June 7, 2000

1:49 PM

Judge rules Microsoft must split up
Judge Jackson handed down the verdict today that Microsoft should be broken into two companies: one for Windows OSes, the other for all other applications and services. Many restrictions on Microsoft's behavior would also be put in place, pretty much just ensuring they couldn't lock anyone into exclusive contracts or force bundling deals on anyone.
posted by daveadams (38 comments total)

So what do you think about this? While I'm opposed to splitting up Microsoft, I can see some value in breaking up the company. However, using the OS as the bundling weapon is only the strategy now. Shouldn't MSN be split off, as well as IE, to head off future problems of tying one service or software package to another by this company?

As far as the restrictions on exclusive contracts and forcing the company to offer the same licensing terms to everyone--I think that should be law for every company. Nothing bugs me more than not being able to buy a Coke on this campus because Pepsi got an exclusive contract to offer vending services at the university.
posted by daveadams at 1:53 PM on June 7, 2000

Heh, was just about to post this myself....

All in all, the ruling looks great to me. The rules about sharing information, code, resources, and working as two individual companies looks great. The downside? The appeal, of course, which will take even more time.

Press conferences from both ends are forthcoming; Bill's videotaped response is already out there.
posted by hijinx at 1:54 PM on June 7, 2000

But that doesn't mean that they can't be exclusive to writing programs just for their own OS, does it? If so, then the govt. has another problem. (Hey Matt, if you will, please remove my post on this, as this appears to be a much better thread.)
posted by Cavatica at 1:55 PM on June 7, 2000

Here's what I think might happen if the breakup goes through: The applications company will port Office, IE, and everything else to Linux, OS X, and anything else with more than 2% market share. If they're smart and make IE 100% standards-compliant, since it's already more stable than Mozilla, IE will become the undisputed browser leader. Office will spread its power, too, since it will now be cross-platform. VBScript will be made truly cross-platform as well. With a monopoly on every meaningful software category on every OS platform, the apps company can then leverage its monopoly to force people into using its Internet services. Viruses like ILOVEYOU will be even more destructive as their effect will truly become cross-platform.

In short, this move only allows Microsoft applications to become more prevalent, and I think more damage can be done in that arena than for OSes alone.

Of course, I might be totally off my rocker, but I think it could happen.
posted by daveadams at 2:07 PM on June 7, 2000

Now begins about three years worth of appeals and legal maneuvering. The fact of the matter is that Judge Jackson has badly screwed up this case and given Microsoft manifold reasons for appeal. (Believe me, there's a very long list of mistakes he's made and exceedingly questionable decisions he's made. Among other things, Microsoft can make a very convincing case that he was not impartial.)

Ironically, by the time the entire legal process winds to a close, the situation may turn out to be moot.

Now there's this particular little thing:

Why is it that Microsoft spends enormous amounts of money producing and giving awayInternet Explorer for the Macintosh?

It's in order to keep the Mac as a viable alternative to the Microsoft operating systems. Well, in the breakup, IE goes to the app group, not to the OS group.

What incentive does the app group have for continuing to write and give away IE for the Macintosh? We all know what incentive the OS group would have, but they would no longer be involved in the decision process.

Equally, Microsoft committed to continuing to support Office for the Mac, because whether Mac owners like to admit it or not, without Office the Mac will wither and die. (Steve Jobs certainly knows that; he dealt away a lot of things including patent rights to Bill Gates to get that commitment to continue to develop Office for the Mac.)

MS certainly doesn't give Office for the Mac away, and they certainly make a great deal of revenue off of it. But do they make profit off of it? That is by no means obvious. In the past it didn't matter; Microsoft OS group subsidized Microsoft app group to make sure the Mac remained viable, and that would have included subsidizing development of Office for the Mac if necessary. But without that subsidy, will the newly independent Microsoft AppCo (TM) continue developing Office for the Mac? If in fact they don't make profit off of it, or even if they don't make very much profit (so that the same resources applied elsewhere would generate more profit) then AppCo might discontinue Office for the Mac -- and that would spell the end of the Mac as a viable platform.

It would be exceedingly ironic if one of the ultimate results of this court decision (should it be upheld and implemented) was the effective death of the Mac as a viable platform due to loss of support from Microsoft AppCo.
posted by Steven Den Beste at 2:20 PM on June 7, 2000

Here's a theory even more off one's rocker, dave.

I think Jackson, Klein, and DoJ were just conned, big time. And they fell for it.

I think Microsoft's main goal was: How do we get DoJ off our backs forever? And I think the answer to that was, Let the Wookiee Win. Meaning, give DoJ a victory so big, they can't come back to the well, ever.

So, yeah, MS will file pro forma appeals, they'll make it look like they're upset by this... But all I'm really hearing is, "Please don't throw me in that briar patch!"

After all, the Baby Bills (or maybe M1 and M2?) will have Microsoft's capitalization, Microsoft's cash reserves, Microsoft's installed base, and Microsoft's corporate culture. How, exactly, does having two of these entities constitute "punishment" in any meaningful sense - for Microsoft, I mean? :)

I think Bill and Steve will cry all the way to the bank.

(Oh, and you left out the possibility of the O/S company (M1?) bringing out a Microsoft distribution of Linux, with a MS window manager (rather than KDE or GNOME) and a MS-authored Windows emulator (to go against WINE)... but hey... :)

posted by aurelian at 2:22 PM on June 7, 2000

Steven:

The quick way to find out if MS makes a profit from Office for Mac: What's the price for it at the MS employee store? :) (Really, anybody know?)

Even though prices there are 70-80% off retail, I'll betcha that the store is still profitable... probably cost+10%, or something.

posted by aurelian at 2:26 PM on June 7, 2000

Let the Wookie Win. I like that.

But you have a serious point there, Aurelian. Microsoft may take Apple down after all.

Damn, and I so had my hopes set one of those new Powerbooks.
posted by Cavatica at 2:36 PM on June 7, 2000

Anyone else dislike how the government decides what is best for a large computer company? Which one is next? Any predictions?

I'm still waiting for the government to find the automobile industry criminally negligent for building a harmful product. No monetary damages yet? That is the sole reason for attacking Microsoft, since MS is too rich and successful. How many more lawsuits will this ruling bring about and if so when will the harmed consumers get their money back? Just like all of those who died from smoking in the class action law suits.
posted by brent at 2:53 PM on June 7, 2000

There's a lot of conflicting reports, and the C|Net article is a bit confusing. Going to the ruling itself, It appears the two companies will amount to: Win9x/Nt/2k/CE/ME/blah, and then everything else. CE is what they are talking about when they say "set-top boxes", and WebTV will actually go to the second company. Just thought I'd clarify.
posted by Freakho at 2:57 PM on June 7, 2000

I think breaking up Microsoft is wrong. I think the governments reasoning is faulty, and basically unamerican.
That said, Apple does not NEED Microsoft to survive. If for some reason Microsoft pulled the Office Suite, Clarisworks or somebody else would fill the void. All they would need to do would be to make it compatible it sending and receiving styles from word/xls,etc.. The Mac drives publishing, I am sure a good chunk of the legal copies of the program are run on Macs. Worst case senario people could run softwindows if they has to have that bloated piece of trash on their machine. Word is cursed. Its evil desire to control your actions and anticipate your needs messes up orderly machines constantly. It rips postscript fonts out of their folders and replaces them with crummy bitmap fonts of the same name, and gives you no clue that it has done so. I remember when the program came on 2 or 3 floppy disks. It was great and clean. Few people use 90% of the features available, the program should allow a minimal install that lets you opt out of all the dross. While they are at it, they sould make it easier to flow text from word to Xpress without losing styling.
Mac users would hate to lose Office, because it is unknown, (and people hate the unknown) but they will not give up the machines they love and have spent alot of money on.
posted by thirteen at 3:19 PM on June 7, 2000

I like it.

1) The new software group will have the same access to the inner working of Windows as everyone else. This will help get things back on even ground.

2) The software group will very likely port more applications to Linux and other OS's. This will make it easier for people to choose an OS other than Windows. Choice is good.

3) Bill Gates will become more and more insane, finally going totally Howard Hughes. I hate that little nerd.
posted by y6y6y6 at 3:20 PM on June 7, 2000

Neal Stephenson covers the problem of selling OS's in a world that wants OS's to be free in his excellent book In the Beginning...Was the Command Line
Well worth reading, even if you know it all already.
posted by thirteen at 3:26 PM on June 7, 2000

One last thing, I think this whole deal will fall apart if the Democrats are unable to keep the White House in the coming election. I think a Republican president would be unlikely to allow this to happen.
posted by thirteen at 3:31 PM on June 7, 2000

In the Beginning... Was the Command Line also wants to be free. :)

It's a long read. I recommend setting it to a black background with silver Verdana at 12-14 pts for the text-- makes it much more readable onscreen.
posted by wiremommy at 3:36 PM on June 7, 2000

Er, that line was supposed to read "won't even ban the use of the <BLINK> tag"...
posted by Mars Saxman at 4:41 PM on June 7, 2000

As a Windows programmer I'm not thrilled at the idea of having even more disorganized APIs split across two companies.

Also, the <BLINK> tag is a Netscape specific tag. MSIE did away with it in 3.0 I believe.
posted by perplexed at 5:26 PM on June 7, 2000

Brent writes:

That is the sole reason for attacking Microsoft, since MS is too rich and successful.

That may well be, but the actual basis for the government's case is that Microsoft made illegal use of its monopoly power. Which is, you know, illegal. All the people ranting about how the evil government breaks up companies that have never, ever done annnnything to hurt anyone need to read about Standard Oil. Giant, a biography of John D. Rockefeller, might be a good place to start.

That said, I think breaking up MS in this particular way is a foolish move; I think forcing MS to publish their APIs and hitting them with a huge punative fine (and, say, doubling it every time they tried to fudge their way around that publish-the-APIs thing) would be more likely to produce a useful behavioral change.

posted by snarkout at 5:34 PM on June 7, 2000

With the break up they have to publish their APIs. If they just give them to the software group I would call that comtept of court. If they don't publish the full API, they will never be any new Windows software.
posted by y6y6y6 at 5:47 PM on June 7, 2000

I have always been fond of the blink tag.
posted by thirteen at 6:11 PM on June 7, 2000

Aurelian, testing the price at the Microsoft company store doesn't prove anything, because software (like all other products) has *two* expenses: "non-recurring" and "cost of sales". The unique aspect of software compared to any other kind of product is that "non-recurring" (that is to say, R&D) is the predominate expense; "cost of sales" is nearly negligible. ("Non-recurring" and "Cost of sales" are legal terms. "Non-recurring expenses" are those which will be the same whether you sell one copy or a million copies. "Cost of sales" refers refers to how much money must be spent by the corporation to reproduce one copy of the product, distribute it to where it will be sold, and take care of the process of sales. (This includes advertising, by the way.) The point is that as sales rise, the cumulative "cost of sales" rises proportionally, but "non-recurring" expenses don't change.)

What's unique about software is that cost of sales for all software is $25 or less, irrespective of the title. That applies just as much to "Flight Sim 2000" (which retails for about $40) as it does for "Lightwave 6" which sells for about $1800.

That price in the Microsoft store will include a markup over cost of sales, but it may not include amortized R&D. In other words, it might simply be a markup over that fixed $25 "cost of sales" which is the same for everything.

But when you really come down to doing the corporate spreadsheets, to determine profit and loss you have to amortize the non-recurring expenses over the total number of copies sold, since that money has to be paid somehow. A product selling for $40 may be selling for $15 above cost of sales, resulting in a gross profit of $15, but nonetheless for $20 less than cost of sales PLUS amortized R&D, resulting in a net loss of $20. (Now you know the difference between "gross" and "net".)

Ain't accounting fun?

This distinction has a very important legal ramification, by the way: "dumping" legally means to sell a product for less than "cost of sales". But "dumping" does not require you to make back your non-recurring expenses. You may, if you wish, eat those.

In some cases when things are managed properly, the "cost of sales" of software is actually absolutely zero, not a cent. You have to do some finagling to pull this off, but that's the reason why some software can be downloaded completely for free without violating the law against "dumping". Microsoft handled the distribution of IE 5 for Windows (through Conxion) very, very carefully to make sure that every single aspect of the expense was fixed, and that there was no per-copy cost. (They pay a fixed per-month fee for the privilege but DO NOT pay a per-gigabyte fee!) As a result, the legal "cost of sales" is absolutely zero (even though there is a non-zero non-recurring expense, which doesn't matter under the law), and they can legally give it away without violating the law against "dumping".
posted by Steven Den Beste at 6:27 PM on June 7, 2000

Actually, the Rockefeller book was called Titan.
posted by schampeo at 6:35 PM on June 7, 2000

Microsoft has put more wealth into the economy of this nation than perhaps any other corporation in history. Microsoft has created more jobs in this country than even the U.S. government. I dare say 75%, or more, of the members of MeFi involved in information technologies owe their income in some part to Microsoft. Is the rage here against "the man" and his tactics, or is it against capitalist economics?
posted by netbros at 8:41 PM on June 7, 2000

The next company to go after will be AOL Time Warner, once someone realizes that having one company that controls a huge portion of physical Internet access (AOL dialup + Road Runner cable modems), a huge portion of creative content (CNN, Time, SI, music, films, you name it), and a huge portion of the market in the software used to traverse the Internet to get to that content (Netscape, AOL) is a Bad Thing™, much worse than a company that merely controls multiple layers of software.
posted by daveadams at 8:53 PM on June 7, 2000

I think Aurelian is right on here. Being broken up is risky, but almost certainly good for MS's shareholders and the compan(ies) in the long run. To me, it sounds exactly like the story of Brer Rabbit and Brer Fox:

"'Skin me, Brer Fox,' sez Brer Rabbit, sezee, 'snatch out my eyeballs, t'ar out my yeras by de roots, en cut off my legs,' sezee, 'but do please, Brer Fox, don't fling me in dat brier-patch,' sezee.

"Co'se Brer Fox wnater hurt Brer Rabbit bad ez he kin, so he cotch 'im by de behime legs en slung 'im right in de middle er de brierpatch. dar wuz a considerbul flutter whar Brer Rabbit struck de bushes, en Brer Fox sorter hang 'roun' fer ter see w'at wuz gwinter happen. Bimeby he hear somebody call im, en way up de hill he see Brer Rabbit settin' crosslegged on a chinkapin log koamin' de pitch outen his har wid a chip. Den Brer Fox know dat he bin swop off mighty bad. Brer Rabbit wuz bleedzed fer ter fling back some er his sass, en he holler out:

"'Bred en bawn in a brier-patch, Brer Fox--bred en bawn in a brier-patch!' en wid dat he skip out des ez lively as a cricket in de embers."

posted by sylloge at 10:21 PM on June 7, 2000

oh dear sweet jesus.
posted by Zeldman at 12:49 AM on June 8, 2000

oh my stars. those dumb tags were html enabled in the text entry box. help me matt. make it stop.
posted by Zeldman at 12:50 AM on June 8, 2000

Steven, I know about amortization of R&D. I know the difference between gross margin and net margin.

I still think that MS never sells more than one rev of a product unprofitably. That is, Bob almost certainly didn't make net profits, but Office for Mac almost certainly does.

I once thought, especially after Apple sued MS over the Windows interface, that MS' Mac development was maintained as an anti-trust defense. That is, one could go to the judge, "Your Honor, if owning the operating system gives an application developer such a huge advantage, why have we always dominated the Mac application market, while Apple doesn't seem able to manage the same?"

But, now we've had the trial, and that argument never came up. {shrug} That strongly implies to me that MS is in the Mac market because it makes money for them, net.

posted by aurelian at 12:59 AM on June 8, 2000

chaz valiently steps in to save the day!
posted by chaz at 2:56 AM on June 8, 2000

> Is your point that it is acceptable to break the law and abuse monopoly power if you are contributing to the Gross National Product?

I just happen to be in disagreement with the DOJ and Judge Jackson that the law was broken. I guess we will all find out in the appeals process.


posted by netbros at 4:32 AM on June 8, 2000

Microsoft 1995 --> "Start Me Up"
Microsoft 2000 --> "Shattered"
posted by Calebos at 5:49 AM on June 8, 2000

posted by thirteen at 8:22 AM on June 8, 2000

Ahhhhh!
posted by thirteen at 8:23 AM on June 8, 2000

Netbros, this is unusual even for pedantic ol' me, but I am going to take issue with every single sentence in your comment.

Microsoft has put more wealth into the economy of this nation than perhaps any other corporation in history.

How do you measure this? More than, say, Ford? Boeing? Disney? AT&T? How do you distinguish "wealth put in" from "wealth moved around"?

Microsoft has created more jobs in this country than even the U.S. government.

Microsoft currently employs somewhere between 20,000 and 30,000 people. A rough estimate based on www.census.gov data suggests that the U.S. federal government hired ten times that many additional employees between 1998 and 1999 alone. The only way your statement can be even remotely close to true would be to give Microsoft credit for every job in every company in the entire software industry.

I dare say 75%, or more, of the members of MeFi involved in information technologies owe their income in some part to Microsoft.

Do you really believe that Microsoft deserves credit for the entire infotech industry, and that it wouldn't have happened without them? The wave was there before Microsoft, and would have lifted some other company if MSFT hadn't taken the ride. Perhaps a company that respected its customers - that might have been nice.

Is the rage here against "the man" and his tactics, or is it against capitalist economics?

Some would argue that capitalist economics makes abusive monopolistic corporations like Microsoft, Standard Oil, and AT&T inevitable, and that government antitrust action is necessary to counteract the more extreme examples of rampant capitalism before they destroy society altogether. In that case, what's the difference?

-Mars

posted by Mars Saxman at 2:14 PM on June 8, 2000

Mars, thanks for taking the time to seriously analyze my comments. Yes, I believe Microsoft is largely responsible for the Information Age. What if there hadn't been a Microsoft? Sure, perhaps another company would have stepped in and done the same thing. But they didn't, Microsoft did, and they deserve credit for it. Are they innovative? Probably not, but they know how to take bold ideas and market them to the masses, and make them usable.

Wealth is not a "zero sum game." There aren't a fixed number of dollars in this country that simply get redistributed. Productive Americans are generating new wealth, goods and services that did not exist before, every day. Microsoft is largely responsible for "new wealth" generation through their enabling technologies. Microsoft product suites are improving productivity in nearly every small and large business across this land. The other companies you mentioned are certainly right up there with Microsoft for heroic productivity improvement and wealth generation.

By new jobs, I was implying more than just Microsoft employees -- jobs fulfilled by the Information Age. And yes, it isn't just Microsoft, there is a whole cadre of front-line innovators that make all work easier and more effective. Companies like Microsoft, Intel, Cisco and Legent are making global exchange that was only a pipe-dream a few short decades ago practical reality.

I have been a Microsoft product user for more than the past decade. Some of their products are better than others. Some of their products leave me shaking my head. But if I consider the whole picture, I am hugely more productive than I was in 1985. Microsoft isn't the only contributor to that, but they are defintely the leader, at least in my view. I personally cannot buy the argument we would have been better without them and for the most part I am a very satisfied customer.
posted by netbros at 4:30 PM on June 8, 2000