Speculations from Dow Jones about things that were discussed here eons ago:
Dow Jones News Service
Copyright (c) 1999, Dow Jones & Company, Inc.
Friday, July 2, 1999
Antitrust Suit Spawns Intense Debate, Ideas At Microsoft
By Mark Boslet
WASHINGTON (Dow Jones)--Microsoft Corp. (MSFT) says publicly that its antitrust defense is right on target. But inside the company, debate about the case runs swift, and disappointment about the trial's progress has risen, knowledgeable observers say.
So deep is the frustration that clusters of middle and upper managers have begun urging bold tactics in the now year-long antitrust dispute. Among the boldest is a strategy that would split the hugely successful software maker into three pieces, several observers say.
That some Microsoft managers would float internal trial balloons for radical ideas - another suggests the code for the Windows operating system be opened to public access - is not entirely a surprise. Companies under stress often propose contingency plans for every possible outcome.
But the extreme nature of these suggestions shows how intense the internal debate has become at a company known for presenting a monolithic image to the outside world.
For their part, Microsoft's top decision makers continue to believe they will prevail - or at least emerge largely unscathed - from the trial they have waged for 8 1/2 months with the Justice Department and 19 states, including New York and California. Sources outside the company say a small inner group of managers - including Chairman William Gates III, President Steve Ballmer, General Counsel William Neukom and Chief Operating Officer Robert Herbold - continue to call the shots in the company's defense.
But during the past six weeks, managers in Microsoft's research and consumer-products wings have begun looking more intensely for a silver lining to the protracted struggle, sources say. Their motivation has come from a slowly worsening view of Microsoft's defense against the government's anticompetitive charges.
This change of view is significant. Many managers at the company were confident of victory when proceedings began last October before federal District Judge Thomas Penfield Jackson. That confidence has eroded toward resignation that Jackson's rulings will go against the company. Microsoft remains more upbeat about taking the case to the Court of Appeals. Executives Were Astonished
One seminal moment in the trial came when an executive from Intel Corp. (INTC) - a Microsoft partner, rather than a competitor - testified for the government in November. Executives were astonished. Several weeks later, at least one senior Microsoft executive emerged from the witness stand badly shaken up - and resentful - by what he had to go through during cross-examination from the government's relentless lead attorney, David Boies, one source said. His experience didn't help internal morale.
By early June, disappointment at the company turned to a general sense of anger when program manager Garry Norris of International Business Machines Corp. (IBM), a company with almost six times the annual revenue of Microsoft, was able to paint the software maker as a bully. Many inside Microsoft have long viewed IBM as the bully.
When Gates first learned that his subordinates were mulling ideas as extreme as breaking up the company, his reaction was anger, observers say. Apparently now he is listening with a more open ear.
Microsoft spokesman Mark Murray declined comment on Gates's thinking about the case.
Murray said, however, he has no indication Microsoft managers are debating a broad spectrum of responses to the trial.
"I've never met anyone at the company who believes that the government's accusations have any merit, and I have never met anyone at the company who thinks (Microsoft) ought to adopt the kinds of extreme remedies our competitors are pushing," he said.
Around the company's Redmond, Wash., campus, the trial isn't a major topic of conversation, he added.
However, one Microsoft insider acknowledged that the flow of e-mail among concerned managers with thoughts on the case has increased.
To outsiders, Microsoft's breaking up into opinion groups with widely divergent conclusions is not out of character. A similar fragmentation took place in 1997, when Microsoft was in heated battle with Sun Microsystems Inc.'s (SUNW) Java and then-independent Netscape Communications Corp.'s browser, a competitive issue at the heart of the government's broad antitrust case. Netscape was bought by America Online Inc. (AOL) in March.
Among the radicals are those who urge the company to view the antitrust suit as an opportunity to jettison older products. That would free it to compete in new markets, such as the Internet, with more nimble split-offs and acquisitions. One proposal calls for the company to be split into operating systems, applications and Web groups, one industry expert said.
Some people see more traditional opportunities, such as developing server software, or Microsoft's popular Office suite of productivity products, for Unix computers.
The debate also has brought back talk of a separate Web business, or consumer division, spinoff, an idea considered months ago and abandoned. No formal spinoff plan appears to be in place, and the proposal isn't driven entirely by the lawsuit, said one market analyst, referring to the MSN online business. A more powerful motivation is that Microsoft wants to attract outside talent to its ranks, particularly for its Internet properties, and views a spinoff - with potential for stock options and greater freedom - as a way to do so, the analyst said.
The company is "kicking it around" and would likely make sure a spinoff has access to its Explorer browser technology, agreed Stephen Caldwell, vice president of marketing at Transport Logic, an Oregon Internet service provider.
Many analysts have long suggested that Microsoft would be worth more to shareholders in pieces than together. Zona Research Inc., a market research firm, made exactly this case in a report published in March.
"Clearly, no matter how they get sliced up, ... because they have many viable businesses within the confines of Microsoft, you can expect to see a number of market-savvy, very aggressive Baby Bills," Zona analyst Harry Fenik said this week.
Admittedly, the majority of Microsoft managers remain committed to fighting the antitrust case in legal channels, and perhaps all the way to the Supreme Court. They also believe the suit can be settled at a reasonable cost, though it is unclear whether the internal debate makes a settlement more likely.
In its landmark legal action, the government accuses Microsoft of illegally using its Windows monopoly to hamstring Netscape and to expand the company's dominance to the Internet.
Microsoft denies the charges and disputes the claim it has a monopoly. It attempted to show in court that Netscape wasn't foreclosed from marketing its Navigator browser and stands by what it considers its right, contrary to government claims, to integrate Explorer with Windows 95 and 98.
The universal belief inside Microsoft is that the company is right, and Gates falls into the "we will fight camp," said Jonathan Zuck, president of the Association of Competitive Technology, a trade group that supports Microsoft.
Still, analysts surmise the company doesn't want to follow in the footsteps of IBM, which became distracted and run by lawyers during more than a decade of antitrust conflict.
And they agree that Windows - and products such as the word-processing software Word - face a new kind of competition in a high-tech era dominated by sleeker alternatives distributed over the Internet.
Things have changed a lot in the 1 1/2 years since the Justice Department began its current round of enforcement action against the company by bringing a challenge under the 1995 consent decree, said Dwight Davis, a Seattle-based analyst with Summit Strategies. The government ultimately filed a second suit in May of last year. Eighteen months ago, Microsoft didn't believe it had competition; now the company believes it is under attack in the marketplace, Davis said.
Once again, I throw up my hands. Is this another "planted leak" like the famous Bill Gates memo? Or is this more of Steve Ballmer thinking out loud, as when they were going to make Windows Open Source?
All I can say is nothing has really changed since when the idea was discussed here last time, except that the antitrust case is older and looks worse for them.
The main reason for doing it remains what it always was: to maintain the freedom of action of the various businesses to respond to the market. Microsoft threw cold water on any suggestion that they might break up the company. And some of the reasons why breakup was a bad idea discussed and debated here, were not without weight, although they really boil down to preserving that sacred corporate structure.
As for me, my views remain unchanged, although if they were going to break up, they should have done it sooner rather than later. The longer they wait, the worse their antitrust "defense" looks, and the harder it is for them to say the breakup was for business reasons. |
