How top-valued Microsoft has avoided the Big Tech backlash
Google, Facebook, Amazon and Apple are targets of government investigations and public outrage, facing accusations that they abuse their power in various ways, from exploiting personal information to stifling rivals.
Conspicuously absent from most of that criticism? Microsoft, a tech company worth more than them all.
Valued at more than $1 trillion by investors, Microsoft is no stranger to government scrutiny and public criticism. It endured years of antitrust investigations, and faced a long public trial that almost split up the company. In the end, Microsoft paid billions in fines and settlements, and absorbed humbling lessons.
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But its “Evil Empire” moniker, once a label favored by the company’s critics, has fallen by the wayside.
Today, Microsoft has positioned itself as the tech sector’s leading advocate on public policy matters like protecting consumer privacy and establishing ethical guidelines for artificial intelligence. Though it has sued to limit government access to users’ data, Microsoft is seen in capitals around the world as the most government-friendly of the tech companies.
“It’s in a league of its own,” said Casper Klynge, a foreign-service officer who is Denmark’s ambassador to the technology industry, based in Silicon Valley. “There is self-interest, of course. But Microsoft actively engages with governments on important issues far more than we see from the other big tech companies.”
Market shifts and the evolution of Microsoft’s business over the years help explain the transformation. It is less a consumer company than its peers. For example, Microsoft’s Bing search engine and LinkedIn professional network sell ads, but the company as a whole is not dependent on online advertising and the harvesting of personal data, unlike Facebook and Google.
And though big, Microsoft no longer looms as the bully it was in the personal computer era. The company is a healthy No. 2 in markets like cloud computing (behind Amazon) and video games (behind Sony) rather than a dominant No. 1.
“Microsoft can afford to be more self-righteous on some of those social issues because of its business model,” said David Yoffie, a professor at the Harvard Business School.
But Microsoft has also undergone a corporate personality change over the years, becoming more outward looking and seeking the views of policymakers, critics and competitors. That shift has been guided by Brad Smith, Microsoft’s president, diplomat-in-residence and emissary to the outside world. His work has been endorsed and his role enlarged under Satya Nadella, who became chief executive in 2014 and led a resurgence in the company’s fortunes.
In a new book, Smith makes the case for a new relationship between the tech sector and government — closer cooperation and challenges for each side.
“When your technology changes the world,” he writes, “you bear a responsibility to help address the world that you have helped create.” And governments, he writes, “need to move faster and start to catch up with the pace of technology.”
In a lengthy interview, Smith talked about the lessons he had learned from Microsoft’s past battles and what he saw as the future of tech policymaking — arguing for closer cooperation between the tech sector and the government. It’s a theme echoed in the book, “Tools and Weapons: The Promise and the Peril of the Digital Age,” which he wrote with Carol Ann Browne, a member of Microsoft’s communications staff.
Smith, 60, was at Microsoft during the company’s antitrust conflict in the 1990s, but he did not direct the legal strategy.
Microsoft lost the suit filed by the Justice Department and 20 states, narrowly avoided being broken up and then settled the case with the Bush administration in 2001. Smith, who became general counsel in 2002, then served as Microsoft’s global peacemaker, settling the follow-on cases with companies and governments.
From that experience, Smith had some advice for the young platform companies today — Google, Facebook and Amazon. Major antitrust confrontations, he noted, last a long time. The landmark cases in technology — AT&T, IBM and Microsoft — all went on for decades.
“And once you’re in the crosshairs, it is hard to get out,” Smith said.
The natural tendency for the young tech powers is to fight.
“They didn’t get to where they are by compromising,” Smith said. “They got to where they are because they stuck to their guns. And so they tend to think they’re right and the government is wrong.”
That mentality is especially true for immensely successful and wealthy founders. Microsoft co-founder Bill Gates, according to Smith, “learned that life actually does require compromise and governments actually are stronger than companies,” if only after a bruising confrontation.
Gates, who wrote the foreword in Smith’s book, recalled that for years he was proud of how little time he spent talking to people in government.
“As I learned the hard way in the antitrust suit,” he wrote, “that was not a wise position to take.”
At Microsoft, Smith pushed for the new path. Horacio Gutierrez, a former senior Microsoft lawyer who is now the general counsel of Spotify, said, “We went from dealing with governments in a reactive, defensive way to reaching out and being proactive.”
As Smith was cleaning up Microsoft’s legacy of legal troubles, the tech industry was moving on. The personal computer was no longer the center of gravity, displaced by smartphones, internet search, social networks and cloud computing.
“What you saw at Microsoft was acknowledging reality and a response to changed circumstances,” said A. Douglas Melamed, a professor at Stanford Law School. Microsoft is not in a spotlight of criticism today, he said, “largely because the company is not dominant in visible ways as it used to be.”
Under Nadella, Microsoft has fully embraced the cloud, including offering its lucrative Office productivity software as a cloud service. While Nadella was transforming the business, Smith increasingly became Microsoft’s envoy to the world on policy matters. In 2015, he was named the company’s president as well as chief legal officer.
Smith, whose first stint at Microsoft was a posting in Paris, is a globalist on tech policy. He has called for a Digital Geneva Convention, new rules to protect the public from the dangers of digital warfare, just as governments pledged in 1949 to protect civilians in times of war waged with bombs and bullets.
In 2018, Smith played a leading role in marshaling support for the Paris Call for international norms of behavior on the internet, which was endorsed by dozens of nations, and hundreds of companies and public interest groups. And this year, he did the same for the Christchurch Call to curb terrorist and extremist content online. While these initiatives lack the force of law, Smith said they could start global conversations that shaped policy.
After the terrorist attack at two mosques in Christchurch, New Zealand, in which an Australian gunman killed 51 people and video of the carnage spread rapidly on social media, Australia enacted legislation that holds social networks responsible if they do not remove violent video quickly enough.
Smith pointed to the Australian move and similar proposals in Britain, France and Germany as evidence that a wave of technology regulation can move quickly.
Even states can set policy. Microsoft, for example, is supporting a proposed law in Washington state on facial recognition technology.
The legislation would require organizations deploying facial recognition to clearly tell people how they are using it. Law enforcement could not use the technology for ongoing surveillance of someone without a warrant. And companies that sell facial recognition software would have to make their code available for testing to check for racial and gender bias — a crucial weakness if the software is trained on data sets with too few images of women or people of color.
The American Civil Liberties Union opposes the Microsoft-supported proposal, calling for tighter restrictions and a ban on facial recognition until it can be shown to be bias-proof.
But the biggest impact on Microsoft’s policy posture is Europe. The continent may not be leading the way in high-tech innovation, but it is the pacesetter in tech policy.
Smith is a fan. He calls Europe’s General Data Protection Regulation “a Magna Carta for data.” The law, which took effect last year, lets people request their online data and restricts how businesses obtain and handle information. At another point, Smith said Europe is “the world’s best hope for privacy’s future.”
In America, there have been activist states on privacy, like California, but the political gridlock in Washington has held back a national policy.
“That means the decisions that impact Americans,” Smith said, “are going to be made in Brussels and interpreted in Berlin, because those are the two places that have the most impact.”
Steve Lohr is a New York Times writer.