WASHINGTON, DC, June 13, 2000 --  

The court-ordered breakup of Microsoft could prove to be one of the most destructive applications of obsolete law in America's history. The most skittish investors have already fled in panic as the mere threat of government action has wiped out nearly half of the company's value since it hit a record high earlier this year. While Microsoft and its shareholders are clearly the biggest losers, consumers aren't far behind. The only groups benefiting from the anti-trust action are Microsoft's competitors and politicians.

Why won't consumers benefit? Because splitting the company in two will do nothing to relieve the most acutely ill effects consumers suffer due to the domination of Windows in the operating system market. Windows is slow, bloated, unstable (it crashes often) and has the annoying habit of forcing you to endure a 5 minute reboot every time you upgrade even the tiniest piece of software. But because the ruling would divide Microsoft into only two companies -- one of which will still hold a monopoly on Windows -- none of these headaches are likely to go away soon.

Meanwhile, the convenient features that come from application-operating system integration -- like highlighting a web page and dragging it into a word processor for editing -- will be put at future risk.

That Oracle, Sun Microsystems, America Online and other Microsoft competitors should be overjoyed by the ruling is no surprise -- they cooperated with the government in its assault on Microsoft by filing amicus briefs and producing white papers disparaging their larger competitor.

A bigger beneficiary of the ruling is probably the government itself. Before the Department of Justice began its anti-trust investigation six years ago, Microsoft spent virtually nothing on lobbying. Now the software behemoth is America's third-largest corporate contributor to political campaigns.¹ For all its unpalatable business practices, the Microsoft of 1995 was at least unsullied by overtures of money for political favoritism. Now the government has succeeded in dragging the company into the mud.

This change is here to stay even if the breakup ruling is reversed upon appeal. If and when this happens -- perhaps years into the future -- it is quite possible that Microsoft will have lost much of the dominance it enjoys today. The past few years has seen Microsoft slip on several fronts.:

• Its consumer-oriented Internet content service, the Microsoft Network, has utterly failed as AOL has continued to sign up millions of users.

• The open source operating system Linux has begun nipping at Microsoft's heals on the desktop, while completely stalling its advance on the web server market. In the first months of 2000, Microsoft's share of the web server market has declined three percent, while the open-source Apache server has gained five percent to hit 60 percent of the market in May.²

• Most recently, Microsoft made the stunning decision to abandon its Windows CE operating system in its losing battle with Palm Corporation for the handheld computer market. Years after its introduction, machines based upon the bloated Windows CE operating system hold only 10 percent of the market, compared with 80 percent for Palm OS.³ Microsoft's replacement product, the PocketPC OS, faces an uphill battle against Palm for the fastest-growing market in consumer computing.

But the point here isn't that Microsoft is a victim of its competitors. Microsoft has done much to earn the ire of consumers and competitors alike. Consumers have had to endure annoying obstacles to choosing anything other than Microsoft's preferred products. Competitors have faced cutthroat business practices aimed at leveraging the incredible success of Windows on other products.

The point is that the government's action has thus far done more harm than good while threatening still more destructiveness in the future. History has shown that the market hates a monopolist. It is in the market, not the courtroom, that Microsoft will see its inevitable loss of dominance. Meanwhile, the U.S. Government can do nothing more than stand as an obstructionist in the path of history.

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Notes:

1. New York Times, Microsoft Tries Another Court: Public Opinion, June 11, 2000
2. Netcraft Survey, May 2000
3. ZDNet, Why Microsoft May Finally Have a Palm Killer, April 19, 2000