JUSTICE VS. MICROSOFT: WHAT'S THE BIG DEAL?There's a lot more at stake than Web browsers. Here's help in understanding the issues
Corporate paragon or rapacious monopolist? Microsoft Corp. has been called both. But there is no question that the Redmond, Wash., software maker is one of the most successful companies on the planet. Microsoft's market capitalization of $163 billion is more than that of General Motors, Chrysler, and Ford Motor combined. Its Windows operating system runs on 90% of the world's personal computers, and its Office suite currently commands just slightly less of the market for office productivity applications.
As its power has grown, so have complaints from competitors, who charge that Microsoft plays unfairly and that its monopoly power in operating systems stifles competition. These concerns have spurred trustbusters to investigate the company, starting in 1991 with a Trade Commission probe. When FTC commissioners deadlocked, the case was taken up by the Justice Dept. That resulted in a narrowly focused July, 1995, consent decree that restricted some of Microsoft's Windows licensing practices. On Oct. 22, Justice renewed the legal tug-of-war with a petition charging Microsoft with violating that decree. What follows is a look at the ins and outs of a complex and far-reaching battle.
What is the latest charge all about?
Microsoft's virtual monopoly in personal-computer operating systems means that most new computer buyers see IE prominently displayed when they start up their machine. PC makers can include Netscape's Navigator browser as well, but that involves paying an extra licensing fee. IE, on the other hand, is virtually free, since Microsoft considers it to be an extension of Windows.
In its Oct. 20 petition, what did Justice charge Microsoft with doing wrong?
What is Justice's biggest concern?
In its complaint, Justice argues that Internet browser technology developed by Microsoft's competitors ''may be an important element in the reintroduction of competition to the PC operating-system market.'' The government points out that Web browsers can serve as a new ''platform'' for which applications can be written. Justice contends that by forcing computer makers to distribute its browser, Microsoft is trying to keep its operating-system monopoly from diminishing.
What evidence does Justice have that Microsoft is coercing PC makers?
What is Microsoft's response to the Justice complaint?
So is Internet Explorer a separate product or part of Windows?
Whether or not that analogy holds is open for debate. But most analysts and experts say IE 4.0 in its current form is a distinct product--separately branded, marketed, and sold at retail. Although Microsoft has begun bundling IE 4.0 with the Windows 95 program it licenses to PC makers, Justice argues that it is physically possible to separate the two. Without IE, Windows still runs.
Where do legal experts come down in the debate?
Microsoft interprets that as a license to build features such as Web browsing into its operating systems. That's what it intends to do with Windows 98, a new version of Windows due next spring. Justice may be able to win a case that says that IE 4.0 is a separate product from Windows 95, but it could be a short-lived victory once Microsoft integrates browsing capabilities into the operating system next year. ''The law largely has favored defendants toward broad freedom to make product design choices,'' says William E. Kovacic, a professor at George Mason University School of Law.
Microsoft also has released documents that indicate the Justice Dept. knew during the consent decree negotiations that the software maker intended to integrate browser features into the operating system. Even if Justice has a strong antitrust case, this kind of proof could torpedo the contract issue that is part of the current cause of action.
What's the impact of the case on Microsoft and the computer industry?
That would clearly be a plus for Netscape, but if the case drags on, that buys time for Microsoft to build browser market share. It also buys time for Microsoft to ready Windows 98, which it says will thoroughly integrate Web browsing.
Is Windows 98 affected by the government's petition?
So is this all a tempest in a teapot?
Why all the fuss about a product that is virtually given away for free?
As the software the PC user sees, the browser is strategic. It can be a powerful marketing tool that helps promote Web sites by the mere mention of another locale on the Net or the placement of so-called ''channels'' that allow companies to deliver info directly to PC users. A highly popular browser can also act as a calling card to corporations that may be more willing to then buy the company's powerful (and lucrative) server software. Browsers also play an important role in defining standards for viewing Web content. If a software company makes the predominant browser, it could dictate the way Web developers create their content.
Moreover, the Internet is developing into a vast commercial marketplace where consumers can do everything from investing to shopping for a car, so whoever owns the ''window'' to the Web--the browser--could wield a lot of influence by helping direct traffic.
Is Microsoft in for a fall?
Microsoft is in no immediate danger of losing the $8 billion in sales it makes from PC software. But the Net represents a huge new market. If Microsoft is hampered by the feds, its growth could be slowed. If nothing else, Microsoft's image could be tarnished just when it is trying to broaden its appeal to consumers through WebTV, consumer software, and Web services. It's one thing to be seen as Darth Vader by the computer industry and quite another when you're marketing your products on cornflakes boxes--as Microsoft does now.
Will Microsoft destroy Netscape if the government does not intervene?
Netscape is trying to move away from a reliance on browsers to selling more server software for running Web sites and online stores. Still, it makes the bulk of its revenues from browsers--38% in the quarter ended Sept. 30, vs. 33.5% for server software. In sales to corporate customers, the two products usually go hand in hand, so it's critical for Netscape to maintain a prominent share in browsers. The remaining 28.5% of Netscape's revenues comes from services--mainly selling space on its Web site to advertisers and search-engine companies. That business, too, depends on a strong browser. So if Microsoft continues to encroach on Netscape's browser business, the outlook is not good.
Ultimately, what's at stake here?
It's a tricky balancing act: Over the past 10 years, PC operating systems have advanced slowly--at least compared to the lightning pace unleashed by Netscape. The innovation in the Internet software market can be credited to the free-wheeling, competitive atmosphere. If any single company dominates the Net, than innovation could be dampened. But if the prospect of Microsoft dictating the course of software development on the Net is scary, the prospect of software design decisions made in Washington is even worse.
By Steve Hamm in San Mateo, Calif., with Susan Garland in Washington, D.C.
Updated Nov. 20, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.