“Those who cannot remember the past are doomed to repeat it,” the philosopher George Santayana warned 120 years ago. An even better-known philosopher, former Yankees catcher Yogi Berra, put it more succinctly: "It's déjà vu, all over again."
I'm referring to Microsoft's antitrust battle with the US government over the company's €69 billion deal to buy game maker Activision Blizzard. More than 30 years ago, Microsoft faced federal authorities in another antitrust lawsuit over whether the software maker was using Windows' monopoly market share to kill off competitors.
This one did not go well for Microsoft. It absorbed the company's attention for so long that it left it adrift, sparking what is known as Microsoft's Lost Decade; it fell behind Apple, Google, Amazon, Facebook and its stock price fell to half its previous value.
Could the same thing happen again? Will the fight against Activision Blizzard set Microsoft back like the Windows suit? To answer this question, we must begin by taking a look at the first antitrust battle.
The Feds vs. Microsoft, Round 1
In 1998, Microsoft was public enemy number one in the world of technology, thanks to the seemingly unassailable worldwide success of Windows with its operating system monopoly. If you wanted to reach businesses and consumers through technology, there was basically only one way to do it: through Windows. In a world with no smartphones, tablets, or internet-connected devices, and where Mac OS was just a tipping point in operating system market share, it was Microsoft's way or highway.
Microsoft aggressively took advantage of its status. The company has made it extremely difficult to use a web browser other than its own Internet Explorer. It gave software developers working on Microsoft Office an advanced view of future generations of Windows. It eliminated the competition (former market leaders Lotus 1-2-3, WordPerfect, and Harvard Graphics) because they didn't work with Windows as efficiently as they did with Office.
Because of this, Microsoft founder and CEO Bill Gates was brought before Congress in 1998 and exposed for monopolistic behavior. Soon after, the US Department of Justice and 20 state attorneys general sued the company for using its Windows monopoly to kill off competitors.
After court rulings and rounds of negotiations, in 2001 Microsoft agreed to share the Windows code with other companies and to allow non-Microsoft browsers to access Windows. It was little more than a slap on the wrist: The Justice Department had initially wanted to break up Microsoft.
But the suit still did a lot of damage. The company devoted all its energy to fighting legal cases and had little time and energy to develop new products and technologies. Although Microsoft had created a mobile operating system before Apple, the iPhone has become the leader in mobile computing. Although Bill Gates had been talking about the importance of the Internet for years, Google dominated the search market, Facebook the social networking market, and Amazon the online retail market.
Microsoft has stalled, doing little more than rolling out new versions of Windows, often with disastrous results. It wasn't until Satya Nadella took over as CEO in 2014 that the company regained its mojo, primarily by turning to the cloud.
The Feds vs. Microsoft, Round 2
This brings us to today. Last January, Microsoft announced plans to buy Activision Blizzard, maker of hit games like "Call of Duty," "World of Warcraft" and "Candy Crush" for €68.7 billion in cash. Microsoft is already a gaming giant, with its Xbox gaming console and popular games like "Minecraft," the "Halo" series, "Gears of War," and others. The blockbuster move is the largest consumer-related technology transaction since AOL bought Time Warner two decades ago.
Why did Microsoft bet so much on it? The games are very important to the company, having raised more than €16 billion in its last fiscal year. The hit games of Activision Blizzard would give this company quite a shake. In addition to the new revenue, Microsoft could also withhold Activision Blizzard games from competing gaming platforms in an effort to make Xbox as much of a monopoly as possible.
Fear over this led the Federal Trade Commission (FTC) to file a lawsuit to block the acquisition. Holly Vedova, director of the FTC's Office of Competition, explained the lawsuit this way: "Microsoft has already shown that it can and will deny content to its gaming rivals. Today, we seek to prevent Microsoft from taking control of a game studio." independent leader". and using it to harm competition in multiple dynamic and fast-growing gaming markets."
Microsoft, of course, disagrees and has vowed to fight the lawsuit.
It's not entirely clear that the FTC will win this one. But Microsoft can win the lawsuit and end up losing, as its latest antitrust standoff with federal authorities shows, by being so distracted that it misses other opportunities and poorly runs its existing business. The risk is certainly not as dire this time, since gaming is not Microsoft's core business and the company won't be devoting as many resources to the legal fight as it did last time.
However, in times of intense competition and rapidly changing markets and technology, it is dangerous to take your eyes off the ball, even for a short time.
There is also a great reputational risk. Activision Blizzard is not run by choir boys. Away from. The company has been sued multiple times for sexual harassment, sexual assault, and gender discrimination. The most recent lawsuit, filed in October, states: "For years, Activision Blizzard's open 'fraternity' environment has fostered rampant sexism, harassment and discrimination with 700 reported incidents under the watchful eye of CEO Robert Kotick. The conducts Inappropriate sexual acts were often committed by executives and in the presence of Human Resources.
Microsoft said Kotick would continue as CEO if the acquisition goes through. If the claims in the lawsuit are true, he and his company are operating in a manner contrary to Microsoft's culture, it will damage Microsoft's reputation, which in turn will hurt its bottom line.
So Microsoft made a bad €69 billion bet? I think so. Fighting the lawsuit will distract the company at a time when the last thing it needs are distractions and, thanks to the sexual harassment allegations, it will also damage the company's brand. And keep in mind that once the feds have their sights on you, they'll keep you there for a long time.
The last thing Microsoft needs right now is federal government watchdogs getting in its way.
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