Microsoft's Sun Burn

Scott McNealy, chairman of Sun Microsystems and chief nemesis of Microsoft, likes to open speeches with a top 10 list--often about the Redmond software giant. What is one of his "top 10 signs you could be a monopolist"? Quips McNealy: "Janet Reno has you on speed dial." Microsoft, of course, contends that it is not a monopolist, that it has gained and maintained its market position fairly and that it allows competitors full access to its software blueprints. But the 44-year-old hockey fan who runs Sun believes otherwise, and in a conversation with NEWSWEEK's Jared Sandberg and Steven Levy, he shared his ideas for what the Feds should do if they win their antitrust suit against Microsoft.

NEWSWEEK: Sun and America Online, Microsoft's biggest competitors, have now formally struck a partnership. Will the alliance provide an alternative to Windows and Microsoft applications?

MCNEALY: Given a chance, we might be able to create an alternative. Right now there isn't one. A definition of a monopolist is a company that is without market discipline that cannot be overcome through legal private intervention. That's why the government gets involved. The Roman Empire eventually collapsed, but I don't think we want to wait until everybody's having eight dinners and big parties all day long instead of doing their job.

When I look at my dictionary under monopolist, in the margin there's a picture of Bill Gates. That's not an indictment. It's more of a commendation because whether you've gotten there legally or illegally, there are not many people who've gotten themselves into that position... When you have somebody with the kind of market power that they have, I don't think scrutiny is a bad thing at all. I think the U.S. government was right to scrutinize IBM. They were right to scrutinize Standard Oil. They were right to scrutinize AT&T. And they're right to scrutinize Microsoft. I hope someday to be in a position where they need to scrutinize us. I hope to get there legally, and ethically and through good, hard competition.

You've argued that a structural remedy--breaking the company into "Baby Bills"--is a measure of last resort. What remedies, what scrutiny, would you prescribe if the government prevails?

Well, there's transparent pricing, so that they can't use pricing to hammer [certain competitors who unknowingly pay higher fees]. And you don't want them to have exclusionary contracts. And they should force Microsoft to publish APIs [the rules of how to write programs for Windows] in a responsible, open, transparent way to the rest of the world... That allows for interoperability, so that any innovation that we do we can have run on Windows... customers like that. I have yet to see a customer who is disappointed when there's interoperability between two different pieces of technology. I've yet to hear them say, "Oh, darn, I plugged it in and it worked. I hate that."

More important, you have suggested as a remedy that Microsoft not be allowed to make new investments in other companies. Should they divest themselves of recent investments such as the company's $5 billion stake in AT&T?

I think you give them a six- to 12-month time period to divest themselves of all minority equity investments. You forbid them for five years, or some number like that, from making another equity investment, and you forbid them from buying any incremental intellectual property. The way I put it is: chapter 58 in most antitrust textbooks is "Bundling the Browser With Your Operating System." Chapter one is "Buying Your Distribution Channel." Microsoft generates monopoly profits and uses that monopoly money to get an influential position with the service provider. It's like Standard Oil buying gas stations. Service providers [like AT&T or Comcast] are the functional equivalent of the retail gas outlet of the oil industry.

You once said your goal was to have a dog, three kids--you're about to have your third--and enjoy yourself. You make lots of money. Sun is successful. Have you ever thought of retiring from the industry to play hockey and golf?

Not more than four or five times a day. But a couple of reasons why I stick with it. One is, quite honestly, I don't want to leave a legacy of a lack of competition and a lack of choice in the computer industry to my children. Secondly, I'm a competitive son of a gun, and this is a pretty good fight. Thirdly, what else am I going to do? My golf game sucks.