What’s Next for Microsoft and the Tech Revolution?

Written by John Ellis on . Posted in Breaking News, Posts.

There can
be little dispute about Microsoft’s guilt. The Justice department proved
beyond a reasonable doubt what virtually everyone in the computer hardware/software
business has known for years: Microsoft leveraged its operating system monopoly
to dictate terms of business engagement and thwart (some would say crush) innovative
product development by rival companies. And they did so again and again. Or
as Judge Jackson said: "Only when the separate categories of conduct are
viewed, as they should be, as a single, well-coordinated course of action does
the full extent of the violence that Microsoft has done to the competitive process
reveal itself."

That said,
it is also true that the Internet has completely altered the business environment
within which Microsoft competes. Microsoft’s dominance was PC-based. So
long as the personal or desktop computer was mission-critical, Microsoft’s
operating system and applications software were mission critical. Today, the
Internet is mission critical and Microsoft’s software is increasingly less
so. In the near future, PCs and the Windows operating software that makes them
functional may well be irrelevant. Who needs it when you can get everything
you might imagine simply by pulling it off the Web?

Microsoft’s business strategy today is based on this premise. The company
expects that the revenues derived from its Windows operating system (and Office
suite applications) software will diminish substantially in the years ahead,
while revenues from leasing application software over the Web will correspondingly
increase. The company is obviously not eager to kill the Windows cash cow too
quickly (it’s wildly profitable), but it is entirely realistic about the
role of Windows in a post-PC world.

Which is
why Microsoft has become such a huge player in things like low-orbiting satellites,
cable television systems, media, voice recognition software development and
video games. Microsoft’s senior management understands that what worked
yesterday will not work tomorrow. The company must embrace technological convergence
or it will be out of business in five years.

The danger
is that Judge Jackson’s ruling will bog Microsoft down in a swamp of litigation.
Every dollar the company spends defending itself in court is a dollar it doesn’t
spend on voice recognition technology or low-orbiting satellites or broadband
Internet access. It is in the national interest for Microsoft to spend money
on the latter and not the former. What the judge has done is make certain that
Microsoft must devote substantial resources to litigation.

This is
why Judge Jackson’s ruling alarms so many commentators and experts. Perhaps
unintentionally, it gives aid and comfort to one of the most virulent movements
in American political life, the legal blackmail movement. In the words of National
columnist Stuart Taylor Jr., the legal blackmail movement uses "the
threat of ruinous litigation to impose de facto regulation and taxation on targeted
industries, including guns and tobacco." Judge Jackson’s finding against
Microsoft puts the software industry directly in the crosshairs of this movement.

The mantra
of this movement is, basically, "the legal fees alone are enough to bankrupt
the industry." Therefore the industry, whether it’s guns or tobacco
or HMOs or latex paint, has to settle. Microsoft may soon find itself
having to settle for fear that litigation could lead to financial catastrophe.
If you find this proposition hyperbolic, think about the fact that 19 state
attorneys general, at least 10 major computer software companies and God knows
how many other allegedly injured "software developers" are already
lining up to file suit after suit against Microsoft.

Now that
Judge Jackson has handed down the findings of fact and law, the next step is
what is known as the penalty phase. Simply put, how should Microsoft be punished?
There are basically four options.

The first
option is a fine. Option two is government regulation of the digital technology
industry. Option three is the breakup of Microsoft. Option four is voidance
of Microsoft’s intellectual property rights with regards to Windows. The
only good option is option four.

The fine
option only feeds the legal blackmail beast. If the judge decides that Microsoft
should have to pay $5 billion for its illegal conduct, then that number becomes
the benchmark for all future litigation from supposedly injured parties and
the "settlement" fees are adjusted accordingly. Five billion dollars
here and $5 billion there add up to real money in a very short period of time.
It is in the national interest to have billions of dollars pouring into the
digital technology industry. It is decidedly not in the national interest
to have that money flowing out of the industry to pay off the plaintiff’s

regulation, in the form of, say, the Office of Digital Technology Regulation
(a division of the Dept. of Commerce or Justice), is such an obviously awful
idea that it is almost too hideous to contemplate. Washington bureaucrats (and
the lobbyists who influence them) are perhaps the last people on Earth capable
of making intelligent decisions about the future of digital technology. The
marketplace has done that reasonably well and with extraordinary efficiency.
It should remain as unfettered as possible.

up Microsoft is apparently the Dept. of Justice’s big idea, but it doesn’t
make much sense in the real world. For one thing, it would hardly qualify as
punishment–since investors would flock to the Baby Microsofts and shower
them with cash. For another, the future of technology is digital convergence
(the merging of, say, wireless Web and voice-recognition technology). Breaking
up Microsoft doesn’t hasten that process. It slows it down.

The only
workable "penalty" that might be imposed is the voidance of Microsoft’s
intellectual property rights on the Windows operating system software. Fortune
columnist Stewart Alsop first proposed this idea back in December of 1998 and
it remains the best solution. Throwing Windows code into the public domain would
allow anybody and everybody to improve it, alter it, adapt it in whatever way
they saw fit. And it would cost Microsoft a ton of money (since the cash cow
would be dead). Most important, it would level the playing field and allow the
market to continue to function in a more or less unfettered fashion.

Judge Jackson
has set a date certain (May 24) for completion of the penalty phase. What he
decides will have an enormous impact on the digital technology revolution. Here’s
hoping he does the right thing. If he doesn’t, the aftershocks will be
much worse than the earthquake.