Bankers concerned about Microsoft Corp.'s potential power over their industry should be resting easier now that the government is on the case.
So say close observers of the ambiguous relationship between the big software company and one of its major customer groupings.
Influential bankers' true feelings are harder to fathom. They generally don't talk about them-at least in public. For tactical reasons, they may be smart to keep it that way.
"A lot of bankers think Microsoft should be reined in," said Bert Ely, a public policy consultant presumably privy to some back-channel conversations. "I think a lot of them would be secretly pleased" about Microsoft's current problems, which include a contempt-of-court threat on a federal antitrust complaint.
"Given the Justice Department and state attorneys general's involvement, the banks don't have to speak up about Microsoft," said a Washington-based attorney, John Burke. "This should be heartening, not because Microsoft is an enemy, but because somebody is out there to ensure that the questions are addressed."
"Some of the criticisms are well-founded, some are not," said Lloyd Constantine, a New York antitrust lawyer who has taken on Visa and MasterCard, among other potent market forces. "The good thing about the Microsoft-Justice Department battle is that it is on a very specific question about leveraging a dominant position in a market."
The worry in banking is just that: That Microsoft could use its virtual monopoly in computer operating systems to set the terms of how banks-or any other transactional businesses-link to on-line customers.
Microsoft's message to bankers is a benign one. Most recently expressed by chairman Bill Gates at the Bank Administration Institute's Retail Delivery '97 conference, it is couched in the terminology of "enabling." Microsoft provides core technologies for others to build on.
Some experts see Microsoft "content" ventures on the Internet - such as Investor, CarPoint, and the Expedia travel service - as indicators of an eventual interest in on-line banking, but Mr. Gates dismissed those concerns. He said it will never be in Microsoft's interest to tip the scales away from its core software businesses.
Others have stated it more bluntly: Any assault on the bank market could cause a backlash threatening the sales of Windows NT systems. They are Mr. Gates' levers to pry open the bank backrooms that International Business Machines Corp. has had locked up for years.
His current travails in the courts are on a different plane.
The Justice Department in Washington is out to prove that Microsoft violated a 1995 consent decree in its packaging of the Internet Explorer browser with the Windows operating system for personal computers. On Dec. 15, U.S. District Judge Thomas Penfield Jackson said he had personally disproved Microsoft's assertion that Explorer could not be safely dismantled from Windows 95-and he scheduled a contempt hearing for Jan. 13.
Also filed in federal court in San Jose, Calif., is a Sun Microsystems Inc. lawsuit claiming Microsoft violated terms of its license of the Java programming language.
All told, the Justice Department, several state attorneys general, Sun and other computer industry competitors, and even some consumer interest groups have boxed Microsoft into an unaccustomed defensive posture-a development that would logically bring some joy to those critics' bedfellows in the banking sector.
"There is an attitude among many in the banking industry that the banks are losing control of the payment system," Mr. Ely said. "I think that is excessively defeatist-the game isn't lost by a long shot-but it makes them sympathetic to any attempt to throttle Microsoft under the antitrust laws."
Mr. Ely, president of Ely & Co. of Alexandria, Va., said many bankers still have not gotten over Mr. Gates' remark of 1994 that banks are "dinosaurs." That comment and Microsoft's agreement that year to acquire Intuit Inc., maker of the popular Quicken personal finance software, woke many bankers up to what was widely seen as a new high-technology threat.
A Justice Department clampdown, buttressed in part by interviews with bankers and documentation on their home banking strategies, forced Microsoft and Intuit to terminate their deal.
But "The Microsoft Threat" remains real enough to be the title of a recent report by Forrester Research Inc. A survey by the Cambridge, Mass., Internet research company showed that most financial institution officers regard Microsoft, or at least one of its products, as a direct competitor. Forrester also provocatively concluded that CarPoint and Expedia are steps on the road to becoming "a hub for the sale of financial products."
Bankers' reticence on the current legal cases contrasts with some of the ganging-up against Microsoft that has been evident among Silicon Valley companies like Sun, Oracle Corp., and Netscape Communications Corp. The coalition is loose and somewhat mysterious, but it has a spokesman in Gary Reback of the Palo Alto, Calif., law firm Wilson, Sonsini, Goodrich, & Rosati.
The bankers' attitude may be more timid or diplomatic than strategic, but it could work out for the best. They can afford not to rock the boat.
In the time it takes for antitrust officialdom to do its thing-months, at least-bankers can continue sizing up the complexities and implications of their dealings with Microsoft. In so doing, they won't endanger the good will that still prevails.
"I'm sure there is some silent cheerleading," said William M. Randle, executive vice president of Huntington Bancshares, Columbus, Ohio. Active in forums like the Banking Industry Technology Secretariat, Mr. Randle has spoken out against Microsoft but concedes the issues are "not black and white."
"Some banks have thrown their lot in with Microsoft, and for good reasons," he said. "And strategically, if I were in Microsoft's shoes I'd want to do exactly what it is doing."
Staying on Microsoft's good side can't hurt. A wounded Microsoft would still be a powerful Microsoft. A victorious or vindictive Microsoft could make life difficult for those who crossed it.
One bank president described his situation this way, on the condition that he not be identified: "We are not out to get Microsoft. We are a big customer of theirs. But there is a regulatory component here that has to be looked at."
The problem, he said, is the control that Microsoft could exercise by owning all the necessary software building blocks for any and every type of on-line transaction.
Said another highly placed executive:
"If we don't take Microsoft on, they will expand and expand and expand until they are pushed back. ... If the Windows engine directs the consumer by default to a Microsoft product, that's not healthy-especially for an industry like financial services where you want freedom of choice.
"I'm not saying we necessarily have to litigate, but there is no lobby in the world stronger than banking."
It may not be throwing its weight around, another confidential source suggested, because "the industry doesn't yet understand what it is to compete with somebody like Microsoft that comes from a very different culture-that doesn't care about rules."
The strongest attributed outburst against Microsoft came from BankAmerica Corp. chairman David Coulter; it leaked out from a meeting with analysts in November. Borrowing imagery from Intel Corp. chief executive officer Andrew Grove's book "Only the Paranoid Survive," Mr. Coulter said that if he had a "silver bullet" he would use it against Microsoft, because of its ability to wrest control of payment systems and other technology- driven aspects of the banking business.
Mr. Coulter has reportedly aired such views within the Banking Industry Technology Secretariat, known as BITS. He and several of his big-bank peers are directors of that division of the Bankers Roundtable, which expressly wants to counter any perceived competitive threat to the payment systems or to the primacy of banks in their customers' financial dealings.
But BITS board meetings and their undoubted candor have been behind closed doors. Also on that board are the chairmen or presidents of Chase Manhattan Corp., Citicorp, and Wells Fargo & Co., which have been at least open-minded-and in Wells' case downright friendly-toward Microsoft and some of its more innovative or controversial ideas.
"The banking industry is really confused about Microsoft," said Mr. Burke of the law firm Foley, Hoag & Eliot in Washington, who has advised both BITS and the Smart Card Forum. "This isn't just a function of fragmentation.
"And it's not that Microsoft is considered an enemy," he said. "Some banks are very good customers of Microsoft. Some will invest in Microsoft ventures" like MSFDC, the bill presentment and payment system it is developing with First Data Corp.
BankAmerica, Chase, Citicorp, and Wells are on the MSFDC advisory board, and Wells plans to join another Microsoft friend, KeyCorp, in the initial testing phases in 1998.
Mr. Burke said the underlying concern, which helped give rise to BITS in 1996, is that a technology provider will get between a bank and its interactive customer. The remedy, also articulated by BITS, is open standards and interoperability, which promote competition on a proverbial level playing field.
The Justice Department "has a very competent group of individuals looking at those issues," said Paul Harrison, president and chief executive officer of Meca Software LLC, a bank-owned venture that has hooked up with Sun Microsystems to create a Microsoft-independent approach to Internet banking.
The government lawyers "understand the issues, are extremely well prepared, have done a lot of research," Mr. Harrison said. "Any initiative they take is sure to be well thought out."
But Mr. Harrison, whose company's Managing Your Money software has competed head-to-head with Microsoft Money, has a cautionary insight on the Redmond, Wash., colossus. "Microsoft has many ways of coming at these issues," he said. "They are very resourceful."
Said one of the off-the-record antagonists: "Their slogan is, 'Where do you want to go today?.' From what I've seen, they can go just about anywhere they want."
Bankers, in their quiet way, do seem to be trying to come to terms with Microsoft and the issues they see it raising. Mr. Ely said membership in MSFDC and its home banking counterpart, the IBM-centered Integrion consortium, could be viewed as tactical.
"It is better to be on the inside, seeing what is going on, than to be frozen out," Mr. Ely said. "People are placing alliance bets all over the place. It is better to be in than out.
"I think fears of MSFDC have subsided a bit," he added. "It may not be the 800-pound gorilla as it first appeared. Maybe it's a 500-pound gorilla- it's still a gorilla."
Mr. Ely said realpolitik enters into bankers' thinking. "They are reluctant to risk being associated with any 'anti' effort. This is a highly regulated industry that is fearful of alienating highly powerful forces."
The federal mortgage agencies Fannie Mae and Freddie Mac are in that category, he said. "Whatever you think of them, you still have to do business with them."
Bankers also tread lightly in matters relating to competition with the Federal Reserve System's payment services-and now are apparently doing the same with Microsoft.
Mr. Constantine, head of Constantine & Partners, said he has witnessed the same reluctance to grapple with America Online, though he has brought a case against the on-line services leader backed by the deep pockets of News Corp.
"We get lots of e-mails saying 'right on,'" he said. "But no one wants to speak up publicly when they have to do business with an AOL or a Microsoft."
The New York attorney pointed out that some companies' nondisclosure agreements with Microsoft had a chilling effect on their airing of grievances-but that the federal judge said those agreements should not prevent anyone from talking to Justice investigators.
Mr. Constantine said Judge Jackson's pronouncements in the Microsoft case will be "very helpful" in his pressing the case of several big retailing organizations against the debit card pricing policies of MasterCard and Visa. Though the Microsoft case began as a breach-of- contract action, the lawyer said, it hinges on the anti-tying provisions of antitrust law.
"Microsoft's arguments are very similar to MasterCard and Visa's," Mr. Constantine said, "and they were rejected out of hand."
That would be ironic-the banking industry's credit card ventures being slapped by the same principles that keep the supposed Microsoft threat at bay.
