The Microsoft Decision: How It Sits With a Money Heavyweight in Silicon Valley

SAN FRANCISCO -- "I was foolish enough to sell Microsoft(MSFT) once," says Roger McNamee, looking back on the 11 years he's towered over the world of technology investing. "In retrospect, that was always a mistake."

Indeed, McNamee's career has risen at the same pace as Microsoft shares. McNamee bought into Microsoft shortly after its 1986 IPO, capturing its eye-popping gains as manager of T. Rowe Price's (PRSCX) Science & Technology fund. A few years ago, McNamee joined Integral Capital Partners and built up a new position in the Redmond giant. As one of Silicon Valley's leading figures, he advises tech start-ups and manages private partnerships and venture capital investments.

A Yale alum with a Dartmouth MBA, the 43-year-old money manager doesn't look the part of tycoon. Fueled by Diet Coke between catnaps on cross-country flights, the boyish McNamee looks more like a super-charged Bob Weir, with whom McNamee sometimes jams. Who better to discuss the outcome of this antitrust trial with than McNamee, who is not only close to Microsoft, but stands at the heart of the very companies that do battle with Gates?

TSC: Do you think the Valley could be different if Microsoft was different? There's a notion that people avoid competing with Microsoft because they don't want to get their ass kicked, not because they don't have a better product.

Roger McNamee: I don't think there's any question that industry leadership translates into economic advantages that contribute to sustaining the market leadership that created them. The cash flow that Microsoft gets from Windows is unbelievably important in sustaining its position in the marketplace.

TSC: But isn't the issue that they abuse that advantage unfairly, even illegally?

McNamee: I think that the real issue in the marketplace isn't whether Microsoft is monopolist, but whether the antitrust laws, as currently constructed, have any relevance to the computer industry.

TSC: Why do you think the computer industry is different from all the other industries?

McNamee: Assume for the moment that Microsoft is monopolist. Then the question is, how long does it take you to determine whether they've abused their monopoly position? Well, the answer in this case is, it's taken years. Given that it has taken years, the outcome has long since been decided in most of the categories to which a decision would be relevant.

Assume for the moment that Microsoft is found guilty, not only of being monopolist, but also of abusing its monopoly power. That would be applied, not to anything going forward, but rather to the businesses Microsoft has already done, namely PC software. What would be the judgment? What could you possibly do about it?

TSC: The court could say, OK, break yourself up into separate companies.

McNamee: What good would that do? What possible positive impact would that have? I actually think that the Department of Justice's ability to do anything about markets other than PC software are quite limited. I may be wrong about this, but I don't actually see this as being about deciding what happens in browsers and all that.

The problem I have is that I don't think there is anything you can do to change the behavior of computer buyers. The PC game is long since over. And I don't think customers want the Justice Department to eliminate the bundling of Internet Explorer and Windows.

TSC: Do you think the Justice Department wants the judge to extract blood?

McNamee: They're looking for political victory, after which they just move on. I don't get the impression after reading the pronouncements of the Justice Department that they have any interest in creating an antitrust law in the computer industry that has any value to anybody.

TSC: Do you think people in the Valley have been able to go at Microsoft during the trial, because Microsoft has been unwilling to respond as it used to?

McNamee: I don't know how much impact the trial has had. I think that Microsoft has a bunch of issues in its business. It's a really big company now. And I think the trial has been really hard on Microsoft morale. I think it's made recruiting infinitely more difficult.

TSC: Will all this lead fairly promptly to some kind of settlement that will allow everybody to get back to work?

McNamee: At the end of the day, all this trial will have accomplished is to point out how inadequate anti-trust regulations are in the current environment. It'll point out a huge mismatch between the ground rules of the anti-trust regulation and the practical realities of the computer industry.

It's a simple fact that in the computer industry customers are far more interested in standardization than hot new technology. As a consequence, eventually -- in every niche -- someone finds themselves in a position of market dominance. That's just how things are. If it wasn't Microsoft, it would just be someone else.

TSC: But maybe future dynamos will be a little more wary of anti-competitive behavior.

McNamee: Let's be clear. The anti-trust action against IBM(IBM) lead to a kinder gentler IBM that very quickly became anti-competitive. When Microsoft started out, they were a small player among giants. They initially partnered with IBM, which had to be an incredibly intimidating experience. And eventually they had to compete with IBM. But Microsoft has moved from being a small fry to being the most important company in the most important industry in our economy.

It's a remarkable thing that they still behave like a company that still needs to fight tooth and nail for every piece of competitive advantage. If they've failed in any way, it's in not learning that market leadership brings with it certain responsibilities.

TSC: Sounds like they might have some learning on the way.

McNamee: But I don't think it matters one bit what the outcome is, I assume the stock will go up because you will have eliminated whatever uncertainty there is. There are just a zillion institutional investors who are just waiting to buy it. Still.

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