Win or Lose, Microsoft’s Power May Be on the Wane

Although Microsoft Corp.’s antitrust battle with the government has not laid a glove on the company’s enormous profit or lofty stock price, there are signs that the software giant is starting to lose its firm grip on the computing world. Rival companies, customers and even some of its closest allies have begun to show more independence by pursuing new technologies and alliances outside the Microsoft orbit.

The antitrust trial, experts say, is becoming a major and embarrassing distraction for Microsoft and is clearly giving some breathing room to those who want to assert their independence from the company, whose Windows software runs more than 90% of today’s personal computers.

The trial may even be constraining Microsoft’s legendary aggressiveness: The Redmond, Wash., company has made no visible steps to block these defections to competing camps and, despite its enormous $19.2-billion pile of cash, it has been uncharacteristically quiet amid the Internet merger and acquisition frenzy.

Since the federal government, 19 states and the District of Columbia opened their antitrust case against Microsoft in October, personal computer makers such as Compaq, Gateway and Dell have quietly begun offering the rival Netscape Navigator Web browser in competition with Microsoft’s Internet Explorer browser on at least some of their computers.

These PC makers, some of Microsoft’s closest allies, had been offering Microsoft’s browser exclusively--an arrangement that lies at the heart of the government’s antitrust case.

The government alleges that Microsoft has used its monopoly power in PC operating systems to stifle competition in emerging technologies such as browsers, which allow computer users to surf the World Wide Web.

Meanwhile, a few computer makers such as Dell and Hitachi are offering PCs with the option of a different operating system than Microsoft’s ubiquitous Windows. This was unheard of as recently as last year, when virtually all computers based on the Intel chip were Windows machines.

“There are clear indications of Microsoft’s power being on the wane,” said Rob Enderle, a computer industry analyst in Giga Information Group’s Santa Clara, Calif., offices. “There’s a change in perception of the company similar to what IBM went through in the 1980s, but this time it’s happening quicker . . . because of the Internet and the massive news coverage of the technology industry.”

The only saving grace for Microsoft, he added, “is that so far, there is really is nobody to step in to take their place.”

But other experts argue that Microsoft is a very different case from IBM, which saw its dominance dissipate during a brutal, decade-long antitrust battle with the Justice Department. IBM eventually prevailed but found itself the victim of an industry shift from big mainframe computers to smaller PCs.

“IBM was a hardware company, and I think the question of the durability of a monopoly in the software business is a lot more complicated than IBM’s case,” said Daniel M. Wall, a former Justice Department trial lawyer, whose San Francisco law firm has represented Microsoft, Oracle and Sun Microsystems, among other computer firms.

Still, many experts say it is telling that Microsoft hasn’t made any big software acquisitions recently to bolster its position. They say that the company, already stung by embarrassing e-mail disclosures of its take-no-prisoners business practices, may be wary of exposing itself to even more antitrust scrutiny,

Although Microsoft has billions in cash and is feeling the heat from blockbuster mergers and alliances involving high-tech giants such as America Online, Yahoo, Sun Microsystems and AT&T; Corp., it hasn’t sought a major acquisition since the Justice Department brought its antitrust case last year.

“I think Microsoft feels inhibited from doing transactions” that will invite antitrust scrutiny from the government, said William E. Kovacic, a visiting law professor at George Washington University.

“You are largely limited to buying companies involved in new product development and companies doing something you presently don’t offer.”

Microsoft officials dispute that the company is in any way less acquisitive because of the antitrust trial. Company Vice President Laura Jennings said Microsoft has its eyes peeled for companies that provide technology or content not already available on Microsoft’s Web sites.

And Microsoft Chairman Bill Gates said in a speech recently that if his company has hesitated at all, it is only because stock prices of many high-tech companies are astronomical.

Microsoft Chief Financial Officer Greg Maffei said the recent decline in Internet stock prices will open the way for more Microsoft acquisitions.

But Microsoft may well be playing catch-up.

Computer manufacturers who have been reluctant in the past to make deals with Microsoft competitors are doing so now.

Dell, for example, has announced it will be shipping some models of its computers with Linux, a Windows competitor, as an optional operating system. Dell will also ship a computer system that uses no operating system at all and instead is run by an Oracle database and a small piece of the Unix system. The project, nicknamed “Raw Iron,” is part of Oracle Chief Executive Larry Ellison’s effort to undercut Microsoft’s Windows franchise.

Upstart software developer Be Inc. has reached agreement with Hitachi to bundle its BeOS computer operating system on some Hitachi PCs.

Still, many computer users complain it continues to be virtually impossible to buy a computer today without some Microsoft operating system preinstalled.

“We continue to receive reports that [PC makers] face considerable problems in shipping alternative operating systems,” said James Love, director of the Washington, D.C.-based watchdog group Consumer Project on Technology.

Computer makers, Love explained, have to pay significant penalties to Microsoft if they advertise or market non-Microsoft computer operating systems.

For the latest reports on the Microsoft antitrust trial, plus archived stories, information on the key players, text of key documents, a timeline and a discussion, go to The Times’ Web site: https://www.latimes.com/microsoft.

* DAY IN COURT: Microsoft is challenged on a courtroom claim. C1