Copy, Acquire, Kill (Premium)

This week, the CEOs of Amazon, Apple, Facebook, and Google will have their “Big Tobacco moment” when they all appear before a congressional antitrust committee and try to defend what are clearly illegal business practices. This hearing is fascinating on a number of levels, and I can’t wait to see the evidence that investigators have amassed against these too-powerful firms. But as someone well-versed in Microsoft history, there’s one element of this evidence that I’m particularly interested in.

It’s called “copy, acquire, kill.”

The Washington Post reported this week that representative Pramila Jayapal, one of the congressional committee panel members who will square off against the most powerful men on earth this week, has already publicly discussed evidentiary documents that describe how these companies use this “copy, acquire, kill” strategy to eliminate their competition. “[the committee has seen some] very specific language from top-level executives about that,” she said.

This phrase is, of course, reminiscent of Microsoft’s strategy to “embrace and extend” the emerging Internet technologies of the mid-1990s to destroy Netscape and continue the dominance of Windows. But is it also a phrase we could apply to today’s Microsoft?

This is a fair question.

As I’m sure you saw, Slack last week complained about Microsoft’s business practices to EU antitrust regulators, thrusting the software giant uncomfortably back under a spotlight it has avoided for over 15 years. The story to date has been that Microsoft is no longer the dominant bully running roughshod over the industry, and that the companies that regulators are now concerned with—Amazon, Apple, Facebook, and Google—have collectively emerged to take its place.

But Microsoft is bigger than most of those companies. Indeed, it consistently vies with Apple for the title of being the biggest company in technology by market cap. As I write this, Microsoft’s market cap of $1.54 trillion is second only to Apple’s, which sits at $1.64 trillion.

Microsoft’s real advantage over the Apples of the world isn’t its size, it’s that its business is so diversified. The software giant has three main business units, and each typically generates nearly identical revenues each quarter (so much so that even the revenue skewing caused by COVID-19 in the most recent quarter was slight). That allows it to weather bad times for individual businesses, of course. But it also shields the company from antitrust complaints: Microsoft is huge, but unlike Amazon, Apple, Facebook, and Google, it doesn’t dominate any single market to the degree it did when Windows and Office literally defined personal computing.

But it’s hard to see the phrase “copy, acquire, kill” and not think of the Slack complaint. Does it have any merit?

On the face of things, of course it does.

Faced with a new competitor that threatened its office productivity offerings—what many people think of as “Office,” but is probably more correctly thought of as “Microsoft 365” these days—Microsoft had two options: It could acquire Slack or it could copy Slack’s product in a new offering of its own (or integrate that functionality into a new product).

And Microsoft did investigate the feasibility of purchasing Slack. Ultimately—and under the advice of cofounder Bill Gates—the firm decided against buying Slack, in part because Slack’s valuation had skyrocketed, putting the price at about $8 billion. And Microsoft’s history with large acquisitions was then, as it is now, decidedly mixed: The firm had written off its $7.2 billion Nokia acquisition, and was still trying to justify the insane $28.1 billion it spent on LinkedIn. It just wasn’t the right time for such a purchase.

What Gates argued was that Microsoft had all the pieces in place that it needed to defeat Slack. It could evolve its Skype for Business product, which already included chat-based capabilities, into more of a chat-based collaboration solution. Why should Microsoft pay $8 billion to acquire technology it already had? Fair enough. Microsoft chose “copy” over “acquire” and the result was Microsoft Teams.

As to the “kill” part of the strategy, Slack alleges that Microsoft fell back on a classic strategy from the 1990s: Instead of building the better product, it simply integrated what it did make into a dominant product to artificially establish it as a viable alternative. In the 1990s, Microsoft did this with Internet Explorer and Windows. In recent years, Slack said, it did this with Microsoft Teams and Microsoft 365.

But if you look past the surface level, this argument falls apart. Microsoft 365 is in no way as dominant now as Windows was then, and that’s true even if you look only at enterprise computing. And Teams isn’t even used by half of all Microsoft 365 subscribers, so it being bundled doesn’t appear to have given it much of a life beyond the understandable usage surge caused by COVID-19, which is based more on video conferencing, not chat-based collaboration.

But the problem with the IE/Windows argument from the late 1990s is the same problem with the Teams/Microsoft 365 argument from today: Microsoft’s bundled product may have started off as a weak clone of the product it was trying to defeat, but over a short period of time, Microsoft’s bundled product became superior to the competitor. Vastly superior. And as one could argue of Netscape in the 1990s, Slack today is being defeated as much by its maker’s missteps as it is by anything Microsoft did. Slack is still  just a chat-based collaboration tool. But Microsoft Teams is a vast and extensible platform of functionality in which chat-based collaboration is but one of many, many features.

Looked at another way, “copy, acquire, kill” is simply good business. None of these companies—Amazon, Apple, Facebook, or Google, let alone Microsoft—are charities. They’re all shareholder-owned public entities that, by law, are required to compete as vociferously as possible. Where they get into trouble, of course, is when they have a monopoly. At that point, the rules change, and behavior that was legal when the company was a young upstart is now illegal.

Amazon, Apple, Facebook, and Google all have monopoly control over large and important markets, and there is no doubt at all that all of them will face behavioral changes in the months and years ahead because of the antitrust attention they are now facing. But Microsoft … that’s a tougher case to make.

Worse for Slack, one could effectively argue that Microsoft has had a product like Teams in Microsoft 365’s predecessors since 2007, when the firm launched a little product called Office Communicator. That became Lync in 2011 and it was then renamed to Skype for Business in 2014. Slack launched its own business in 2013. So Microsoft didn’t so much copy Slack as it did copy a single feature, chat-based collaboration.

Worse still, Teams truly is an integrated part of the Microsoft 365 ecosystem, because so too were its predecessors. One of the big arguments against Microsoft bundling IE with Windows back in the 1990s is that it was done artificially, and to harm Netscape, not to benefit Windows users. Microsoft’s crazy comingling of IE and Windows code at that time, if anything, harmed Windows users because IE was immature and poorly written at first. But Teams? Sure, it’s bloated and big. But it’s also rich and powerful, a true platform that has deep ties to the rest of Microsoft 365.

Yes, Slack was smart to turn to EU regulators for its complaint: The European Commission has certainly been open to taking down Big Tech wherever possible, and its competition-based antitrust rules are friendlier than those in the US, where Slack could never prove consumer harm.

But Microsoft’s behavior towards Slack, while familiar, is to me good news. I feel that Microsoft has lost its edge since Satya Nadella took over Microsoft and has celebrated it partnering with others instead of competing with others. But this episode shows me that Microsoft can still compete, and aggressively, when needed. It’s a welcome change from the norm in recent years.