A rchive Date
[ 11-06-2000 ]
Category
[ International Relations ]
sub-Categoy
[ Microsoft ]
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[MS trial shaped current digital economy
Two-year trial has resulted in far more open competition in the software industry than many would have predicted
By David Banks, WSJ Interactive Edition
November 5, 1999 6:38 AM PT
With a ruling in U.S.A. v. Microsoft Corp. expected as soon as Friday, some of the outcome is clear. The long-running antitrust case itself has already played a major role in shaping the digital economy. Two years of intensive federal scrutiny of Microsoft (Nasdaq:MSFT) have been a kind of remedy for the very concerns that prompted the lawsuit. The trial and its harsh publicity forestalled some of the software company's most aggressive practices at the very moment the foundation of Internet-based commerce was being laid. As a result, competition in the software industry has remained far more open than many would have predicted when the Justice Department and 19 states sued the company in 1997. "The fact Microsoft was under scrutiny in that period made [it] more cautious and reluctant to attempt to dominate the new Internet marketplace," says Berge Ayvazian, chief executive of Yankee Group, a technology research firm. "If they hadn't been under antitrust scrutiny, it would have turned out differently."
Irreversible gains
Yet during the course of the trial, Microsoft also has secured some potentially irreversible gains. It has achieved dominance over Netscape Communications in the market for Web-browsing software, which sparked the antitrust action in the first place.
"It's done. It's over," says Jim Clark, co-founder of Netscape, now a unit of America Online Inc. (NYSE:AOL) ., Microsoft's main rival for Internet dominance. "Microsoft has achieved what it set out to do."
In 1997, Netscape's share of browser usage was 62%, far exceeding the share for Microsoft's Internet Explorer of 36%, according to Zona Research. By last month, Microsoft led Netscape 64% to 36%. By some estimates, its share of new Internet users is close to 90%.
AOL has the ability to partially reverse that trend. But if Internet Explorer becomes as universal as Windows, Microsoft could develop proprietary links between the two that would give it even more potential leverage as it enters the Web's next battleground: the markets for Internet servers and services.
No change in tactics
Microsoft says the long legal challenge hasn't caused it to change tactics significantly. "The main thing the government is alleging is that we are illegally bundling Internet Explorer into Windows," says company spokesman Jim Cullinan. "Well, Microsoft continues to add new features into Windows."
Still, Microsoft has pulled back from some of its most aggressive practices. Early in 1998, the head of Microsoft's MSN site suggested in an internal memo that buyers of Windows 98 could be automatically signed up for a Hotmail e-mail account from Microsoft -- but not until after Chairman Bill Gates testified before the Senate Judiciary Committee. That proposal was never implemented.
In March 1998, on the day before Gates's appearance before the committee, the company dropped provisions of its contracts with Internet service providers that discouraged them from promoting Netscape's browser. Later, Microsoft dropped similar provisions from contracts with Internet publishers and media companies.
Will Poole, a Microsoft marketing executive who was repeatedly questioned by prosecutors about the allegedly exclusive contracts, says he now relies on nonexclusive deals to persuade record labels to use Microsoft's audio technologies. "We're pursuing a deposition-free strategy," Poole jokes.
'We waived them'
Cullinan, the Microsoft spokesman, says the contract provisions weren't central to Microsoft's business. "When people raised an issue, we waived them," he said. waived them," he said.
Microsoft's situation in some ways is reminiscent of IBM's in the 1970s, when its management, distracted by a government antitrust suit, let control of the nascent personal computer industry fall into the hands of Microsoft and Intel Corp. But so far, Microsoft has been far less hobbled than Big Blue.
The company's finances are the envy of the business world. The Internet has so far only fueled demand for Windows and Office, not reduced it. And, while PC prices have been falling by 40% a year, Microsoft has generally maintained the price of Windows, underscoring the company's continuing market power.
If anything, it has been Microsoft's own missteps that have sometimes hampered its ambitions to dominate online services with Windows. Web publishers rejected the company's attempts to get them to make content that could be viewed only with Internet Explorer. And allegedly exclusive "channels," which were supposed to appear on the opening screen of Windows and whisk users off to, say, a Walt Disney Co. Web site, never caught on and were dropped.
Power overblown?
Some of the worries about Microsoft's power have proved a little overblown. The company has had some success with travel, auto-buying and personal-finance Web sites, but fears that it would take over those industries now seem quaint. Instead, Microsoft is busy spinning off or selling many of these Web sites and redirecting efforts toward establishing a general-purpose portal and supplying technology to other Web businesses.
Moreover, PC makers that rely on Microsoft for Windows are showing far more independence. Even close allies, like Dell Computer Corp., are now offering factory installation of the Linux operating system on some computers.
Gateway Inc. has gone even farther, entering into a long-term strategic partnership with America Online. AOL has invested $800 million in the computer maker and is expected to collaborate with Gateway in producing Windowsless devices for browsing the Web.
Windows' influence has also been eroded by the popularity of Apple Computer Inc.'s (Nasdaq:AAPL) iMac line of Windows-less computers, the success of 3Com Corp.'s (Nasdaq:COMS) handheld Palm computers and AOL's continued subscriber growth and its $10 billion purchase of Netscape.
Even software rivals bolster the view that the playing field has been leveled -- even as they press the government to curb Microsoft's power. Oracle Corp.'s (Nasdaq:ORCL)
Larry Ellison, Sun Microsystems' (Nasdaq:SUNW) Scott McNealy and IBM Corp's (NYSE:IBM) Louis Gerstner tell customers that Microsoft's influence has waned as the Internet has replaced the PC at the center of the software industry.
'Less afraid'
"The world at large in information technology is less afraid of Microsoft today than they were three years ago," says Scott Winkler, a Stamford, Conn., consultant. "They've suffered significant losses and had very few gains."
When U.S. District Court Judge Thomas Penfield Jackson issues his preliminary findings, he will rule first on matters of fact, including the precise definition of the market at issue and whether Microsoft holds monopoly power over it. Later rulings will determine whether Microsoft violated antitrust laws and, if so, what the legal remedies should be.
Microsoft says the market supplies all the needed remedies. But as the trial nears its end, some observers are reluctant to see judicial oversight of the company end. Charles Ferguson, who wrote a book about the 1996 sale to Microsoft of his Web-publishing software company, Vermeer Technologies, ("High Stakes, No Prisoners"), says, "It's a good idea to have permanent vigilance. Every time there's a problem, you get it addressed and you smack Microsoft down."
 World Fact Book (CIA) ]
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