DOJ Advice: Split Microsoft Asunder

FRAMINGHAM (04/28/2000) - Looking to smash the Microsoft Corp. monopoly in the same way it did AT&T Corp. 16 years ago, the Department of Justice and 19 states as expected last week asked U.S. District Court Judge Thomas Penfield Jackson to split Microsoft into two competing companies.

The proposal recommended that Microsoft be split into one company focused on the Windows operating system and the other on software applications such as Office and Internet Explorer, the Web browser that was at the heart of the antitrust case filed nearly two years ago.

The government will also seek behavioral remedies that will restrict the company's business practices during an appeals process. The Justice Department also asked that the two new companies be barred from reuniting for 10 years, and that Chairman Bill Gates and other executives be barred from owning stock in more than one of the new companies.

The last major government-induced corporate breakup was in 1984 when AT&T was deemed a telephone monopoly and divided into eight companies.

Microsoft, which is expected to appeal, responded to the ruling quickly.

"For months, the government and a handful of our competitors have been repeating that Microsoft should be broken up. But no matter how many times it's repeated, it's still unreasonable," said Steve Ballmer, Microsoft president and CEO in a statement. "I remain proud of the work this company does. We do not believe we have violated the law, and the Court of Appeals has yet to consider this case. We also believe we have an obligation to our shareholders, employees, partners and customers to stand up for what we believe is right.

"Microsoft has exciting plans to develop a broad array of next-generation software products that will take computing to the next level, but those plans are imperiled by the extreme regulation proposed by the government," Ballmer added.

Attorney General Janet Reno also told the Associated Press: "This is the right remedy for the right time. Our proposal will stimulate competition, promote innovation, and give consumers new and better choices in the marketplace."

Jackson can now accept all, part or none of the proposal. Microsoft will give its response and present its own proposal on May 10. The Justice Department will respond to Microsoft's proposal on May 17. On May 24, Jackson will hold a formal hearing in Washington, D.C. before retiring to draft his ruling, which could take a few weeks.

The government lays out a draconian scenario for dealing with Microsoft, and some IT executives are concerned that they will eventually be the ones to suffer.

Microsoft's corporate customers say that despite their well-known complaints about often buggy or insecure software, they rely on Microsoft's integration of its range of products for desktops, servers and the Internet.

Users wonder if the parts of a dismantled Microsoft could equal the sum of what exists now. "I can't see a breakup making the products any better," says Jeff Allred, manager of network services for the Duke University Cancer Center in Durham, North Carolina. "Who is there to fill in the gaps in competition? Apple isn't focused on my corporate network. Linux will take a few more years to develop. What happens to me in the interim? Competition is always good for the consumer, but in this case, how long will it take for me to see advantages?"

According to a recent Giga Information Group/Sunbelt Software survey of more than 1,000 companies worldwide, 92% of respondents said they would continue to buy and install Microsoft Windows-based products.

"Put yourself in my shoes," says Greg Scott, IS manager for Oregon State University's College of Business. "I have to provide IT services for a midsize to large enterprise. What I want is consistency and reliability - I don't like a lot of surprises. The operating system is more dependent on back-end systems, so how can you break those apart and still have an effective system?"

But some say integration is a double-edged sword that enterprise customers should look at with a critical eye.

"Indeed, there is benefit in products working together," says David Smith, an analyst with Gartner Group in Stamford, Connecticut. "But the costs may come down the road when you don't have the best products or you have ones that are not easy to support."

There also is concern that enterprise consumers may be getting the short end of the legal stick.

"I think the DOJ is more focused on the consumer market and less so on the corporate computing world," says Dwight Davis, an analyst at Summit Strategies in Kirkland, Washington. "A breakup throws a big curve into IT roadmaps. The corporate world is not clamoring for a breakup.They are a conservative bunch and don't like uncertainty."

Staff writer John Cox contributed to this story.

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