Q: If Microsoft is split in two, how will Texas be affected?
A: Microsoft employees visiting the state will have to wear five-gallon hats.
Seriously, don’t hold your breath: There may never be a breakup. It’s true that the U.S. Department of Justice and the attorneys general of seventeen states (though not Texas) have proposed that Microsoft be divided into two companies—one for operating systems, one for everything else—as a remedy for the software giant’s antitrust violations. But although the judge in the case has ruled in favor of a breakup, the appeals court may in fact decide that it is a fundamentally dumb idea that betrays a profound misunderstanding of the software industry.
Yes, Microsoft plans to appeal the judge’s ruling with all the legal firepower at its disposal, all the way to the Supreme Court if necessary. The company had asked for up to one year to prepare for the penalty hearings, which would have delayed things until the next president has been elected. Microsoft officials deny that politics has any influence on its legal strategy, but surely they recall that during his primary campaign stop near Microsoft’s headquarters in February, George W. Bush appeared unsympathetic to the prosecution. The governor “stands on the side of innovation, not litigation,” says his spokesman, Scott McClellan, and U.S. senator Slade Gorton of Washington has told reporters that Bush would try to settle the Microsoft case without breaking up the company. (Maybe, but remember that the Reagan administration stayed on the sidelines while the Justice Department broke up AT&T. Bush, if elected, may choose to skip this fight so early in his tenure.)
It is hard for many people to fathom how breaking Microsoft in two would lead to greater competition in the software industry. After all, instead of competing against one fierce rival with $19.75 billion in revenues and dominant market shares, Texas companies would be competing against two fierce rivals, each with nearly $10 billion and dominant market shares. Yet it is equally hard to swallow Microsoft’s contention that the breakup plan will destroy a great American success story and lead to a higher priced, lower quality version of Windows.
Some have speculated that if Microsoft is restrained, it will be easier for alternate operating systems to flourish. But rival systems like Linux seem to be doing well already. T. R. Reid, a spokesman for Round Rock-based Dell Computer, notes that the company now factory-installs the Linux operating system on a nearly “double-digit” percentage of the high-density server computers it sells. Dell also has a significant minority investment in Red Hat Linux, a Microsoft competitor. IBM, which has major hardware and software development facilities in Austin, recently ported Linux to its flagship S/390 mainframe computers, a move that will raise Linux’s credibility in the business market.
The most immediate, far-reaching, and enduring impact of the Microsoft antitrust trial may be on the electronic-mail policies of Texas companies. Time after time in the trial, prosecutors dredged up apparently compromising e-mail messages written by Bill Gates and other Microsoft executives. E-mail is the preferred way to communicate in Microsoft’s fast-paced culture, as it is at many Texas high-tech companies, but it leaves a trail that is hard to erase. A senior executive at one Austin-based semiconductor company says that as a direct result of the Microsoft trial, he and his fellow managers now communicate sensitive information in face-to-face meetings or by telephone.
Face-to-face meetings? Maybe Microsoft deserves to be broken up after all.