April 28, 2000 4:45 PM PDT

Industry views proposal as too little, too late

The government's move to break up Microsoft, a virtually unthinkable possibility not long ago, has been cast as a sweeping action that heralds a new era of hard-line antitrust regulation.

But rival companies and many others Breaking the giant: Special Coverage within the high-tech industry view the proposal as ineffective at best and, at worst, an ill-conceived action that addresses older markets that are quickly losing relevance. Some repeated an oft-stated criticism that the government simply cannot stay abreast of today's hyper-fast technologies and businesses enough to regulate them.

"I think the issue which led to the Microsoft split proposal is now completely moot," said Frank Moss, former chief of IBM subsidiary Tivoli Systems who is now co-founder and chairman of both Bow Street Software and Agillion.

Long accustomed to Microsoft dominance, the software industry has already become adept at fashioning their businesses so that they do not cross swords with the vast empire based in Redmond, Wash. As a result, splitting Microsoft may do little to divert other companies and consumers from Microsoft businesses and products.

Dan Kusnetzky, vice president of system software research at market researcher International Data Corp., said the proposed breakup would do little to sway the use of Microsoft products by big business in particular, which provide Microsoft's most lucrative revenues.

"Users committed to Microsoft software will continue to use this software," he said. "Users committed to someone else's software will use this as further justification for why they were right to take the position they did."

In fact, some believe that the move may actually end up helping Microsoft in the long run by forcing it to expand beyond traditional Windows markets that have become relatively mature. Specifically, that means pushing Microsoft products from the desktop PC to the Web.

"Ironically, one of the biggest gainers of the split may be the applications business at Microsoft--they will be forced to convert their offerings faster to Web services, no longer being able to rely on Big Daddy Windows," Moss said. "They will then be better equipped to compete with those who wanted them split in the first place."

The Justice Department has proposed splitting Microsoft into two businesses--one focused on the operating system software that runs computer hardware and the other on the software applications that perform specific tasks like word processing and spreadsheets. But this division isn't the answer, industry analysts say.

"Microsoft's competitors are still competing against the same parts of Microsoft. Linux companies compete against the operating system company, applications companies compete against the Office company," said Ted Shadler, an analyst with Forrester Research. "It's kind of status quo, really--I don't see how it accomplishes anything."

He suggested an alternative division along systems lines, with one focused on the desktop and the other focused on server software. Such a split could make it more difficult for Microsoft in emerging businesses, areas that many believe carry far more potential than those addressed directly by the Justice Department's proposal.

"If the judge accepts the government's plan, what would happen is that the Windows company would go out and create another productivity suite, except one that's Internet-native--a product suite for the Internet generation," Shadler said. "If I were at Microsoft, in the proposed operating system company, that's the first thing I would do: I'd create an Internet-based productivity suite immediately to compete against the Office company."

"It kind of gets at why looking at the DOJ, they have to really understand the company's business, and they don't right now," Shadler said.

Others say the move may ultimately do more harm than good to Swimming with sharksthe software industry, creating a two-headed beast whose dual agenda will make it better equipped to compete against the likes of IBM, Oracle, Sun Microsystems and a bevy of Linux-based systems firms on a variety of new fronts. And that, Meta Group analyst Steve Kleynhans says, could create the opposite of what the government is seeking.

"The proposal to split up the company is just the wrong way to do it," said Kleynhans, who doubts this breakup will occur. "You'll end up creating an operating system company that will basically feel that it's been unleashed to do whatever it wants...The resulting companies will feel free to act even more like monopolies because they won't have the restriction of the other half of the company."

In theory, separating Microsoft's operating system and applications units would lessen the potential for abuse of the company's monopoly power. But in truth, Microsoft may already be a step ahead of the government by planning a move further toward Internet-based services and away from the more limited desktop-only PC software market.

Next month, for example, Microsoft executives will outline a strategy called Next Generation Windows Services (NGWS), which will combine existing and new Internet software. The goal is to provide Web-based services, such as security and instant messaging, that will work with wireless devices connected to the Net, such as cell phones and personal digital assistants. Microsoft also plans to provide services for Web site operators and has already begun to peddle its Passport digital wallet service.

This initiative will take Microsoft Puppet masters: Who controls the Net into non-PC businesses where it lacks a monopoly advantage. Chief executive Steve Ballmer has stated that as part of the plan the company will develop a new version of the Windows operating system and new development software for programmers to build Web-based applications

Critics say that such considerations were conspicuously absent from today's proposal for remedies.

"Breaking up Microsoft only makes them more competitive. It's too late for this," said software industry veteran Chris Stone, a former executive with Microsoft competitor Novell. "Allowing Microsoft to start porting its applications to Linux, Unix, et al, only makes matters worse. The reason we have choices in applications is because Microsoft only built this stuff on Windows--now the Feds are going to break them up and help create a $6 billion apps company. How big do you think that monopoly is going to be?"

News.com's Melanie Austria Farmer contributed to this report.

 

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