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Microsoft Declared A Monopoly

By Joshua Wilner
Nov 5, 1999 12:00 AM PT

Federal judge Thomas Penfield Jackson released late Friday afternoon a much-anticipated decision in which Microsoft was determined to be operating as a monopoly. This ruling is expected to have a tremendous impact on the future of Microsoft, as well as on the direction of the global computer software industry.

Microsoft Declared A Monopoly

"Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," Jackson wrote in his findings.

The decision entailed "findings of fact," which differs from "findings of law" in that factual determinations cannot generally be the subject of legal appeals, while "findings of law" can be appealed in separate legal proceedings.

The lawsuit was filed by the Justice Department and 19 states in May of 1998, suing Microsoft for a wide range of antitrust violations, in particular targeting the company for attempting to monopolize the market for PC operating systems.

"We believe the American legal system will ultimately affirm Microsoft's position, and conclude that Microsoft's innovations have brought tremendous benefits to millions of people," said William H. Neukom, Microsoft senior vice president and general counsel.

Pure Speculation

If we view the 1980's break-up of AT&T as a precedent for the fate of Microsoft, then we would expect to see its various product lines spun off into independent business entities. Although there is no joy in Redmond tonight, ultimately a break-up into so-called "baby Bills" might ultimately strengthen the software giant's product lines.

As independent businesses, there would be little room to continue Microsoft's less successful offerings. A break-up would force each division to focus on its most successful products. Whereas currently Microsoft's less popular products could be "offset" by other more successful offerings, in a scaled-down environment of independent business units, the weaker offerings would need to be discarded to remain in the black.

Impact On The E-Commerce Industry

While the federal court, as of the time of this report, has not yet spelled out the legal consequences, speculation abounds.

Assuming a break-up of the software giant would result in segmentation of Microsoft's web server business, we might see e-commerce oriented products which could compete for a much needed mindshare among IT professionals, many of whom are currently being drawn to Unix or Linux-based solutions as Microsoft alternatives. It is quite possible that an e-commerce spin-off might be viewed by the IT community as a new David rather than Goliath.

By the same token, under a possible reorganization plan, Microsoft might elect to roll its e-commerce products into its new Windows 2000 platform, to strengthen its new NT incarnation by bundling e-commerce features, as does Red Hat Linux, for example. Presumably, even a segmented division of Microsoft offering its flagship Windows 2000 product would benefit from an R&D budget which could well rival the GNP of many countries. In that case, there would still be an almost unlimited amount of resources devoted to positioning Microsoft as a top e-commerce solutions vendor, despite a possible break-up of the monopoly.

Excerpts From Microsoft's Reaction

"The District Court's findings of fact in the antitrust lawsuit with the U.S. Justice Department do not reflect the phenomenal competition and innovation in the software industry and that consumers make decisions based on the best products in the marketplace.... The company will continue to defend the principle of innovation.... Today's findings are just one step in an ongoing legal process that has many steps remaining."

"We remain committed to resolving these issues in a fair and responsible manner as quickly as possible," said Bill Gates, chairman and CEO of Microsoft.

"Microsoft has succeeded because we have been guided by the most basic American values: innovation, integrity, serving customers, partnership, quality and giving to the community. We compete vigorously, but fairly," said Gates.

Excerpts From Friday's District Court Decision

"Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market. Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors. In other words, Microsoft enjoys monopoly power in the relevant market."

"Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows."

For the complete transcript of the Court's decision, click here.

For readers' reactions and suggestions of alternatives to a Microsoft breakup, click here.


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