Microsoft Philanthropy

When it comes to charity, Microsoft gets as good as it gives.

By Tom McNichol

Jan 28, 1997 | WHICH is the most philanthropic corporation in America?

According to the newsletter Corporate Giving Watch, it's none other than Microsoft Corp. The software colossus, which devotes much of its energy trying to pauperize its competitors, seems to have a soft spot for those already poor, handing out a total of $73.2 million to charities in fiscal 1995. (The 1996 figures, in characteristic Microsoft fashion, are shipping late.) That ranks Microsoft as the top U.S. corporation in giving gifts to charity, nosing out such upstanding corporate alms-givers as Johnson & Johnson ($72.8 million), IBM ($72.2 million), Eli Lilly & Co. ($71.9 million) and Hewlett-Packard Co. ($71.2 million).

News outlets reporting the figures portrayed Microsoft as the model Corporate Citizen, a company doing well by doing good. "Microsoft shares wealth," headlined the San Francisco Examiner, in a typical treatment. Microsoft has accepted the accolades with blushing modesty. "It's been a long-standing tradition at Microsoft to be involved in philanthropy," says Microsoft spokesperson John Pinette. "That goes back to before the company was founded, when Bill [Gates'] mother was on the board of the United Way."

Some are even starting to place Bill Gates in the pantheon of the great philanthropists of all time. When Microsoft donated $10.5 million in computers and software for rural and inner-city libraries last October, the head of the Brooklyn Public Library was moved to proclaim from the podium, "In the same way that [Andrew] Carnegie built the buildings, Gates is providing the second wave that will continue the opportunities." Computer users may well start experiencing a warm fuzzy feeling every time they boot up Windows, knowing it's the product of a company that Really Cares.

But like many things in the computer world, there's more to the story than what fits on a single screen. A quick scroll through Microsoft's charitable donations soon makes it clear that Bill Gates is not so much a philanthropist as he is a Virtual Philanthropist. Of the $73.2 million that Microsoft donated to charity in 1995, $62.1 million, or about 85 percent, was in the form of free software.

Now, free software is a grand thing. I wouldn't mind having some free Microsoft software myself, maybe that cool new version of Word with the fully customizable Toolbar. But free software  even $62.1 million of it  ain't philanthropy, not if the word is to have any meaning (derived from the Greek philanthropos, meaning humane, benevolent, loving people).

First of all, the software donations cost Microsoft considerably less than the $62.1 million figure suggests. That total isn't what it cost Microsoft to produce the software they gave away; it's what's known as the "fair-market value" of the software, or what it might have commanded if sold on the retail market with no discounting. The higher the value of the donation, the bigger the tax write-off, and Microsoft is hardly the only company to stretch the equation to their advantage.

"I'm not going to fault Microsoft on the way it reports their numbers because we do the same thing," says Fred Silverman, senior manager, Worldwide Community Affairs for Apple Computers, which last year gave away computer equipment the company valued at $5 to $6 million. "But anyone who looks at Microsoft's numbers is welcome to make his or her own analysis of the true value of the donations based on their knowledge of mark-up in the industry."

Since software retailing for $300 often costs less than $20 to manufacture, the value of Microsoft's donated software is probably inflated by a factor of 15 or more. But more telling than the funny math is the self-interest involved in Microsoft and other high-tech companies giving away product in the first place. Far from being a selfless act of charity, there are strategic benefits to Microsoft in donating software. Giving away software increases market share among people who probably couldn't afford to buy the product in the first place. It squeezes out marginal competitors by preventing them from grabbing a foothold in the market, creates a pool of future customers, and widens Windows' lead as the dominant operating system.

Giving away software is a sound marketing strategy, but it's not philanthropy, any more than it would be if the Ford Foundation gave away millions of dollars' worth of free transmission parts that only fit Ford cars. But then, maybe it's a sign that the old analog concepts of philanthropy are giving way to a new digital paradigm, a more efficient delivery system in which the benefits of corporate giving flow smoothly back to the corporation.

Next Page: In the footsteps of Carnegie

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