Media: He didn't see this one coming

Microsoft is famous for its skilled handling of public relations. So how did Bill Gates lose the plot?

Yesterday, Bill Gates's Microsoft squared off with US government trust-busters who charge that the behemoth of the information age has consistently used its dominant position to bully rivals and allies alike into seeing the PC software business the Microsoft way. Whoever wins the battle over the company's alleged anti-competitive practices, Microsoft's public image has already been badly wounded. How Microsoft became the Evil Empire, and Chairman Bill himself the world's richest public enemy, is a cautionary tale of how public relations can backfire.

Three years ago, when Windows 95 was introduced to a fanfare of front page news, Microsoft was the brilliant icon of the emerging information revolution. There were already protests from rival software makers, a dwindling population of Apple users and the technologically clued-up, who maintained that rival operating systems were technically superior, but the press and public was largely deaf to them.

At that time, Microsoft's vast propaganda machine was working at its peerless best, and the company was regarded as one of the most expertly promoted of all time. With around 20,000 employees, it employed an army of between 400 and 500 PRs, most of them at Waggener Edstrom, a firm that once encouraged employees to quote from Sun Tzu's The Art of War.

The flacks managed relations with individual news outlets and reporters, some of whom could count on direct access to Gates and would be invited for weekends at his holiday home. Every story was tracked and any negative press followed up on to help reporters see things differently. To some minds, the company's brilliance in creating news were there was none, and in ensuring Microsoft stayed in the headlines, was critical.

"Smart PR is one reason Microsoft has been such a success," says David Kirkpatrick, of Fortune magazine. "It's a brilliant blend. It's as much a marketing company as a great technology company. They've been savvy in doling out Bill Gates's co-operation to get cover stories at strategic moments for their marketing purposes."

It is said that Gates, who has always understood his role as the embodiment of the brand, devotes 15 per cent of his time to media affairs, and for years the machine never missed a beat. In the first eight months of 1995, for instance, Windows 95 received 239 mentions in the Wall Street Journal and press enquiries numbered around 1,000 daily.

In short, Microsoft controlled the agenda, along with 85 per cent of the world's PC operating software.

But the public's impression of Microsoft then began to sour. The change can be traced back to 1994, when Gates showed another side to his affable, geekish public persona when he stormed off an interview on the American CBS network with Connie Chung after she asked unscripted questions.

Almost a year later an article in The New York Times suggested that the company was acting anti-competitively, principally by rigging Windows so that it would not work with competing web browsers, a charge that was to become the central issue in the case which began yesterday.

Gates began presenting himself not so much as a geek who got lucky, but as a visionary. He published The Road Ahead and syndicated a weekly newspaper column, cultivated friendships with Hollywood moguls and Rupert Murdoch, and initiated the 24-hour cable and Internet news service, MSNBC. In spring 1997, he hosted a "CEO Summit" and retained an experienced Hollywood PR to polish up his image.

However, as the US government's investigation of Microsoft intensified, the press began to focus on the case and the voices of its critics, who had long called the company predatory and ruthless in crushing all rivals, started to be heard.

Microsoft's PR machinery began to show signs of collapse. Gates's number two, Steve Ballmer, declared that the US attorney general, Janet Reno, could "go to heck", while other minions said that government lawyers were "completely uninformed" about software and that the company could package anything, "even a ham sandwich", with its operating software if it wished to. The defiant stance was a disaster.

Applied Communications, a Silicon Valley PR firm, tracked use of seven different adjectives describing Microsoft in hundreds of publications from early 1997 to April 1998. Use of the word "unfair" jumped sevenfold, "anti-competitive" and "arrogant" rose by a factor of 10.

"Instead of going to the Department of Justice and negotiating a settlement, they pour acid on an open wound," noted a leading PC executive. "Americans don't like to see their government maligned, especially when the government seems to be doing little more than protecting its sacred right - competition."

With the federal lawsuit, Microsoft-bashing has become a national pastime and the company's public profile akin to that of a big tobacco company. Witness the ill-concealed glee that accompanied Gate's pie-in-the-face mishap in Brussels last spring, or type "Microsoft sucks" into a Web search engine and see how many sites that come up that depict Gates being shot, poked and revealed as a devil. Whether he deserves this hostility is a moot point - Gates-bashing is endemic, even though four in five Americans say they admire both the chairman and the company. "Whenever I write a column that is critical of Microsoft," says Paul Gillen, editor of Computer- world, "invariably a half-dozen `attaboy' letters will come out of the woodwork." "Way to go", "Stick it to 'em", "evil empire", and "they suck". The criticism may be of the mob variety, but when Gillen praises Microsoft, he gets letters accusing him of being in Gates's pocket.

In response to a growing realisation that the company was in trouble, Microsoft did what it has always done - it wheeled out Gates to present a humbler public image - but now the old tactic looked staged to a sceptical press, and the company seemed powerless to deflect the growing criticism. The Justice Department and 20 US states were now considering forcing a delay in the launch of Windows 98.

Gates made an appearance with 60 industry officials to argue that the US government's threat to delay the release of Windows 98 would be a major setback for the economy. But the message rang hollow - after all, how could Gates claim that Microsoft was not overly dominant, and then convincingly say that a delay in the release of the new system would cause economic chaos in the computer industry?

Moreover, many of the acquiescent executives who appeared with him that day were from the companies that it is claimed were subjected to Microsoft's anti-competitive practices, including Intel, Compaq and America Online. Gates took his roadshow to primary schools in Harlem and San Francisco to bring the message that Microsoft supports education. He sang "Twinkle, Twinkle, Little Star" with Barbara Walters, screened his wedding video and made it known that he had given $800m away to various charities.

But even in philanthropic largess Gates could not win. Larry Ellison, chairman of Oracle and his bitter rival, charged that Gates's $200m personal donation, plus $200m in Microsoft products to bring Internet access to public libraries, was simply a cynical reaction to his own $100m gift to help place computers in every school in the country, which he had announced a day earlier.

"It's a pretty tacky move," said Raymond Lane, Oracle's president, commenting on Gates's donation. The impression stuck.

But more bad press was to come. In April, a confidential memo obtained by the Los Angeles Times revealed the company's "Astroturf" plan. The company had apparently allocated funds to Edelman-affiliated freelancers to write pro-Microsoft opinion stories in local newspapers which would give the impression of spontaneous grass-roots support. According to Brill's Content, the new, self-appointed media watchdog publication, all the payments were to be funnelled through the PR so that regional PR firms could deny that they were hired by Microsoft.

The sense of siege that had come to envelope Microsoft was palpable at the muted launch of Windows 98 last summer. Gone were the crowds and the hoop-la. Instead, the new operating system was unveiled to a meagre crowd of 1,000 at a warehouse in San Francisco. Since then, the company has been able to do little to turn public opinion around.

In August, Microsoft lawyers called for pre-trial hearings to be held in private, ostensibly to prevent company secrets leaking out, but in itself a move that inflamed suspicions. Soon after that, both Harvard University and the Massachusetts Institute of Technology announced that they were fighting a demand by Microsoft for research gathered by two professors on Netscape, and charged that such a demand threatens first amendment rights.

During the ongoing trial, Microsoft's lawyers will be likely to claim that the company did not illegally conspire to carve Internet software sales, but that Netscape's business misfortunes were caused by its own errors rather than by unfair competition. But for the time being, at least, Microsoft's PR tack is to take a low profile, and Gates himself has withdrawn from the public stage.

But whatever the outcome in court, it is unlikely that Microsoft will soon be able to overcome the judgement in the court of public opinion that it is insular and arrogant. The lesson, perhaps, is that no amount of PR can mask intent or deflect the attentions of lawyers.