Interesting retrospective from today's NY Times

[David Farber <dave () farber net>]

As a Government witness at the trail., I remember it very well

Dave



Begin forwarded message:

From: "Ted Dolotta" <Ted () Dolotta ORG>
Date: May 21, 2005 3:19:46 PM EDT
To: "IP List" <dfarber () cs cmu edu>
Subject: Interesting retrospective from today's NY Times
Reply-To: <Ted () Dolotta ORG>


Dave,

For IP, if you think it interesting ...

Ted Dolotta
======================================================
May 21, 2005

JOSEPH NOCERA

Google This: Is Microsoft Still a Bully?

NOT long ago, I went to Washington for a dinner given by a friend. She
wanted to commemorate the fifth anniversary of the end of the
Microsoft antitrust trial, which she had covered for a news agency and
I had covered for Fortune magazine.

In all, about 10 of us made it to the dinner, and it wasn't long
before we were regaling one another about the "good old days" of the
trial - laughing at the way Judge Thomas Penfield Jackson used to roll
his eyes at Microsoft's witnesses, and recalling how the superlawyer
David Boies, whose daily skewering of Microsoft gave the trial most of
its entertainment value, would put straws in his jacket pocket when he
went out drinking with us so he could keep track of how many drinks he
had.

What I remember most of all about the Microsoft trial, though, was how
momentous it felt - surely, the antitrust trial of the century! The
rest of Washington was obsessed with Monica Lewinsky. Not us. We pored
through e-mail messages suggesting that Microsoft had wanted to "cut
off Netscape's air supply" - Microsoft's efforts to crush Netscape was
at the heart of the case - and wondered if Judge Jackson would have
the nerve to break the behemoth in half.

As it turns out, Judge Jackson did have the nerve. But he made several
fatal mistakes - including talking secretly to the news media - and
the District of Columbia Circuit, while upholding his finding that
Microsoft had abused its monopoly power, took the case out of his
hands and sent it to another judge. Once the Bush administration took
power, the new Justice Department quickly settled on terms largely
favorable to the company.

Here we are five years later, and the technology landscape is
drastically transformed. Google, a company that was founded just as
the trial was getting under way, is now widely (and correctly) viewed
as the most serious threat to Microsoft's desktop hegemony since
Netscape. Linux, the open-source operating system, has made real
inroads in the server market - a market Microsoft had counted on for
growth.

Among competitors, Microsoft is still respected, but it is not feared
the way it used to be. It has become a sluggish, bureaucratic company
that, for instance, is going to be at least a year late with a new
operating system, called Longhorn, that the world needs now because it
is supposed to make computing more secure. Its stock hasn't moved in
years.

On the other hand, Microsoft still has the same two powerful desktop
monopolies it had before the antitrust trial: the Windows operating
system and the Office suite of applications. For all of Linux's
success in the server market, it is a negligible presence on the
desktop. Even Apple's impressive revival has made barely a dent in
Microsoft's desktop stranglehold. And preserving that monopoly still
seems to be Microsoft's fundamental business strategy, at least when
it comes to personal computing.

All of which now makes me wonder: when you come right down to it, did
the antitrust trial of the century make a whit of difference?

On the margins, at least, the trial certainly did bring about change -
though not always for the better. Why is Microsoft so bureaucratic?
Partly, that's the natural course any big company takes as it gets
bigger. But it certainly doesn't help matters that, as the Microsoft
general counsel, Bradford L. Smith, puts it, "Every single decision
the company makes with respect to Windows is made with a level of
antitrust legal advice." Gee - do you think that might gum up the
works a little?

The aftereffects of the trial also help explain why Microsoft is not
as feared as it once was. Under the terms of the settlement, Microsoft
can no longer give better terms to computer manufacturers it considers
"friends." Manufacturers can cut deals to pre-install RealNetworks'
media player, or Google's toolbar, without fear of retribution from
its most important vendor.

The trial also woke Microsoft up to the fact that it was truly hated
in Silicon Valley. It's been trying to make nice ever since. It has
settled a series of private antitrust suits - for some $3.5 billion -
brought by rivals like Sun Microsystems. And it has worked assiduously
to turn former enemies into allies. (Sun, which now holds joint news
conferences with Microsoft, is a prime example.) At Microsoft, there
is a lot less "my way or the highway" than there used to be.

This is not an insignificant change - but it's not what the antitrust
trial was really about. The central issue was whether the company had
an inalienable right to bundle new software products - a browser, a
media player, antivirus software, a "ham sandwich," as Microsoft once
put it - into its operating system. Whenever it does so, of course, it
gives itself a huge home-court advantage: its software is suddenly
available on over 90 percent of the world's PC's, and is usually the
"default" product as well.

During the trial, Microsoft argued that when it added features to
Windows it was helping consumers. To the company, its right to
"innovate" - as it invariably called the practice - was sacrosanct.
The government argued that folding its version of a competitor's
product into its monopoly operating system was a deeply
anticompetitive act. And here's something that might surprise you: The
Microsoft trial did not settle this critical question.

Although the D.C. Circuit looked skeptically on the "tying" claim (as
it is called), it did not overturn Judge Jackson's ruling that
Microsoft had illegally tied its browser, Internet Explorer, to
Windows. Instead, it sent that part of the case back to the lower
courts for further review. When the Justice Department settled with
Microsoft, the issue was left hanging.

The European Union has been jousting with Microsoft over a different
product - media players - but on the same issue. That's not resolved
yet either. Last year, the union ruled that Microsoft had abused its
monopoly power by folding its media player into Windows at the expense
of the rival RealNetworks. Although Microsoft has paid a large fine
and is being forced to put out a version of Windows without a media
player - called Edition N (which, by the way, not a single computer
manufacturer has agreed to use) - it is appealing the decision in the
courts.

During negotiations to settle the case, Microsoft offered to load
Real's media player along with its own. But it refused to agree to
strip out its own player, and it appears willing to litigate that
point to the bitter end. Mr. Smith of Microsoft says the appeal
process could take three years - in a proceeding that is already six
years old.

Which brings us back to Google. The Google threat is not so much that
it has the bulk of the Internet search market. Rather, Google is a
serious and creative software company that has the potential to roll
out new Web-based applications that will allow consumers to do on the
Web things they now do in Windows.

In the old days, said Tod Nielsen, a former Microsoft executive, the
company would have raced to add some kind of quick-fix Internet search
"functionality" to Windows. "And we would have found a way to attack
their business model, too," he added. That this has not happened is,
to my mind, the most powerful evidence that the company's behavior has
been tempered by the antitrust trial.

On the other hand, it seems quite likely that when Longhorn is finally
rolled out - currently scheduled for late 2006 - it will have some
kind of Internet search feature. It will be easy to use, seamlessly
integrated with Windows - and will have been seriously vetted by the
lawyers, so that it at least minimizes any potential antitrust
problems.

Although Microsoft insists it has not made a final decision on whether
to include Internet search in Longhorn, Google has no doubt that it's
on the way; it says as much in its latest annual report . So can the
kinder, gentler, tempered-by-the-trial Microsoft do to Google what it
did to Netscape lo these many years ago? Google has serious profits, a
ton of talented engineers, a great brand name, and, in Eric Schmidt, a
chief executive who has gone up against Microsoft twice before, at Sun
and at Novell. Microsoft has Windows. That's the main thing that
hasn't changed in the wake of the antitrust trial. That used to be
enough. We're going to find out if it still is.

Copyright 2005 The New York Times Company


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