BUSINESSWEEK ONLINE : MAY 22, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY Commentary: Don't Worry, Bill--Innovation Will Survive Let's face it: Breaking up Microsoft Corp. (MSFT) would be sensational news for the software giant's many rivals. But would it actually do any good for consumers? In a passionate response to the government's proposal to cut the company in half, Microsoft on May 10 answered that question with an emphatic, ''No!'' Offering instead a package of narrow restrictions on some of its more controversial business practices, the company argued that separating its operating system business from the applications business would be disastrous for computer buyers. ''Breaking up this company would be a punitive proposal that would fundamentally harm consumers,'' charged Bill Neukom, executive vice-president for Law and Corporate Affairs, immediately after his legal team filed its response. Key to Microsoft's last stand: A breakup would prevent consumers from getting access to such cutting-edge technology as clipboard-size tablet PCs and speech-recognition software. SYNERGIES. The problem is that the innovations Microsoft aims to protect may well be produced as readily if the company is split up. Take tablet PCs. In a Time magazine article dated May 15, Microsoft's William H. Gates III waxes on about a tablet PC design now under development by Microsoft. He argues that close cooperation between the Office and Windows groups made the device possible. But the tablet PC business has muddled along inside Microsoft for the past decade without ever attracting much consumer interest. Meanwhile, a handful of other companies--such as Hitachi Ltd. (HIT) and Aqcess Technologies Inc.--already are selling the gizmos. ''This market has re-emerged all on its own without any help from Microsoft,'' says Mike McGuire, a principal analyst at market research firm Dataquest Inc. What about speech-recognition software? That's another breakthrough technology that Microsoft executives suggest might never gain widespread use without the company's applications and operating-systems researchers working in tandem. But IBM's ViaVoice division and Lernout & Hauspie Speech Products are at the forefront of the business, selling software that lets users dictate e-mail. To be sure, innovations developed by Microsoft's applications group have found their way into the operating system. For Office 2000, Microsoft's dominant word-processing and spreadsheet software, the applications group developed handy technology, code-named Darwin, that made installing and uninstalling software a snap. When Office 2000 shipped a year ago, the Darwin team of 20 or so developers moved to the Windows 2000 group and retrofitted the technology for the operating system that shipped in February. ''Under the government proposal, that would be completely outlawed,'' says a senior Microsoft executive. Moreover, Microsoft's position does have some corporate supporters. Compaq Computer Corp. Chief Executive Michael D. Capellas worries that a breakup could change ''the business models that helped create this technology boom in the first place.'' The government's ''focus should be on fostering innovative, integrated solutions,'' he says. MORE INNOVATIVE? Yet Windows and Office don't have to be owned by the same company for the type of cross-pollination Gates champions to occur. That's why some believe that after a split-up, Microsoft might become more--not less--innovative. Over the past decade, Microsoft has borrowed lots of ideas from third-party software developers--the sorts of ideas that could as easily flow between independent Windows and Office companies. For instance, Adobe Systems Inc.'s (ADBE) digital font technology inspired the TrueType fonts Microsoft added to Windows. As a monolith, Microsoft had trouble cooperating with other companies. Separated, more outside innovation might flow into each, to the ultimate benefit of consumers. Potential competitors, who shied away from markets out of fear of Microsoft, might be emboldened to work with a weaker mini-Microsoft, or join the fray. Who knows, maybe the tablet-PC market will do even better without Microsoft's help. By Jay Greene Jay Greene covers Microsoft from Seattle. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Commentary: Don't Worry, Bill--Innovation Will Survive TABLE: How Microsoft Would Punish Itself INTERACT E-Mail to Business Week Online

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