Court ruling leaves Microsoft rivals wary

Duncan Martell

SAN FRANCISCO: The 800-pound gorilla may be out of the cage, but at least it

still has a chain around its neck. That was the consensus of Microsoft Corp.'s

competitors and industry analysts on Thursday following a federal appeals court

ruling that reversed the breakup of the world's largest software maker but left

intact a ruling that the company illegally maintained its Windows monopoly.

"We're letting him out of the cage. He's going to be walking around and

you've got to watch where he is," said Marc Benioff, chairman of software

services company Salesforce.com. "Every company (that competes or wants to

compete against Microsoft) will have to reevaluate their own strategy, their

offensiveness and their defensiveness now that the bear is out of the

cage."

In addition, it means that competitors, such as multimedia software developer

RealNetworks Inc, database software powerhouse and No 2 software firm Oracle

Corp, Liberate Technologies Inc., Linux software developer Red Hat Inc., and

others may have to tread even more carefully and be more creative, executives

said.

"They can say, 'We like your technology but we don't want to buy you and

we're going to put you out of business," said Peter Phillips, head of

product marketing for Socket Communications Inc., a maker of software to help

connect handheld PCs. "It forces people to be more creative. I've got to do

something different."

Its deja vu all over again



Indeed, this sentiment has long been held about Redmond, Washington-based
Microsoft. There once was, and to an extent there still is, a cottage industry

of founding companies in the same areas that Microsoft had targeted with the

hope that the software behemoth would want to acquire them.

In fact, in the eyes of some, Thursday's ruling was akin to baseball Hall of

Fame catcher Yogi Berra's famous line that "It's deja vu all over

again." They said that little has changed since the initial court ruling

and that, particularly with Microsoft's forthcoming Windows XP that integrates

more and more functions and its .Net strategy, its business as usual.

"I don't think this (ruling) has changed anything because Microsoft

hasn't taken the judgment seriously to date," said Carl Howe, an analyst at

Forrester Research. Still others put it even more strongly.

"What Microsoft has done in the intervening year is an unbelievable

record of continued violations of the law of the standard laid out by the court

of appeals," said Ed Black, president and chief executive of the Computer

and Communications Industry Association.

Microsoft stronger than ever



In fact, Microsoft's competitive position has only strengthened since the
landmark antitrust case was filed in May 1998 - the biggest since the government

took AT&T Corp. to court, culminating in the company's 1984 breakup into

regional telephone companies.

Likewise, shares of Microsoft have surged. The stock has risen nearly 70 per

cent since the start of the year, despite Nasdaq market plunging by 14 per cent,

amid a recession in high technology. Microsoft has more than an 85 per cent

market share in Web browsers and effectively put one-time rival Netscape

Communications Corp. out of business once it started giving its own browser away

for free.

Ultimately, rival America Online, before it merged with Time Warner to become

AOL Time Warner Inc. acquired Netscape. Microsoft also has more than a 90 per

cent share both in the market for operating systems with Windows and with

Office, its office productivity software suite.

"They are really hitting their stride in many areas, including their de

facto dominance on the client (PCs), increasing market share on the server

against competitors such as Oracle and on the Internet. Their initiatives are

really beginning to gain traction," Benioff said. "They own the way

everybody looks at the Internet."

Some of the clear losers in the ruling were Sun Microsystems Inc., Oracle,

and AOL Time Warner and they will clearly be disappointed, an analyst said.

"This won't go nearly far enough for them," said Rob Enderle, an

analyst at Giga Information Group.

More innovation



Some in the Linux camp, though, were heartened by the ruling and said it should
help to free up innovation. Linux is the rapidly growing free version of the

Unix operating system that has been gaining some ground against Microsoft and

other Unix operating system vendors.

"It confirms the predatory practices of Microsoft and their monopolistic

behavior," said Matthew Szulik, president and chief executive of Red Hat.

"The longer this goes on, our opportunity to achieve that goal to create a

competitive, level playing field for ourselves, our industry, and our customers

gets closer."

But while many Microsoft competitors have paid attention to every twist and

turn of the Microsoft antitrust case during the last four years, consumers don't

seem to have expressed strong opinions one way or the other. "What's funny

about this is the public really is somewhat indifferent," said Roger Kay,

an analyst with International Data Corp. "If Microsoft were to take over

the world, it is not like Genghis Khan taking over, it is not going to change

your life. You are just going to have a Windows machine whenever you boot

something up."

Mitchell Kertzman, CEO of Liberate Technologies Inc., a Microsoft competitor in
the emerging world of interactive television software, called the ruling

"somewhat more favorable" for the government because it reaffirmed

Microsoft as a monopoly among PC desktop operating systems.

"From a Liberate perspective it has anything from no impact to slightly

positive," he said. "Microsoft is an unbelievably persevering company,

and I've often said the streets are littered with the dead bodies of companies

that underestimated Microsoft's ability to figure it out, eventually."

Industry should check MS



Dead bodies or not, the responsibility for keeping Microsoft honest and in
line, if need be, now turns to the industry itself. One good example is the

industry's pressure on Microsoft about its planned use of "smart tags"

in Windows XP. That capability could change how virtually any Web page looked

and would let the company's Internet Explorer redirect a user to one of

Microsoft's sites and any one that it favored, although the function could be

turned off by default.

"It's not up to the courts anymore to keep Microsoft checked, it's up to

the industry," Salesforce.com's Benioff said, who then pointed to smart

tags. "The industry reacted negatively and they pulled the feature."

(C) Reuters Limited 2001.