Microsoft breakup may doom strategy for Internet
by Paul Andrews
Special to The Seattle Times
Although the government's proposed antitrust remedies focus on
two of Microsoft's oldest businesses - Windows and Office - its
real aim may be the company's sweeping plans to merge
Windows with Internet services.
Simultaneous with Steve Ballmer's appointment as chief executive
officer in January, Microsoft announced a broad Internet strategy
called Next Generation Windows Services (NGWS). As
described, the plan aims to combine the power of Windows
products and the Internet in a way that could transform how
information is communicated.
In one often-cited scenario, Ballmer noted that personal medical
information could be stored on the Internet in a private, secure
location. Doctors and emergency personnel would be able to gain
access to them through PCs or other kinds of devices, and even
make and adjust appointments automatically in the patient's work
and family calendars.
"Nothing is more critical to the future of this company than
NGWS," Ballmer said at the time the initiative was announced.
Microsoft executives call the move a duplication of the company's
"reinvention" around the Internet leading to the browser wars of
1995 to 1997 - the effort that eventually prompted the
Department of Justice (DOJ) antitrust suit alleging that Microsoft
had used its monopoly power and engaged in tactics designed to
protect the Windows monopoly.
In a TV commercial running in prime-time spots, Ballmer mentions
"next-generation" software development as "fueling America's
economy."
If adopted, however, last week's proposed breakup of Microsoft
apparently would block the type of integration Microsoft has in
mind for the initiative.
In a detailed declaration submitted in support of a breakup,
Massachusetts Institute of Technology professor Rebecca
Henderson says a breakup would emasculate Microsoft's ability
to leverage its monopoly through control of "middleware" -
software that enables other programs to share information over
computer networks. A Web browser is one example of
middleware, which is why Microsoft put so much effort into
making Internet Explorer the category leader, Henderson
contends.
Henderson and other contributors of supporting documents to the
government filing declined to comment for this story, in
compliance with the court's request. Microsoft did not respond to
repeated requests for comment.
Some analysts, however, think the proposed structure of the
breakup would hogtie Microsoft.
"There is no way Microsoft will be able to continue its Windows
strategy on the Internet under terms of this proposal," said
Richard McKenzie, a University of California, Irvine, professor
and author of a new book, "Trust on Trial," about the Microsoft
case.
McKenzie said the breakup will enhance Microsoft competitors
such as IBM, Sun Microsystems, America Online and Apple
computer while "damaging the overall Windows standard" for
consumers.
In casting the breakup, the DOJ placed Internet operations and
development with the company that would handle applications,
not operating systems. The Windows company would get to
license Internet Explorer, Microsoft's browser, but otherwise be
prevented from integrating its software with the efforts of the
Office group, a suite of popular software including programs for
word processing, spreadsheet and database management.
The two companies would be barred from communicating for a
period of 10 years.
In one scenario, the "no contact" provision would encourage both
companies to develop soup-to-nuts Internet strategies. The
Windows company would develop Office-type and Internet
applications, while the Office group would develop its own
operating system. While presenting consumer choice, however,
two standards could introduce incompatibilities for PC users.
Microsoft originally planned to make details of NGWS public last
month. But no date has been set for the announcement, to be
made at a high-profile event on the Microsoft campus called
Forum 2000. (Ballmer has said the strategy will be given "a better
name" as well.)
Observers have speculated that Microsoft has delayed the
announcement because of antitrust rumblings.
Besides medical records, Ballmer has used examples of flight
rescheduling and coordination of group meetings as areas where
NGWS would benefit consumers in the Internet age.
"Your (personal) information will be available wherever you are,
whenever you want," Ballmer said. A change of flights will mean
that work colleagues and family members will automatically be
notified, and the individual's calendar be updated to reflect the
change.
For NGWS to work, however, will require close communication
not only between powerful network computers called servers and
PCs running on Windows, but with Office applications such as
Outlook, Microsoft's e-mail and personal-information program,
and SQL Server, its database management software.
In last week's breakup proposal, supporting documents charged
that Microsoft is attempting to gain leverage over the market for
Internet servers by making the Windows 2000 server versions
perform vital functions only with PCs running on Windows 2000,
forcing enterprises to abandon competing server operating-system
software.
In her brief, Henderson cited as an example a security feature
that's part of the Windows 2000 version used in PCs. The PC
operating system itself can be used with a server running on
various operating systems. But the feature only works when this
Windows version is working with a server that runs on the
Windows 2000 server version. This means companies that have
Windows 2000 running on their PCs would need the server
version for optimum use, even if they already have competing
operating-system software running their servers.
Palo Alto, Calif.-based Sun Microsystems, a leading competitor
in the Internet server market, has embarked on a strategy similar
to NGWS. Sun's approach is based on technology involving Java,
a middleware programming language, and Jini, an initiative
enabling multiple devices to communicate over the Internet.
Sun was consulted by the DOJ for suggestions on proposed
remedies, say sources close to the case. Sun's concerns about
Microsoft may arise in part from the relative cost of their
products.
"Microsoft is underpricing Sun by 50 percent, which is great for
end users," said Michael Kwatinetz, analyst for the newly formed
Azure Partners investment group and a veteran Microsoft
watcher. Microsoft represents a "formidable challenge" to Sun
and Oracle, a Silicon Valley-based database maker, Kwatinetz
said, because of the increasing power of Windows PCs and
servers to fuel Internet commerce.
Judge Thomas Penfield Jackson has yet to rule on the proposed
breakup. But analyst Mark Anderson of Strategic News Service
said he expects Jackson "will attempt to move forward from the
browser argument into the future, and try to prevent Microsoft
from further integrating Net products into the operating system."
Because "every company in the world is also doing this, a move
by Jackson in this direction would almost certainly be doomed to
reversal," Anderson added.
Microsoft is due to respond to the government's breakup
proposal and suggest its own remedies in an appearance before
Jackson on May 10. Jackson has set May 24 to begin a hearing
on the remedies. However, Microsoft has indicated it will ask the
judge for more time.
"Even the government will have to agree that an American
company deserves more than 12 days to respond to a
government proposal to tear apart a $400 billion company," said
Microsoft's lead attorney, Bill Neukom, in a conference call last
Friday.
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