News: Analysis & Commentary: SOFTWARE
OH, MICROSOFT. POOR MICROSOFT
It has been a tough 1995 for Bill Gates.
On June 8, news broke that the Justice Dept.'s antitrust czar, Anne K. Bingaman, is looking hard at Microsoft Corp.--again. Just days earlier, IBM CEO Louis V. Gerstner Jr. went on the offensive against the software developer by masterminding a merger with Lotus Development Corp. Heck, even radio host Howard Stern got into the act. "I think this is a good move for IBM," the irreverent shock jock sniped on his June 12 show. "I don't want that guy Bill Gates to rule the world."
Whether the motivation is fear, envy, or righteous desire for fair play, Microsoft is under attack. In recent weeks, it has suffered a surprising series of setbacks (table). IBM's June 11 Lotus deal may cause Microsoft real competitive problems down the road. Justice opposed Microsoft's merger with Intuit Inc., which would have made it a powerhouse in personal-finance software. Microsoft awaits word on its appeal of federal Judge Stanley Sporkin's rejection of a July, 1994, consent decree with Justice--which was widely considered a win for Microsoft.
FISHING TRIP. And now, federal trustbusters have launched a fresh investigation into the software giant's new online service, Microsoft Network--with the European Commission mulling a probe, too. The main concern: Will Microsoft gain an unfair advantage if it is allowed to include access to Microsoft Network in its Windows 95 software, due out Aug. 24? Including the two together would mean any user could subscribe to the network with a click of a mouse. Market researcher Jupiter Communications Co. estimates the move would let it sign up 200,000 subscribers per month in its first year, more than double the number if it were sold separately.
Justice, meanwhile, is widening its probe and has subpoenaed computer makers--including Compaq, Apple, IBM, Dell, and AST Research--seeking information on Microsoft's Windows 95 licensing deals. One concern: a clause barring PC makers from filing patent infringement suits against Microsoft or other licensees. Steams Jonathan B. Orlick, AST's director of intellectual property: "Microsoft is trying to set itself up as the worldwide clearinghouse of patents."
Microsoft seems unperturbed. "To us, we really try and view this as a nuisance more than anything else," says Russell Siegelman, general manager for online services. The company contends that including access to Microsoft Network in Windows 95 is simply an efficient way to distribute the products. It notes the items will be sold separately: The price of Windows 95 doesn't include the monthly online subscription fee. Says William H. Neukom, senior vice-president for law and corporate affairs: "We have thought about this for some period of time and feel our position is defensible." And the patent clause PC makers are griping about? Microsoft says it is just a way of preventing unnecessary litigation between licensees.
BIG HURRY. Who will prevail in the latest squabble? Antitrust experts are split on whether Justice is on solid legal ground. Some see the case as hard to prove, given that Microsoft is not yet even in the nascent online business. Says William F. Baxter, antitrust chief during the Reagan Administration: "I find this one a little more troublesome than [Justice's] past actions." Others, however, say Justice may be looking more at whether Microsoft is leveraging its dominant 70% share of the operating-system market to gain advantages in other markets.
Whatever its rationale, Justice wants to move quickly. It sent out a flurry of subpoenas to companies on June 5, asking for information by June 9. Insiders say Justice is requesting that the information come in the form of declarations--a move that would make it easier to go to court right away. Experts theorize that investigators want to make a decision before Microsoft launches the online service in Windows 95.
Siegelman says Microsoft could pull Microsoft Network out of Windows 95 if it has to, but has no contingency plan to do so. "We're not fixated on that solution," he says. "We're fixated on moving ahead." But if the feds' scrutiny of Microsoft continues, the company clearly may be forced to slow its moves into new markets. "There are complaints against Microsoft lined up as far as you can see," says Gary Reback, an attorney who helped persuade Sporkin to reject the consent decree. Not quite. But to Bill Gates there must be days when it seems that way.
GUNNING FOR GATES
Recent events that have put Microsoft on the defensive:
JUNE 11 Lotus agrees to be acquired by IBM for $3.5 billion, creating a formidable rival to Microsoft in the market for software that lets PC users work together on a network.
JUNE 8 Word leaks that the Justice Dept. is again investigating Microsoft. At issue: whether Microsoft is breaking antitrust laws by bundling its new online service with the Windows 95 operating system it plans to introduce in August.
MAY 20 Microsoft abandons its $2.1 billion merger with Intuit after the Justice Dept. files suit blocking the deal.By Kathy Rebello, with Peter Burrows, in San Francisco and with Mark Lewyn in Washington