What Could Be Microsoft's Future as 'Baby Bills'

FRAMINGHAM (05/08/2000) - The U.S. Department of Justice and 19 states that brought Microsoft Corp. to court on charges that the company broke antitrust law have recommended that Microsoft be split into two companies.

"Baby Bill 1" would own Microsoft's operating systems, and "Baby Bill 2" would own Microsoft's applications, application development tools, database software, middleware, serverware, professional services, television and Web content and, finally, media (broadband and wireless communications). This, they say, will provide a remedy for the ills created by Microsoft's violation of the Sherman Act.

But it's not at all clear that it will.

First, Judge Thomas Penfield Jackson isn't obliged to abide by this recommendation. We won't really know what remedy he'll call for until he publishes his opinion. Microsoft has until Wednesday to offer its comments and could ask Jackson for more time. If Microsoft doesn't like the judge's final decision - and if hints of a breakup are in the air - it will appeal.

So, this opera won't be over until the Supreme Court sings.

Let's consider what would happen if Microsoft really were split in two. What would change? For the consumer, very little at first. For the Baby Bills, organizational chaos would reign for a year or two while they work out how to divide their physical and organizational infrastructures and produce products for other platforms. In the meantime, competitors would have a great deal of fun using that time to play the traditional game of FUD (fear, uncertainty and doubt). They would go to Microsoft's customers and paint a bleak picture about the future of its products - price, availability and support - in order to woo business.

It's clear that corporate IT organizations that are committed to Microsoft products will continue using them. After all, their end users know how to use them, and their support people know how to support them. The most important reason they'll continue using them is that they believe the products solve their computing problems for a price they're willing to pay. The major differences they'd see for the first few years after a breakup would be that they'd have to write two checks rather than one to pay for their software and to negotiate with two firms, and possibly their competitors, rather than one.

That would enhance competition, but on the downside, there will be many products to consider and many company reps knocking on the door.

Organizations not committed to Microsoft products would continue along their chosen paths. These organizations would simply take a split of Microsoft as further justification that their selection of non-Microsoft software was the right choice.

In short, nothing new would happen for a couple of years after the breakup.

Changes will start to occur when Microsoft's contracts with OEMs and channel partners come up for renewal. These partners will face the brave new world of competition. They will need to sort out offers from Applix, Corel, Lotus, Microsoft and Sun for personal productivity software. They will also need to sort out offers from IBM, Informix, Microsoft, Oracle and Progress Software for database and tools. Legato and Veritas would be happy to sell serverware solutions for Windows NT and Windows 2000, something that's difficult for them to do now because of Microsoft's contractual agreements and pricing policies.

Will Microsoft's partners continue to focus on Microsoft-only solutions? It's rather unlikely.

There's still a long road to walk before the final outcome, and Judge Jackson is the first stop on that road.

Dan Kusnetzky is program vice president for system software research services at International Data Corp. in Framingham, Massachusetts. Contact him at dkusnetzky@idc.com.

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