Alternate Universe: Microsoft splits into two

It was a court ruling that might have gone down in history as one of the landmarks of U.S. antitrust law. 

On June 7, 2000, U.S. District Court Judge Thomas Penfield Jackson ordered Microsoft Corp. to be broken up into two companies – one focused on operating systems, the other on applications software. He also imposed other conduct restrictions on the software firm that he had two months earlier found to be in violation of the Sherman Antitrust Act.

By that time Microsoft had been in court for close to 10 years. The U.S. Federal Trade Commission began investigating the company in 1991, after competitors complained the software giant derived an unfair advantage from making both applications packages and the operating system they ran on.

The U.S. Justice Department took over that investigation a couple of years later, eventually leading to a consent decree approved by a federal judge in 1995. The legal wrangling continued, though, and the Justice Department opened an investigation into possible antitrust violations the following year. That in turn led to Judge Jackson’s ruling.

That ruling could have resulted in a breakup as momentous as the fragmentation of AT&T in the early 1980s. But Microsoft appealed, and a little more than a year later, on June 28, 2001, the U.S. Court of Appeals for the District of Columbia reversed the breakup order. The appeals court upheld Jackson’s finding that Microsoft had used illegal means to maintain its monopoly in personal computer operating systems, but on the basis of some of Jackson’s public statements and comments to the media, it concluded there was an “appearance of partiality.” Jackson was taken off the case and the breakup was called off.

What if that had not happened, and Microsoft had been divided into two firms? We asked three industry experts for their thoughts on what that alternate universe might look like today.

Michael Cherry, lead analyst at Directions on Microsoft, a Kirkland, Wash., research firm that specializes in tracking Microsoft:

Microsoft likes to make the claim that by the fact that they are not broken up, that they are the one company, that we get a lot of integrated innovation, that the products are designed to work together. But if they were separate companies, then there may be opportunities for other parties to do some of the innovation. You know, not all of the innovation has to come from Microsoft.

Richard Morochove, Toronto computer consultant and president of Morochove & Associates Inc.:

If they were broken up, if they were truly independent – in other words management was separated – then we might even see a bit of competition between different groups at Microsoft. Why wouldn’t the people who run the applications business rewrite the software so it could also run on other operating systems, such as Linux, which is really not in Microsoft’s interest today.

Cherry: Writing another version for another operating system is a huge task, and would it really create any more sales than what they’re selling now? So you have to ask yourself, would anything really change?

The question you have to ask yourself isn’t just do they have the talent to do it, because they do, they’re smart people. The question is, can they make money for their shareholders doing it, because they do have that obligation. So it’s an interesting question. I’m not convinced that the world would be significantly different.

Would the Windows company write for other processors? I’m not convinced that split would change the software business substantially. Now a couple of splits that might be interesting would be if you were to take let’s say the SQL Server group and spin it off, or the Exchange group and spin it off – but they face the same problem as the Office group, which is that writing the same software for another operating system isn’t really an easy thing to do.

Jason Martin, president of Navantis Inc., a Toronto-based systems integrator and Microsoft partner: 

I guess it would depend on which business units went in which direction.

We’re certainly seeing companies like Apple focusing more on the home entertainment division of the market these days, and Microsoft has a group like that, so you could see that spinning off and going in that direction. I see the potential for Xbox going in the direction that Apple’s going.

When Microsoft first went down the road of putting out the Xbox, I was nervous that this would mean I’d have a tougher time selling servers. Selling servers is a very serious business, and customers might have perceptions that a company that made games couldn’t be trusted with servers. 

I think if the operating systems business was spun out as its own unit and server-based applications were spun out, I think you’d have some real problems. Operating systems, browsers, application architecture – there is no difference in these things any more. Although there was at one time, it was a very short period of time. I think it was an artificial separation to begin with.

Morochove: There’s been speculation as to whether the operating systems guys at Microsoft give their applications guys some secret APIs. It’s never really been proved to my satisfaction that that does exist, but there does seem to be some evidence that it does. (A separate operating system company) would be looking to forge closer relations with application developers in other areas.


Previously in “Alternate Universe”

HP doesn’t buy Compaq

Apple licenses the Mac

Why we created “Alternate Universe”

History in the faking

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