Microsoft wants to add Silicon Valley as a friend

by Scott Duke Harris and John Boudreau

San Jose Mercury News (MCT)

31 October 2007


SAN JOSE, Calif. - Time was that Silicon Valley loved to hate Microsoft, casting it as a ruthless monopoly whose tactics richly merited antitrust lawsuits from the Justice Department, state attorneys general and rivals like Sun Microsystems. When Google embraced the motto “Don’t be evil,” many read it as “Don’t be Microsoft.”

But things change. So when Microsoft made a landmark $240 million investment in Palo Alto, Calif.-based Facebook on Oct. 24, some in Silicon Valley were relieved that it beat out the valley’s own Google in the deal to deliver online advertising.

“I think the rooting for Microsoft and Yahoo and others is to say: Let’s at least have a level playing field - which is, of course, ironic,” said consultant Tim Bajarin, president of Creative Strategies.

The Facebook deal adds to the remarkable evolution of Microsoft’s relationship with Silicon Valley. Reputations die hard, but Microsoft is now embraced as a participant in the valley’s business culture as never before. Three years after it paid $1.6 billion to settle antitrust and patent litigation with Sun Microsystems, Microsoft is credited with developing closer relationships to other companies, venture capitalists and entrepreneurs.

With about 2,000 employees and growing, Microsoft’s campus in Mountain View, Calif., is hardly a little satellite operation, and includes such key groups as Internet television and digital games.

Microsoft’s involvement in the valley extends beyond business. The company and its employees have become a leading supporter of valley charities, as well as institutions such as the Tech Museum of Innovation in San Jose.

Microsoft boasts that it provides up to $12,000 in matching funds for employee donations to charity - far surpassing Google, Adobe, Cisco Systems, Hewlett-Packard, Yahoo and eBay. It was the largest corporate giver to United Way Silicon Valley’s last campaign, with $1.2 million in employee and company matching gifts. About 60 percent of its employees donate, far surpassing the usual 20 percent of most valley companies, according to Mark Walker, president of United Way Silicon Valley.

Dan’l Lewin, a longtime valley technologist who became Microsoft’s ambassador to the region in 2001, said making peace with Silicon Valley is part of the corporate strategy. “We were working hard at integrating this campus and our employees into this community,” said Lewin, who is based at the campus in Mountain View. “At the same time, we normalized relationships with Sun. That was a milestone.”

Microsoft Chairman Bill Gates personally gave $5 million to United Way Silicon Valley when it faced a financial crisis in 1999. Last year, Gates, through his foundation, donated $15 million to the Computer History Museum in Mountain View.

“I think Microsoft behaves more like a valley company than many companies that are headquartered here in terms of its investments and concerns,” said Karen Tucker, a senior executive at the Computer History Museum and chief executive of the Churchill Club.

A year ago, Gates was given the Tech Museum of Innovation’s annual James C. Morgan Global Humanitarian Award - a symbol to many that the valley had moved beyond the past epic antitrust battles.

Microsoft’s kinder, gentler approach complements its suddenly less confrontational relationship with the wider world. On Oct. 22, it dropped its legal battle with European Union regulators, agreeing to share technical information with rivals and reduce the royalties it charges.

The EU agreement came a few days after Microsoft said it would drop an appeal against a 2006 antitrust ruling by the South Korea Fair Trade Commission.

Such tactics were at the root of U.S. federal court rulings that found Microsoft had used illegal means to bolster its effective monopoly on operating systems for personal computers.

Many in Silicon Valley have stories about Microsoft using its market power as the king of operating systems to trample start-ups. After browser pioneer Netscape’s public offering in 1995 launched the Internet boom, Microsoft notoriously bundled its Internet Explorer browser into its software, squeezing Netscape to the margins.

But venture capitalist Jim Breyer of Accel Partners, a Facebook director, said the legend of Microsoft’s ruthless ways is overblown. “Many of the stories of Microsoft putting start-ups out of business, historically, were simply false,” he said.

Microsoft’s relationship to the valley has always been a complicated mix of love and hate, though usually more of the latter. Apple’s Steve Jobs and Microsoft’s Gates feuded for years. But when Apple was on the edge of bankruptcy in the late 1990s, it was a deal with Microsoft that helped keep Apple afloat. Earlier this year, the two former adversaries shared a stage for the first time in years.

Microsoft has had an office in the valley since 1981, but Lewin’s arrival in 2001 signaled a change. The company hosts regular events at its Mountain View campus, deepening ties with venture capitalists and entrepreneurs.

Google’s spectacular growth may have helped Microsoft’s image.

“That kind of growth makes it harder for people to see it as a force for good against the Microsoft behemoth,” said Alex Soojung-Kim Pang of the non-profit Institute for the Future. “The competitive landscape has changed for Microsoft. It still has a very big control of the operating system market. On the other hand, its ability to leverage that into dominance of many other things computer-related is far from guaranteed.

“I don’t know if it makes people more sympathetic to Microsoft, but at least it’s not as scary as it used to be. It’s a slightly smaller monster than it was before.”

Angel investor Tom McInerney, co-founder of the video site Guba.com, said: “Microsoft has been humbled a little bit. They’ve been forced to play nice. A cultural change has taken place with Microsoft. There is an acknowledgment that they are not the king of the hill anymore. And there is the looming concern that Google is the new Microsoft.”

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