DOJ Allegedly Reaches Consenus on Breaking up MS UPDATED

Quite a number of people have written to us with news that's been seen on CNN regarding the MSFT anti-trust trial. Apparently, government prosecutors are considering breaking the company into three parts - it's expected that MS will appeal the ruling. The parts would be (probably) a Windows OS division, a software division, and perhaps an Internet-business division.Update: 01/12 04:53 by H :We've heard now that the DOJ denies the report - or at least parts of it, saying that it's incorrect in several "aspects".

Comments

I don't think this will work.

[himi]

The problem is, this still leaves one company with a monopoly on OSs, one with a monopoly on office software, and so on. What's the point of replacing one monopoly with three? (or two - the OS one and the Office one)
What's really needed is a breakup into three or four essentially identical companies that can actually sell and develop their stuff in competition - we need competition _within_ the windows market itself, both the OS and the major applications. If they go the breakup route (which might not be ideal - opening the APIs and standardising them, and maybe the windows source so that other companies can produce competing but compatible version, would probably be better in the long run) then they have to target the breakup at competition, not at some nice convenient points of demarkation(sp?) within the company.

To recap, the basic problem is one of replacing a broad software monopoly with several narrower ones - the monopoly isn't destroyed, it's just reconstituted.

himi

Re:I don't think this will work.

[dirk]

The problem is, this still leaves one company with a monopoly on OSs, one with a monopoly on office software, and so on. What's the point of replacing one monopoly with three? (or two - the OS one and the Office one)
What's really needed is a breakup into three or four essentially identical companies that can actually sell and develop their stuff in competition - we need competition _within_ the windows market itself, both the OS and the major applications. If they go the breakup route (which might not be ideal - opening the APIs and standardising them, and maybe the windows source so that other companies can produce competing but compatible version, would probably be better in the long run) then they have to target the breakup at competition, not at some nice convenient points of demarkation(sp?) within the company.

To recap, the basic problem is one of replacing a broad software monopoly with several narrower ones - the monopoly isn't destroyed, it's just reconstituted.

The trial wasn't about MS being having a monopoly because they are the market leader. It was about MS using their market dominance to lock out competitors. It was about making people who offer Windows offer Office to. This is what the trial was about, and this is what the ruling is meant to fix.

Being a monopoly isn't about being on the most systems, or being the de facto standard, it's about keeping your competitors from even having a chance in the market, and that is what this is meant to fix.

Re:I don't think this will work.

[smallpaul]

A Windows operating system monopoly would work closely with smaller vendors like Corel in order to drive down office prices so that they could compete with the free office suites on Linux. Hell, they might even help port those free suites.

An office suite monopoly would port to Linux in order to maximize profit by covering the widest possible range of operating systems.

A development tools monopoly would work to make tools that were multiplatform and compatible with the component, object and scripting models used by all of the office suites.

Three monopolies is indeed better than one because they would all *undermine each other* by treating their old partners as ordinary ISVs.

Paul Prescod

Re:I don't think this will work.

[hey!]

Well, the question is why wouldn't Microsoft want to be broken up? If they have the best desktop OS and the best desktop apps, why wouldn't their shareholders continue to enjoy monopoly profits under two or more companies?

The reason is that there is marketing synergy between the areas they have monopolies in. The desktop application and desktop OS monopolies reinforce each other.

This dual monopoly on the desktop strongly restricts innovation in the desktop to Microsoft sponsored initiatives. You can't compete in one area effectively, because lack of access in the other limits you. You growth in the desktop app market is limited by lack of access to secret APIS, secret marketing plans, support and so forth on the dominant OS. You cannot succeed in the desktop OS market unless you have access to the dominant apps. Only free software has the capability of breaking this catch-22 -- because it destroys the very concept of a market for software. Markets allocate scarce resources -- open source dispenses with scarcity. In the end, Microsoft's dual victory in these markets may prove Pyrrhic.

A breakup into OS and app enterprises may not only be the best solution for the market, but in the end the best solution for Microsoft, freeing people who want to create software for a "market" from the spectre of being crushed by a dual monopoly and renewing consumer choice.

While this "punishment" would certainly be salutory for the software market, I'm not sure it has much to do with remedying the specific illegal actions that Microsoft is alleged to have taken. For example, Microsoft embedded IE5 into windows to prevent netscape from becoming a competing "platform". It would still have incentive to do this if it were an OS only company. The distinction between "application" and "operating system" is somewhat arbitrary; naked kernels don't make an OS.

Re:I don't think this will work.

[Jburkholder]

MSApps can still say to Apple, if you don't make IE the default, we won't support Office.

I assume 'won't support office' in this context meaning that the MS-Applications spinoff would stop making new versions of Office that run on Mac, right? That's the beauty, what incentive would a separate company that supports Office application software have to hold a gun to it's customer's head like that, unless the OS and APP companies are in collusion (not that they wouldn't _want_ to but gotta think that kind of thing sends Jobs running and screaming to the Attourney General)? Assuming that IE lands in the MS-OperatingSystem spinoff, what would the app software company care which browser is default?

Another question: If MS is forced to open its API's such that other applications can hook into the OS, does it follow that other OS's can reverse engineer the API such that Microsoft Apps will work seamlessly (eg, WINE using a fully documented API)? That seemed to be implied in another post. The API is open, Apple can build support into the OS so that the windows version of office runs on a Mac? Someone seemed to say this would be possible (not very desirable) to do this with Linux. Just a thought.

Re:I don't think this will work.

[IntlHarvester]

AT&T break up was done the way you say. The goverment turned one big monopoly into several little ones, that eventually became big again.

A regional breakup of the phone company made sense, because by-in-large their assets are wires, switches, and franchises -- all fixed in a particular spot. Now with local compeitition plans, some can get different phone service, but the facilities (and most of the operation costs) are still owned by the RBOC. You are essentially just paying someone else for the billing service.

Likewise, with MS -- the 'natural' breakup is along operational lines. However, you are correct that it doesn't have to be this way, because MS's property is primarily intellectual and unlike phone facilities can be transfered for little cost. But, that doesn't mean it's the right way to do it.

To recap, If we break up horizontally, then one of the OS/apps can become the dominant one and we will be in trouble again.

Right -- we would be in the exact same situation as we were with MS-DOS versus IBM DOS versus DR-DOS. The minor incompatibilities weren't worth the hassle of switching vendors (ignoring the Win3.1 beta warning about DR-DOS for the moment.)

Windows NT is not the be-all-end-all and neither is MS Office. (If it were, we wouldn't be yacking on a pro-Linux/OSS board.) Let MS-OS and MS-Apps have their little monopolies -- "Microsoft" loses their single vendor status and any theoretical integration benefits. That alone is huge enough to allow competitors in the door.
--

Limitations on who owns the baby Bills?

[westexe]

IANAAL (I am not an American lawyer), but presumably part of the deal would include limitations as to who could own stock in the companies. There is (was?) a UK concept called the 'Golden Share', in which no-one could own more than 15% of any one company.

The court might, for example, demand that no one shareholder could, directly or indirectly, hold more than 20% of more than one company. So Bill could keep the Windows company, but would be limited as to what he could own in Microsoft Applications.

There might also be 'collusion' conditions limiting the ability of the baby Bills to enter into secret contracts.

I suspect that if Microsoft was forcibly split up, it would be along the lines defined by the DOJ when they brought the case. So since part of the case was against illegal tying, then IE and Windows would be forcibly seperated. The applications market, which was not part of the case, would be a third company.

The Applications group would be the one most likely to keep the Microsoft name, since Windows is as well known a name as Microsoft, and for all its future importance, the Internet group is not the cash cow that Office is.

I also think that Hardware could do very well out of this. I get the impression that Microsoft hardware is largely used to launch new hardware initiatives that other companies take up (mice wheels, Windows keys, joystick improvements). It has the style, the imagination and the quality to go a lot further when it is freed from the politics.

It would make a very plausible fourth company, but that won't happen unless Microsoft wants it to.
-- James Wilkinson

How does this compare to the re-org last fall?

[D3]

M$ did a re-org last year. How does this news relate to the lines they had already drawn for themselves? Will it be along the lines that M$ has already set internally? This would make me believe that M$ felt this was a likely outcome and was preparing it as a contingency.

We're missing the point here...

[LLatson]

I've seen a bunch of posts claiming that even if MS is broken up into these three separate companies, they will each still have a monopoly in their own market space.

That's not the point. Monopolies aren't illegal. MS broke the law by unfairly using its monopoly power, not by having one. If OS, apps, and internet are all separate companies, they can't join together and force new products down our throats while preventing the competition from entering the market.

LL

Pre-loads and vendor support are the keys

[Scurrilous Knave]

Any solution that fails to address pre-loads is doomed to fail, or to make things even worse.

And until hardware vendors start shipping drivers for alternative PC OS's with their products, and until software vendors start releasing alternative PC versions, no real change will take place.

The zero-choice pre-load is, I think, the causative factor of the other two--if computers start appearing in stores and on web sites pre-loaded with something besides MS-Windows, then vendors will start addressing those other choices.

I'll repeat my solution, which I've posted here before. Unfortunately, it involves doing very little to Microsoft; fortunately, it doesn't single anyone out for special punishment:

• Require all system vendors to offer a minimum of two choices of preloaded OS, if they offer any preloads at all. The different OS preloads must be on equal terms--same level of support, same hardware supported, and so on. Only the price difference in the base OS can be passed along.
• Require all hardware that comes with specialized drivers to provide drivers for a minimum of two OS's. As an alternative, they could publish complete specifications of their device's interface. Any provided drivers must provide equivalent functionality.
• Require all software that communicates with other software (like over a network) to be accompanied by complete and accurate specifications of the protocols and formats involved in that communication.
• Require all software that saves data in files to be accompanied by a complete and accurate description of the formats of those files.

The trouble we're having with Microsoft is only a symptom of a larger problem. If not them, then somebody else would be doing it. If they are only broken up, the problem will continue.

Give me API's!

[volsung]

Frankly, I don't want Microsoft to be broken into multiple companies because I don't see that accomplishing the main goal: Allowing competitors to interoperate with Microsoft products. We want well-documented API's and file formats.

Three companies can be just as non-cooperative as one company. Unless the DoJ is hoping that this threat will scare Microsoft into cutting them a deal.

Re:Give me API's!

[Col. Klink (retired)]

> Three companies can be just as non-cooperative as one company.

Not really. Each has to justify itself to its own stockholders. MS-OS giving exclusive access to MS-Apps can't be justified to the MS-OS stockholders. MS-Apps giving away IE to help sell MS-OS can't be justified to the MS-Apps stockholders.

Read the FoF. Most of the things that look like monopoly behavior are done without any financial reason except to protect the barrier to entry. They put AOL on the desktop, in direct competition with MSN, just so AOL would dump Netscape. They even paid off ISP contracts with Netscape to get the ISPs to stop using it and start using IE. Explain that a shareholder of the MS-Apps company:

"We're giving our product away and, in some cases, paying people to take it. We expect no revenue from this product at any time now or in the future. Fear not! Your losses will result in even larger gains for another company."

That works inside a single company, but why would anyone want to hold stock in an MS-Apps company that behaved this way? You could get all the profit by buying MS-OS and none of the expense by selling MS-Apps.

Breaking up is by far the best solution

[czei]

Contrary to popular belief, the reason MS is in trouble with the DOJ is *not* for being a monopolist. It is not illegal to be a monopoly! There's nothing wrong with being a monopoly, as long as you obtained it using legal business practices, and don't try to use your first monopoly to create others.

The threatening part of Microsoft is not their OS is on 95% of the computers, but that the monopoly gives them the power to to force their applications software onto those platforms as well, turning the OS monopoly into little monopolies over every other facit of the software market. Why would most people by an office suite, when a pretty good one came "free" on their computer when they bought it? The OS monopoly has given them others powers as well, such as total control over what hardware manufacturers can bundle with the computer. (In the past they required the hardware companies to not ship competing software, and there's no reason to believe as soon as the DOJ goes away they would continue that practice.)

There are many other illegal things MS can continue to do as a single company that would all be controlled simply by breaking them up. The advantages are many:

• Each separate company would retain it's own intellectual property. Linux advocacy aside, there is no viable solution that would rob a company of it's intellectual property. There is no way in hell any government is going to throw out hundreds of years of precedent simply because of the open source movement.
• Much less oversight of the broken up companies is needed. Any behavior based solution (we promise never to screw anyone over again) would require close up monitoring of the behavior, and they would in the end simply do whatever they wanted and hope for a better deail at the next trial.
• Each separate company would act in its own interest, which acts to prevent monopolistic behavior. For example, an operating system company could no longer offer deep discounts to the hardware vendors who also shipped Office, since office would be sold by the applications company. An operating system company could no longer threaten to cut off a hardware vendor who bundled non-MS applications. A separate internet/services/ISP could no longer have a reason to pay all of the ISPs hundreds of dollars every time the ISP converted to using an MS application.
• In the end, the cleanest, most effective solution is breaking up MS.

Ok I see 3 Problems with this

[GW Hayduke]

First of all, as stated above, Dividing M$ is like attacking various oozes and slimes in the D&D world, Physically attacking them only divides them further in which each part then becomes another formidible entity which you then have to fight.

Secondly,
As I see constantly in my line of work (ISP) The masses still think that Microsoft is the only answer.. yeah there are quite a few mac-heads, and the occasional Linux user around, but given the "choice" more people are heading towards Microsoft.. Reason? PLACEMENT, I live in a rural area where most people do their "technological" shopping at Wal-mart/Ames/K-mart what have you, and are easily swayed by cheap costs and what the salespeople are pushing at them.. including computers that have shoddy parts (i.e. Rockwell HCF 56K modems with drivers in them from 8 months ago) and even less technical support.. But they don't look for that, they see the ads on TV showing sharks swimming from the screen and how it's going to raise your kids IQ from cro-magnon level to rival Stephan Hawking, then give my staff and I shit about how pages aren't loading quick enough at a 26.4 connection.

3. What about updating their shoddy code??? Does that mean that people are now going to have to even search THAT much harder to find updates to their MS products (see #2)

Don't get me wrong, I'm doing the dance of joy for the breakup of M$, I'm just a little leery (no not Denis) of what the future holds for us.....
C'mon B.G. is so used to falling face first in feces and come up smiling and fresh as a daisy he makes the other Bill (Clinton) pale in comparison.

ok ok moderate me down now, Im through venting... Thanks all

Re:Ok I see 3 Problems with this

[spectecjr]

You start with this:
DLLs are flawed as well. Gosh, the number of times I've had DLL errors. They're dynamic, unless they stick in memory (and usually do) and take up memory until I reboot. Too bad there's no convenient way to version number DLLs too, otherwise, AppA would realize that AppB already installed MSFOO.DLL and not overwrite it with an older version.

And then, go on to say this:
I'm not a coder. I have not looked at MS code. But from a user end, it need some serious work to compete technically with a finely-crafted UNIX.

Which says it all. You know why AppA overwrites AppB's dll? Shoddy installation script authors, that's why. DLLs under Windows have versioning mechanisms up the wazoo (they're just not part of the filename). However, if you don't use them, you'll get problems.

For the record, MS has fixed this with Win2K and the MS Installer, which debuted in Office 2000. If your installer doesn't meet the criteria, you can't get your "made for Windows 2000" sticker.

As for this:
In regards to the secret APIs, they're fairly well known too. I know I'd do it. What better way to corner the market? There's nothing illegal about that, AFAIAC.

I'll remind you of your statement:
I'm not a coder. I have not looked at MS code.

Tell me one thing that MS coded up that someone from Corel/Wordperfect/Lotus couldn't - that runs under Windows - and I'll show you an incompetent Corel/Wordperfect/Lotus developer.

Simon

Breakup is the worst of a bad set of options

[Chas]

Now, instead of one large company to oversee, we have three, slightly smaller companies. Each with a dominance in certain market. The government will have to work three times as hard simply to prevent collusion between the three companies, if such prevention is possible.

Failing in this, you've just given the Microsoft Companies (the baby bills) another weapon/smoke screen to fight lawsuits and anti-trust hearings. Basically each of the three baby bills can sit there and say, we have an exclusive licensing agreement to do such and such with this other baby bill. The only thing that'll change are some accounting practices. Departmental budgeting will simply be replaced by contracts, agreements, licensing, etc.

Microsoft OS corporation will simply produce the OS (and possibly the browser, as the product now seems pretty irrevocably tied into file management for the system). Now they'll have a good reason to charge more for their OS (we don't get subsidies from the other departments we used to have). Plus they'll be getting subsidies from the other baby bills for licensing agreements relevant to the OS API hooks, etc.

Microsoft Applications corporation will continue to produce the dominant apps for the Windows platform, as they have had access to the Windows API from Day 1. And can continue to have access to the API through licensing. Apps will become more expensive due to the "we're not subsidized by the other divisions" excuse as well.

Microsoft Online Business corporation will, possibly, be hurt by the breakup, though the lucrative contracts from MSN, MSNBC, and their various other online initiatives will probably keep them easily in the black, since a meatspace presence isn't required for them to stay profitable. Their main competition would be Time-Warner-AOL. Even still, with their close ties to the other baby bills, they can easily leverage themselves in the market.

Simply splitting the markets up doesn't necessarily change public perception. Microsoft will still be Microsoft.

Take a look at phone service. Many people still look at it as "from THE phone company", even though their bills are separate and itemized.

Personally, I'm in favor of them opening up their API's to review, even if it comes with a license barring duplication. Companies would be able to build better products, and Microsoft would benefit from people reviewing their code and possibly improving it. The customers would benefit from better products and a wider range of highly optimized products.


Chas - The one, the only.
THANK GOD!!!

Re:Good indeed

[um... Lucas]

Office is a HUGE product. There's still tons of justification for them not developing a Linux version, namely, how many people will actually buy it.... A port would take at least a couple years, so if they started now, we'd see it in 2002 or so...

But the only way it would be viable even then is if people within Microsoft felt that Linux would grow a huge amount in that time... I doubt that mindset exists much anywhere within Microsoft. Therefore the justification against developing Apps for Linux would and could continue...

Re:MS Office is not a monopoly

[um... Lucas]

Whatever the DoJ decides to do with Microsoft one thing that they will not be doing is penalizing them. Rather, all the actions that they take are supposed to restore competition rather than simply hurt Microsoft. That's why they can't just say, fine them $20 billion dollars.

About the only thing they could do is decide that Windows is an essential facility or whatever the name is, but even then, the government would have to pay Microsoft for the source...

And lastly, the Judge found that Microsoft competes unfairly and has a monopoly on OPERATING SYSTEMS. Last I looked, Office is not part of the OS... Therefore, I thinks it's highly unlikely that there will be much done in the front of taking IP out of the Apps division...

But then... IANAL...

Re:I wonder if it'll "help"...

[CodeShark]

I wonder whether this will help control MS' influence in any way.

Others have already competently dealt with most of the issues you bring up, but I'd like to chime in with how the Microsoft breakup relates to IT managers.

The preponderance of M$ software in corporate America has about 80% to do with M$ ability to leverage the desktop and application API(s) to the detriment of every other competitor, and 20% to do with the ability to cut loss-leader deals in one area and then recoup the profit in another. It's called site licensing -- pay a somewhat exorbitant fee for the right to use a CD-ROM to install the same software throughout the company without threat of lawsuit. Buy 10,000 desktop licenses, and we'll cut you a good deal -- and throw in Outlook Express and IE X.X on every desktop!! Buy NT server licenses (which can be very expensive) and M$ throws in the II-S web/application server for free.

Okay, now divide M$ into three companies as previously described (A) Microsoft OS, (B) Microsoft Apps, and (C) Microsoft Internet. Here's what falls out of the instances previously mentioned:

• Since e-mail is also an Internet app, Outlook, M$ Mail, or Exchange can't just be thrown in with the OS, because the Internet company has a fiduciary responsibility to maximize profits, not give away product.
• Buy the site licences for the applications, but the profit can't be used to lower/underwrite the cost of the desktop software.
• II-S is an Internet application, so it can no longer be bundled with WinNT server (which is an OS). Now II-S has to compete on a dollar for dollar basis with other web servers, including the Open Source ones -- that are free. But since company C (Internet) has to maximize profit, they can't just give it away any more. As a guess -- IIS $1500... Apache -- Free. Hmmmm....company finance guy, what do you think I should choose?
• Almost done... drivers: Since drivers are part of the OS company, the specs have to be published under an Open API, so that the Applications group and the Internet group can take advantage of them. For example, if TWAIN32 is part of the OS, then the WinAPI that talks to Twain32 has to be fully open so that the app group folks can use it.
• SQL Server: part of the Applications group. ODBC32: part of the OS. II-S: Internet. Each group has to produce it's best work (less bugs hidden by the API's), and in order to maximize profit, each group has to work with "outsider" companies to improve their products, rather than relying on the monopoly to enforce compliance.
• I haven't thought this one through, but no more cheating on Java with proprietary WinAPI calls, right?

End result -- choosing M$ in the corporate environment just got alot more costly and harder to justify. Which will increase the speed of movement in the corporate world AWAY from Microsoft.

Next thoughts... "90% of the world's PC will still run on Windows..."Take away the ability to cut deals by using the profit from M$-Office to underwrite the cost of the OS. Also, take away the ability to enforce single OS installation on hardware. Now all of the Comp USA(s), Radio Shacks, Circuit City(s) can sell whatever they want, and since the M$ OS now really costs $120 per machine, and Linux, etc. is by comparison --free... And since M$ tech support now costs more, it becomes cheaper to use other Tech support co's, rather than passing on the cost to M$ (which hid it in the Apps profit, etc.)

Finally, it is a dog to write M$ apps because of the convulted WinAPI. Force the API into the open, and now a company can conceivably develop a code base which can be compiled to be runnable on a larger variety of OS's. For example, if I have 10 WinAPI programmers, and the OpenAPI allows me to use reduce the need to 6, now I can have the other 4 work on porting/debugging the code for other platforms such as Linux, *BSD, BeOS, Mac, etc. So my company's gawsh-this-is-kewl-app runs on a wider variety of platforms. Soon the 90% figure starts to decline, right?

"I'm not getting up my hopes that this will seriously threaten MS's dominant position on the global market." While I admit that it will take longer for the English speaking market to change, separating MS into the companies forces each of them to develop all of their products independently for all of the different languages, and still maintain profit. So I see a cut in M$ support for non-English and non-EU countries. So the worldwide market for Linux, etc. improves, which strengthens Linux, etc. here in the US.

Okay, I'm done now.

Re: M$ breakup

[binarybits]

As an aside, I'm not buying the story that Netscape lost to Internet Explorer based on product quality. Internet Explorer won because the consumer usually had no choice but to have it. (Can somebody explain to me why I was required to install Internet Explorer before installing Visual C++?)

I don't know, but I don't see as it matters. After all, there are *lots* of programs that come as part of the OS, and if Microsoft shouldn't have included IE, what else are they not allowed to include. For purists modern OS's are not OS's at all but merely massive bundles of API's and utilities. But if you stripped Win95 down to its kernal, you wouldn't have much left.

So sure, the consumer was "forced" to install IE, just like they were "forced" to install Windows Explorer, Notepad, the Start menu, and dozens of other OS components. If we're going to tell Microsoft which products are allowed to be bundled with their OS, why stop with IE? Why not boot minesweeper, telnet, and probably dozens of other crappy add-ons?

There's a big difference between giving something away for free and being predatory.

Actually, my impression is that giving a product away for free to undermine a competitor is the definition of being predatory. Which is why it's such a silly concept: all companies do it, there's nothing unethical about it.

Microsoft can easily pay several hundred people full-time salaries to develop Internet Explorer because that's pocket change to their existing monopoly. Netscape can only do this until they run out of money, which isn't very long given the above situation. In the end, the quality of Netscape's product fell behind as a result. But product quality is not why Netscape lost; poor product quality was the result of their losing.

So now it's a crime to spend more money on a product than one's competitors? Sure it's "unfair" that Microsoft has more money than Netscape. But that's life. It's downright bizarre that you would fault Microsoft for outspending its rivals to get a better product. Are you saying that companies should make sure they spend the same amount on its products as the competition?

When you form a business to compete with an industry leader, you'd better have the capital and the determination to stay in business. In fact I think Netscape did that-- they managed to stay ahead of IE through version 3 at least. But today, Netscape is no better than IE, and on the Mac side I'd argue that it's an inferior product. And it's looking like IE 5 will widen that lead. Yes, it sucks for Netscape, but antitrust laws were not designed to protect businesses. They were designed to protect consumers. And the browser wars undoubtedly helped consumers by creating two vastly improved web browsers and forcing both companies to give them away for free.