Is Microsoft In Trouble?

On November 5, the long-standing struggle between the Department of Justice (now joined by nineteen states) and software giant Microsoft reached a stunning peak. A federal judge for the first time found that Microsoft was a monopoly and routinely abused its power to dominate competitors.

U.S. District Judge Thomas P. Jackson issued a finding of facts on that date. Such a finding is not a 
final ruling in the case of U.S. v. Microsoft, but it paves the way for one. Essentially the judge has determined these facts are true and no longer debatable in court. It also opens the door to civil suits against the company brought by the public as well as competitors such as IBM, Netscape, and Sun Microsystems, along with computer manufacturers such as Gateway.

Break Up Microsoft?

This ruling was so critical of Microsoft that observers believe there is now a much greater likelihood that Microsoft could be broken up into multiple companies, much like AT&T was broken up into the Baby Bells in 1982. The problem, of course, is how to solve the situation with Microsoft in a way that actually benefits consumers.

AT&T, by way of contrast, was already divided geographically, and was in a slow-moving market. A modern firm in the fast-moving software industry may actually change faster than regulators can anticipate, let alone handle. Already, many of Microsoft's competitors feel that the predominance of the Internet has changed the computing industry sufficiently to cause a breakup of Microsoft to fail.

One reason the government may look at breaking up Microsoft is that the company's aggressive behavior only intensified following prior consent decrees. Critics insist this indicates the company will not willingly follow any rules set before it.

Anatomy of a Breakup

One approach to a breakup is to divide Microsoft along business lines: operating systems, applications, and Internet software and services. This theoretically removes any incentive to favor Microsoft's other products, since the three firms would be competitors. However, this does not create competition in the desktop software industry, the heart of Microsoft's monopoly.

Another solution is to divide the company vertically, into several firms with identical products. However, the logistics are difficult; imagine dividing employees, current stock ownership, and customers among the multiple firms. The government would have to ensure each of the resulting companies was a viable entity, and also be on equal footing compared to the others. One idea is to let Microsoft divide the company at will, but let Bill Gates have the last choice of which company he could control. Another worry is that the new competitors could fracture current computing standards, providing incompatible versions of Windows to consumers.

Other options include forcing Microsoft to license its source code for Windows, or even making the source code available publicly (known as "open source"). Unfortunately, no one has been able to find a company willing to license the source code to Windows and compete with Microsoft on Microsoft's own playing field.

January 2000

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