Breakup Talk Casts Shadow on Microsoft

SAN MATEO (06/05/2000) - The looming court-ordered breakup of Microsoft Corp. poses more questions than it answers for the software giant's vast array of products and initiatives. In the meantime, that uncertainty may crush the notion that nobody gets fired for buying Microsoft.

For corporate users that universally favor well-integrated software, the prospect of buying Microsoft applications on other operating platforms could quickly change their outlook.

"Companies that have gone to Microsoft products by default are going to spend a little more time shopping around," said one East Coast enterprise IT manager, who requested anonymity. "It has its pluses and minuses, [though] we like the Windows-across-the-board approach," he said.

David Smith, an analyst at Gartner Group, in Bedford, N.H., said that attitude could become more prevalent not only if Microsoft is split but also during the company's appeal, which is expected to be lengthy.

"Microsoft has been the beneficiary of people not wanting to take risks -- you never get fired for buying Microsoft. But when you have uncertainty, people are unwilling to take risks; they're less ready to buy into an unproven strategy or rely on integration that may get stopped," Smith said. "Future integration now is a big question mark."

The Windows monopoly that U.S. District Judge Thomas Penfield Jackson ruled Microsoft used to violate antitrust laws would survive, at least in the short term, although alternatives such as Linux could gain market share, industry observers said. But the other company half -- which would include the remaining Microsoft properties, from the Office desktop applications suite to Expedia, according to the U.S. Department of Justice's proposal -- potentially would face more competitive pressure.

A breakup also could pose a competitive problem for Microsoft's tools business.

"It makes you wonder if they run a tools group that can properly leverage off the operating system or one that is directed to leverage off the applications and online services group. Can they do both? I am not sure they can," said Dana Gardner, research director of Internet infrastructure at Aberdeen Group, a consultancy in Boston.

Nevertheless, Microsoft will forge ahead next week with its Next Generation Windows Services (NGWS) plans. At its TechEd conference in Orlando, Fla., Chairman Bill Gates and other officials will begin showing developers how to build NGWS Web services with Microsoft tools.

Gardner and others said another key factor is the growing strength of open-source and Linux-based tools providers whom they believe to be now nibbling away at the edges of Microsoft's market share.

"This open-source and Linux movement has picked up a lot of momentum among the new, younger generation of developers that is really hip to things like Linux and iMacs and Java," said one East Coast analyst.

Depending on exactly how Jackson rules in the coming weeks, Microsoft's proposed NGWS initiative, which aims to closely tie the tools, operating system, and the Internet, could be under the Justice Department's microscope for years.

Analysts expect this because Microsoft is combining so many key products and technologies under one umbrella, government and competitors might want to finely dissect NGWS initiatives.

Nevertheless, some observers say a breakup could be the best thing for Microsoft -- if it is implemented properly.

"They should end up as stronger entities than they were together," said Rob Enderle, an analyst at the Giga Information Group, in Santa Clara, Calif.

"Microsoft has a self-crippling OS group because there are too many internal requirements to do the job effectively. The applications group has the same issue in trying to constantly favor the Microsoft operating system."

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