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CONNECTED: Microsoft avoids one court battle, but the war is still to be won Bill Gates gave the US Justice Department what it wanted last week, but he still faces a larger anti-trust suit, says Wendy Grossman
The Daily Telegraph London
Page 04
(1998 (c) The Telegraph plc, London)


So who won? Last week, Judge Thomas Penfield Jackson, who had certainly the world's richest and maybe the world's most powerful man under his thumb, delivered his ruling. Or rather he didn't.

For despite all its gesturing, all its grandstanding, and all its petulant behaviour, Microsoft buckled and gave the US Department of Justice under Attorney General Janet Reno, pretty much what it wanted without the judge having to say very much.

Microsoft agreed to offer the most recent version of Windows 95 without requiring computer manufacturers to install the icon for Microsoft's Web browser, Internet Explorer, on the desktop.

This agreement ends arguments over Judge Jackson's ruling on December 11, directing Microsoft not to tie Internet Explorer to computer manufacturers' licences to install Windows 95.

Washington's argument was that Microsoft had violated the terms of a 1995 agreement that prohibited it from tying sales of one product to the licensing conditions for another. Microsoft's defence was that the browser is no longer a separate product but an integrated part of the operating system, and anyway governments should not meddle in software design.

The company's appeal against the December 11 ruling is due to be heard on April 21; judgment day on the DoJ's original case is not expected until May, when court-appointed "special master" Larry Lessig, a Harvard law professor, is expected to report his legal and technical findings.

Meanwhile, the European Union, Japan, and seven American states are all considering anti-trust action against the company.

But this is not the end, nor even the begining of the end. Unfortunately it is not even the end of the beginning. It is just another spat on a long and seemingly endless road, one spat in a larger anti-trust action which began in October, when the DoJ hauled the software superpower into court demanding a fine of $1 million a day. The court agreement was cautiously welcomed by Microsoft critics such as James Love, director of the Washington-based Consumer Project on Technology.

"The current dispute in the US is important but extremely narrow, as were the recent two settlements in the EU," he said.

"What the EU and the US - and possibly Japan - need to do is bring a far broader suit against Microsoft and seek much broader remedies. The model we have been most interested in is the conduct rules imposed on IBM to open up the interoperability of its mainframes."

In this 1984 EU ruling, IBM agreed to share information and provide assistance to competitors marketing interoperable hardware and software.

Something similar could be done with Microsoft now, forcing the company to disclose details of file formats and other information that would make it easier to write interoperable programs, and requiring the company to support open protocols and standards.

But where does this leave Microsoft? "There are two general types of anti-trust case," says Nicholas Economides , a professor of economics at New York University's Stern School of Business, "horizontal cases, in which a company is accused of monopolising an industry or having a very large percentage of market share, and vertical cases, in which the problem is that the company that controls a big percentage of market A also controls or tries to control a significant percentage of market B, where the

output of market A is required for market B."

The latter example might apply to, say, a dominant car manufacturer who started buying up tyre or steel manufacturers - or, possibly, a company that dominated the operating systems market and competed in applications.

One solution is to break up the company - but this is extremely radical, and, Economides thinks, a long way off, if it ever happens. "I think it's extremely unlikely," he says.

"I think the DoJ is going to stick to the stuff they're doing right now - trying to find various ways that the dominance of Windows 95 and NT does not create or minimises disadvantages for competitors."

However, he says, it is "the fault of the DoJ that they didn't go after Microsoft five years ago".

Nearly two years ago, when Connected last looked at Microsoft and its chances for world domination, the company was six months into its Internet era. At the time, Internet Explorer was in an early release and Netscape had some 80 per cent of the browser market. It is now 57 per cent and falling.

Then, one of the key developments on the horizon seemed to be the Network Computer, a stripped-down machine promoted by Oracle and Sun which, coupled with Java, would by-pass the need for Windows entirely. Microsoft's answer was the Simply Interactive PC, which was to boot up instantly and provide standardised connections to common household appliances and computer peripherals.

"Visionware" at the time, the Simply Interactive PC has largely faded from public view, although Windows 98 product manager David Weeks says we can expect to see products emerging toward the end of this year.

The most telling indicators of what Bill Gates is planning come in what he spends his prodigious wealth on (over Christmas, the Net's Bill Gates Personal Wealth Clock ticked past $38.6778 billion). The past year and a half, however, have seen Microsoft invest widely while consolidating its position in the traditional areas.

It has 86 per cent of the desktop operating system market; 87 per cent of office suites (Lotus is second at 6 per cent, and Corel, which just announced a quarterly loss, has only 4.7 per cent); 39.8 per cent of network operating systems shipped in 1996, slightly ahead of Novell and Unix.

Perhaps the only source of comfort from those who fear Microsoft's ever growing power is its seeming inability to crack content. Its Web-based literary magazine Slate has been well received, but plans to charge for it have been repeatedly put back. Its local listings service, Sidewalk, once seen as a major threat to local newspapers, is being scaled back, and despite pouring money into its online service, Microsoft Network, it is at best lacklustre. The same is true of its high-profile cable TV station, MSNBC.

Gates has things to worry about besides anti-trust actions: he is losing the PR battle. This is despite his efforts to reinvent himself as a media star (after his book's publication, for example, he turned up on David Letterman's late-night talk-and-comedy show in the US).

It probably didn't help to know that university students in California are protesting against plans for Microsoft to take over the supplying of the University of California's network.

Microsoft turned on a dime once before, in mid-1995, when it realised how grossly it had underestimated the importance and appeal of the Internet. Will it do so again in response to public opinion?


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