Same as the Old Boss

Less than two years ago, Judge Thomas Penfield Jackson's antitrust slingshot appeared to finally topple Microsoft's modern-day Goliath. The ruling cost the software behemoth dearly on Wall Street, and growth trickled to a mere 8 percent in 2000. But by June, the federal appeals court had tossed Jackson's penalties, taking the sting out of the ruling. (The guilty ruling still stands, but the punishment, breaking up the company, has been lifted.) The more time passes, the more the metaphorical stone looks no more fatal than a ping-pong ball off the noggin. Even before the latest news, a defiant Microsoft was hard at work on its latest Windows update.

No one expected a wallflower, but many were taken aback that the controversial Windows XP features a phalanx of new bundled services like the company's own instant messaging service, DVD player, and firewall. The new operating system sent competitors—especially AOL Time Warner—into paroxysms of protest.

And XP is only Microsoft's opening act. Still to come is .Net, Redmond's plan to stake off its own piece of Internet real estate—and exert all of its considerable influence to pull in users. It plans to essentially staple its Internet services directly onto its operating system, creating a fee-based subscription service for everything from software to online calendars and instant messaging—all shepherded through a service called Passport. The idea is to let users access data—including documents, e-mail, and spreadsheets—from any platform, simply by logging on.

The .Net services, which have no release date, threaten to shut new groups of competitors out of the OS—or wash them away in the new streamlining. To critics, it looks like déjà vu all over again. "They're not tiptoeing back into the antitrust patch, they're diving headlong back into it," says John Buckley, corporate vice president for AOL Time Warner. The bundled programs—particularly the use of Passport and MSN Messenger, which installs and loads automatically every time XP is run—"are precisely the types of things that landed them in Judge Jackson's courtroom two years ago," Buckley says. ProComp, an organization funded by Microsoft's competitors, charges that .Net is an attempt to "turn the Internet into a big Microsoft subscription service."

Rounding Boardwalk

It's not just the competition that's upset. "Microsoft has shown complete disdain for the antitrust laws," says Mark Cooper, director of research for the Consumer Federation of America. "One of the most important things is to ensure competition across the layers of operation, and that's what this is really destroying. By capturing the boot screen and driving you through their Internet portal, the chance you're going to escape that stuff gets smaller and smaller."

Cooper says Judge Jackson was right in suggesting at one point that Microsoft should be split in three, because of the giant's trio of monopolies: Office, Internet Explorer, and Windows. .Net harnesses the power of all three to vacuum users into Microsoft's Internet portal. "Microsoft is taking each of those monopolies and embedding them into the system, controlling key interfaces to the Internet, and leveraging that into domination," Cooper says.

Microsoft denies any pattern of monopolistic behavior. Spokesman Jim Cullinan says predictably that the company needs to continue to innovate and grow to meet customer demand and remain competitive. "Our competitors spend a lot of money lobbying regulators to come after Microsoft," Cullinan says. "It doesn't mean that what they say is accurate or true. If they spent more money on research and product development, they might have more successes of their own."

In fact, .Net has sparked a flurry of moves and countermoves in the high-tech arena. AOL requested a private meeting to discuss .Net with the attorneys general of the states that sued Microsoft. IBM announced in May that it would take on .Net with its own Internet-based development platform—but its dynamic e-business initiative will be open source rather than proprietary, unlike .Net.

IBM's announcement came only days after Craig Mundie, a Microsoft senior vice president, said in a controversial speech that open source is bad for business, stating that the notion of shared knowledge "poses a threat to the intellectual property of any organization making use of it." Linus Torvalds, founder of Linux, was among those who roasted Mundie in the media in the days following.

Despite all the hand wringing and debate over Microsoft's tactics, .Net will be too intriguing even for conscience-ridden programmers to ignore. "I'm eagerly awaiting the chance to use it in a project," says Chris Perreault, co-owner of The Company with Two Brains, a software development business in Waltham, Massachusetts. "But I'll feel guilty about it, because it's clearly another way for them to leverage all these new, exciting ideas in a way that entrenches all of us further in Microsoft platforms."

Unleashed

What remains to be seen is whether the company's new punishment will be a slap on the wrist or something more severe. Regardless, most companies appealing an unfavorable ruling steer clear of trouble. Microsoft apparently feels so comfortable with its new legal situation that it benefits the company to complicate the process with new products. "Microsoft is going to behave as consistently and aggressively as it has in the past," says Andrew Gavil, an antitrust expert and professor at Howard University School of Law. "They're making their point with each feature they add: That they have to be able to innovate, and that no court order exists that tells them what they can and cannot do."

The bottom line: Thanks to a friendlier administration, expect Microsoft's antitrust proceedings to have a longer lifespan than the Single Bullet Theory. When the appeals court finally decides on a new punishment for its monopoly behavior, the remedies will now have to take in XP and .Net innovations, says Gavil.

But Microsoft's flight to the Web means that virtually every Internet company will now be able to do as Netscape has done: Go into court and explain how Microsoft uses its omnipotence to elbow them out of business. "Any time Microsoft makes moves like this, it complicates things for the courts," Gavil says. "It's not just about the browser anymore."

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Ziff Davis Smart Business.