Justice’s Blow to Goliath Leaves David Crippled : News analysis: Software industry cheers the move to slow Microsoft’s march, but many lament the effect on Intuit.
In filing suit to block Microsoft’s acquisition of Intuit Inc., the Justice Department has slowed the software giant’s march to take over more and more of the computer industry--and left many a Microsoft competitor breathing a sigh of relief.
But for all those who are gleeful over Microsoft’s stumble, there are many, too, who lament the devastating blow dealt to Intuit, once among the personal computer industry’s most innovative software outfits. The irony of the Justice Department’s action is that Intuit--which had been David to Microsoft’s Goliath before they joined forces--is now much weaker than it was before.
Microsoft had hoped to use Intuit as its entree into the world of electronic banking, where it could, in theory, collect revenue for every financial transaction made using its software. With its Microsoft Network, an on-line service that is scheduled for launch in August, it would also own the electronic highway on which many transactions would travel. This scenario unnerved not only many in the computer business, but many in the financial world as well.
Microsoft Chairman Bill Gates, uncharacteristically terse in a conference call with reporters and analysts Thursday, vowed to fight government.
“We’re optimistic that we will be able to get a speedy trial that will give us a chance to explain why we don’t see this as anti-competitive,” Gates said, declining to offer further comment.
But even a company as powerful as Microsoft faces long odds in taking on Uncle Sam. If the Justice Department succeeds in blocking the deal, as most expect it will, Microsoft is expected to seek other ways to establish a strong position in personal finance software and financial services. The company does still have its Microsoft Money program, a distant second to Intuit in the personal finance market; Money was to have been spun off to Novell Inc. if the Intuit buyout had gone through.
Many of Microsoft’s competitors were clearly delighted by the Thursday ruling, and they’re now hoping for further action against Microsoft. The company’s consent decree settling a long-running Justice Department investigation of matters unrelated to Intuit has been challenged by a federal court judge, and Microsoft clearly now faces close scrutiny of its every move.
“We hope the Justice Department will take additional action to prevent Microsoft from exerting its dominant market power to control the emerging market of on-line services,” Steve Case, president of on-line service provider America Online, said in a statement.
Added Gary Reback, a partner with Wilson Sonsini Goodrich & Rosati who represents a group of unnamed Silicon Valley companies challenging the consent decree: “We feel very good about this . . . not suggesting that this is going to cure all of the computer industry’s problems, but if this deal had gone through, the industry’s problems would have been very severe.”
But some observers, particularly analysts in the financial community, denounced the action, saying it will merely hurt successful companies.
“Justice has no clue what’s going on in this industry,” said Terrence Quinn, an analyst at Furman Selz said.
Certainly, Intuit’s problems now look serious. The company had successfully fought Microsoft for years before agreeing to a buyout offer it could hardly refuse. Other suitors might emerge, but few are likely to pay such a premium.
“In the case of Intuit, you had a whole team who thought they were going to hit the jackpot,” said one industry source, who declined to be named. “These guys were going to be bought for $1.5 billion; everyone thought they were going to go to the Bahamas.” The rise in Microsoft’s share price has since made the deal worth about $2 billion.
“It’s obvious that it causes people to take their eye off the ball,” the source said. “In the best of circumstances, mergers are hard. They are the ultimate de-focusing act.”
There had been signs that Intuit, once considered the PC industry’s darling for its easy-to-use home accounting software and its eager-to-please customer service department, had become distracted as the Justice Department investigated the merger with Microsoft.
During the last few months, irate consumers have jammed customer service phone lines and left nasty messages on on-line forums, complaining about bugs in Intuit’s income-tax-preparation software. And they became incensed when the company was tardy in sending out software with the latest changes in the tax code, causing many to file at the last minute.
Intuit Chairman Scott Cook, sounding weary, on Thursday vowed to fight alongside Microsoft for the deal’s eventual approval.
“We are 100% committed to this deal,” Cook said. “We are resolved and resolute. We and Microsoft are committed to seeing this through. We believe we are right and that this deal is good for consumers.”
The government’s lawsuit quoted Cook in a September, 1994, memo as referring to Microsoft by the code name Godzilla, an image whose significance wasn’t lost on the antitrust department. According to the lawsuit, Cook’s memo offered the following business outlook after the merger: “Elimination of competition will enhance that success, perhaps greatly.”
Now, Intuit--and Microsoft--are likely to have to find another way.
* MAIN STORY: A1
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Market Dominator
Intuit’s Quicken program dominates the personal finance software market. That has propelled the company to rapid growth and make it an attractive target for Microsoft. Monthly high price for Intuit stock, except latest:
Oct. 13: Microsoft’s proposed acquisition of Intuit announced
Thursday: $72.75, down $10.25
The Players
1994 U.S. market share for Quicken and Microsoft Money
Intuit: 70%
Microsoft: 22%
Other: 8%
Sources: TradeLine, Justice Department
