In a memo to employees Tuesday, Microsoft president and CEO Steve Ballmer stressed that the federal government would not break up his company, regardless of "newspaper headlines." A copy of the memo was leaked to WinInfo, and while it's full of positive language and a promise to fight the good fight, Ballmer seems to gloss over many of the key problems facing the company: Microsoft has been found guilty of illegally gaining and maintaining a monopoly, and contrary to his comments, which were clearly designed to be forwarded to the press as quickly as possible, the company is indeed faced with a potential breakup. But Ballmer's biggest news, at least to employees, was the promise of a one-time stock option grant with a price equal to the low-ball April 24 stock price of 66 5/8.
Ballmer's email focuses on five key areas. First, Ballmer writes, Microsoft, "which has done so many great things for consumers and for the American economy over the last 25 years, will not be broken up. No matter what the newspaper headlines say, absolutely nothing in the current case justifies breaking us up. Even if the judge were to agree to such an extreme and unprecedented action, the legal process has many more steps remaining, including appeals to the Court of Appeals and the United States Supreme Court, if necessary. We have won at the Court of Appeals before, and Bill \[Gates\] and I are confident in our legal position as we move forward." Gates has mentioned the Appellate court ruling as well in recent interviews as well, but neither executive is discussing Judge Thomas Penfield Jackson's deft handling of what might otherwise me a loophole: Though a previous ruling decided that the bundling of Windows 98 and Internet Explorer was legal, Jackson noted that court's own admission that its decision was based on very little information. Jackson, in his ruling against the software giant earlier this month, noted that his own position, which contradicts the Appellate court, is based on far more technical insight.
"I am extremely bullish about Microsoft's future," Ballmer continues. "Microsoft was born a competitor and we will continue to compete as we always have - fairly and vigorously. We have an incredible array of new products in the near-term pipeline and there are enormous opportunities out there to build our business. We have tremendous upside opportunity in server software against Oracle and Sun with Windows 2000 Server, SQL Server 2000 and the wave of other products this year. We can support the most demanding dot com and enterprise needs. We're seeing great traction with MSN in terms of reach, outgrowing AOL and Yahoo in the U.S. by a nice margin, and we have added 500,000 new subscribers to our MSN Internet access business in the last four months alone, bringing our subscriber base to 2.5 million. The new MSN client \[code-named "Mars"\] and other new services will be super. Windows 2000 is a super client system and we are seeing very strong demand for it." Indeed, Microsoft has reported sales of 1.5 million copies of Windows 2000, but it has also announced a much lower growth rate for the future due to slowing business sales, the very market that Windows 2000 targets.
Ballmer's peek at the future continues with some hints about Next Generation Windows Services (NGWS). "NGWS, which we will showcase at Forum 2000 later this Spring, is Microsoft's new platform for the Internet age," Ballmer writes. "These technologies and services will be the ones that let us and third party developers build the next generation of Internet experiences. We have a strong position on the PC and with developers and knowledge workers today, and NGWS will enable us to get even stronger with consumers, in e-commerce, and with non-PC devices. We have a lot to figure out but we have the technologies in house for this transition and will execute decisively. When we do this we will have a platform that really creates new opportunities for other companies as well, as Windows has consistently done, and we will remain the \[number one\] software company of this decade." It's interesting that Ballmer would continue to assert Microsoft's dominance of the industry, given the legal woes now faced by the company. While competitors have derisively labeled NGWS as the "Windows Internet," many secretly hope that open standards and distributed computing will spell the end of Microsoft's dominance.
Ballmer's final two points focus on the time-honored tradition of big business kissing up to its employees, and certainly the morale of Ballmer's employees is at an all-time low. He explains that Microsoft's people are "the best in the business, "top-notch technical talent" who have "everything it takes to meet the competition fair and square in the marketplace." It's standard corporate speak, of course, familiar to anyone that's worked for a large company. But Microsoft's one-time employee compensation is certainly unusual: Everyone who works for Microsoft will be given a one-time additional stock option grant equal in size to the stock grant that was received as part of their mid-1999 Review. "The strike price for these new stock options will be set at the April 24 closing market price of 66 5/8," Ballmer explains. "So if, for example, you received 1,000 shares of stock during your review last July ... you will receive an additional 1,000 stock options at the April 24 closing price. We know stock options are an important part of our compensation. I think the grants since July will have value long run, but I want to preempt undue concerns by awarding these new grants that will let people see returns much sooner."
"When I think about what we've done with Windows over the last two decades, and see the enormous benefits our products bring to customers, I know why I've worked for this company for nearly half my life, and continue to be so excited about the future," Ballmer concludes. "We're literally changing the world. We've got a rock-solid team, the best technical minds in the business and a Chief Software Architect named Bill Gates. Our turnover rate is less than half the industry average and recruiting -- while always competitive -- continues to go very well. We've got the passion, the people, the products and the business model to continue to be the world leader in software, the Internet, IT services and emerging technologies. With your continued hard work, we will stay 100% focused on two things: delivering the software products and services \[that\] customers need, and maximizing long-term value for our shareholders. We are all in this together. As we say in our ads, 'the best is yet to come.'"
It's a positive message, obviously designed to rally the troupes. But Microsoft's problems are hardly internal: As the DOJ and 19 states prepare their remedy proposal for Judge Jackson, the company's fate may very well be in the hands of others. And in a country that's grown increasingly intolerant of Microsoft's business practices, that fate may not be the one Bill Gates had in mind when he began the company with Paul Allen 25 years ago