Proposed MS Breakup a Moot Point, Say Observers

SAN MATEO (04/28/2000) - Although the news that the Department of Justice is asking the courts to break up Microsoft Corp. is screaming across the country in banner headlines, down the road the repercussions may be writ in much smaller print.

In comparison to the breakup of AT&T Corp., which changed the face of the telecommunications industry forever, the breakup of Microsoft is not anywhere near as important, said Edward Yardeni, chief economist and global strategist at Deutsche Bank Securities, in New York.

According to Yardeni, the high-tech industry certainly will not lack for innovation with a smaller, less powerful giant in Redmond.

"When we look back at Microsoft history, it is pretty clear they were rarely innovators. Most of the time they acquired or copied technologies that were in the marketplace and did an outstanding job of improving them and marketing them; the Microsoft operating system was more or less invented outside of Microsoft," Yardeni said.

In fact, a number of industry insiders said they believe the breakup, like the AT&T breakup in 1984, will spawn new companies and more innovation.

"Microsoft has a huge bureaucracy, and you will see a lot of creative companies formed out of employees leaving Microsoft. That's what happened with the AT&T breakup which led to ex-employees starting companies like Qwest International Communications Inc., Level 3 Communications Inc., and Teligent Inc.," said B.

Scott Taylor, president of, in Beaverton, Oregon.

Some executives, however, see a downside for the consumer whenever the government tries to create corporate structures.

"Having run a company, I know how difficult it is to get people and products to work together, and trying to do that from a legal point of view rather than from a business process model will probably result in higher prices for applications and operating systems along with less integration. It will probably be a negative for the consumer," said Richard Friesen, president of, a San Francisco-based company that provides high availability exchange services for the financial and business-to-business markets.

Although consumers may suffer, industry players are more concerned about what effect any decision will have on the value of their stock, said Rob Enderle, a senior analyst at Giga Information Systems, in San Jose, California.

However, Enderle added that much of what was hoped to come from the trial has already been achieved.

"Microsoft had ironclad control over hardware OEMs, now [the OEMs] realize they can do what they want to do," Enderle said.

Microsoft got itself into this current trouble, according to Yardeni, largely because it missed the Internet revolution and used its monopolistic power in operating systems to help it catch up in the browser and Internet markets, beating down competition such as Netscape in the process.

"If the [Department of Justice] had never done any of this we would have found Microsoft was losing its footing, and the question is [whether Microsoft] would have figured out any new bullying tactic to make up for their disadvantage. The DOJ de-fanged their ability to stomp on innovators," Yardeni said.

One executive at Orem, Utah-based Caldera Inc., a Linux solutions provider, said he sees the Justice Department's request as a "great day." However, he also wondered whether the government really will be able to halt anti-competitive behavior caused by collusion between the two Microsofts.

"As I read the rule under the plan, Internet Explorer will be under the applications company but the Windows company will be allowed to license it. Is the door being left slightly ajar for sweetheart deals?" said Royce Bybee, vice president of sales and marketing at Caldera.

Whatever happens, getting industry insiders to say anything as the litigation goes forward may be a challenge for all the news services that cover the industry.

Legal advisors to the movers and shakers within the industry are warning their clients not to speak on the record, according to one industry source. The fear is that during the long appeals process, any comments may be perceived as a vested interest and proof that the industry is ganging up on the Redmond giant.

If that happens, company executives may be deposed by Microsoft attorneys.

"Attorneys are clearly nervous. They don't want to enter their firms into a costly litigation in terms of time or money," Enderle said.

Microsoft Corp., in Redmond, Washington, is at

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