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Microsoft

Last edited by apocalypticbeef on July 11, 2008 - 2:30pm
Company Snapshot: 

Microsoft has been ranked 15th in the world's top 500 companies and its operating software has driven 93% of the world's desktop computers since 1991. At its peak, the company had a market value roughly equal to the gross domestic product of Spain. Its Office software, encompassing a suite of e-mail, word-processing, spreadsheet and presentation tools, dominates 90% of the market and bring in $9 billion annually, a third of the company's revenue.

2008 Global Fortune 500 rank: 
136
Corporate accountability
Labor: 

As of June 2003, the company employed approximately 55,000 people in 85 countries and regions. Of these, only 26% are female. “None of the company's employees is subject to collective bargaining agreements,” declared Microsoft in 2001.

In the early 90s, Microsoft admitted to the IRS that it had misclassified a number of employees as temp workers when they should have been cited as full-time workers. This led a group of temporary workers, angered over Microsoft's indefinite use of their services during the 90s, to file a class-action lawsuit against the company on the grounds that it was withholding full-time benefits and pay while working them like full-time employees. The dispute ended in 2002 with Microsoft agreeing to pay more than $97 million in damages and legal fees. While Microsoft was required to change the way it managed its temporary employees, the lawsuit did not stop the company from continuing its dependence on contractors. According to the Washington Alliance of Technology Workers (WashTech), Microsoft still employs more than 3,000 contingent staffers in its domestic workforce. Because the company wants to make the distinction between temps and full-time employees clear to the IRS and possible class action claimants, these contractors are given fewer benefits than their predecessors. They aren't allowed to use employee discounts for products they help to design. To protect itself from claims that it is employing workers indefinitely with no benefits, the company introduced a policy that requires temporary workers to be terminated after 365 days of service at the company. Following a full year of service, contractors must wait 100 days before they can return for another assignment at Microsoft. This is generally paid for by the State of Washington.

Meanwhile, Microsoft is looking to India and its “two for the price of one” worker deals. Ability to hire and fire easily also plays a part. Contractors can be hired for "very short engagements," and it is simple to "add and subtract resources for ramp-ups and ramp-downs," said the senior Vice President for the Windows division, Brian Valentine.

Anti-competitive and consumer protection: 

Licenses
In 2002, at the busiest time in the school year, Microsoft gave the 24 largest school districts in Washington and Oregon 60 days to inventory their huge number of computers and match them all to paperwork proving they have valid licenses for all Microsoft software. Microsoft's Guide to Accepting Donated Computers states that you cannot accept donations that do not include the original disks and certificates for Windows and all other software on them. Failing this, the district could just sign the Microsoft School Agreement. The Microsoft agreement says you must all computers that could conceivably ever run any Microsoft software, including computers using Macintosh or Linux operating systems.

In 2001, following an anonymous tip through hotlines like 1-800-RU-LEGIT, Microsoft launched an investigation of Philadelphia's entire public school system which has some of the poorest schools and students in the country . Microsoft threatened to sue unless the administrative offices and all 264 schools conducted an audit and proved that every piece of installed Microsoft software had a valid license.

Working alone or through the Business Sofware Alliance (BSA), an industry wide enforcement group, Microsoft has been fighting the spread of illegally copied software for over a decade. Its most common targets are companies that copy software and then resell it, but it's not unusual for urban, low-income schools to end up caught in the net too.

British teachers in Birmingham received letters from Microsoft telling them they were sitting on a "legal timebomb" that they'd better clean up. Once discovered they're treated just like any other violator, says Jenny Blank, BSA's director of enforcement. "The copyright law should be applied universally.

One of the first and most-discussed scuffles between the software industry and schools started back in 1996. The BSA, which includes Adobe, Intel, IBM and Macromedia as members, received a tip about a Los Angeles school that was supposedly using more than 1,000 copies of unlicensed software programs. The BSA asked the district to investigate, and after auditing the school in 1998, the school district, working with the BSA, discovered several hundred unauthorized copies, including 132 versions of MS-DOS. The total cost of the copying could have run into the tens of millions. Each violation carries a potential penalty of $150,000; the fines for just the MS-DOS copies could add up to as much as $19.8 million, not even counting lawyers' fees. David Tokofsky, a member of the Los Angeles school board said: “It's like Xerox walking into a major university and arresting students for copying essays." The school board, however, chose to settle rather than fight. It eventually negotiated a reduced settlement: a $300,000 fine, in addition to which the cash-strapped district had to set aside $3 million to replace pirated materials, and another $1.5 million to create an internal piracy team.

On looking at the fine print for the latest updates to Microsoft Windows the Seattle Metropolitan Credit Union concluded that the terms for the end user license agreement (EULA) for Microsoft's Windows 2000 Service Pack 3 (SP3) and XP Service Pack 1, might well put the credit union in violation of new federal privacy laws. At issue is Microsoft's "automatic update" feature, which allows users to automatically get upgrades and patches to their systems. To get the updates, users must agree to give Microsoft access to information on their systems. That, said a representative of the Union, conflicts with federal regulations for financial institutions, such as the Gramm-Leach-Bliley Act of 2001 which forbids financial service companies from giving third parties access to customer data without express consent from the customer. European countries generally have even stricter data privacy laws.

Patents & Copyrights
Microsoft Corporation grew large and successful without patents, relying instead on copyright. In 1991, Microsoft CEO Bill Gates warned that patents could bring the software market to a complete standstill and drive out small players. In 1994, Microsoft was the only software company at the USPTO hearings which spoke in favor of software patentability. Meanwhile, Microsoft had been stepping up efforts to build a patent portfolio to counter the much larger portfolios of traditional IT hardware companies such as IBM, HP, Canon etc. When the patent lawyers at the European Commission pressed for legalizing software patents in Europe in 1997, they cited Microsoft as a success model, pointing out that Microsft already owned 400 software patents. In late 1998, an internal Microsoft strategy document about the "open source threat" leaked out which suggested using software patents alongside with proprietary standards in order to crush competition from free software such as Apache and Linux. In 2000, Microsoft forced a free sofware project to abandon support for its patented video streaming format ASF. In July 2001, in the midst of an ongoing campaign against free software, a leading MS executive challenged open source companies to keep clear of Microsoft patents or face lawsuits. In March 2002 Steve Ballmer, CEO of Microsoft, declared that Microsoft's new standard DotNet was protected by patents and free implementations would not be allowed. In April 2003 Microsoft published patent license terms for CIFS which disallow the use or reimplementation of this communication architecture by GNU software. In late 2002, Microsoft began to dissuade corporate customers from introducing GNU/Linux by pointing out that if they use free software nobody would protect them from being sued for patent infringement.

Reactions to Open Source Software
Microsoft has repeatedly admitted that Open Source Software is a threat to it's business model, as evidenced in the Haloween Documents. “To the extent the Open Source model gains increasing market acceptance, sales of our products may decline, we may have to reduce the prices we charge for our products, and revenues and operating margins may consequently decline. IBM's endorsement of Linux has accelerated its acceptance as an alternative to both traditional Unix and Windows server operating systems.”

Products
Microsoft spent $4.7 billion on R&D during 2003. Its expectation to dominate the market for Interactive Television failed. Liberate, OpenTV, and TiVo won out using mostly Linux based products. Microsoft was unable to deliver an acceptable product, on time, and at competitive cost. Microsoft's SmartPhone (Stinger) initiative to dominate the high end mobile phone market failed due to competition from T-Mobile. Sendo is suing the company for unfair business practices and misappropriation of intellectual property.

A significant portion of the company's revenue growth over the next five years will come from Microsoft's .NET architecture.36 It is part of its long term goal of “Software as a Service.” Software won't be loaded onto a computer at all, it will run "as a service" from Microsoft .NET servers. Data will also reside on Microsoft .NET servers somewhere out on the Internet. For access, you will have to be authenticated by a Microsoft Passport server. Bill Gates was recently asked if Microsoft software might eventually be available only for rent through .NET.

Monopoly
After an intensive investigation of Microsoft's competitive practices that had gone on for much of the 90s, in 1998 the US Department of Justice and a group of 20 state Attorney Generals filed two antitrust cases against Microsoft alleging violations of the Sherman Act. They accused Microsoft of a broad pattern of anticompetetive behaviour by demonstrating an array of claims, including the following: that Microsoft had a monopoly on the market for operating systems; that the company used that monopoly as a means of preventing other companies from selling its competitors' products (most notably Netscape's Internet browser whose share it reduced from 80% plus to nearly nothing);88 that it was illegal for Microsoft to bundle its own browser into the operating system Windows 98 as a means of precluding customers from purchasing Netscape's product; that the company sought to divide markets with competitors; that Microsoft sought to subvert the Java programming language, developed by Sun Microsystems, which it viewed as a threat to Windows; and, finally, that Microsoft's business practices were detrimental to consumers.

On April 3 2000, Federal District Judge Thomas Penfield Jackson ruled that Microsoft violated the law with “predacious” anticompetitive behavior, and the stock market knocked $80 billion off the company’s value. Gates himself reportedly lost $12 billion to $14 billion that day. Despite this, the newly appointed Bush/Ashcroft Department of Justice declined to apply punishment or effective remedy. Microsoft is thus free to use similar methods to remove more products from the market. In August 2003, Microsoft agreed to pay consumers in North and South Dakota up to $18.33 million (provided usefully in vouchers that can be used to buy computer hardware or software) to settle charges that it overcharged users for its software products. Half of any unclaimed vouchers would be used to buy computer equipment or software for schools added Microsoft kindly.

The settlements, which were announced along with other agreements to settle with three other states and the District of Columbia in October, are part of the its efforts to resolve all of its legal issues stemming from its landmark antitrust agreement with the U.S. government last year.

Political influence: 

Lobbying Government
The Initiative for Software Choice, which launched quietly in May 2002 is chaired by an industry body called the Computer Technology Industry Association (CompTIA). Its biggest software industry backer is Microsoft. While Software Choice's principles rarely mention open-source initiatives directly, they include a provision that governments should promote a `broad availability' of the results of publicly funded research by making sure these results are kept clear of such open-source licenses as the GNU General Public License (GPL), used by Linux.

A spinoff from this was the "Americans for Technology Leadership" which was responsible for Microsoft's ill-fated letter-writing exercise. Letters purportedly written by at least two dead people landed on the desk of Utah Attorney General Mark Shurtleff imploring him to go easy on Microsoft for its conduct as a monopoly. Three others use exactly these words: "If the future is going to be as successful as the recent past, the technology sector must remain free from excess regulation." The letter-writing exercise was part of a larger Microsoft plan to sway Congress and encourage prosecutors to pursue a settlement in advance of a court hearing on how the Redmond company should be punished for illegally maintaining its monopoly on computer operating systems. At the same time the company stepped up campaign donations, becoming the fifth-largest "soft-money" donor to the national Republican and Democratic parties in 1999-2000. It has consistently been the top contributor among computer companies Microsoft's presence in Washington began small, with a staff of one in 1995. By 2000 it was ten.

Part of its efforts were spent lobbying to defeat a budget increase for the Justice Department's anti-trust division, the department responsible for bringing the case against the company. It has also lobbied Congress for tax relief, for stronger intellectual property protection and for a greater number of visas for foreign high-tech workers.

History

Bill Gates was born in Seattle in 1955. His first exposure to computers was at school in the late 1960s with his friend Paul Allen. By the time Gates was 14, the two friends were writing and testing computer programs for fun and profit. In 1972 they established their first company, Traf-O-Data, which sold a rudimentary computer that recorded and analyzed traffic data. Or as one tracker of the software industry saw it “the idea was to get a nickel very time the traffic lights changed.”

Inspired in 1975 by the new Altair microcomputer kit just released by MITS Computer, Gates and Allen wrote a version of BASIC for the machine. Later that year Gates left college to work full time developing programming languages for the Altair, and he and Allen relocated to Alburquerque, New Mexico, to be near MITS Computer, where Allen took a position as Director of Software Development. Gate and Allen named their partnership Microsoft. Their revenues for 1975 totaled $16,000.

A year later, Gates published “An open letter to hobbyists” in the Altair newsletter. Arguing that software piracy prevented “good software from being written”, Gates went on to say that “nothing would please me more than being able to hire ten programmers and deluge the hobby market with good software.” Soon after, Allen left MITS to devote his full attention to Microsoft and the company's tradename was registered.

Microsoft's big break came in 1980 when Gates got the chance to provide the crucial operating system, DOS, for IBM's landmark PC. He could hardly be satisfied with a market limited just to IBM, so he, along with Intel Corp., which provided the microprocessors that are the powertrains of most PC's, encouraged other entrepreneurs to create the PC clone industry that today dominates the market.

It was in 1990, though, with the introduction of Microsoft's Windows 3.0 program, that Gates showed just where he intended Microsoft to go. Not only did Windows – of which 60 million copies have been sold – effectively made Microsoft the sole keeper of the PC software standard, it permanently stunted IBM's incipient OS/2 system, which until then had been a joint development project with Microsoft. Windows didn't just leave IBM hanging, nor merely relegate Apple's famously friendly Macintosh to the fringe of the market. It also threw into confusion the leaders in the applications software industry – Lotus and WordPerfect – because they had been gearing up new spreadsheet and word processor products for OS/2. This, in turn, left the window open for Microsoft to become a real player in the applications software business – which it did with a vengeance.

Before 1990, Microsoft was primarily a supplier to hardware manufacturers, but after 1990 the bulk of the company's revenues came from sales to consumers. That year Microsoft became the first software company to reach $1 bn in revenues.

In 1993 Microsoft introduced the first version of Windows NT, an operating system for users on corporate networks. It was disappointing and an upgrade soon followed which boosted sales of NT to more than one million copies by the end of 1994. Microsoft announced an agreement to purchase Intuit, the producer of the leading package of personal financial software, called Quicken; however, after the US Department of Justice filed suit to prevent the takeover on the basis of antitrust concerns, Microsoft withdrew its offer. Revenues for 1994 exceeded $4 bn.

In August 1995 Microsoft launched its next version of Windows, called Windows 95, which sold more than one million copies in the first four days after its release. For the rest of the decade Microsoft expanded aggressively into new businesses associated with its core franchise. Its projects included two joint ventures with the National Broadcasting Company under the name MSNBC: an interactive online news service and a cable channel broadcasting news and information 24 hours a day. The company's web-based services included the Microsoft Network online service, a travel agency, local event listings, car buying information, a personal financial management site, and a joint venture with First Data that allowed consumers to pay their bills online.

Microsoft purchased 11% of the cable television company Comcast for $1 bn and cut a licensing deal with the largest US cable operator, TCI Communications, to put Windows into at least five million set-top boxes. The company also purchased WebTV, whose core technology allows users to surf the internet without a PC.

Microsoft's next generation of Windows, Windows CE, was designed to expand the franchise into computer-like devices including mobile phones, point-of-sale terminals, pocket organizers, digital televisions, digital cameras, hand-held computers, automobile multimedia systems, and pagers. By early 1999 the company had secured more than 100 licensing agreements with manufacturers of these “intelligent appliances”.

In 1998, Microsoft launched Windows 1998. The year 2000 saw the acquisition of the Visio Corporation, the largest acquisition in Microsoft's history. Windows 2000 was also launched together with the unveiling of the .NET platform.

Up to now, Microsoft has grown by serving the seemingly limitless supply of new customers for PCs and software. Microsoft's high market valuation and the accompanying high expectations for continued growth have forced the company to find new businesses and markets. But, as is true of other monopolies, they simply aren't competitive in open markets. While Windows has a profit margin of 85%, and Microsoft Office has a margin of 79%, every other Microsoft division is losing money in reams. Its attempts to expand outside the PC arena have been less than successful as it faces entrenched adversaries with management far more astute and aggressive than anything they saw in the PC market. It has now become reliant on the less saturated replacement markets with the bulk of its best customers upgrading their existing software at much lower profit margins than new business. This “upgrade plateau” is already dampening Microsoft's dramatic growth. Its stock price has trended down for three years and recently led to the 'surprise' announcement of its first dividend. This was a ploy to allow funds that require dividends to buy Microsoft shares for the first time. Microsoft hopes more buyers will bring the stock price up. Countering this is the growing feeling among investors that Microsoft is badly overvalued at its current price of 25 times earnings. Microsoft's desperate reliance on repeat revenues have caused it to raise costs to their customers - mostly by changing licensing terms. This is creating resentment in formerly docile customers, many of whom consider the new terms extortion.

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