Industry Analyzes Implications

SAN MATEO (06/08/2000) - With the proposed antitrust punishment for Microsoft Corp. now known, those within the IT industry shifted their attention from whether the punishment is appropriate to its anticipated effect on the high technology market as a whole.

Not surprisingly, longtime Microsoft foe Sun Microsystems welcomed the breakup plan, saying in a written statement, "Although this decision will inevitably be seen as controversial, it's important to remember that these measures will increase competition in the computer industry. These measures also will protect Internet technologies from becoming the proprietary preserve of any one company -- which was, and Sun believes still is, Microsoft's goal."

The statement also contained a quote from Scott McNealy, chairman and CEO of Sun Microsystems. He compared the Microsoft case to the antitrust case against AT&T, which required the latter to exit the local phone market in 1984 in a move that led to the creation of the Baby Bells.

McNealy said, "Nobody wants to go back to the days of one telephone company.

Everyone cares about the freedom of choice, which is why yesterday's ruling is so monumentally important both to the industry and consumers. Microsoft has expressed no regret for its actions throughout these proceedings, and the company has not recognized any wrongdoing. This is why a combination of structural and conduct remedies is the right and essential means to deal with Microsoft's continued abuse of its monopoly power. Let's remember as this process continues that scrutiny is good; with Microsoft, the more scrutiny the better."

Ransom Love, president and CEO of Caldera, based in Orem, Utah, agreed that there are similarities between the two antitrust cases and added that a breakup of Microsoft would lead to more innovation.

"Many said [a breakup] will somehow penalize [Microsoft's] OS business, but in reality I think it would free them up to do some things that they would need to do anyway to be more responsive to users' demands," Love said. "In fact, I would argue, like with AT&T's case, Microsoft should take a leadership role in the breakup and voluntarily move forward and make it a positive for them," he said.

In particular, Love said that the breakup could boost Linux's chances. "By breaking [Microsoft] up it means [Microsoft's] applications business would put its sights right on Linux, so that is the immediate benefit for Linux.

Long-term, I think Microsoft's operating system OS business would also have to do something with Linux as well, which is not bad for Linux, either. In both cases it would validate Linux as an alternative but more importantly do so as the definitive open Internet platform in the industry," Love said.

Tim Buckley, COO of fellow Linux vendor Red Hat, in Durham, N.C., was less optimistic about the effects of a breakup on the Linux market, but he said that the case has highlighted the benefits of using an open operating system.

"In general [the proposed breakup] does not have a monumental impact on what we are doing one way or the other," Buckley said. "We think that fundamentally there is a deeper issue than whether Microsoft is broken up. That issue is their philosophy on how they sell software vs. what we deliver to users. They deliver a proprietary operating system to the customer where they can control you, the end-user. And if you want to make a change to that code you can't; you have to wait for them to make the change or hope they will give you the change in the next release. With open source you get the code from us and you make any changes you want. This give a user control," Buckley said.

Buckley did, however, acknowledge Love's point that a breakup could lead to Microsoft's applications coming to the Linux platform.

"I would love to have [Microsoft] Office on Linux and this does increase that possibility," Buckley said. "There are about 3,000 applications written for Linux, but we could certainly use more of them on the desktop."

The Computer and Communications Industry Association which, in conjunction with the Software and Information Industry Association, two weeks ago submitted a proposal for a three-way Microsoft split, nevertheless welcomed the judge's ruling. Ed Black, president and CEO of the CCIA, released a statement praising Jackson's "fairness and skill," and calling on Microsoft to accept the ruling and abandon its appeal.

"We urge the defendant to respect the rule of law, to accept the Court's ruling, and to join the rest of the industry in a newly competitive and vibrant free market," the statement said. "Microsoft should abandon its public relations, political, and lobbying efforts to undermine this judicial action and confront the consequences of their illegal actions."

Elsewhere in the industry, IT vendors were more circumspect. In particular, Microsoft's hardware partners were generally against the plan.

"Compaq opposes any effort by the government to break up Microsoft. We saw several problems with their plan to break the company up, and we oppose those points," said a Compaq spokesman.

Steve Andler, vice president of marketing in the portable computer systems group at Toshiba, said, "The offical line from Toshiba is that in the near term I don't think this will affect our customers at all, as in the short term, [the judgement] will be under appeal."

However, Andler added that Compaq still has reservations about the breakup plan.

"Certain details of the agreement could have an effect," Andler said. "If [Microsoft] was not able to offer special discount to large customers like me -- if they can't discount the OS -- then suddenly the price of the OS goes up.

That would be partially absorbed by us, but translates into higher overall system costs."

A spokesman for Intel was equally cautious.

"In respect to yesterday's ruling, clearly a structural change in Microsoft could be a significant change for the industry, but we are confident that if it does, the industry will find a way to adapt just as it has over the last 25 years," the spokesman said. "At this stage it's not clear when and how [Jackson's] order will get implemented. Microsoft will appeal, and that leaves many questions unanswered. Intel will be watching to see how this evolves, but at the end of the day, [Intel] and the rest of the industry will find a way to adapt."

Other observers were more upbeat, saying that the breakup could actually help Microsoft regain its focus.

"I think that [the ruling] is going to do a couple of things," said Ron Myers, vice president at Wallingford Electronics, in Austin, Texas, which builds Windows-based systems. "For one, it will actually sharpen their skills. Nothing affects a company like tremendous change. And Microsoft has been the leader for so long that [if it is broken up] what we will see are two very strong Microsofts."

In turn, Myers continued, this may lead to more opportunity for systems builders.

"The long-term effect is [that] it is going to allow some of the smaller developing houses access to areas of the industry that they didn't have access to because Microsoft had it locked up," Myers said. "The browser issue is the easiest example of that, but then there's the [Microsoft Office] suite. The way it's set up now is if you buy any of the Office component programs as stand-alone products, you pay more that if you bought the whole suite."

Others within the industry are fearful, however, that implementing a Microsoft breakup could lead to short-term chaos in the industry, whatever the long-term benefits.

"I suppose they have acted like scoundrels in the way they have put this empire together," said one business analyst at an East Coast brokerage. "But we have so much invested in their servers and clients that it will be much better for us if the government does not break them up. We will be dealing with the cleanup for a couple of years."

The analyst added that until there is some resolution to the case, her firm will cut back on further investment of Microsoft platforms, particularly servers, and will explore the possibilities of alternatives.

-- Additional reporting by Ed Scannell, Brad Shewmake, Stephanie Sanborn, Bob Trott, and Dan Neel.

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