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Online Extra: Q&A with Scott McNealy


More than any other tech executive, Sun Microsystems' Scott G. McNealy has figured out how to use humor to make his points -- especially his views of archrival Microsoft. His combative brand of humor came through in interviews with BusinessWeek's Peter Burrows in recent weeks -- but so did surprising details about his own history and his history with Microsoft. Collected here are edited excerpts of those conversations:

Q: You're well known for your Libertarian beliefs but also for your strong belief that the government should have broken up Microsoft for its antitrust violations. How do you reconcile those two positions? Aren't you asking for a bailout?

A: Look, I believe in small government, not no government. We ought to have laws, and we ought to enforce those laws. Now, for whatever reason, we've got antitrust laws, and they've worked pretty well over the years. They've helped make America a strong economic power.... So if you want to change the laws, then change them -- but enforce the ones that are on the books. Personally, I'd like to see a 75-mph speed limit. But I'm not against enforcing the laws we have.

Q: So how do you feel about the proposed [Nov. 2] settlement between Microsoft and the Justice Dept.?

A: It's garbage. We've now got a much more unfettered monopolist now-one that will hurt innovation and take away people's choices.

Q: Your father was an executive with American Motors Corp. How much do your concerns about Microsoft come from watching AMC lose out to giants such as General Motors and Ford? Are there parallels between how those companies dominated the car business and what Microsoft is doing?

"No one could change the location of the brake pedal to force you to upgrade every few years"

A: There was plenty of competition in the car business, not just within this country but from companies around the world. Nobody had 95% global market share. And nobody could lock in the customers, because there were open interfaces. Everyone agreed that the brake pedal was going to go to the right of the gas pedal and not on the ceiling.... So no one could change the location of the brake pedal to force you to upgrade every few years.... And that's the way most industries work. It works in the phone industry and the transportation industry and almost everywhere else. What makes this industry so different?

Q: What's your evidence that Microsoft is hurting innovation?

A: For 15 years, we've watched companies say they're going to do "just a little bit of Windows" -- and over time every one of those companies has moved further and further away from the computer business. They went out of business, or they became system integrators, or distributors, or whatever. And all of them went through wrenching transitions at one point or another.... Meanwhile, I'd say we've done just fine being a real technology company that adds real value.

Q: If you're doing so well, why are you so public with your criticism of Microsoft?

A: We're the only computer company that isn't a partner in some way to Microsoft, so they have a lot less leverage over us. I suppose we should be less adamant about saying what a big problem Microsoft is, because all of our customers' [IT departments] are filthy with Microsoft's stuff. I'm always getting yelled at by customers and our marketing people for opening my mouth. But I'm the only one left who can say anything.

Q: You studied economics at Harvard, and did your thesis on an antitrust case. As an economist, give us your argument against Microsoft.

A: The PC industry is the equivalent of a [high-tech] planned economy, where Microsoft gets to say how everything will work -- and better ways don't get a chance. It's interesting. Theoretically, central economies should work, because you should get huge economies of scale. But they don't work. The world has run that experiment. Look at East Berlin vs. West Berlin, or North Korea to South Korea, or Moscow to New York.

"It's like PC users are stuck in East Berlin"

Each and every time, it's clear which one is better: free-market economics. But in [the PC business], we're not running that experiment. People who've been struggling with PCs all these years have no way of knowing that there could be a better way. It's like PC users are stuck in East Berlin and they can't even get past Checkpoint Charlie. They have no way of knowing how much better it could be. It seems so obvious to me.

Q: You knew Microsoft President Steve Ballmer in college, right?

A: Yeah. We used to drink Strohs beer together. He was a beer-drinking-manager-of-the-football-team kind of guy, and I was a beer-drinking-captain-of-the-golf-team kind of guy.

Q: What about Gates? Do you know him? Is your criticism of Microsoft a criticism of his personal ethics?

A: I don't know him, personally. [McNealy has met Gates only three times -- once while sitting next to him while testifying about Microsoft's practices Microsoft before Congress.] But is a company a reflection of its leaders? That's for you guys in the media to decide.

Q: You're an avid hockey player, and a very good golfer. What's your favorite sport?

A: Golf. I like golf because you count every shot, and you're responsible for keeping your own score. And it's a sport where people still call penalties on themselves! That doesn't happen in hockey. You never see a player skate up to the official and say, "hey, I just high-sticked the hell out of that guy, I'm going to go sit in the penalty box." So that's what I love about golf.

What's the worst thing you can be in golf? Sure, you could be choker on the putting green, or you could have a hellish slice off the tee. But that's not it. The worst thing you can be in golf is to be known as a cheater. (For more McNealy comments on golf, see BW Online, 11/8/01, "Tales from the High and Mighty".)

Q: Is this the worst spot Sun has been in?

A: -- In my first quarter as CEO we had revenues of $2 million and a loss $500,000 loss -- and our products had a mean-time-between-failure of about five minutes. The screen on most of our computers would go blank five minutes after the customer took it out of the box. So we decided to ship a number of extra monitors to each of our local guys. That way, we'd be knocking on the door with a new monitor just minutes after the customer had called in the problem. They'd end up thinking, "wow, these guys have much better service than IBM!" So there are creative ways to deal with these situations.

"R&D and M&A are the same thing over there"

Q: While Sun helped set the high-tech agenda with Java six years ago, it seems like Microsoft has grabbed that mantle with its .Net strategy. Has it?

A: They come up with a name for something we've been talking about for years, and then they act like they invented it. I guess if you've got a $200 million marketing budget, you can rewrite history. But name one thing they've ever invented on their own? Seriously, name one! If you think of any, send me an e-mail, and I'll research it to find out who they bought it from.... R&D and M&A are the same thing over there.

Q: But they announced their .Net service more than a year ago, and have been rolling out products ever since.

A: Tell me the last time you met anyone who has used a .Net Web service. I've never met anyone! The fact is we've been doing Web services for 20 years, when they were stuck in stand-alone PCs.... But I do grant that a monopolist with enough money can try to rewrite history.... We were outspent, but we'll always be outspent. It sounds like we were outspent in Washington, too.

Q: Do you regret any of the barbs you've hurled at Microsoft over the years?

A: I should make this off-the-record, but I do regret when I once said something regarding Gates about how "my kid is smarter than your kid."

Q: What about Balllmer and Butthead? Was that a mistake?

A: Oh no, I don't regret that one! That was funny.

Q: So let's say Sun executed so well that it created its own monopoly? How would you be different than Bill Gates?

A: That's the point. There's no way we could have a monopoly given the way we run our company. The minute we start doing really well, like we have in the last few years, they all come running back [to get in on the profits].... When you have open interfaces, people can always compete with you. It's a double-edged sword. It makes it easy for the customer to choose us -- and it makes it easy for the customer not to choose us.

Q: But isn't it good capitalistic behavior for Microsoft to take full advantage of its monopoly by using it to expand into other areas?

A: I suppose Microsoft is doing what it should be doing for its shareholders. It's like in hockey. If I come up and cross-check you, and the referee doesn't call anything, I'm going to come back and spear you right in the chest. And if the ref still doesn't do anything, I'm going to come back and take a 2x4 to the helmet of everyone on your team until there's nobody left. That's what's going on, and that's why the government has to enforce the laws.

Q: We spoke to some executives at Microsoft, and one suggested that you are the only executive in all of tech that they find it impossible to deal with, that you won't even get into discussions with them. What's your response?

A: They said that? Can you imagine the arrogance of a statement like that -- like, "can you believe there's one company on the planet that refuses to do business with us!" It's like they can't believe there's someone that won't resell their products. Well, why don't they resell my servers!

Q: So under what circumstances would you do business with them?

"They don't even flirt with telling the truth anymore"

A: Listen, I have never turned down a meeting with Gates or Ballmer.... On many occasions, I've challenged them to get on stage one-on-one and have a reasonable debate, but they've always refused. And that's because they don't even flirt with telling the truth anymore. And if I were protecting a monopoly like they are, I wouldn't do it either. Because they know the real truth.

Q: So what is the major thing you want the world to know about Sun? What is the fundamental difference between Sun's view and Microsoft's view?

A: We won't lock you in. That's the most compelling statement I can imagine. To me, that's just so compelling and so different.

Q: But if Sun is the last man standing between Microsoft and its domination of the Net, how can you win?

A: Because it's not just us. If it was just us, we'd be toast. They've got $30 billion in cash. They could buy us for chump change. But we and a lot of other companies support open interfaces. It really is mankind against Microsoft. And mankind needs a bit of a break right now. That's why I think -- no, I know! -- that we're the ones wearing the white hat. The market economy has got to win over the planned economy. And the Internet -- the open Internet -- has got to win. But [if the government doesn't enforce the law], well, bad things can happen to good people.


Later, Baby
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