Microsoft: From breakup to hand-slap
Does it matter? Would Microsoft have come out a winner no matter what happened in the courts?
When Judge Harold Greene ordered the breakup of AT&T in 1983, he set a precedent that many thought would prevail in the Microsoft case: When a company becomes too powerful in a vertical market, break it up into separate businesses, forcing it to lose its monopoly power. The result was seven Regional Bell Operating Companies (the so-called "Baby Bells"). These supplied local phone service, while AT&T retained its long distance company along with its research and manufacturing company, which was later spun off as Lucent.
The breakup was expensive to execute, just as the years-long antitrust case had been, but according to most analysts led to a blossoming of innovation that allowed telephone rates to come tumbling down. It also advanced digital transmission technology to the point where today we have some handy little things on our desktops, including the Internet.
But that precedent was clearly not followed, although it probably would have been to some extent if Judge Thomas Penfield Jackson had had his way. However, his media antics, which presented this country's court system with its most embarrassing moments since the close of the O.J. Simpson trial, caused him to be removed from the case. Apparently they also led all parties involved to back off and to follow another important antitrust precedent, the one set in 1982 when the Justice Department abandoned its 15 year-long antitrust suit against IBM.
While most people believe that that decision was simply Reaganesque business-oriented politics at work, it was really more than that. The computer industry was then at the start of a major shift away from mainframe-oriented, centralized computing toward desktop processing, and IBM was ill-equipped to handle the transition. It was clear that Big Blue was heading for a decline and that while its monopoly power over mainframe computing would stay intact, that power would become less meaningful as technology moved the computing industry toward smaller machines and distributed desktop processing.
I think that the Justice Department saw that Microsoft had not been very successful as an Internet player--except with its browser--and that desktop computing was becoming a commodity product in which the company's monopoly was inherently less meaningful and less powerful. It saw that the future of computing was in appliance-level applications of microprocessor technology, including many areas such as automobiles and cell phones and other portable devices, where Microsoft and its Windows monopoly had no presence and no serious prospects.
In the long run, however, it may not matter much at all. After all, AT&T's breakup resulted in seven powerful regional telephone companies that, through mergers, have become three very powerful companies now threatening to become one. All you have to do is add in a long-distance business and AT&T has been recreated from its own ashes. And while AT&T itself is sort of a mess, it is determined to build itself into a horizontally structured communications monopoly--not bad for a company supposedly stripped of its economic power.
And IBM, which did have a bad time of it in the later 1980s and most of the 1990s, has emerged from this last round of business decline in the technology sector as the strongest player with the strongest technology stock on the market. That ain't because it trades on NYSE, but rather because its mainframe business held strong and has funded the growth in the services business at IBM which is today the envy of Hewlett-Packard and anyone else (is there anyone else?) with aspirations of leading the computer business.
If Microsoft had been broken up there would have been two very strong companies with dominant--nay, monopolistic--positions in their respective markets (applications and operating systems). In effect, the Microsoft problem would have been re-created on a somewhat different playing field because each company would have owned the market the government had selected for it.
But does leaving Microsoft intact place it in a position to become weaker? Possibly, but certainly not if IBM is an example, and certainly not given Microsoft's well-earned reputation for tenacious pursuit of targeted markets. Sure, right now it doesn't have much presence in the automotive market, or in any number of markets where microprocessing is becoming important. But that's not because it's not trying; whatever else you expect from Microsoft, don't expect it to fail in its chosen pursuits. As long as there are open market opportunities for microprocessor-based software, Microsoft will pursue them, and it will succeed.
John Dickinson has worked in the computer industry for more than 30 years in positions ranging from systems analyst and software engineer to editor, writer, critic and industry analyst. His most recent engagement was at eMachines, where he managed the company's Internet and software business units.