Consumers to Benefit From a Microsoft Split? Maybe
Now that Microsoft Corp. has been convicted as a monopolist, breaking up the company would be a boon to consumers, right?
Not necessarily.
Software industry analysts and consumer advocates are sharply divided over whether a breakup, as proposed Friday by the federal government and 19 state attorneys general, would lead to lower prices or better software for users any time soon.
In part, that is because the company is likely to fight such a penalty ferociously. Microsoft’s formal response to the government proposal is due next month, but it has asked for more time to prepare a response.
The company has said, in any event, that it will appeal U.S. District Judge Thomas Penfield Jackson’s April 3 ruling that it engaged in illegal monopolistic acts.
Generally speaking, the breakup proposal is designed to create two new companies: One developing and marketing the Windows operating systems, and the other responsible for everything else, including its market-leading Office applications software.
“It’s hard for me to figure out how this ends up being positive for consumers,” said W. Christopher Mortenson, industry analyst for Deutsche Bank in New York. “The big benefit of the combination is that Office works really well with Windows,” a level of integration that would not be assured if they were manufactured by separate outfits.
But several consumer activists said dividing Microsoft would help eliminate its incentives to inhibit other companies’ products, an impulse noted several times in Judge Jackson’s ruling.
“Consumers will get the one thing they haven’t had: choice,” said Mark Cooper, director of research at the Consumer Federation of America in Washington. “If you walk down the computer aisle at an electronics store today, you will find 25 combinations of hardware, but the only thing you don’t have a choice on is software.”
Whether the breakup will encourage other companies to manufacture competing operating systems or strengthen their hand against Microsoft Office--which includes a word processor, spreadsheet, address book and scheduler, and other programs--is uncertain.
Among desktop computer buyers, only Apple Computer Corp.’s Macintosh operating system has earned even a 10% market share, and in that case only among home users.
The Linux operating system, which is available for free, has yet to find a proven market among nonprofessional computer buyers.
Microsoft critics argue that one reason Linux has not been more popular is the dearth of applications available to run on it.
The applications side of Microsoft would no longer be forced to favor Windows, the theory goes, and could only maximize its market share by making sure its products are compatible with Linux and other operating systems.
That would, in turn, enhance Linux’s appeal.
Several consumer groups also predicted software prices would tumble if Microsoft loses the leverage it has by controlling the market for both products.
“Microsoft has been pushing the consumer price for its operating system close to $100,” said Jamie Love, director of the Ralph Nader-affiliated Consumer Project on Technology.
“The competitive price for operating systems is probably closer to $10. I’m sure that Be [a rival operating system] would be pretty happy to get 10% of the market for $10 to $15 a seat.”
Some say consumers will benefit because Microsoft’s power to impose consumer-unfriendly restrictions on computer makers will be curbed.
Judge Jackson made explicit reference to that behavior in his ruling.
He cited a Hewlett-Packard executive’s complaint that Microsoft had forced his company to remove installation and registration aids it had installed on its machines.
“From the consumer perspective, we are hurting our industry and our customers,” said the executive, who pointed out that calls to HP’s customer support center had surged in the wake of Microsoft’s directive.
Jackson noted that “even in the face of such strident opposition from its [computer manufacturing] customers, Microsoft refused to relent.”
The most important long-term impact of the proposed breakup, activists said, is sure to be the diminution of Microsoft’s ability to thwart new products and companies it considers a competitive threat.
“They have made it tough for [new companies] because investors understand that Microsoft truncates the financial upside” for new technologies, Love said.
“They just come in and take it away by bundling their products, putting in technological roadblocks or just dropping the price down to zero.”
Industry observers agree that a split-up Microsoft would find it harder to compete in new markets--a critical issue, given that some of the fastest growth in the future is likely to be in specialized computing applications such as hand-held computers and cellular phones.
“You’re hampering Microsoft’s ability to take advantage of new technologies,” said Michael Gartenberg, an analyst for Stamford, Conn.-based Gartner Group.
Gartenberg also noted, however, that breaking up Microsoft is not likely to be easy.
“Microsoft is everything from high-end servers down to children’s toys,” he said. Apportioning corporate assets to each of those operating units could be extremely complicated.
In any event, Microsoft has signaled that it will fight a breakup tooth and nail through multiple appeals, meaning that the event could be years away.
“I expect this to be a very long and drawn-out process,” Gartenberg said.
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MICROSOFT PROPOSAL
Government lawyers propose splitting Microsoft into two companies. A1
* ADVERTISING PUSH
Microsoft is launching a new TV ad and has intensified its lobbying. C2
