kingfey
Banned
How Microsoft Became Washington’s Favorite Tech Giant
President Brad Smith has taken an amicable role with regulators. Rivals say he also directs negative attention toward them. Microsoft’s Activision deal, under FTC review, will test the strategy.
www.wsj.com
When a congressional committee was preparing to publicly interrogate the CEOs of four tech giants in 2020, Microsoft Corp. President Brad Smith, whose employer wasn’t on the hot seat, gave the lawmakers a private briefing. When Australia proposed a law to force Facebook and Google to pay for news articles, Mr. Smith endorsed it and offered Microsoft’s Bing as an alternative. When the U.S. considered similar legislation, he went to Washington to testify in front of Congress to show his support.
Mr. Smith, a Microsoft veteran of almost 30 years and president for seven, has maneuvered his company to an enviable position in a regulatory environment that is increasingly hostile toward tech titans. Once an antitrust pariah itself, Microsoft is now widely seen by regulators as the friendly party among today’s top tech companies, a status government officials and Microsoft insiders say flows largely from Mr. Smith’s cultivation of friends in Washington.
Rivals say he is also skilled at directing negative attention toward competitors—to Microsoft’s benefit.
The 63-year-old’s influence is being tested as the company tries to smooth the way for its largest-ever acquisition, a $75 billion purchase of Activision Blizzard Inc. While regulators have yet to approve the deal, lawmakers and industry representatives say it is hard to imagine any of the other four biggest U.S. tech companies—Apple Inc., Amazon.com Inc., Google parent Alphabet Inc., or Facebook owner Meta Platforms Inc.—being in a position to even attempt to win approval for an acquisition of that size in the current environment.
“If this was any of the other four regular suspects, the blowback would be much greater,” said Sen. Mark Warner (D., Va.).
Mr. Smith’s strategy has been to cooperate with regulators who often have Microsoft’s rivals in the crosshairs. He has criticized Apple’s operation of its App Store—as Microsoft tries to bring its “Netflix for gaming” service to the iPhone. He has supported measures to cut into Facebook and Google’s dominance of digital advertising—which could benefit Microsoft’s search and digital-ad businesses. His support of tech-sector regulations has cut against efforts by Amazon, Microsoft’s fierce rival in cloud computing, to fight constraints on its business practices.
His team pulled Microsoft out of trade associations created to help the tech industry speak with one voice on government actions, and let a truce lapse with Google under which the companies had agreed to stop lodging regulatory complaints against each other.
Kent Walker, Google’s chief legal officer, said in a blog post early last year that Mr. Smith’s stance on some issues smacked of “naked corporate opportunism.”
While government scrutiny and competition between the biggest tech companies have been increasing, the stances Microsoft takes aren’t calculated to undercut competitors, Mr. Smith said in an interview.
Instead, he said the company is looking to align itself with the coming regulations and principles the company agrees with—even if it creates more regulatory hurdles.
He drew a parallel to banks, which faced new rules in the 1930s following a series of financial panics. “It turned them from unregulated companies to regulated businesses,” he said. “Resistance proved futile.”
Seniority and experience
Few other tech executives have Mr. Smith’s combination of seniority within their companies and experience grappling with political and regulatory power centers. One of the longest-serving leaders inside Microsoft, he joined in 1993 and served as a legal adviser through its bitter antitrust disputes with regulators around the world in the 1990s.
Microsoft’s general counsel in the ’90s had a more confrontational approach with regulators, said former Microsoft employees. In 2001, Mr. Smith made a pitch to Microsoft’s board of directors to become the next general counsel with a single PowerPoint slide that said: “It’s time to make peace.” He started the job the next year.
Following a major settlement with the U.S. Justice Department in 2001, which placed a number of restrictions on Microsoft’s business practices, Mr. Smith pursued the resolution of dozens of cases with governments and companies around the world. The new amity became a weapon in Microsoft’s competitive arsenal.
In 2007, Microsoft lost out to Google in acquiring ad-tech company DoubleClick, which the rival bought for $3.1 billion. Steve Ballmer, then Microsoft’s chief executive, told Mr. Smith to ensure that Google faced the same regulatory scrutiny it had weathered, said former employees who worked with Mr. Smith.
Mr. Smith lobbied officials to block the DoubleClick deal over Google’s dominance in digital ads. The effort failed but ignited a nasty fight with Google, which was beginning to compete with Microsoft in areas such as office productivity software, a core strategic focus for Microsoft.
Mr. Smith created a new group, called the Office of Strategic Relations, made up of lawyers and lobbyists, to push antitrust cases against Google in the U.S. and Europe. It backed anti-Google groups and gave financial assistance and expertise to companies challenging Google, such as small U.K.-based price-comparison website Foundem, which filed an antitrust complaint in 2009. European officials fined Google nearly $3 billion in connection to the complaint in 2017.
Mr. Ballmer wanted even more aggressive action and tapped political strategist Mark Penn, who engineered an attack-ad series against Google from 2012 to 2014 known as the “Scroogled” campaign. One video ad pointed out that Google search results feature paid advertisements, saying: “Don’t get Scroogled, you may be missing out on the best prices and highest quality products. For an honest search, try Bing.”
Mr. Smith’s role changed again after 2014, when Satya Nadella, a soft-spoken engineer, became CEO and quickly moved to shift Microsoft’s culture from combative corporate politics to more collaboration within and outside the company. One of his first public actions was to make Microsoft’s Office productivity software available on Apple’s iPad—a move away from tying its applications closely to its Windows operating system.
Mr. Smith became one of the most enthusiastic supporters of Mr. Nadella’s efforts, said former employees. The new CEO promoted Mr. Smith to president in 2015, giving him more clout to meet with government officials and to testify in congressional hearings. The following year, Microsoft and Google agreed to a five-year truce to end complaints against each other to regulators. Around then, Mr. Smith shut down the Office of Strategic Relations competition group.
