| Register/Subscribe Home |
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | NOVEMBER 22, 1999 LAW Should High-Tech Startups Root for a Microsoft Breakup? Big companies have more to gain than small ones, says Silicon Valley lawyer Craig Johnson
Judge Jackson could order a breakup of the company. But the outcome is far from certain. Microsoft could appeal or cut a deal with the U.S. Justice Dept. Whatever happens, it will affect the business environment in Silicon Valley and other breeding grounds for high-tech companies. Reporter Karen Donovan spoke to Craig Johnson, founder of Venture Law Group, a Menlo Park (Calif.) firm, for his perspective. VLG is counsel to companies such as Yahoo!, Drugstore.com, and eToys. Johnson is also a co-founder and director of Garage.com, a Palo Alto (Calif.) Web firm that matches startups with angel investors. An edited transcript of the interview, conducted by e-mail, follows: Q: When Judge Jackson found that Microsoft was a relentless monopolist, competitors like Sun Microsystems Inc. and Oracle Corp. cheered. What was the immediate reaction among your clients? A: At VLG, we work primarily with startup technology companies. Judge Jackson's findings of fact were a nonevent for most of them. The Valley is currently in a frenzy of Darwinian competitive evolution, fed by almost unlimited venture capital and talent from all over the world. Startups are aware of Microsoft — just as small furry mammals were aware of the large reptiles lumbering around them many millions of years ago. Small startups are nimble and can easily keep out of the way of the Microsofts of the world. Judge Jackson's decision had much more impact on the business practices and prospects of the larger technology companies, such as Sun, AOL, and Apple. They can't move as fast and were glad to contemplate the prospect of a major competitor being hobbled. This is not to say that Silicon Valley approves of all of Microsoft's tactics. Microsoft is extremely aggressive and competitive, and sometimes, as Judge Jackson details, its behavior has clearly stepped over the line. But there's a deep-seated respect for Microsoft among most of the Valley cognoscenti I know. Microsoft has created software standards that have made it easier for other companies to innovate. There are many, many companies in Silicon Valley that are just as aggressive as Microsoft. They just aren't as big or as powerful. My antitrust professor at Stanford Law School was Bill Baxter, who as a U.S. assistant attorney general later presided over the breakup of AT&T. Professor Baxter criticized our antitrust laws, which make "intent to monopolize" a crime. He advocated a "great race" approach to antitrust law. When a company such as Microsoft succeeds in becoming a monopoly, the CEO — in this case Bill Gates — would get a phone call from the President inviting him to a celebratory dinner at the White House. After an evening of toasts and good company, the next day the President and Bill would ride in a ticker-tape parade down Wall Street. After the parade, the President would turn to Bill and say: "O.K., Bill, you've done amazing things. Now we're breaking you into 12 pieces, and you're back at the starting line. Which piece do you want to run?" This is more or less what happened with AT&T. It's interesting to think about what IBM would be worth today if it, too, had been broken up into a number of separate companies free to compete with each other. John D. Rockefeller made most of his fortune after the Standard Oil breakup. It's arguable that if Bill Gates wants to be the first trillionaire, a breakup of Microsoft would be the best way to achieve it. Q: It surprises me that your clients see Judge Jackson's findings as a nonevent. At the trial, there was ample evidence that top executives at Microsoft set out to crush Netscape. Do your clients worry that they might find themselves in a similar situation? A: We at Venture Law Group have sold four of our clients to Microsoft in recent years — WebTV, Hotmail, LinkExchange, and VXtreme. These companies, their employees, investors got great financial returns and were very happy to become part of Microsoft. But most startups in Silicon Valley are doing things which are only tangentially impacted by Microsoft. The media make it sound like the technology world is only about operating systems, which just isn't true. Companies with which I work personally are doing global positioning satellite software and devices, graphics and PDA interface semiconductor chips, Web-based investment advice software, Web-based truck-freight scheduling, and many other exciting applications. These companies are only marginally impacted by whatever happens in the Microsoft case. Q: I don't think they'll be holding a ticker-tape parade or White House dinner for Bill Gates anytime soon, as Professor Baxter suggested. Should Gates agree to a breakup, rather than have it forced upon him? A: If I were Bill Gates, I'd seriously consider negotiating a breakup. At least then I could be in control of the process. It's very tricky from an economic and technological viewpoint to decide how Microsoft should be divided. But the main objective is to split Microsoft into a number of well-financed, smaller companies which can then be free to compete vigorously with each other and the rest of the world. The marketplace will quickly sort out any loose ends or overlaps among these companies, just as it did with AT&T and the Baby Bells. And maybe as part of the settlement the government should throw in a parade! Q: How would a Microsoft breakup affect small businesses? There are two breakup scenarios. One envisions the creation of three or more integrated companies — so-called baby Bills. Another would break the company up along product lines. Do small businesses favor one scenario over another? A: I can't speak for what small business would like, but I'd favor the product-line split-up approach. I'm not too worried about a smaller Microsoft retaining exclusive rights to Windows. There are many potent competitors to Windows which are gaining strength each day — Linux, Be, a revitalized Unix and Apple, Sun application servers, etc. If the Microsoft applications and other product lines were spun off as separate companies, I'd expect them to do deals with other operating-system providers the next day — if for no other reason than to keep their former parent honest. Keeping Windows under one roof would also prevent splintering of the Windows standard — which would hurt many smaller software companies by reducing the size of their potential markets. Q: Judge Jackson found that Microsoft "deters investment in technologies and business that exhibit the potential to hurt Microsoft." Do you think Microsoft's actions have hampered investments in new technologies? A: In the first nine months of 1999, over $7.7 billion was invested in new companies in Silicon Valley, an all-time record. Judge Jackson and the press have been preoccupied by Microsoft and have neglected to notice the massive amount of innovation going on in other areas of technology. Microsoft's conduct, while aggressive and sometimes improper, hasn't slowed investments in new companies and technologies down at all. Q: At the time of the AT&T breakup, no one could have imagined a wireless, broadband, cellular world. Do you think a Microsoft breakup will spawn that kind of change? A: Absolutely! I'm not sure this brave new world wouldn't arrive even if Microsoft were to be left intact, but it would probably come more slowly. The entire world economy is rewiring and reinventing itself, and increased competition due to a Microsoft split-up would only lead to greater innovation and amazing products and services we can't even envision today. Q: Does Garage.com care about Judge Jackson's findings? A: Microsoft is a sponsor of Garage.com and has been very supportive of entrepreneurship in Silicon Valley in a low-profile way. Garage.com has an Apple culture (its chairman and CEO is Guy Kawasaki, the former Apple software evangelist), but like Steve Jobs and Apple, Garage.com has embraced and accepted Microsoft's role in the competitive universe. It's the lion and the lamb lying down together.   | | |
 Copyright 1999 , by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
