Microsoft says: Pay No Attention to the Man Behind the Glasses

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Event Summary

Statement 1 -February 17, 2000 [Reuters]

Microsoft Corp. Chairman Bill Gates said the software giant would be willing to open to competitors the source code of its Windows operating system - its flagship product - to settle the antitrust lawsuit brought by the U.S. Justice Department, Bloomberg Television reported Thursday. "Microsoft Corp. would be willing to open the source code for its Windows software to competitors in order to settle the antitrust case filed by the U.S. Department of Justice," a Bloomberg news release quoted Gates as saying.

Microsoft spokesman Jim Cullinan declined to confirm the report, which was issued just hours after Gates launched Windows 2000, the company's latest product that it hopes will help it dominate the corporate computing world.

Microsoft is in negotiations with the Justice Department to find a way to settle charges that the Redmond, Washington-based company violated antitrust laws by using monopoly power in computer operating systems to crush rivals. By opening the source code to Windows, which accounts for about 40 percent of the company's revenue, Microsoft would allow other software developers, including its competitors, to change and sell their own versions of the software.

On Wednesday a report in the Wall Street Journal said Microsoft was willing to agree to greater disclosure of the inner workings of Windows and to other concessions to settle the case.

Microsoft executives including Gates have said they oppose any plan to settle the suit that would break the company up. U.S. Circuit Judge Richard Posner, who is presiding over the talks between Microsoft and the Justice Department, has told both sides in strong terms not to speak to journalists about the talks.

Company denies report quoting Gates as ready to open source code to settle antitrust suit.

Statement 2 - February 17, 2000 5:54 PM PT [Charles Cooper, ZDNet News]

In an interview with Bloomberg Television on Thursday, Gates was quoted as saying the software giant would be willing to open to competitors the source code to its Windows operating system, its flagship product, to settle the lawsuit brought by the U.S. Justice Department.

Or was he?

"Bill did not comment in any way on the mediation process or any settlement proposals," said company spokesman Jim Cullinan.

Meanwhile, the news wires crackled as observers attempted to deconstruct his statement. The only point that was clear was that nobody outside of Microsoft's chairman really knew whether it signaled a break in the legal logjam.

"Just because he says he's interested doesn't indicate he's ready to make a deal," said Stephen Houck, a New York antitrust lawyer who was the lead counsel for the 19 states during the course of the Microsoft antitrust trial. "Making the source code available has a lot of theoretical appeal. But they would have to do a lot of work to make sure it's a viable package that would interest potential competitors."

Last May, company President Steve Ballmer (who's now also CEO) said Microsoft had not ruled out making at least part of the Windows source code available for the public domain. At the time, Microsoft was under pressure to react to the growing momentum of Linux.

But there's been no movement on that count since then.

As a rule, company executives have strenuously resisted suggestions that Microsoft should put what are the essentially its crown jewels into the public domain.

Final arguments coming in D.C.

The latest flurry occurred less than a week before Microsoft and the government are set to present final arguments before U.S. District Judge Thomas Penfield Jackson in Washington, D.C. The two sides have been meeting separately with a court-appointed mediator, U.S. Circuit Judge Richard Posner.

Neither Microsoft nor the government has commented on the substance of the talks. But sources familiar with the deliberations say the negotiations have gone slowly and that Posner has remained unable to bridge the gap between the sides.

Market Impact

This will either affect the market greatly, or it won't.

It is not yet clear if this is a ploy on Microsoft's part, or just confusion a la the left hand not knowing what the right hand is doing. Although we can make a case for it either way, we will give Redmond the benefit of the doubt and assume it is not deliberate.

So, does this mean anything in the greater scheme of things regarding the Department of Justice's (DOJ) anti-trust case? Ultimately, yes, but currently, no. But it conveniently allows us to segue into the possible remedies available to the DOJ.

Among the alternatives the DOJ is likely to consider are:

1) Breakup

2) Open the source code

3) Regulation

4) Some combination of the first three

5) Do nothing

At least for the next 12-18 months, Number 5 will not happen. [This ignores, for the moment, the high probability (>95%) that Microsoft will appeal Judge Jackson's ruling(s). Appeals will likely put any DOJ actions on hold.] The probability of Number 4 occurring is approximately 100%, but it's the mix that is up for discussion. So let's look at the first three.

Breakup is one of the more confrontational (and in some ways glamorous) options. But unless it is combined with a "No Bundling" dictum (i.e. preventing MS from adding an application into the OS and deciding it was part of the OS all along), it is unlikely to loosen Microsoft's stranglehold on the desktop market. Add to that the suggestion from Professor Lawrence Lessig that breakup might not provide the hoped-for consumer benefit, and we believe it is unlikely to happen.

We cannot see the market benefits to opening the source. Proliferation of Windows "flavors" is not necessarily what the market wants. One of the big complaints regarding Linux is that there are too many distributions, each having its own pluses and minuses. Making Windows more Linux-like will provide benefits for a relatively small population, and Microsoft is probably still in control. We also believe that opening the APIs will provide only modest benefit. R

egulation holds the greatest promise for keeping MS from repeating past "misconduct". Having a technologically, unbiased watchdog/overseer is probably the single best way to prevent abuses before they occur, rather than after the damage has been done. However, the political ramifications are significant, and the free-marketers will have conniptions. Plus we'd hear endless carping from Redmond about how the government is "stifling innovation" etc., etc.

Of course, all the preceding speculation is pretty much moot. We expect Microsoft will appeal any ruling other than a free pass (99% probability), and we expect the appeals process will drag things out until either (1) a new, pro-Microsoft, Administration is elected or (2) the market has changed sufficiently that any regulatory measures presently contemplated will be meaningless.

User Recommendations

At some level, this is an interesting little diversion from the normal intensity of the Microsoft trial and the high-tech "Internet speed" environment in general. The confusion coming out of Redmond provides an interesting counterpoint to the political debates and charges flying during the Presidential primaries.

On a more realistic level, the outcome of the trial will greatly affect (both directly and indirectly) the computing and business world for the coming years. However, customers/users need not delay any purchase due to these latest events, because any significant changes to the OS world will give customers plenty of time to react and adjust their strategies (if necessary). Current business plans should not be affected by this trial until penalties (if any) actually get meted out.

In the meantime, we will keep watching for more "misquotes" .

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