'Restoring competition in software business'

THE U.S. Government's proposal to break up Microsoft and force it to adhere to a stiff set of sanctions limiting its power would reignite competition in the software industry, a variety of computer industry executives said.

The Justice Department's plan, outlined in a 17-page filing with Judge Mr. Jackson, would create two powerful companies, one with the world's dominant operating systems, covering a variety of different types of computers, and one with a wide range of software applications and development tools.

Both companies, though, would be forced to adhere to strict rules intended to rein in the way they wield their power in the marketplace. ``This will give the industry the kind of start it needs to restore competition,'' said Mr. James L. Barksdale, who testified against Microsoft while serving as chief executive of Netscape Communications.

He said that in theory he was not enthusiastic about the prospect of a corporate breakup dictated by the Government, but saw no alternative in Microsoft's case because of its repeated antitrust violations.

``Almost all of us react negatively to the idea of breaking up a company," Mr. Barksdale said. ``However, this is a shock to the system that will have the overall benefit of healing and curing in the marketplace.'' Other executives who are Microsoft competitors said they were guardedly optimistic.

``This proposal is good for Novell," said Mr. Eric Schmidt, chief executive of Novell, the San Jose, Calif., maker of networking software. "For a long time there have not been any rules about how to engage with Microsoft. This proposal gives us some rules with which we can judge whether competition is increasing and openness is preserved."

Other software executives said the payoff from such a change might take years but would push the industry toward renewed competition.

"In the long term this is very meaningful," said Mr. John Chen, chief executive of Sybase, the Emeryville, Calif., maker of database software, which Microsoft once invested in and now competes with. "Microsoft is on every desktop, and that has given them an unfair advantage which is not related to the strength of their products."

In addition to forcing Microsoft to reorganise into two companies within 16 months after a final court ruling, the proposal made by the Justice Department and State attorneys general would impose a variety of restrictions, including a ban on exclusive agreements with partners, a ban on the company's ability to force buyers of certain operating systems to purchase other Microsoft products as well, and a restriction on the binding of "middleware" products like browsers and e-mail programs to its operating systems.

Microsoft would also be required to install a chief compliance officer reporting to the board to insure that the company complies with antitrust laws and the court's dictates. The reorganisation and the restrictions would have a direct impact on their businesses, several Silicon Valley executives said.

``This is a good remedy and it's doable," said Mr. Mitchell E. Kertzman, president and chief executive of Liberate Technologies, a San Carlos, Calif., developer of interactive television systems. A breakup, he said, would make it possible for Liberate to sell its software to work with Windows CE on next-generation set-top boxes.

``We would love to run our software on Windows CE," he said. "If Microsoft is broken up, I expect the Windows CE guys to come knocking on my door asking me to do business."

At the same time, he acknowledged that the breakup would make it possible for the new Microsoft applications company to compete with Liberate in its current markets. "This is what the Government intended," he said. "More competition."

In Silicon Valley, some of those most pleased with the proposed breakup were venture capitalists. For a number of years during the Nineties, Microsoft executives would travel to Sand Hill Road in Menlo Park, Calif., where many venture capitalists have their offices, to make annual presentations.

Many venture capitalists who attended those presentations felt that Microsoft was in effect redlining the computer industry, telling its competitors where they had opportunities and where they would be limited by Microsoft competition.

``We are restructuring the computer industry," said one venture capitalist, who has been in close contact with the Justice Department in recent weeks as the agency worked to complete its proposal. There was not universal confidence that the plan would accomplish its goal, however.

"There is all kinds of gobbledygook coming out of the Justice Department," said Mr. Randy Komisar, a longtime Silicon Valley executive who was a co-founder of the Claris Corporation, now called Filmaker, and was later chief executive of LucasArts Entertainment. "They are hoping that by creating an applications company as aggressive as the OS company, the new company will do things like make bets on Palm and Linux. That way they will crack open the operating system market."

It will not have an immediate impact on the computer industry, he said. "This is like Reagan's trickle-down economics," he continued. "It may work, but it won't happen any time soon."

The industry's reaction - or lack of it - also gave an indication that Microsoft was still an intimidating force in the computer world.

Chief executives at rivals like Adobe Systems; Filemaker, a unit of Apple Computer; Intuit; and Symantec all said they were not willing to comment on the proposed breakup. "These are tricky waters to navigate," said Mr. Steve Ruddock, a Filemaker spokesman.

"I'm not sure it is intimidation, but there are a lot of companies who work with us who also partner with Microsoft."

John Markoff

New York Times

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Section  : Business
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