consumers were upset. I think they moved because people in the industry gave them information and have influence. You think suddenly these three senators--Burns, Hatch, and Stevens--become flaming antitrust advocates? They were always opposing antitrust.

Are you going to stay personally involved in this?
Yes, until it reaches a self-driven momentum. I think people have to stay involved. There will come a point when antitrust will become more routine, more comprehensive, competitors will become bolder, more people will be speaking out, and it should begin to resolve itself.