Microsoft Pledges Fail to Move the EU

The software giant's new claims of interoperability haven't impressed the European lawmakers who ultimately will also weigh in on a possible Yahoo takeover

European regulators issued a swift verdict on Microsoft's latest attempt to show it plays well with others: We've heard it all before.

Microsoft (MSFT) on Feb. 21 announced on a series of steps to help competitors' products interact with its own, part of a larger effort to assuage concerns that the world's largest software maker is engaged in anticompetitive behavior. The moves come amid a European Union investigation into the company's business practices and may also be aimed at getting in good stead with the European lawmakers who will scrutinize Microsoft's proposed takeover of Internet company Yahoo! (YHOO).

At least initially, the EU was decidedly unimpressed. "The Commission would welcome any move towards genuine interoperability," the commission said in a statement. "Nonetheless, the Commission notes that today's announcement follows at least four similar statements by Microsoft in the past on the importance of interoperability." None of those has done much to mollify the EU. Lawyers representing the companies that allege Microsoft undermines competition were more pointed: "The world needs a permanent change in Microsoft's behavior, not just another pronouncement," said Thomas Vinje, the top lawyer at the European Committee for Interoperable Systems, a trade group that includes IBM (IBM), Oracle (ORCL), Sun Microsystems (JAVA), Adobe Systems (ADBE), and Red Hat (RHT).

Promises, Promises

The remarks came in response to a flurry of Microsoft pledges. Microsoft began disclosing software code that could let other companies' programs more easily share data with its most important products, including the Windows operating system and the Office suite of productivity software.

The company also extended an olive branch to the community of developers who work with "open" standards available over the Internet. Microsoft promised not to sue noncommercial developers of open-source software that connects to its products, and to license patents more freely to open-source developers who create commercial products. In addition, Microsoft plans to let its popular Word, Excel, and PowerPoint software store data in formats the open-source products can read. The moves are designed to blunt advantages Microsoft's own developers have in designing products that work better with one another than competitors' software can.

In the open-source software community, Microsoft's announcement was greeted with measured optimism. "It's an acknowledgement by Microsoft that the world is moving toward an IT industry that believes in the value of openness," says Jim Zemlin, executive director of the Linux Foundation, a trade group that includes many large technology vendors, such as IBM, Hewlett-Packard (HPQ), and Sun, and which pays the salary of Linus Torvalds, creator of the open-source Linux operating system.

Microsoft Chief Executive Steve Ballmer said during a Feb. 21 conference call with reporters and analysts that the new steps are aimed at complying with antitrust orders from the EU and the U.S. Justice Dept., but also reflect a computer industry in which programs and Web sites readily exchange data. "From an economic perspective, in some senses you could say we're opening up, yet at the same time we retain valuable intellectual property," said Ballmer.

In the Web-centric world, outside software developers can make Microsoft's products more attractive by adding features and capabilities. Microsoft Chief Software Architect Ray Ozzie and General Counsel Brad Smith also joined in the call.

Ongoing Litigation

Analysts said the moves are as much an attempt to deal with past antitrust legislation as they are designed to stave off new pitfalls. "This is a combination of doing what the EU has already demanded, and trying to get ahead of it," says Greg DeMichillie, an analyst at industry consulting company Directions on Microsoft.

In September, the Luxembourg-based European Court of First Instance dismissed Microsoft's appeal (, 10/22/07) of a 2004 decision that ordered it to share technical information with competitors, and included a $613 million fine. The case mostly dealt with Microsoft Windows. In October, Microsoft said it wouldn't appeal the ruling. In January, the EU began two new antitrust investigations of Microsoft (, 1/15/08), one of which centered on Office and related products.

If those investigations blossom into lawsuits, Microsoft will be faced with a host of new legal headaches just as it seeks EU approval for its proposed acquisition of Yahoo. To now, Yahoo has rebuffed Microsoft's overtures, but the company is likely to take the bid directly to shareholders. Eventually, the deal will need to pass muster by U.S. and EU regulators. More than 90% of the world's PCs run Windows, and Microsoft controls nearly all the sales of productivity suites. Microsoft settled a long-running antitrust case with the Justice Dept. in 2001 that centered on its Windows monopoly. The EU's investigation into Office "scares" Microsoft, says DeMichillie. "If they're already perceived by the EU as being a bad actor, it further complicates the Yahoo acquisition."

Open Document Format

Central to the EU's new investigations is the extent to which Office's file formats are compatible with those of other companies. IBM and others have been promoting a technology called the Open Document Format, which they say can help governments and other organizations archive important documents because it isn't tied to the products of any one company. Vinje of the ECIS says Microsoft should make the Open Document Format an integral part of Office.

As part of its Feb. 21 data-sharing announcement, Microsoft said users of Office programs will be able to add third-party software that lets them save files in other formats, and Ozzie adopted language that appeared designed to calm critics: "Documents and data have a lifetime that often spans beyond the lifetime of any specific application that was used to create them."

But Mike Gilpin, an analyst at Forrester Research (FORR), said it would be difficult for Microsoft to fully embrace the ODF technology and still offer its users a full complement of features.

As the antitrust battleground in Europe shifts from Windows to Office and may soon encompass Yahoo, it appears Microsoft will need to do more to quell its problems on the other side of the Atlantic.

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