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Window Manager
Brian Livingston
Brave new Windows: How the Baby Bills will make your life easier and more fun

For such smart guys, Microsoft's top executives sometimes act incredibly dumb.

While federal and state officials were meeting to agree on a proposal to penalize Microsoft for its antitrust violations, company Chairman Bill Gates and CEO Steve Ballmer loudly proclaimed in the press that the company had no reason to change any of its business practices. Ballmer told editors of The Washington Post, for example, "We behaved in every instance with super integrity."

After hearing all that, I expected the feds to propose breaking Microsoft not into two companies, but into a third and fourth as well. Chairman Bill would be responsible for selling "Gates CE," while Chief Executive Steve would be marketing "Ballmer Bob."

Despite Microsoft's recent comments, it's impossible to see how a breakup into Baby Bills could be bad for consumers. If your company wants to buy PCs in 2003 with Windows and Office pre-installed, you could -- just as you can today. If you preferred PCs with Windows and Corel Office, you could get this combination pre-installed more easily and probably less expensively than today.

The press's obsession with browser wars has obscured the many accusations against Microsoft. Under U.S. law, it's not illegal to obtain a monopoly. But a company with a monopoly in one product must ensure that it doesn't use that monopoly to give an advantage to any of its other products.

According to U.S. District Judge Thomas Penfield Jackson:

-- As a condition for licensing Windows, Microsoft required PC makers to sign contracts prohibiting them from promoting the products of Microsoft competitors.

-- Microsoft made contracts, which included outright payments, with major ISPs, inducing them to use Microsoft products and not those of competitors.

-- Microsoft changed its version of Java so third-party Java applications would run only on Windows and even pressured Intel into undermining the competitive threat Java posed.

Additionally, there's the action that the mainstream press treats as the entire case, because it's the easiest to explain: Microsoft priced Internet Explorer at zero and then bolted it to Windows to eliminate competitors.

This didn't hurt only Netscape. As recently as 1996, at least 10 different browsers were trying to make a profit. This included such serious players as Symantec Cyberjack, Attachmate Emissary, and IBM Internet Connection. Because these products could no longer be sold, consumers lost the innovations that might have been added to browsers' capabilities.

Jackson ruled that only when Microsoft's acts are viewed as a "well-coordinated course of action does the full extent of the violence that Microsoft has done to the competitive process reveal itself." This course of action includes two primary tactics.

-- Predatory pricing. Microsoft's ability to use the cash reserves from Windows and Office to develop and then give away other products for free destroys competition.

-- Embrace and extend. Microsoft first announces that it "embraces" a new consumer standard. But the company then "extends" the standard so it only works with Microsoft products, undermining competitors. This behavior is so consistent that Microsoft's detractors call it "embrace, extend, and extinguish."

Microsoft executives show they've learned nothing from their public relations disaster in court. The Redmond giant is now reportedly making deals with Web-hosting services so they'll use only Microsoft's free Media Player, to the exclusion of RealNetworks' competing software. In Windows 2000, the implementation of Kerberos security differs subtly from the industry standard. I could go on.

If we want high-tech innovation and competition, Microsoft must not be allowed to dump products free or "embrace and extend."

Many people have contacted me to say that simply breaking Microsoft into "Windows Inc." and "Everything Else Inc." won't stop the new companies from using the same two tricks. As a single remedy, that may be true. But the breakup, which almost certainly will be stayed pending appeals, must be viewed in conjunction with some clever conduct remedies, which will take effect immediately.

The plaintiffs proposed what they call "conduct plus" remedies. These are measures that are fairly easy to enforce, even against executives who have demonstrated they will use any loophole they can find. The most important remedy is a prohibition on bundling any new "middleware" with base-price Windows. Middleware is broadly defined to include browser, e-mail, multimedia, instant messaging, voice recognition, and other software.

For the next three years, even if Microsoft wins on the break-up issue, smaller software companies can innovate with less fear that Microsoft will "embrace" them to death.

This opens a window of opportunity. Let a thousand Microsofts bloom.

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