U.S. vs. Microsoft - Breaking Up Is Hard To Do, But Not That Hard

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Event Summary

WASHINGTON, Feb. 25 (PRNewswire) -- A leading American economist set the record straight on the higher costs that will result from an artificial breakup of the Windows operating system. Consumers and the IT sector will pay the price of a $30 billion increase in software costs if Windows is broken up as some Microsoft critics and government attorneys seem to be advocating.

The study, authored by Professor Stan Liebowitz of the University of Texas at Dallas and presented today by the Association for Competitive Technology (ACT), specifically addresses recent papers that claim there would be no costs associated with a Windows breakup. Professor Liebowitz' paper uses real- world, fact-based examples from the high-tech marketplace to support his conclusion that breaking Windows into competing versions will result in consumers seeing fewer choices and higher prices for software.

"People are living in a fool's paradise if they think that the Windows standard will remain intact if the product is divided among multiple companies," Dr. Liebowitz said. "Just look at what has happened with the Unix and Linux operating systems where competing versions are nowhere near compatible. This example provides absolute and directly relevant evidence of what we would see in a fragmented Windows marketplace," he added. The professor's findings were debated at a conference that explored remedy options in the Department of Justice's antitrust case against Microsoft.

Professor Liebowitz' paper says that while some would argue that competing versions of Windows will produce only minor changes to Windows, it is not supported by any facts or plausible arguments. "Even with just one company producing Windows, we've seen an average 20 percent increase in functionality a year," Dr. Liebowitz said. "It will be impossible for competing operating systems to remain compatible with one another while they are adding functionality at these rapid rates."

Market Impact

The Liebowitz study is predicated on a single scenario - the District Court orders a breakup of Microsoft into three "BabySofts", with each BabySoft retaining its own flavor of Windows. We believe this is the least likely of all breakup scenarios, with only a 5% likelihood. Far more likely is the scenario where Microsoft is broken up into separate BabySofts for operating systems, applications, and/or other business units (35% likelihood). Another possible case has the BabySofts divided by market groups, (e.g., consumer and business systems) (10% likelihood).

Dr. Liebowitz also presumes there will be no concomitant benefit to the marketplace from increased competition among the BabySofts. Even accepting Dr. Liebowitz' figures, we project a contingent marketplace risk of less than US$1.3B over the first three years of a Microsoft breakup. Combining the study's baseline figure for installed 32-bit Windows operating systems (Windows NT and Windows 95/98) yields a contingent risk from this scenario of only $5 per installed user.

The paper claims that there has been an average 20% increase in Windows functionality. This refers only to modified or added application programming interface (API) functions, used almost exclusively by other software developers. This shouldn't be interpreted to mean that Windows 98, for example, has 60% more features than Windows 95, released three years earlier. It doesn't .

User Recommendations

This study presumes a number of worst-case scenarios to reach forecasted costs of US$30B. However, we believe a contingent annual risk factor of $5.09 per installed user to be miniscule. Current and future users and adopters of Microsoft Windows need not fear the financial implications of a potential breakup remedy.

This is just more fear, uncertainty and doubt that benefits no one but Microsoft.

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