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Many experts dispute alarm coming from Microsoft
Thursday, May 4, 2000
By DAN RICHMAN
Several economists dismissed as exaggerated or inaccurate Microsoft's claims that proposed restrictions on its structure and behavior would inhibit the kind of innovation that created the world's most popular operating system, Windows, and the world's most-used applications package, Office.
Some experts also rejected Microsoft's assertion that those restrictions, proposed Friday in the antitrust suit, will prevent innovation.
But Microsoft executives and a handful of others -- including newly retired research chief Nathan Myhrvold, who oversaw development of Windows 2.0 -- stand behind the assessment.
In full-page ads that appeared Monday in about a dozen newspapers across the country, Microsoft says it "could never have created Windows or Microsoft Office under the breakup plan and heavy regulation now proposed by the government." It also says the "restrictions would stifle innovation, making computers less capable and more expensive."
In their 17-page proposal, the Justice Department and 17 states suggest dividing Microsoft's staff, money, patents and copyrights into an operating-systems company and an applications company. Each would be forbidden from favoring the other company.
The operating-systems company could continue offering Microsoft's market-leading Internet Explorer browser but only the version current when the breakup takes effect. It would be forbidden from offering subsequent versions, which Microsoft says would force the operating-systems company either to license a rival's browser or to expend impossibly large efforts creating yet another browser.
Microsoft has said it will file a counterproposal May 10, and oral arguments are slated to start May 24, though Microsoft general counsel Bill Neukom has indicated that he may seek to postpone the arguments.
The proposed restrictions are stringent, analysts agreed.
But "let's not forget that Microsoft isn't operating with a clean slate here. They lost," said Robert Litan, a vice president at the Brookings Institution, a Washington, D.C., think tank. "Sure it's going to hem them in. The reason it will is because they abused their power." But, he conceded, "reasonably extensive hearings are needed to thrash these issues out."
Roger Noll, an economics professor at Stanford University who called for Microsoft to be divided into four companies, discounted the company's claims that the restrictions would have prevented the creation of Windows and Office.
"I think the ads are overstated," he said. "One could have innovated as Microsoft did and not violated the antitrust laws, by offering two versions of Windows, one with Internet Explorer and one without."
He said, "The ads are another way to say the whole case should be thrown out and don't really address the question of a remedy as such."
Tom Lenard, vice president for research at the Progress & Freedom Foundation, a conservative Washington, D.C., think tank, said he doesn't believe Microsoft's assertions.
"I don't see anything in (the breakup proposal) that would have prevented them" from creating Windows and Office, Lenard said. "They certainly could have created Windows. It's not really a logical argument; it's just saying, 'We need a monopoly to do the great things we're doing.'"
Not so, replied Myhrvold, the founder of Microsoft's research laboratories, who yesterday announced his retirement from the company to pursue other interests.
"I was a development manager of Windows 2.0," Myhrvold said. "Without input from three application groups both inside and outside Microsoft, we couldn't have made Windows. It was absolutely critical. More cooperation like that made Windows 3.0 the first successful version."
Stephen Margolis, a professor of economics at North Carolina State University in Raleigh, N.C., agreed with Myhrvold.
"Microsoft's claim can't be dismissed out of hand," he said. "Windows was developed as a shell over DOS," the character-based operating system that preceded Windows. "I think they could not have developed it if the proposed organization had been in place 12 years ago."
Randy Stross, a San Jose State University professor who wrote "The Microsoft Way," a 1996 exploration of how the company functions, described an environment that suggests Microsoft's assertion may be true.
"(Then-Chief Executive Bill) Gates recruited smart people (and) put them to work on a campus well suited for intense concentration. . . . The organization . . . was deliberately fashioned to perpetuate the identity of small groups, and communication, up and down, was frequent and voluminous," he wrote. He declined to comment for this story.
As to the future, Margolis said he foresees problems with Microsoft's ability to innovate there as well -- as do many other onlookers.
"Windows has emerged as a standard, and it would be desirable for Microsoft to be permitted to continue to expand that standard," Margolis said.
Even Litan conceded that "the only major objection to our plan is fragmentation."
Aside from that, though, he and others played down Microsoft's dour predictions.
"If future innovation doesn't come from Microsoft, it comes from somewhere else. No loss to the market," Litan said. "The court's whole premise is that (any reduction in innovation at Microsoft) would be more than made up for by a gain by competitors."
One has to distinguish, Litan said, whether Microsoft is "technologically incapable (of innovating under this plan) or just lacks the economic incentive," Litan said.
Steven Salop, a professor of economics and law at Georgetown University Law Center in Washington, D.C., agreed.
"It surprises me Microsoft would be arguing it will only be willing to innovate if it can be assured of having a monopoly," Salop said. "After all, competition is the essence and the goal of the antitrust laws and our economic system."
Several experts observed that Microsoft has always maintained there's a high wall between the company's operating-system division and the applications division. So, they asked, would life really be any different under the restructuring?
Yes, Myhrvold said.
"At the moment, Microsoft's competitors are enjoying besting Bill personally and Microsoft as a company, but they haven't realized they're tying a noose that will hang them, too," he said. "Do Oracle applications have to work equally well with SQL Server? Does Sun have to make its hardware work equally well with Windows NT? The answer is no, and that's exactly as it should be. We ask and beg our competitors to connect to our products, but every company integrates new features and makes sure its products work best together."
Spokesman Jim Cullinan said the requirement that discussions between Microsoft and software developers be made public cuts into economic incentives.
"That's sharing trade secrets," he said. "If we offer something new and improved, the government now considers that anti-competitive. What we say in the ad is 100 percent right on."
P-I reporter Dan Richman can be reached at 206-448-8032 or danrichman@seattle-pi.com
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