Abandoning Intuit Bid Shows Gates' Pragmatic Side

By Steve Lohr

N.Y. Times News Service

Bill Gates, the billionaire cofounder of Microsoft, seems to attract admiration and fear in equal measure.

In the computer industry and in government circles, he has been called everything from a brilliant inventor-entrepreneur to a ruthless monopolist. Some regard him as the Thomas Edison of the information age; others see John D. Rockefeller.

One thing Gates, America's richest man, is not known for is walking away from a fight. Yet he chose to do precisely that with his surprise announcement Saturday that Microsoft Corp. was abandoning its planned $2 billion purchase of Intuit Inc., because of the Justice Department's antitrust challenge to the deal and the prospect of long delays.

The reversal by Microsoft shows the powerful weapon that government litigation can prove to be in fast-moving high-technology industries.

But the decision also shows a side of Gates' character _ that of the cool, calculating business executive _ that rarely gets much attention in all the discussion of him as an industry visionary and a competitor along the take-no-prisoners model.

"This is a pragmatic decision to walk away by a man known for pragmatism, but not known for walking away," said David Coursey, editor of PC Letter in San Mateo, Calif.

Giving up on the merger with Intuit is clearly a setback for Microsoft, but not a serious blow to a company that dominates personal computer software.

Intuit's Quicken program is by far the most popular personal finance software on the market for tasks like family budgeting and balancing checkbooks.

With Intuit, Microsoft hoped to quickly gain a leadership position in the new markets of electronic commerce and home banking, which are expected to become multibillion-dollar businesses in the next few years.

Now, Microsoft must try to build that franchise on its own. And its personal finance program, Microsoft Money, badly trails behind Quicken.

"Losing Quicken will slow Microsoft down, but it won't change its direction," said Richard Shaffer of Technologic Partners, a New York consultant. "Microsoft has momentum, money and market power in this industry, and that is not going to change."

Another thing that will not change is continued government scrutiny of Microsoft's every move, if only because of the company's size and reach in the industry. Microsoft's dominant position in personal computer operating systems _ with its Windows program, its leading products in applications like word processing and spreadsheets, and its plans to enter the on-line business with Microsoft Network _ insure that officials in Washington will closely watch the company.

Anne Bingaman, assistant attorney general in charge of the antitrust division, declined to say whether there were other Microsoft activities her agency was investigating.

But she remarked: "We get complaints about Microsoft all the time. We have become a kind of Microsoft complaints center. And we take them very seriously."

The issue being pushed hardest by Microsoft's rivals centers on the company's intended introduction later this year of Microsoft Network, a commercial on-line service that will compete with America Online, Compuserve, a unit of H R Block, and Prodigy, which is jointly owned by Sears, Roebuck and IBM. It will be loaded on the company's next version of Windows software, called Windows 95, which is scheduled for release in August.

Competitors have complained to the Justice Department that it would be anticompetitive to allow Microsoft to use its dominance in PC operating systems as a platform to sell software services like computer networks and electronic banking.

The department's challenge to the Intuit acquisition focused mainly on garden-variety antitrust considerations like market share, but it also raised the larger question of protecting innovation and competition in new markets.

Though the Intuit deal collapsed, many industry executives say that issue remains: Microsoft's use of its control of operating systems to give it an edge in new markets.

"The central issue is still on the table," said Steve Case, president of America Online Inc., in Vienna, Va. "Microsoft seems to have decided that it was better to lose this battle, backing off the Intuit deal, and hope everyone will go away so that Microsoft can still win the war."

In the Microsoft camp, the decision to abandon the merger is viewed as a straightforward judgment that the deal was not worth doing _ if, as seemed likely, litigation would delay a merger well into 1996 _ perhaps as much as two years after its announcement last October.

Microsoft executives concluded Friday that it was best to abandon the Intuit deal, after the Justice Department had asked a federal judge in San Francisco to push back the scheduled trial date of June 26 to July 17.

The department also asked for five weeks for both sides to present their cases, as opposed to the previously planned two weeks.

Microsoft executives say these delays were a surprise, prompting them to walk away. They deny that they badly miscalculated by underestimating the time a vigorous challenge from the Justice Department would consume.

"What the government did was new data," Gates said in a conference call Saturday. "There was no amount of expertise that would have let us predict the timing."

But comments from other Microsoft executives suggest that the conclusion it was best to scrap the Intuit merger had gradually built in recent weeks, and that Friday's events simply focused the problem.

William Neukom, senior vice president for legal affairs, said that the Microsoft camp had been considering how to proceed since the government sued to block the deal on April 27 and that there was "no magic date" when the company clearly should walk away.

Still, after the government's request last week for more time, Gates in consultation with his top lieutenants, including Neukom and Mike Maples, an executive vice president, decided to abandon the purchase.

Justice Department officials deny that they caused the delays. The request in the San Francisco court for more time was made necessary, Bingaman said, because Microsoft had not filed answers to the department's queries on time.

Yet Microsoft's announcement took the Justice Department by surprise. "We did not dream this was going to happen," Bingaman said.

For his part, Gates insists that the Intuit setback will not alter overall strategy. "Our focus is to build great software _ that will not change," he said, adding that acquisitions would not be off-limits.

Yet it seems that Microsoft will be more reluctant to make big ones like the $2 billion Intuit deal.

"In the future," Gates conceded, "we may wait a week or two before we decide to do something like this again."

Copyright 1995
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