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The Explorer /
Mike Elgan

Justice Department: Hands Off Microsoft!
Splitting Microsoft into two companies would be disastrous for the industry-and for users.

Critics call Microsoft an unstoppable monopoly that snuffs out competition and innovation. They say government action is needed to protect the industry and users. This "action" includes everything from minor slap-on-the-wrist consent decrees to splitting the company in two.

But messing with Microsoft would throw a monkey wrench into the gears of a healthy industry.

It's not a black-and-white issue. Because of the unique nature of the software business-and the degree to which antitrust laws Microsoft Battlesare out of date-the whole mess is quite gray. In last month's Explorer column, I explained why the government should divide Microsoft; this month, I'll present the arguments against splitting the company. Next month, I'll use this column to print some of your thoughts and share a few of mine.

Bad for the industry

Why don't Microsoft's antitrust critics just sue the company? Because they'd lose. In order to win such a suit, they'd have to demonstrate that Microsoft's revenues are growing faster than those of other software vendors (they're not). They'd also have to show that, because of Microsoft's "monopoly," users are being harmed, prices are going up, product output is declining and software innovation is being stifled. Good luck!

A system that allows companies like Microsoft (as well as IBM, Apple, Netscape, Sun, Digital and others) to sell both operating systems and other hardware and software works for the industry. The fact that the software industry is a $150 billion segment of our economy, and growing, proves it works for the economy as well.

Microsoft has long argued it could be out of business in just 18 months if it weren't so aggressive. And that's true. The history of the microcomputer industry has demonstrated that the potential for anything from minor application-level innovation to a massive paradigm shift is always just around the corner. And when paradigms shift, companies fail-if they don't keep up.

Last year was a perfect example. Industry watchers spent the first half of 1996 predicting Microsoft's demise at the hands of the Internet. They spent the second half predicting it would completely take over the Internet.

Here's what really happened: Various software development, product cycle, distribution and use models underwent a paradigm shift that deviated sharply from the PC Wintel universe, proving Microsoft is powerless to stop software innovation to protect its franchise. Microsoft responded by turning the company around as if it were a small mom-and-pop shop, transforming itself into a killer Internet company. This proves what Microsoft's been saying all along: The company responds to external events, rather than controlling them.

Bad for users

Win95's Plug-and-Play is a huge step in the direction of PC usability. But it would never have come about on the PC platform unless Microsoft forced it down the industry's throat. The microcomputer industry is like the Wild West, an untamed, lawless frontier. Only a company like Microsoft (with partner Intel) has the muscle to bring order to hardware chaos. That order benefits users. PnP is just one of many examples I could use to show how Microsoft's very power and dominance make life better for users.

Likewise for software. Windows incorporates applications and utilities once sold at hefty prices. The Windows 95 CD, for instance, contains fully integrated and usable memory and disk management, backup, defragmentation, word processor, e-mail and fax software, as well as games, networking and communications apps, a graphics utility, sound and video players, and a bunch of other goodies. The next Windows version will have built-in Web browsing. Companies that have suffered or been killed by this accelerating giveaway say Microsoft is using its popular OS to stifle innovation. But what's the downside for you and me? These applets are integrated and free!

No, they're not particularly innovative, but that leaves the market wide open for competitors who can build a better mousetrap. In the short term, Microsoft's integration of applications may look harmful, but in the long term, it accelerates innovation. You can still choose to spend your money on truly innovative software if you're not satisfied with the kind of bare-bones apps that come with Windows.

Microsoft plows a healthy chunk of its riches into making better products. The company claims it spends more than $1 billion a year on R&D. It spends much of that research on usability studies-finding out what real users want rather than what software developers think users want.

Bad government

The real issue here is who makes software choices. Should the industry decide which platforms and core technologies to support? Should buyers decide what to purchase? Or should government lawyers and bureaucrats make these decisions?

After dividing Microsoft, the Justice Department would have to keep the two new companies in compliance. It would then have to decide on an ongoing basis what constitutes operating system software, and what constitutes applications, utility and programming software.

Are device drivers, document viewing software, DLLs, Web browser functionality, text editors, and search, disk and file management utilities part of the OS? Lawyers and bureaucrats would decide.

The argument for splitting Microsoft leans heavily on the idea that owning an OS gives a company an unfair advantage in selling applications compatible with that OS. But Microsoft dominates the Macintosh applications market even more thoroughly than it does the Windows market.

The Justice Department should realize it is-and should remain-legal for one company to make and sell not only successful operating systems but other types of hardware and software as well. Government micromanagement of bundling deals would only raise prices and harm consumers. Further, companies should stop filing these time-wasting lawsuits, and the government should stop rewarding them for practicing competition by litigation.

Microsoft should not be divided. Nor should the Justice Department continue to investigate it almost annually. Let's admit Microsoft's industry dominance is the least of many evils and leave the company alone.

That's the case for keeping the Justice Department off Microsoft's back. What do you think? Send me your thoughts at melgan@cmp.com or visit a special page devoted to the question at http://www.winmag.com/people/melgan.

Contact Editor Mike Elgan in "The Explorer" topic of WINDOWS Magazine's areas on America Online and CompuServe, or at the addresses here.

Copyright 1997 CMP Media Inc.

(From Windows Magazine, January 1997, page 59.)