Microsoft seen stronger following ruling: experts

By Elinor Mills Abreu

SAN FRANCISCO: The federal court decision on Friday endorsing a settlement that closes the U.S. government's landmark antitrust case against Microsoft Corp. will allow the software giant to leverage its dominance in computer operating systems to move into other markets, experts and rivals said.

That is good news for Microsoft's allies, such as Intel Corp., Siebel Systems Inc. and others, but bad news for the raft of companies including Oracle Corp, Sun Microsystems Inc. and RealNetworks Inc struggling to compete with Microsoft, they said.

"Microsoft lost every battle and they won the war. That's what happened here," said Shane Greenstein, technology business professor at the Kellogg Graduate School of Management. "The lesson everyone learned here is just stay out of Microsoft's way."

Others agreed Friday's ruling would strengthen Microsoft, although the company's backers said the terms of the U.S. government's settlement would ensure it competed fairly. "The Department of Justice and these state attorneys general have fundamentally changed the way Microsoft has to do business," Jonathan Zuck, president of the Association for Competitive Technology, said of the agreement that Microsoft reached with Department of Justice and nine state attorneys general to settle the 4-1/2-year long case.

"This case has hung like a dark cloud over the industry for four years: slowing investment, innovation and economic growth," Zuck said. Competitors, however, were distrustful or resigned, while consumer advocates and industry analysts warned that the ruling was a step back from allowing freer choice in the market for technology.

"This just means there is no way around the Microsoft citadel. They just can't breach it," said Roger Kay, a PC analyst at research firm International Data Corp. "Microsoft owns the desktop and may come to own the living room."

Ken Wasch, president of the Software Information Industry Association, a trade group for the software and digital content industry, said: "We expect Microsoft to use many of the same tactics that enabled them to gain dominance on the desktop and the browser to gain dominance in other areas," such as handhelds and streaming media. "The proposed remedies won't stop Microsoft from forcing out competitors and taking away consumer choice," said Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

The settlement "means business as usual for Microsoft," he said. "And it means consumers will get fewer choices, less innovation and higher prices, and Microsoft's monopoly will only grow."

Friday's decision left Microsoft critics looking to civil lawsuits filed against Microsoft by rivals and consumers still pending in a number of states. Sun, which competes with Microsoft, said it would pursue its civil lawsuit against Microsoft, claiming its business was damaged by Microsoft's monopoly.

"The open issues are still any civil suits that could follow," said Michael Silver, Windows analyst at Gartner Inc.

In addition, Microsoft faces legal challenges over privacy complaints in the United States and by the European Commission, which also is scrutinizing the company for possible anti-competitive behavior.

"The focus may now shift from the consent order (approved settlement) to the FTC (Federal Trade Commission) where private organizations, including the EPIC, have maintained that Microsoft's new operating system (Windows XP) undercuts computer privacy," said Marc Rotenberg, executive director of the Electronic Privacy Information Center.

To others, the battle was lost last year when the Microsoft settlement was first announced. "A lot of us in the community had written off this process a long time ago," said David Patrick, chief executive of closely held, Boston-based Ximian, a maker of Linux software, which competes with Microsoft. "We've been fighting this out in the market and not in the courtroom."

"It's really anti-climactic," said Richard Smith, an Internet security and privacy expert. "The long-term concerns are (Microsoft's) using the PC monopoly to get into more and more markets, especially music distribution and the TV area." Mitchell Kertzman, chief executive of Liberate Technologies , a rival to Microsoft in the set-top box market, suggested that Microsoft benefited from a more sympathetic hearing by a Republican administration.

"When you look at the tenor of all this and the tenor of the judge's comments, you do get the sense that Microsoft got their last get-out-of-jail-free card from the Bush Administration," Kertzman said. "I think life will be tougher for them in the future, they'll be under a lot more scrutiny," he said. "That said, tough is relative -- life isn't too tough when you have $40 billion in cash," he said.

(With additional reporting by Peter Henderson, Duncan Martell and Lisa Baertlein.)

(C) Reuters Ltd.