Industry change lessens impact

Internet increasingly seen as alternative

November 06, 1999|By Mark Ribbing and Michael Stroh | Mark Ribbing and Michael Stroh,SUN STAFF

The finding yesterday that Microsoft Corp. has a monopoly on computer operating systems was a stinging, surprisingly forceful setback for the world's most prominent software company.

Industry experts said the ruling by U.S. District Judge Thomas Penfield Jackson heralds continued profound change in a technology industry that is redefining itself at a blinding pace. The judge's statements were seen as so aversive to Microsoft that the company may seek a settlement with the federal government.

For consumers, the ruling could mark a further step toward a less structured technology market that leans heavily on the Internet and new, nonMicrosoft software systems.

Analysts were struck by the language of Jackson's ruling. "It's very definitive," said Carl Howe of Forrester Research Inc. in Cambridge, Mass. "I expected him to be perhaps more measured."

"This looks like about as strong a finding of fact as the government could have hoped for," said Robert Lande, an antitrust expert with the University of Baltimore who has followed the case from the beginning. "This makes a strong remedy more likely."

It is not clear how the decision will affect Microsoft, other companies, or consumers. Sanctions the court could impose range from a fine to an AT&T-style breakup of the company. Any such outcome could take years, given the delays of the appeals process.

In addition, the high-technology sector is changing so quickly that even the firmest assumptions about the future rest on quake-prone ground.

In the 19 months since the case was filed, tectonic shifts have altered the landscape: Netscape Communications Corp., the Microsoft foe whose Web browser is at the heart of the litigation, has ceased to exist as an independent entity, having been bought by America Online Inc. for $9.8 billion. Microprocessors have leapt forward another generation. Most important of all, the Internet now threatens to make PC operating systems irrelevant.

So even though Jackson handled the case with widely admired dispatch, there is a sense among industry insiders that any action he takes to level the terrain could be foiled or rendered moot by the rumblings of change.

"Technology doesn't stand still for anybody -- especially the government," said Tim Bajarin, president of Creative Strategies Inc. in Campbell, Calif.

While it is impossible to predict the full consequences of the Microsoft case, it is possible to identify some of the forces that will shape those consequences.

The most immediate of those forces is Microsoft's own well-honed sense of self-interest. The findings of fact may cause the company to safeguard its future by trying to settle what now looks like a losing case. Some industry experts said Jackson's unusual step of releasing the findings of fact prior to issuing his legal conclusions may have been an effort to coax Microsoft to the bargaining table.

"The common speculation is that Judge Jackson is trying to encourage settlement at some point before final judgment is entered," said Donald M. Falk, an antitrust and intellectual-property attorney with Mayer, Brown & Platt in Washington.

"The judge's judgment [on the legal conclusions] could be extremely draconian, so they're likely to go to the table," said Rob Enderle, vice president of Giga Information Group in Santa Clara, Calif.

However, the most potent market-changing force of all is the Internet. There are signs that the fascination with this uncharted, uncontrolled and seemingly unlimited medium has led many techies who might be expected to watch the Microsoft case with rapt attention to tune out instead.

"Nobody's even paying attention to the case," said Gomez Advisors Inc. director John Robb, who has advised Microsoft and Netscape. "Everybody's too busy making money. The Internet's going gangbusters and that's where everybody's spending their time."

Part of what makes the Internet so attractive is its openness. Just as it allows a pop-culture junkie in Slovenia to visit Web sites devoted to Lauryn Hill or "The Simpsons," the Internet is increasingly able to give computer users access to key functions such as word processing.

Such functions have been provided by software programs on a user's computer, such as operating systems, a market that Microsoft dominates. According to International Data Corp., Microsoft was responsible for 88 percent of desktop operating systems shipped worldwide in 1998, up 1 percentage point from 1997.

While Microsoft pulls in "only" 36 percent of global operating system revenue, the company has a 93 percent share of sales in two major software sectors, spreadsheets and word processing.

With the rise of the Internet, Microsoft's hammerlock on the operating systems industry becomes less important. The new name of the game, many experts say, is not operating systems but Internet access.

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