The Microsoft break-up that never happened

If Microsoft had been split into two companies in 2000, as originally ruled, 'Baby Bills' would have been more agile and more innovative, experts argue

Thomas P. Jackson, the former federal judge who in 2000 ruled that Microsoft should be split into two companies as punishment for monopolistic business practices, died Saturday at his Maryland home. He was 76.

Jackson's demand that Microsoft divide was overturned by a federal appeals court in 2001, in part because the panel believed public comments Jackson made during and after the trial portion of the Department of Justice's antitrust case showed bias against Microsoft.

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Jackson had compared Microsoft's executives to "drug traffickers" and "gangland killers," said Bill Gates had "a Napoleonic concept of himself," and lashed out at what he called duplicitous testimony during the trial.

While Jackson's findings that Microsoft abused its dominant market position went untouched at appeal, the change in administrations after President George W. Bush took office led to a settlement between the government and Microsoft in late 2001.

That settlement did not include Jackson's solution: To separate the operating systems side of Microsoft from the rest of the firm to create a pair of corporations.

But what if? What if Jackson's remedy had been put into place and a dozen years or so ago Microsoft splintered into parts?

Two better than one?

Industry and legal analysts who played along with the counter-factual believed that the collective parts would now be better off than the single entity is currently.

"The Baby Bells each became sharks, and innovated, innovated, innovated," Robert Lande, a law professor at the University of Baltimore and director of the American Antitrust Institute, said about the antitrust-driven 1982 breakup of AT&T. "You could argue that we wouldn't have the cell phone industry without the breakup. At the least, it speeded that up by several years, because you had seven innovating rather than just one."

Lande's point was that the more companies, the more competition, and the more competition, the more likely innovation.

"What if, 13 years ago, Microsoft had been broken into two very formidable companies? Eventually they would have started to compete with each other," said Lande. "In search, Microsoft was a day late and a dollar short. But with two Microsofts, maybe one of them would have pushed [into search], perfected the search engine, and now be serious competition for Google."

A breakup would also have put at least one of the resulting mini-Microsofts in the hands of someone other than Bill Gates, in 2000 still at Microsoft as its chief software architect.

"Gates was focused on the 'black box,'" said Lande. He personified that part of the company."

Without Gates, Lande argued, one of what he called the "Baby Bills" would have been more likely to push beyond the confines of Windows and Office, and be more aggressive in trying new markets than did the company in reality.

Others took a different tack to the "What If?" exercise.

"You could argue that a split of Microsoft in 2000, with a company that made Office [but not Windows], it would have supported the iPad from Day One because they would have had no concern to protect the Windows client," said Al Gillen, an analyst with IDC. Office might have made it to Linux in that counter-historical, Gillen added.

Sans the antitrust action, or assuming it happened but that Windows was the sole focus of one of the two (or more) spin-offs, Gillen also thought that the operating system would be different today.

Ruling led to caution

"Indirectly [the antitrust action] created a lot of second-guessing internally," said Gillen. "They made decisions specifically to not trigger a review by Microsoft's lawyers. That created a reduction in its agility."

Gillen recounted examples of briefings a decade ago when he would ask why a feature had not been implemented, and got the impression that the extreme caution was motivated by even technical staff looking over shoulders. "They were always thinking, 'Oh my God, we can't do that, it's bundling.' If Microsoft had been allowed to act in a fully unregulated manner, they could have done more to increase the 'stickiness' of the client OSes."

The judicial oversight, and the caution it prompted within Microsoft, would have likely been absent or dramatically decreased if the operating system division had been spun off from the rest of Microsoft's portfolio, Gillen contended. And that, over the years, would probably have made the Baby Bills faster to react to industry changes, perhaps even resulted in, say, deals between the application-centric company and the current devil, Google. Or the Windows-only firm might have jumped sooner into tablets -- considering its early interest in slates -- either before Apple launched the iPad in 2010, or shortly after the iPad's appearance.

On the other hand, said Gillen, it's possible that a Windows-only Microsoft would be in an even tougher spot that it is now, as the traditional PC industry fades under assault from mobile platforms such as smartphones and tablets. "Not being allowed to increase the stickiness of the client OSes," said Gillen, referring to even more focus on the desktop, "may have helped prevent Microsoft from being even more negatively impacted."

Lande also wondered what might have been had Microsoft split. "[The Windows side] may have focused even more on the box," he said, to its detriment today.

Split wouldn't have mattered

Not everyone agreed with Lande and Gillen that it would have been better had Microsoft been rendered into multiple parts. "The split would have had less value than people expected," said Michael Cherry, an analyst with Directions on Microsoft.

Cherry, who worked at Microsoft from 1994 to 2000, and in the last two years of that span was a program manager on the Windows team, wondered how the divided companies could have escaped the reputation of their ancestor. "How do you separate in the minds of people [these new firms] from Microsoft?" he asked. "If one had been called 'Acme Software,' but everyone knew it had been Microsoft, how would they have sold software to customers who didn't want something from Microsoft?"

Cherry categorized any counter-factual as "a great pub discussion" over beers, but useless beyond that parlor game. "Sometimes I wonder what it might have been like, but I don't spend a lot of time thinking that. It's only moderately interesting."

Meanwhile, a Directions on Microsoft colleague of Cherry's, Wes Miller, echoed Gillen. Like Cherry, Miller worked at the Redmond, Wash. developer -- in his case, from 1997 to 2004.

"I think [the antitrust case] harmed Microsoft's mojo," said Miller. "That and the EU [antitrust action] harmed Microsoft. "Policy wise, internally, they created some policies and procedures that made development more complicated, slower and in some ways more ineffective."

A separation in 2000, however, might have let the Baby Bills move on, Miller suggested, and better put the case and its ramifications in their rearview mirrors.

"Who knows what the [technology] world would look like now?" said Lande. "But I have to think that there would have been a lot more innovation once you had split up Microsoft."

This article, The Microsoft break-up that never happened, was originally published at Computerworld.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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This story, "The Microsoft break-up that never happened" was originally published by Computerworld .

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