Are two Microsofts better than one?

Microsoft's competitors argue that a breakup could get the bully off their backs.

By Janelle Brown - Katharine Mieszkowski - Damien Cave

Published June 8, 2000 12:26AM (EDT)

As expected, Federal District Court Judge Thomas Penfield Jackson ordered the breakup of Microsoft into two separate companies on Wednesday -- one responsible for the Windows operating system and the other for software applications. Microsoft has four months to present a plan to the court indicating how it will proceed. Microsoft is expected to appeal, but during the appellate process, Jackson also enjoined Microsoft to abide by a series of conduct restrictions limiting its ability to leverage its market power in anti-competitive ways.

In advance of the judge's decision, we interviewed a group of prominent software executives to learn how they think a breakup would affect the industry.

Ransom Love, CEO of Caldera Systems, a distributor of Linux-based operating systems which reached an out-of-court settlement with Microsoft earlier this year in its own antitrust suit against the software colossus. Caldera had charged Microsoft with using its dominant position in P.C. operating systems in the early 1990s to crush competition

Let me tell you, [the very idea that the company could be broken up] is already having a tremendous effect. For the first time in years, there's hope. I don't know how to describe it any other way, but as I go around the world, I see companies looking to do the right things, to make the right kind of investments in innovative technologies. It's all because they have the hope that they're going to be able to be competitive in the market.

I think the suit's ramifications are going to be very significant -- and I think they're already having the effect of stimulating innovation, creativity and opportunity back into the industry. In talking to major business leaders, analysts and others almost every single conversation includes someone saying, "If this break-up goes through, we can do this, this and this."

In regard to Linux, and our business in particular, it opens up the doors to partners and relationships. We've been very vocal about some of our concerns with Microsoft, and we have had companies not willing to do business with us for fear of retaliation, now come and form stronger strategic relationships with us.

Microsoft has a tremendous opportunity here to become a true leader instead of a dictator, if they would just voluntarily break up the company and move forward on their individual merits rather than the practices that they've held to for so long.

Jon Stephenson von Tetzchner, CEO and co-founder of Opera Software, an Oslo, Norway, company that makes the Opera browser, which competes with Microsoft's Internet Explorer

A breakup will open new possibilities for us. If you look at what's come out of the case, the findings of fact and of law, it's obvious that their practices have been hindering us from doing work on the Windows platform. Our market share now is between one-half of a percent and 1 percent; we could have had many more users if it had been possible to bundle the browser with machines. But Microsoft forced Compaq to drop Netscape, so I doubt Compaq would have taken much of a chance on us.

With a breakup, we expect to get Opera on many more machines. We can't say how many, but we expect our market share to grow. And I don't know how long it will take for the split-up to take place. It could take years, which is why we have been planning more on the status quo in the market, with Microsoft being there. But if the split-up happens, we see that opening doors. It's opening the possibility for us to do deals where the choice of the browser is based on the customer's decision, not on what operating system they're using.

We also think the trend away from PCs is a very important trend for us. In a way, that's because the Windows market has been very difficult for us. We'd be very happy to sell Windows browsers, but we'd be happy to sell browsers in Internet-only devices as well, which is why we've focused not just on Windows but also on EPOC, BeOS, Linux and Mac platforms.

Of course, everyone obviously likes the challenge of competing with Microsoft, but ... even if the company gets divided, there will be an Internet Explorer browser with a huge market share. We'll have a more even playing field, but we'll still be competing. Even if the browser or the company has a different name, to us it will still be Microsoft.

Derek J. Burney, CTO of Corel, maker of graphics and business software applications including WordPerfect and CorelDRAW

Unless there is a mechanism in place to prevent the back-room deals [a breakup] really won't make a difference. It really would amount to a bunch of Baby Bills running around out there unless there was something done to fix the fundamental problem.

The fundamental problem is that consumers don't really have the power to choose right now. Just hypothetically: If a hardware manufacturer wants to put Corel WordPerfect on his machines, but a giant corporation owns the only operating system and says that if [the manufacturer] doesn't put its suite on and take the Corel one off, it won't put its operating system on, the [manufacturer is] forced into putting on a suite of applications and, even worse, they're compelled to pay whatever the asking price is.

I'm not saying that happened, but it's very easy to see that it could happen. A breakup wouldn't address that because you'd have Bill Gates running one company and Steve Ballmer running the other -- well, whoopdeedoo.

One interesting thing that would happen, I would bet dollars to donuts, is that [within] four seconds [of a break-up taking place] the Office company will announce that they have their products ready for Linux. That would be a good thing for us and everybody else. I would love nothing more than for Word Perfect to compete with Word on a level playing field such as Linux. If the OS was irrelevant, which it would be with Linux, customers could choose between products from Microsoft and Corel.

So much innovation is being squelched right now. People know if they develop something on Windows, Microsoft will either kill it or buy it. Same result. Once there's not one big company controlling the entire arena then it allows people to try new things, be creative, be inventive without any worry of backlash.

I know several companies that have Windows products that would like to port them to Linux, but they're afraid that Microsoft would do something to their Windows business. Until they have a sense that they can survive in Linux markets without Windows, they won't make that move. It's a real classic chicken-and-egg situation: The Linux market won't grow unless there are applications there; the application developers won't go there because they're afraid of a backlash from Microsoft. So, in that sense a breakup would be good news.

You would think you would notice a difference [in Microsoft's behavior] given that they're under a microscope, but we've seen many examples of them being just as predatory as they always were.

Steve Sakoman, COO and co-founder of Be, Inc., maker of the Be OS

I think a lot of us here believe that this whole case is about a battle that's pretty much over; the new battle is the Internet, and specifically appliances. The new platform is the Net with a bunch of stuff connected to it, and it's not a PC. For our desktop business, [if the breakup had happened] a few years ago it would have been helpful. But the landscape has changed and the opportunities are greater elsewhere.

I'm guessing its sort of like the Soviet Union -- what happens when the big enemy goes away ... It's not a perfect analogy, they were sort of the enemy of record for lots of folks but also the enabler for all those same folks. I think the landscape is changing so rapidly that, again, with the Internet all the rules are changing, and in a lot of ways they are becoming one more power among many. They still have a lot of weight but as each month goes by their influence is reduced, even without the government doing what they are doing.

If they are small [broken up into smaller parts] they may be able to move faster -- they may be a better competitor on features and support. It's a tough call there as to whether it will be a good or bad thing.

And anything the government does is going to take years; there's the drama of the announcement, but the reality takes time. It's fun to watch -- the drama! -- but that the reality of it having any concrete effect is a ways away.

Philippe Kahn, CEO of Starfish and the founder of Borland International (now Inprise Corporation), an early Microsoft competitor

I think that there is a whole side of Silicon Valley, in the wireless Internet space, that really doesn't even see Microsoft. In the last five years, that is the part of the world that I am personally involved with. And there we have plenty to deal with: The birth of a great new wave!

Drew Cohen, president and CEO of NeoPlanet, which makes custom Web browsers (from underlying Microsoft technology) for clients like Universal Pictures

I see this as the closing of yet another chapter, but not the end of the book. The key is whether or not the remedy actually keeps Microsoft from leveraging one business into another. Can a breakup do that? I don't know; it's a fuzzy area. We're not sure that any of the proposed remedies would have actually fixed the general problem. That's why I think there's still room for an improved solution. In some sense, you still have people saying, "Microsoft did something wrong, you have to punish them." But that's not the right answer.

It has to be something that really stops Microsoft from doing those same things in the future. Punishing them is not in anyone's interest. But changing them, well, that would help us quite a bit. To the degree that they stop leveraging Windows so that we can go to companies and say, "Use our products, use them without worrying that Redmond will punish you," that's what we'd like to see.

Guy "Bud" Tribble, vice president of software engineering for Eazel, a start-up building a user-friendly desktop for Linux-based operating systems

This breakup does seem to be a little bit backwards looking. In the past, Microsoft had too close a relationship between [its own] applications and operating systems developers and it used the OS to dominate applications. That was what the application wars of the '80s were about, and we're kind of past that.

The most serious thing looking forward ... is to prevent Microsoft from extending its monopoly in operating systems onto the Internet and specifically [to prevent it from] gaining control of protocols and standards on the Internet. The way that would occur is by monopolizing -- using their monopoly in the browser market to drive protocols on the Internet.

If the applications part of a broken-up Microsoft had huge market share in browsers and those browsers would only talk to Microsoft back-end servers and middleware -- then, they are extending their monopoly onto Web servers and e-mail servers. That's just a 90-degree different perspective on this whole thing. The effect on consumers: They would go to Web sites that only work with the Microsoft browsers. That would be a bad thing for the industry in general.

The looming problem is: Will Microsoft embrace and extend the Internet standards? "Oh, yes, we'll use HTTP and extend it in this way and this way and this way, and by the way that only works with Microsoft's browser and mail server and Web servers."

The question then is, is any breakup plan going to address that issue or is it simply going to address the past? Is it going to address this threat of future extension of their monopoly onto the Internet, or their past monopolization of the applications business? As the plan comes out and gets reviewed by people, it ought to be viewed very much in that light -- where is Microsoft going to extend going forward and how does it address that issue?

Larry Augustin, CEO of VA Linux, manufacturer of hardware pre-installed with Linux-based operating systems

With our particular business, we don't see a breakup having a lot of impact; we think things are going fine. Linux is really beating Windows NT and Microsoft in our market, which is Internet infrastructure. The numbers we see are Linux owning 31 percent of that market, more than any other operating system.

But in general it is going to have an impact on the industry, showing people that Microsoft is vulnerable, creating renewed interest within software companies in going out and competing with Microsoft. I think that it will revitalize the industry to some extent. The suit itself has already had an impact. Just by nature of it being there it's distracting Microsoft, it's energized competition. People have started to reevaluate Microsoft as vulnerable.

If there were a separate Microsoft applications company that was not involved in the OS, I think that company would have a lot of incentive to port those products to operating systems like Linux. Linux has 4 percent of the operating system market. It's only 1 percent behind Apple. So, if you're in the applications business, you've got to be thinking about porting there. If you look at what Linux is missing on the desktop, it's applications ...

I actually think the piece of Microsoft that is the most dominant in the industry is the applications. I've always felt it was Office that has really driven the OS to be where it is at. The success of the operating system has been very dependent on the success of the applications.

The other suggestion is that you have Microsoft release the source code to Windows. In some ways, that's a simpler solution than breaking up the company or regulatory oversight. If the source code was released -- it would be fairly easy for us to create an application layer under Linux that ran Microsoft applications, which I think has the desired effect. You have to make sure going forward that new APIs don't appear; you have to make sure that the remedy sticks. But I think it would enable competing operating systems to appear and competing operating systems to run Microsoft applications and it would really break that stranglehold of the combination of the operating system and the applications. You break that stranglehold and it opens everything up.

Ultimately, though, my attitude has always been: It's up to the market to decide, not the government. Regardless of what the decision is, it's up to the markets and the people actually buying the software.

Tim Buckley, COO of Red Hat, the leading distributor of Linux-based operating systems in the United States

I believe that the decision of the marketplace, wanting an alternative, was made long before any decision coming down on Microsoft.

Last year 25 percent of all servers were shipped with Linux. Windows NT has about 36 or 37 percent market share, and that hasn't grown over the last two years. The marketplace is saying we want an alternative. Linux and Unix have 50 percent of the market now. NT is not going to own it and that has nothing to do with Microsoft being broken up.

With NT, if you want to change something you have to wait 18 months or whatever until the next release. You're stuck. With open source you fix it right then and there, or you go out on the Net and they'll help fix it for you and you're able to take the code change and give it out to the rest of the world. The concept is that the user owns the software and is giving it back to the community. Every line of code that Red Hat writes is open source. That's what a customer ultimately wants -- control over their own operating environment, and I think that's why you've seen this shift, more than any decree coming down.

Janelle Brown

Janelle Brown is a contributing writer for Salon.

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Katharine Mieszkowski

Katharine Mieszkowski is a senior writer for Salon.

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Damien Cave

Damien Cave is an associate editor at Rolling Stone and a contributing writer at Salon.

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