SEATTLE -- If one Microsoft is powerful, would two be even more so?
While a breakup of the software giant, if it happens at all, is at least a couple of years away, consumers could find themselves faced with a number of changes. But Microsoft products could remain dominant.The U.S. Justice Department, joined by 17 states, asked a federal judge Friday to split the giant software company into two companies -- the largest trust-busting move since AT&T was carved into seven Baby Bells. One company would continue to produce the Windows operating system, while the other would handle other software programs, such as the Microsoft Office suite of spreadsheet, word processing and other business programs.
"If this breakup plan were to make it all the way through appeals, it could create a lot of confusion in the marketplace," said Rob Enderle, an analyst with the Giga Information Group. "Long-term, we'd find a lot more benefit, but it might be with two very dominant companies instead of one."
"This is like telling McDonald's that it can only sell burgers, not fries, and that it has to give away the recipe for its secret sauce," said company spokesman Jim Cullinan. "We are confident that the appeals court will support Microsoft's position."
Considering that Friday's government filing is only a recommendation, and that Microsoft has said it will appeal U.S. District Judge Thomas Penfield Jackson's rulings, consumers are unlikely to see any changes to the software that powers their personal and business computers for at least the next two years.
If the recommendation is adopted by Jackson, who on April 3 ruled that Microsoft illegally used its monopoly power in operating systems to crush rivals, it would bar Microsoft officers and directors, including billionaire co-founder Bill Gates, from owning stock in more than one of the new companies. The government also asked that the companies be barred from reuniting for 10 years from its effective date.
"This decree will not limit Microsoft's ability to add new features to its products or otherwise to innovate," said Joel Klein, the Justice Department's antitrust chief. "But by turning loose the power of competition in the operating systems business, this decree will stimulate innovation throughout the software industry. . . . The American consumer will benefit enormously from this proposed remedy."
Gates, in a conference call with reporters, called the proposal "very disturbing, not just for Microsoft but for consumers and the entire high-technology economy." He predicted his company would prevail on appeal.
Microsoft has until May 10 to respond to the government's proposal. Bill Neukom, the company's general counsel, said Microsoft will ask for a major extension of its deadline.
If the proposal survives the appeals process, there are a couple of ways the changes could play out.
Ideally, the Microsoft applications company would start moving its popular Office software to other operating systems, such as the grass-roots Linux system and Sun Microsystems' Solaris. In the Justice Department's view, that would reduce Windows' role as the dominant operating system in the market, because other operating systems would have an equal shot at getting the most popular software.
The operating system company could continue producing Windows, not only for personal computers but also for handheld devices and consumer electronics -- a plan already in the works at Microsoft. That plan offers consumers a unified base for all their devices, giving them the ability to access their e-mail, Web pages and personal data from any device, from TVs to cell phones.
There also is speculation that such a company might produce a Windows version of Linux as well as software that would make it easy to tie together different operating systems into cohesive networks. For consumers, that would offer the freedom of buying any system they like, safe in the knowledge that it would work well with others.
That's in an ideal world. Reality might be different.
Consumers, faced with a series of confusing choices where there were none before, may simply stick with the Microsoft products they're used to. And software programmers would probably be happy with that.
"The people who develop software would still have a lot of incentive to develop strictly for Windows, because for the foreseeable future, it will still be the dominant system out there," said Charles Hill, an economist at the University of Washington.
Hill said it's most profitable for people who write software to write for the dominant operating system -- there are more customers available to buy that software. And the operating system with the most software written for it tends to grow in dominance.
With more than 100 million copies of Microsoft Office in circulation today, spreading Office to other operating systems might create a new monopoly.