Government readying Microsoft antitrust case - Microsoft Corp - News Analysis

Folio: The Magazine for Magazine Management, Nov 15, 1993 by Paul McDougall

A senior government official says he "would bet money" that the Justice Department will move against software giant Microsoft by the end of the year.

Speaking on condition of anonymity, the official says that thousands of documents handed to the Department by the Federal Trade Commission "demonstrate clearly that Microsoft has been trying to squash its competitors."

Although Microsoft makes the widely used operating systems DOS and Windows, action against the Redmond, Washington-based company would likely have only minimal effect on magazine publishers, observers say. One area where a major impact might be felt, however, is in networking software.

The FTC had been weighing antitrust action of its own against Microsoft. But in July, the five-member commission deadlocked on whether to file a complaint. The stalemate, which came after commissioner Roscoe Starek recused himself from the vote because he holds computer industry stocks, paved the way for Justice to pick up the case.

The official, who has close ties to the FTC probe, says Justice Department attorneys inspected FTC documents "for a month" before committing to a formal investigation. "They concluded that the complaints against Microsoft are substantial," the official said in a telephone interview, adding that action is likely to come "before Christmas."

Unfair advantages?

Rivals allege that Microsoft's bundling of applications programs, such as word processing and spreadsheets, with operating software like DOS and Windows, gives it an unfair pricing advantage against vendors that sell only applications. And some allege that Microsoft's own applications developers are privy to unpublished information about DOS that gives them an edge over outsiders when it comes to building DOS-based programs.

Microsoft officials deny the allegations and say they are cooperating with Justice Department investigators. But should the agency successfully sue, legal experts say the consequences could range from the issuance of cease and desist orders to the breakup of the world's biggest software company.

Still, most observers suggest that the infusion of greater competition into an increasingly consolidated industry could only benefit software buyers. SmartMoney editor-at-large James Stewart, who wrote extensively in The New Yorker about the breakup of AT&T, notes that, "despite all the initial panic and rantings of AT&T's apologists, |it~ turned out to be a good thing for the company, for customers, and for shareholders."

But customers may yet be sideswiped by industry feuds surrounding the government's wrangling with Microsoft.

Orem, Utah-based Novell, which owns about 70 percent of the market for software needed to string PCs and hardware peripherals into a publishing system, has publicly accused Microsoft chairman Bill Gates of feigning an interest in merging the two companies in order to steal trade secrets. Gates, for his part, accuses Novell chairman Ray Noorda of paranoia.

"It's like hearing your parents fighting," says John Hild, vice president for marketing and sales development at North Atlantic Publishing Systems, a Chelmsford, Massachusetts-based integrator whose customers include Conde Nast and Rodale Press. "The arguments give you some cause for worry."

As a result of the rancor, Novell's popular Netware product remains incompatible with Windows NT, Microsoft's next-generation operating system. Netware users wishing to tap NT's potential to speed up applications like QuarkXPress and Adobe Photoshop would have to replace the former with third-party software or with software embedded in NT. But Russell Glitman, executive editor of PC World in San Francisco, notes that Microsoft's networking solutions, at least in the past, "have not been as robust as Netware."

The problem seems bound to fester, analysts say, as more applications are developed for NT. "They could certainly make life easier for users by resolving this issue," says Bruce Lupatkin, an analyst at Hambricht & Quist, a market research company in San Francisco.