Tech Industry

Mr. Smith goes to Washington

It's up to Microsoft's new legal strategist, Brad Smith, to figure out how to keep the trustbusters happy while dealing with the aftereffects of the antitrust case.

"Case closed" are words every plaintiff attorney dreams about hearing--but not Brad Smith.

Microsoft's incoming general counsel is knuckling down for life under government supervision after the antitrust case his company lost at trial. A seven-judge appeals court subsequently found Microsoft guilty of eight separate violations.

Smith, who replaces William Neukom this summer, is preparing the Redmond, Wash.-based company for five years of government oversight as part of a November settlement with the Justice Department and nine of 18 states. That's assuming a federal judge approves the deal or nine non-settling states don't win stiffer sanctions after Microsoft returns to court on Monday.

He faces years of legal battles, as AOL Time Warner subsidiary Netscape, Be, Sun Microsystems and consumers sue Microsoft for damages related to its antitrust conviction.

CNET recently caught up with Smith, who was busy preparing for the latest chapter in Microsoft's seemingly never-ending legal odyssey.

Q: When you look at the challenges ahead and assuming your new role, what are some of your priorities?
A: Job No. 1 is to see Microsoft's strong compliance with the new consent decree...The second priority is to strengthen the dialogue and relationship with the rest of the computing industry. I think it's fair to say one reason we had the antitrust challenge is because of the more general dynamic in the computing industry. The third priority is to build a more constructive and less controversial relationship with government officials and agencies. We can do the first things, and that will help with the third.

Why should people trust Microsoft to hold to the settlement?
First, I hope people will give us a chance to show what we can do. Second, I think it's fine people hold us to the type of standard that is set in this consent decree, as well as the standards we are setting for ourselves more generally. We are setting high expectations for ourselves. Third, I hope people will look at our actions and judge us by what we do, as well as by what we say. I hope that people will be objective and fair-minded, but at the end of the day we recognize we need to show what we can do. We need to walk the walk and take the kinds of actions that are going to win people's confidence. We are determined to do that.

Yes, but many people don't trust Microsoft's motivations. Don't you think it will be an uphill battle winning trust?
I tend to think about our challenges in various categories. On the one hand, I would be astounded if there is ever a day when (Sun Microsystems Chairman) Scott McNealy says anything nice about Microsoft or Sun's general counsel ever calls me and tells me we're doing a good job. There is a group of our competitors that has clearly decided that it is in their self-interest to keep antitrust issues alive as long as possible and always ask for more. Even if this decree had broken us up into separate companies, I feel confident the competitors would be arguing today that the pieces to which we were broken aren't small enough. They will never be happy.

Obviously, the consent decree is not in effect yet. How much of it are you trying to conform to now?

"There is a group of our competitors that has clearly decided that it is in their self-interest to keep antitrust issues alive as long as possible."
When Microsoft, the Justice Department and the settling states submitted the consent decree to the courts on Nov. 6, we undertook to comply with large parts of the decree within 45 days. There are parts of the decree that have separate timetables. For example, the technical disclosure timetable does not take effect for nine months or 12 months, depending on the provision, after the submission to the court. In other words, we have to comply with the technical disclosure obligations by either Aug. 6 or Nov. 6, 2002, depending on the provision.

We do not have to bring to market the new features in Windows, for example, until Nov. 6, 2002, or the release of Windows XP Service Pack 1--whichever comes first. We're aiming to get Windows XP Service Pack 1 to the market by late summer, so hopefully that will beat the Nov. 6 deadline by a substantial margin.

Could Microsoft's taking on more leadership and a more responsive role sooner have helped prevent some of the legal problems?
Hindsight is a wonderful thing. On the one hand, I don't know if we could have fundamentally avoided the issues of the last few years. That said, we've learned a lot from the experience of the last few years. We need to spend more time getting outside Redmond and spend more time in Silicon Valley and other places.

This is an important point, because Microsoft's success is built on relationships with hardware makers, software developers and computer dealers. Don't you think the right kind of communication and relationship could have prevented or at least lessened your antitrust problems?
I think it's an interesting point. I think it's sometimes been the perception that Microsoft is off doing things on its own. The reality is that we view ourselves as fundamentally tied to a broader PC ecosystem. We always appreciated that our success or failure was closely tied to the success or failure of the PC ecosystem as a whole...We are sensitive to the impact of our business on everyone else's. We also are very sensitive to the importance of their success to our own. We have not necessarily communicated that perhaps as well as we might have.

Earlier you said the antitrust case was essentially inevitable. Why?
There was an issue that was fundamentally important to us and I think a number of other companies as well. It was a principle we felt it was important to stand up for--basically the ability of any company to improve its products by integrating in new features. I think if the law were to tell companies that if for example, they have more than a 40 percent or 50 percent market share, they can no longer integrate new features into their products, we would have a result that would hurt a great many companies in our industry.

"We need to spend more time getting outside Redmond and spend more time in Silicon Valley and other places."
The nature of software is such that it tends to have a number of distinct market categories. Each market category tends to have one or two clear market leaders. So, an adverse result for us would have hurt not only Microsoft, but many other companies as well.

How do you think the consent decree will change Microsoft in terms of how you operate internally, how you relate to other companies, or how you develop products?
The consent decree requires some substantial changes to some very important parts of Microsoft's business. The decree has required a number of new steps throughout the company. The decree has led to changes in our contracts, is leading to some important modifications to Windows (and) it is requiring an unprecedented series of steps related to technical disclosure. Hopefully that technical disclosure will be of assistance to others in the industry, both companies that are creating so-called middleware features and companies in the server operating systems space.

How has this affected Microsoft's culture?
There are some aspects of Microsoft's long-standing culture that are of tremendous importance to retain. We feel we have succeeded, for example, because our employees are able to be creative--because we create an atmosphere where they can be entrepreneurial. We certainly strive to make processes where decisions can be made quickly...We have an opportunity for people to understand how our actions as a company affect other people, so we can be sensitive to those impacts.

Maybe you could give an example of a company cultural change?
We've developed an online certification tool as a company for use in the Windows division. This tool is designed to make sure decisions can be made quickly but also engender business discipline and a sense of accountability. Therefore, in the Windows division, when a new contract is executed, both the senior business manager and senior lawyer responsible for the transaction will have to certify online that the contract is in compliance with the consent decree. I think it's a good example of how our industry's own products can help create the kind of responsible accountability we need to have without slowing the down the pace of business and injecting layers of human bureaucrats into the process.

How does this affect customers?
We have been moving towards a more customer-focused kind of culture. If we can put customers in the center of the view of the world and put the rest of the industry in the context around customers, we can be more effective in designing products and working with others in a way that promotes our own business success as well.

It's time to use the "M" word. It's easy for people to say that because Microsoft is a monopoly there is no customer focus. What's your response to that?
I don't know anyone at Microsoft who believes we can afford to stop focusing on our customers. The history of the computing industry is a history of companies that have been extremely successful for a relatively short period of time. Even if you take the history of word processing, it's a history that so clearly goes from Wang to the IBM DisplayWrite to WordStar to WordPerfect before finally there was any success for Microsoft Word.

It's very easy for people sometimes to focus on the success a company has had. The real lesson is success in this industry is very fleeting. We have been very successful in my view, for a large part, because we have never taken success for granted. Some people have criticized us for being too paranoid. There is perhaps a reminder in this (antitrust) case we need to clearly remain focused on our responsibilities as a company with high market share. We obviously can err if we forget that. On the other hand, we can obviously err if we take success for granted.