Info titans

National Review, Jan 27, 1997 by Neal B. Freeman

Any missteps in the free-wheeling world of technology could have serious repercussions.

MY DESK is littered with year-end trade publications hyping the heroes of The Revolution. They shout cover lines like "The Fifty Most Important People in Info-Technology," "Ten Fast-Trackers to Watch for 1997," "Rising Stars of the Infotainment Industry." You get the idea. A few years back, we all loved it when George Gilder began to do that info-thing of his. George could sell laptops to Bedouins. But then the hard-eyed money guys came along, doing the deals, and levitating initial public offerings with good stories but (drop your voice), well, no, no actual sales. Now even the mainstream media are breaking out in an info-sweat. Take Newsweek's auto-erotic cover line: "Microsoft: Bill's Next Vision." Hmm. If reporting on The Revolution were a dance craze, it would now be in the macarena stage. Even Al Gore would be hip to it.

Well, let me add my own list to the year-end pile. How about, "Three Guys Who May Trip, Fall Hard, and Hurt the Rest of Us Really Badly."

Let's start with Bill Gates. The Microsoft CEO is America's richest man because he did two things right. First, he out-negotiated IBM and snatched property rights to key programs at the dawn of the personal-computer era. This put him in business. And then, some years later, he stared down the antitrust lawyers while he used the leverage of those rights to crush would-be competitors in adjacent markets. Two good moves, $20 billion.

Don't misunderstand. These were large moves. At the time, most people thought of IBM as a large, ferocious jungle cat. One angry swipe of the paw from Armonk, it was thought, and Gates would be kitty litter. But the paw never moved. Gates turned out to be one of the few people who recognized that IBM had already metamorphosed into a paper tiger. And when the action moved to Washington for legal oversight, both activist liberals and pro-business conservatives assumed that the Clinton Administration would challenge Gates. Whatever else he was, Clinton was a lawyer, a Democrat, and a man who had passed a season in the populist fields of Arkansas. Surely he would stay the hand of a man reaching to choke off infant enterprises in the silicon crib. Surely he would do that much. Surely. It was only later that the world would note Clinton's habit of giving a lip-biting speech about the downtrodden just before rushing off to join in a little stomping of the weak by the strong.

ALL of which leaves Bill Gates in a very strong position. So strong, in fact, that some observers have come to regard it as unassailable. Take that Newsweek piece. It's headlined, "The Microsoft Century." Now, that's a silly headline for any writer to commit. But it's grantwoodian compared with the caption: "Gates and his company are poised to gobble up the limitless opportunities of cyberspace." Century? Limitless? What's going on here? Whatever it is, it doesn't quack like journalism.

What it is becomes clear in the body of the story, and it represents a big problem for you and me. Here's the key sentence: "Some of its executives privately believe Microsoft could double both its size and its market valuation within the next five years." Hello, Newsweek. Microsoft's market valuation almost doubled last year alone; if it took another five years for it to double again this would mean that Microsoft's growth phase had collapsed. That is, if Microsoft grows at a rate of only 15 per cent a year the Microsoft Century will have ended before it has begun. Microsoft stock now sells at a price-to-earnings ratio of 44, which is the market's way of saying that it expects, and indeed has already discounted, spectacular growth. If Gates fails to deliver on that expectation, it would be panic news for Microsoft shareholders. But it would also be a seismic shock for the market as a whole. Microsoft has become a bell-cow stock because Bill Gates is the icon of the information age: where mortal man's vision of the future becomes blurry, we assume that Gates still sees clearly. Conversely, if Gates doesn't know what comes next, info-wise, nobody knows. Smash his reputation, then, and you smash the market.

Think of it this way. Wherever you may think you have your nest egg hidden, a big chunk of it is effectively invested in Microsoft.

The second Guy Who Could Really Hurt Us is John Malone. He's best known as the King of Cable TV or, if you prefer the Reed Hundt/Al Gore view of telecommunications reform, the Darth Vader of cable television. He runs TCI, the largest operator of cable systems, which makes him the single most potent force in cable programming, cable pricing, and -- how shall we put it? -- cable attitude. (Reflecting on Hundt's performance at the Federal Communications Commission, Malone once told a humorless reporter that the appropriate response to the regulator was to "shoot him.") But Malone's real contribution to contemporary life has little to do with cable TV. He didn't invent it. He didn't introduce any great new programming like his sometime-buddy Ted Turner. He didn't even start his own company. What he did was expand it rapidly by borrowing enormous sums of money. And how he pulled that off has earned him a permanent place in financial history.