E-BUSINESS SPECIAL REPORT
Will Microsoft Play Nice Now?

In his first appearance since the announcement of the landmark Microsoft (Nasdaq: MSFT) antitrust settlement, CEO Steve Ballmer told an audience last week at the Brookings Institute that the software giant is taking its new leadership role seriously.

"As CEO of Microsoft, I can personally assure you that we will commit all the time, all the energy and all the resources to follow through on our responsibilities under the decree," Ballmer said.

Of course, it remains to be seen how the Redmond, Washington-based company actually will conduct business in the wake of the settlement ruling. Some analysts see Microsoft's changes as superficial, while others say the company has made more serious, significant alterations in its practices. Will the software giant play nice in the post-trial era?

Toeing the Line

In his speech, Ballmer attempted to put a kinder face on his company, which is known as a ruthless competitor. He pointed to new management strategies Microsoft has employed, as well as an increased need for the company to establish corporate and government partnerships.

As additional proof of Microsoft's compliance with the settlement, Ballmer noted the amount of Windows code the company has made available and cited changes to its agreements with computer makers.

Under terms of the settlement, the company also has created an Antitrust Compliance Committee, chaired by Dr. James I. Cash, a Harvard Business School professor and chairman of Harvard Business School Publishing. He is one of three people in the group without current ties to Microsoft.

The committee is charged with ensuring Microsoft adheres to the settlement. According to Microsoft spokesperson Jim Desler, it must remain in existence for a five-year term specified by the settlement. However, it could continue past the five years, according to those close to the arrangement.

Licensing Fiasco

However, despite the company's recent overtures toward compliance, its recent changes to Windows code licensing agreements have drawn ire in the development community. Critics have charged the new contracts are restrictive and royalties are expensive.

Part of the settlement agreement with the U.S. Department of Justice calls for Microsoft to license Windows code in a "reasonable" and "non-discriminatory" manner so that competitors can develop compatible software for the OS.

Sun Microsystems (Nasdaq: JAVA) reportedly has been the only vendor to sign on thus far. Sun spokesperson Lisa Poulson told the E-Commerce Times that the company signed a nondisclosure agreement so it could view the Windows licensing agreement.

Because the license was restrictive and royalties were steep, Poulson said, Sun filed a memo with the DOJ asking the justices to investigate.

Is New Openness Real?

"The real issue is," Poulson said, "perhaps [Microsoft] complied by offering these licenses, but in practical terms, is it going to do anything to make those protocols more accessible and make Microsoft more interoperable? I think Sun's point of view would be 'no.'"

But she stressed that Sun and Microsoft remain in negotiations over the agreements, and that talks have not reached an impasse.

Meanwhile, IDC infrastructure software research director Al Gillen told the E-Commerce Times that although the settlement may force Microsoft to open up its code, the company still must protect its intellectual property.

"You can be fairly sure that the licensing is going to protect Microsoft's interest in [its] property," said Gillen. "It doesn't say it has to be free."

Litigation Remains

Even as it tries to move forward, Microsoft is still entangled in a billion-dollar lawsuit filed by Sun, plus a separate suit filed by AOL Time Warner and the European Union. In addition, the nine non-settling states in the antitrust suit may still appeal the latest ruling.

Microsoft's Desler told the E-Commerce Times that the company is working through the remaining litigation.

"As we have said for some time, we are confident in our position [and] look forward to defending ourselves against these claims, but at the same time will continue to focus beyond litigation and on what is best for the industry, our partners and consumers -- and that is innovation and developing great products," he noted.

It is unclear how an appeal by the non-settling states might affect the company.

"They never had a really strong case to begin with, particularly from the consumer's standpoint," Peter Kastner, chief research officer at Aberdeen Group, told the E-Commerce Times. "At this point, it can only be for the political visibility gain for the attorneys general and the potential for class-action litigation fees by the supporting council."

Fundamental Change?

Lawsuits and accusations aside, what is clear to analysts is that a change has taken place in the internal workings of Microsoft. They pointed to employees who have become well versed in how their individual actions could affect the company at large.

"They are and have been working for three or four months now on ... programs that will deliver more value for customers," Julie Giera, vice president and research leader for IT services at Giga Information Group, told the E-Commerce Times. "They get the fact that they really have to work to hold these client relationships. They don't have the customer as tied up as they thought they did."

IDC's Gillen described the internal change at Microsoft as a new sense of responsibility, and he credited the DOJ settlement with making the company more accountable.

Yet, in the end, many do not expect Microsoft's efforts to translate into a kinder, gentler company. "That's not their way," Yankee Group analyst Laura DiDio told the E-Commerce Times. "They got to be the number one software manufacturer by being aggressive. That's not going to change."