Next: Part 2 »
Tom: As we all know, the Department of Justice is now proposing a breakup that would split Microsoft into two companies -- one with the Windows operating system, and the other with the Internet Explorer Browser and all of the other application software. So, to help enlighten us about what's happening inside the hallways at Microsoft and share some of the thinking of the company as they go through a pretty dramatic time is John Connors, the Chief Financial Officer at Microsoft. John, thanks for joining us this weekend.
Connors: Hey, guys. Thanks very much for giving me some time to chat with you today.
Tom: John, we know what's on everyone's mind, so we gotta lead with that first important question, and that is, how do you think Microsoft's stock will be affected by the Justice Department's decision to break up Elian Gonzales from his Miami relatives?
Connors: (laughing) I don't know, but I think it's a critical question.
Tom: (laughing) It's a critical one. OK, now we'll actually get a little bit more serious. That's the Foolishness to the program. What does the future look like for Microsoft? How big of a setback is the decision, and what is Microsoft thinking now?
Connors: I think it's pretty clear that the Department of Justice has put on the table about the most extreme remedy you could possibly imagine. We feel very good about our case on appeal, whether it's on the factual basis, or the evidence, or the rule of law, so we think we'll prevail on a legal standpoint. It's going to be a long haul, now that the remedy proposed has been so extreme. I guess probably the best analogy I would use is that I think we're in the middle innings of a nine inning game. Hopefully we won't go into extra innings, but we could.
In terms of our company, we really haven't changed our product direction, our planning direction, or what we're trying to do for the future. We've got 35,000 people here working hard, listening to customers, and trying to build products the customers want, and we don't intend to change that. We're trying to be very focused on not having the legal situation interrupt what people are trying to do every day for the company.
Tom: OK, when we think about the proposal that's on the table from the Department of Justice, and you talk about what Microsoft is doing internally -- in the work you're doing to please consumers -- I'm wondering, you're going to be making the argument in the appeal process, I presume, that Microsoft is not in a monopolistic position in a very dynamic, changing industry. And so, it occasions the question: In your mind, what is the difference between Microsoft today and a monopoly?
Connors: Well, I think that first and foremost, there's incredible competition in every segment of the business. If you look at the consumer side, we compete vigorously with America Online (NYSE: AOL), and AOL has a large consumer presence for people on personal computers that competes with Windows. We have competition from Linux on the server. We have intense competition from Sun Microsystems (Nasdaq: SUNW) and Oracle Corporation (Nasdaq: ORCL). Part of the reason Sun and Oracle spend so much time lobbying the government against us is because they know we're working hard, building great products, and we sell those products with our partners at lower costs than they do. But that competition is intense. We've got intense competition in the segments of our business that we're trying to do against IBM (NYSE: IBM).
So, as I look at the landscape for us over the past two years and the next five years, we have more competition than we've ever faced. And I think the success we've had with our Windows business, and the success we've had with our Office business, every company in the world should be working hard to have that kind of success. But, once you have it, you've got an incredible number of people that want to take that success and that business away from you, and we have that in spades today.
Tom: OK, so the Microsoft argument, on one level, would be, "We have a tremendous amount of competition out there, and we continually have to please our customers and make sure that they don't go for a different product or service solution." In that context, I'm wondering if you think there is such a thing as a monopoly in the public markets and, if so, do you think the Department of Justice, or the government generally, should be engaged in trying to locate these monopolies and break them up?
For example, with Standard Oil, or with the Baby Bell breakup, were those good decisions, or does Microsoft generally think the government should not be involved in this at all?
Connors: Well, I think the view we have is that the technology industry, and Microsoft specifically, have obviously been very, very good things for the U.S. economy and the world economy. Additionally, Microsoft has been a very good thing for creating wealth in our country -- whether that's for institutions, whether that's for individual shareholders, whether that's for pension funds. And I think it's mostly due to the fact that we started this company 25 years ago. We built and distributed a product called DOS. We then improved that product through Windows.
We then created a series of applications that worked well together that millions of people use every day. And what those millions of people tell us every day is, continue to make those products work effectively with each other. Continue to make those products effective with all the different kinds of devices I want to use. And, most importantly, continue to work with other third-party technology companies so that your technology integrates seamlessly with others' technology.
I think the comparisons of Microsoft to Standard Oil or to AT&T (NYSE: T) are really kind of off base, in that AT&T had a natural monopoly that was really a government-sanctioned monopoly. And it was quite simple to divide that business up along geographic lines, and that was a good thing.
The antitrust action against Standard Oil was brought on completely different grounds than the action against Microsoft. And so, from a legal standpoint, they're not even comparable. But I think most importantly, if you look at the share that Microsoft has of the technology industry in total, it's a small percentage. Quite different from the Standard Oil case of 1911.
But, most importantly, I think the message that the government is sending, through all these competitors complaining to them about our success, is that if you have too much success, we may come in and tell you you can't do certain things with your products. I think that's a very dangerous thing.
Every year we have about 2,000 companies come visit us on our campus. In the job prior to being CFO, I ran our worldwide sales group for large enterprises, and I can't think of a single customer that told us not to make things work better. I can't think of a single customer that has told us not to improve our products. And I can't think of a single customer or shareholder who doesn't expect us to make things better every day.
And so we feel very strongly -- on behalf of our employees, on behalf of the literally hundreds of thousands of partners we have around the world, and most importantly our three million shareholders -- that we've got the right to innovate, and that's what a leading company has to do.
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