Commentary: Monti won't stall Microsoft

By Paul Jackson, senior analyst

The European Commission's competition commissioner, Mario Monti, on Wednesday announced its ruling against Microsoft.

In addition to paying a massive fine, Microsoft has to unbundle Windows Media Player from its operating system to allow alternative media player providers to compete on a level playing field. But is it really level?

Many content providers have already committed to the Windows Media Player platform--which is actually pretty good technology--and as PCs become just another device in the digital home, consumers won't care what's under the hood. The result? This ruling represents at best an annoyance to Microsoft, not a genuine barrier--even for Longhorn.

With a war chest of $51 billion, Bill Gates and Steve Ballmer--who will appeal--won't be losing any sleep over the additional 497 million euro ($613 million) fine. But how will this affect the home PC market and European consumers?

• It gives other software companies a window of opportunity. After this ruling, original equipment manufacturers can start offering preinstalled alternatives to Windows Media Player. Hewlett-Packard is already trying this with iTunes. Companies like Apple Computer and RealNetworks will be on their doorsteps to offer QuickTime and RealPlayer. This could hurt Microsoft, as consumers start to turn their home PCs into entertainment centers to play music downloads and video clips.

• The bundled Windows version will still beat the stripped-down one. Microsoft need not worry too much: Regardless of the strides that RealPlayer, QuickTime and DivX make, content companies like Walt Disney and Roxio, the owner of Napster, have already committed to Microsoft for digital rights management and Windows Media Player. If Monti had given his verdict two years ago, these players would have had a chance. Now, it is too late.

The European Union's sanctions against Microsoft are:

Too strong
Too weak
About right

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• The real issue: Longhorn, Microsoft's next major consumer operating system release (scheduled for 2006), which may now have to come in two versions as well appease the European Commission. One version would have all the Microsoft bells and whistles; vendors could dress up the other, bare-boned version. Microsoft won't have a two-year head start with this, but will it impact consumer adoption of the digital home? No. Microsoft will still have a huge competitive advantage, as the full Longhorn edition will beat the patchwork solutions to market and work more seamlessly. Furthermore, apart from a dedicated group of consumers antagonistic to Microsoft--the hip Mac fans and home Linux mavericks--consumers will care even less about the inner workings of their PCs, phones and set-top boxes.

© 2004, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.