How Far Will Microsoft Decision Reach?

SAN MATEO (06/12/2000) - As the Microsoft Corp. antitrust smoke clears, the high-tech industry is debating whether this week's remedies judgment solely punishes Microsoft for its own crimes or signals an era of increased government scrutiny of the IT industry.

With IT taking on more economic and political clout, some observers expect that other industry heavyweights will have the government looking over their shoulders.

"Microsoft's competitors are hoping that this stays a special case and that they do not end up under government scrutiny anytime soon. America Online is probably hoping that is the case, and conceivably Sun too," said Dwight Davis, a Seattle-based analyst at Summit Strategies, citing Sun's control over Java and its dominance as a hardware vendor to service providers. "If you look closely, you see many angles of the market that are dominated by one company."

Many people decried the government's ruling simply because it set a perceived dangerous precedent.

"If the government gets involved and does not understand the [technological] issues, we have a huge problem," said Sam Patterson, CEO of Component Source, a software component collective in Marietta, Ga.

Intel and Cisco have already been investigated by the Federal Trade Commission in cases linked to the companies' overpowering positions in their respective markets. However, many of Microsoft's business tactics are far from typical, some observers said.

"I really view the Microsoft case as extremely instructive in many ways for the future. But it is first and foremost a case that may be unique to the facts surrounding Microsoft," said Philip O'Neil, a Washington antitrust attorney at U.S. District Judge Thomas Penfield Jackson's former law firm, Jackson & Campbell. "I think one can overdo the morality lesson from a case like this. It is a once-in-a-generation case just like IBM was 25 years ago."

Although the government appears to be unwilling to regulate the software industry on a day-to-day basis, the case could have broader influence, said Joel Lustig, technology analyst at Moody's Investors Service, in New York.

"The precedents set by the Microsoft case could produce de facto elements of regulation. That could affect the evolution of computing and the Internet space as we know it," Lustig said.

Consumer advocate James Love said the lack of fallout from the IBM case proves that the Microsoft ruling will not have an adverse impact on the industry or the economy.

"Monopolies tend to have big market share as their goal and therefore beat off their competition. But the market then doesn't grow like it should," said Love, director at the Consumer Project on Technology, the Washington-based organization fronted by Ralph Nader. "This is good news for most of these [other] firms. They can actually look forward to a period where they can compete on the basis of their technology rather than whether they can withstand the kind of sabotage Microsoft dealt."

Others disagree, and said the group that the Department of Justice most wanted to protect -- consumers -- could be hurt anyway.

"Consumers should get ready to shell [out] more money," said John Dunkle, president at Workgroup Strategic, in Portsmouth, N.H. "They will be buying the same type of product they did before, but now [they] are buying it from two different companies. Now, instead of one margin, I am paying two companies their margins," he said.

The government's measures are aimed at stimulating innovation by giving PC OEMs, for example, more choice in selling other operating systems. Critics counter that market dynamics are not likely to change.

"The irony of this is, even Microsoft's competitors will not benefit from it," said Will Zachmann, a vice president at Meta Group's Adaptive Infrastructure Strategies, in Stamford, Conn. "The people in the [Department of Justice] are doing a good job of screwing up this fabulous New Economy."

(Additional reporting by Ed Scannell, Jennifer Jones, and Eugene Grygo.)

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