From seemingly out of nowhere, the veteran tech giant has waded into the war between Facebook, Google and the Australian government – and may emerge the ultimate victor, writes Hal Crawford.

The “big friendly giant” of the tech world, Microsoft, has shown in recent days it retains every bit of the cunning that has seen it prosper for decades. In a perfectly timed intervention in the saga of Australia’s digital news legislation, Microsoft has made its biggest tech rivals swallow a poison pill and at the same time reinforced its image as trustworthy and humble.

This was a masterclass in “soft skills” that could only have been learned in the tech wilderness that Google and Facebook are now entering. It has also ensured that news companies and governments all over the world, including New Zealand, will soon be lining up for a share of big tech money.

The intervention

Google was ready to exit the Australian search market and walk away from more than $4b of revenue when Microsoft struck last week. Google’s issue is legislation soon to be passed by the Australian parliament that will see it and Facebook pay money to publishers for the privilege of linking to news stories. Only Google and Facebook are affected by the News Media Bargaining Code and both companies hate the law, which they see as illogical, unworkable and unfair. Facebook has been the quieter of the pair. Google has gone ballistic, warning users directly, mounting an ad campaign, and finally telling Canberra it would abandon search entirely.

Cue the BFG. Microsoft CEO Satya Nadella called up Australian PM Scott Morrison in late January and told him that “while other tech companies may sometimes threaten to leave Australia, Microsoft would never make such a threat” and “Microsoft fully supports the News Media Bargaining Code”. When Microsoft published a blog about the conversation last week, a dam broke and both Facebook CEO Mark Zuckerberg and Google CEO Sundar Pichai called Morrison. Now Google is back at the table, and there’s every indication it will reach a deal on the code. Apparently it just couldn’t face the prospect of Microsoft’s Bing search engine taking an OECD market, which may have been a worse precedent than the code itself. What if the world knew it could do without Google?

The cunning part of the play is that if Microsoft had really wanted the Australian market for Bing, it would have kept quiet until Google had exited. But it knows the code contains serious problems, and it waited until just the right moment to slam the poison pill into Google’s mouth. The search giant will suffer all over the world after they cut a deal in Australia. Already the Canadians are planning their version of the legislation. New Zealand will have to follow. How long can any politician in a democracy resist the apparently justified demands of news companies?

The stranger in our midst

Microsoft has been winning since Nadella took charge in 2014 and now regularly trades places with Apple as the most valuable company in the world. Nadella comes across as a more dignified and empathetic leader than the old guard at Microsoft, and he’s all about services rather than products. The leader himself is the product of a company that learned its lessons. Microsoft was very close to being broken up after it was found to be an “abusive monopoly” by the US courts in 2000. It struggled with the internet, poured billions into Bing, wrestled with mobile phones, and then cottoned on to cloud computing and collaboration. In the process, it became a much nicer, more mature entity, and is now somehow in a different category to the other tech giants. Case in point: Microsoft recently released software – called Viva, a kind of intranet inside Teams – that allows bosses to monitor and evaluate their remote teams using AI. Had Facebook made Viva, we would never have heard the end of it. As it is, most people seem to just trust Microsoft.

Opportunism with a back-up

In the relatively small world of Asia-Pacific tech, Microsoft’s public suck-up to the Australian government on the news code made a splash. In the tech world, the code is regarded as a dogs’ breakfast – “poorly drafted”, “deeply flawed” – that may not stand up to legal scrutiny. The fact that Microsoft would jump in to support such legislation with no reservations gave rise to off-the-record accusations of opportunism.

But the criticisms don’t dim the brilliance of Microsoft’s move. The company actually has a kind of built-in defence against accusations of news profiteering in that it has for years paid news publishers to be aggregated as part of its MSN network. It wasn’t at all clear when MSN first moved to paying a revenue-share for full news articles that this was a wise move: after all, Google News was indexing news for nothing. Turns out that Microsoft’s more careful approach had laid a more solid foundation.

Now, with the MSN defence against charges of hypocrisy, it has been able to set in motion a legislative cascade that will see Google, and to a lesser extent Facebook, pegged back all around the world. The code may be wrong-headed – I have argued against it at length – but there’s a corporate truth here that Microsoft, with its long history of regulation and rebirth, understands better than the tech newcomers: powerful companies that ignore the public mood are in trouble.