Users, Experts Split on Effect of a MS Breakup

FRAMINGHAM (04/27/2000) - There is no consensus among users and experts on just what a breakup of Microsoft Corp. would accomplish. And no one can predict what would happen if Microsoft is split up. But theories abound.

Some see a breakup producing competition and stimulating innovation. Others say a split-up of Microsoft would create a new set of dominant, monopolistic entities.

The government is expected on Friday to recommend to the court its remedy in the U.S. vs. Microsoft Corp. antitrust case. It's widely expected that the government and a majority of the 19 states involved in the lawsuit will recommend a breakup, possibly splitting some of the applications business, such as Microsoft's Office suite of desktop applications, from the operating system business.

The government's remedy proposal may also include a list of interim recommendations. Trial judge Thomas Penfield Jackson, who earlier this month ruled that Microsoft had violated the law, isn't obligated to impose the government recommendation, but it will weigh heavily on his decision, said experts.

Microsoft is a complex, interrelated business, and the impact on end users would depend on how it were divided. For instance, if Microsoft's server business, such as its SQL database and Exchange messaging servers, is kept as part of a new operating system company, a breakup may have little impact, said Dan Kusnetzky, an analyst at International Data Corp. (IDC) in Framingham, Massachusetts.

In Office 97 and 2000, Microsoft has added features, such as shared calendar management and workgroup scheduling, which only work with Microsoft servers. If the Exchange, SQL and other servers are kept with a new operating system company, a breakup "will have no impact at all because Microsoft Office products will still lead to the selection of Microsoft server products," said Kusnetzky.

A breakup that separates the server and Office products from the operating system would have more impact, but it might take 18 to 24 months before Microsoft's server products are rewritten to work with other operating systems, said Kusnetzky.

What would have a more immediate impact would be any orders forcing Microsoft to be more open about how it licenses its products, as well as forcing Microsoft to disclose what it charges PC vendors for its operating systems. In the absence of such a public price list, "people they want to reward get a specially low price, and people they want to punish get a specially high price," Kusnetzky said.

A breakup of Microsoft alone wouldn't change much in the software industry, argued Jean-Louis Gassee, the president and CEO of Be Inc., an operating system maker in Menlo Park, California.

What would stop a separate operating system company, Gassee asked, from "offering more and more features to the (operating system's) text editor and then compete with the application company?"

The split-off applications company would be expected to make versions of Office for Linux, and as a result it might pressure the operating system company to end its restrictive licensing practices that now hurt other operating system developers, said Gassee.

PC makers don't sell computers with a dual-boot capability - for example, systems that can run either Linux and a Windows operating system, for instance, "not because Linux is bad, unpopular or expensive - it is because Microsoft has licensing practices and legal tricks that prevent this from happening," said Gassee, who added that a breakup along with conduct remedies will be needed to change Microsoft.

Some users are skeptical about the ultimate impact of a breakup.

"Depending on the business practices they choose, they (Microsoft) could be just as damaging as two different companies as they could be as one," said Ron Wells, the information systems director at Carolina Turkeys Inc. in Mount Olive, North Carolina.

A separate company "could choose to stay on the Microsoft platform. I don't see how the government could really force that issue," said Wells.

But Harvey Kasinoff, who does advanced development work at PMI Food Equipment Group in Troy, Ohio, said a breakup may improve competition. "It could probably be a good thing for the country, but it's going to be very confusing for a period of time," he said.

Glenn Gies, manager of security and infrastructure services at Koch Industries Inc. in Wichita, Kansas, doesn't see users moving off Office if the applications business are separated from the operating systems business. But some good may come of a breakup along these lines, he said, in that the Office company might be more willing to develop office productivity applications that are independent of the operating system and work on the application service provider model.

The court could reject a breakup and opt for conduct remedies alone, such as requiring Microsoft to publish its licensing terms and make its application programming interfaces available to third parties at the same time that they become available to the company's own application developers. Advocates of a breakup argue that such a move would be best for the industry because it won't involve ongoing and meddling judicial oversight.

But Luke M. Froeb, a former economist at the U.S. Department of Justice during the Reagan and Bush administrations, said a breakup doesn't free the government from the need of imposing conduct remedies.

"If you break up the company into pieces, you're going to have two dominant players: a dominant applications suite and a dominant operating system," said Froeb, who opposes a breakup. "What's to prevent that operating system (company) from doing exactly what it did the first time?"

Froeb, now an associate professor at the Owen Graduate School of Management at Vanderbilt University in Nashville, said the court would be involved in making sure the split-up firms didn't expand into other areas. "I don't see how you can avoid a conduct remedy."

While Microsoft battles its antitrust case, it will also fight a slew of private cases - but it least it won't send its lawyers all over the country to do so. A panel of federal judges this week consolidated 27 private antitrust suits pending against the software giant in a single court in Baltimore.

The judges put U.S. District Court Judge J. Frederick Motz in charge of coordinating the cases. Microsoft spokesman Jim Cullinan said the company supports the consolidation because concentrating the cases in one court can reduce the costs of the case, which "helps the taxpayer, and it helps the parties move ahead with this process." Cullinan said he had no idea when the judge would take further action on those private antitrust cases.

Robert L. Scheier and Dominique Deckmyn contributed to this story.

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