12/96 Analysis: The Explorer

Just Like AT&T, Microsoft Should Be Split Up

'Baby Bills' would be good for the industry, good for users and good for Microsoft.

By Mike Elgan, Editor

MICROSOFT GROWS BIGGER and stronger every day, reaching its tentacles into every corner of the industry, calling the shots and controlling the standards. Microsoft has such power largely because it controls Windows.

An AT&T-style breakup of the company into two Microsofts-one that makes Windows and another that makes apps, programming tools, content and hardware-could be good for the industry, users and even Microsoft itself.

On the other hand, such a breakup would subject the industry to unprecedented government interference and regulation. This course of action could harm users in unexpected ways.

I see merit in both dividing the company and leaving it alone. Because there's no single, black-and-white solution to the problem of Microsoft's overwhelming industry dominance, I'll present both sides of the argument. This month, I'll offer some good reasons why Microsoft should be split up. Next month, I'll tell you why the government should leave the company alone.

The Justice Department is investigating Microsoft-yet again. This time around, the government is looking into Netscape's claims that Microsoft is using its "monopoly" in the operating systems market to prevent PC vendors and Internet service providers from making Netscape Navigator as accessible to customers as Internet Explorer.

Netscape's letter of complaint (see http://www.winmag.com/people/melgan) is peppered with terms like "illegal conduct," "anticompetitive behavior," "predatory pricing" and "monopoly."

Netscape's complaint misses the mark. The whole antiquated, industrial-age concept of "monopoly" doesn't apply to the software industry. Without a dominant OS, the PC industry would be like the UNIX market, with its numerous competing incompatible variants, and all the retarded growth and inefficiencies that go with it. Windows is the dominant OS because most computer buyers prefer it. Anyone is free to opt instead for OS/2, Macintosh, UNIX or even a $500 "network computer"-a browser-based platform that Netscape hopes will kill Windows and ruin Microsoft.

Besides, the last thing Netscape wants is a law prohibiting a vendor from selling both operating systems and apps, because the company is working feverishly to transform its popular browser into an OS. Netscape doesn't want to attack the problem at its root; it merely wants to use the Justice Department to compete with Microsoft.

The real issue, which both Netscape and the Justice Department are afraid to tackle, is whether a company should be allowed to sell both operating systems and compatible hardware and software.

Good for the industry

Yes, Windows gives Microsoft an unfair advantage in the applications market. But Microsoft gained that advantage through a very legal combination of luck, skill, foresight and aggressiveness. Microsoft has earned its success. And because most users demand Windows, Microsoft can negotiate with other companies from a disproportionately strong position.

The act of leveraging every available asset to win isn't unique to Microsoft. The computer industry is cut-throat, competitive and fast-moving. Companies will use every legal advantage possible to stave off the ever-present threat of total failure.

The issue is not that Microsoft is mean or unkind. It's that, because of the popularity of Windows, Microsoft can legally enjoy the formidable advantage of controlling the playing field. It's a position all Microsoft's competitors would love to be in.

The solution for the Justice Department is not to investigate Microsoft annually, respond to every litigious competitor's complaint and micromanage the company's contracts. The solution is to divide Microsoft, based on the argument that controlling Windows gives it an unfair advantage over competitors trying to sell products compatible with that OS.

Applying this rule across the industry, the government must also divide IBM, Apple, Netscape, Sun, Digital and all the other OS vendors. All this slicing and dicing would probably create new, invigorating competition.

Apple's potentially fatal flaw is single-company control over both the OS and the hardware. If Apple were sliced, it could license the OS far more promiscuously to other hardware vendors, creating a true clone market that would give PCs a run for their money.

UNIX is hobbled by competing, incompatible versions. If UNIX vendors were split up, we'd have a bunch of UNIX OS vendors courting multiple hardware vendors. All but one flavor would probably die, and it would gain industrywide software and hardware support. UNIX would then have a fighting chance against NT.

Good for users

With "Windows Corp." separated from Microsoft, we users might gain unseen advantages beyond those resulting from an invigorated industry. For example, Microsoft would not be motivated to do anti-customer things like limiting the number of simultaneous connections in Windows NT Workstation 4.0 (see this month's Newstrends). Microsoft's Web-server software competitors claim the NT 4.0 limitation is designed to prevent them from offering low-cost solutions that include NT Workstation.

Good for Microsoft

It hasn't happened yet, but some day Microsoft will probably get so huge and complacent that it stops aggressively improving and innovating both its operating systems and its applications. Dividing the company might keep both parts hungry. Without such a vested interest in Windows and NT, Microsoft could port Microsoft apps to all major platforms without worrying about competing with Windows, the company cash cow.

Disentangled from the applications side, Windows Corp. wouldn't have to give away so many of its secrets to competitors. For example, it wouldn't have to hand control of ActiveX to an independent council, as it did in October.

These are the arguments for a government split of Microsoft. Next month, I'll analyze the other side and tell you why it may be better if the Justice Department backs off and lets the market decide.

What do you think? Send me your thoughts at melgan@cmp.com or visit a special page devoted to the question at http://www.winmag.com/people/melgan.

Contact Editor Mike Elgan in "The Explorer" topic of WINDOWS Magazine's areas on America Online and CompuServe, or at melgan@cmp.com