BROKEN WINDOWS? DOJ recommendation could handcuff Microsoft

The Justice Department recommended the breakup of Microsoft to a federal judge last week to remedy the company's violation of the Sherman Antitrust Act. That this may hinder the company's persistent attempts to penetrate the telecom market is underscored only by the company being unprepared to do so, some experts said.

"It has a long road ahead to peck its way into that marketplace, regardless of the antitrust trial," said Dwight Davis, vice president at Summit Strategies. "The company has worked hard - and that's part of the problem from an outsider's perspective sometimes - to interrelate all of its activities into a cohesive strategy."

Though not public information at press time, the DOJ's recommendation supports a separation of the software giant along product lines that would all but eliminate that cohesiveness. Separate companies would own Microsoft's Windows operating systems and its application software.

Microsoft would fight such a split, analysts said, and the odds of the breakup being upheld in the courts are reportedly slim. However, competition in the telecom market is fierce and time to market not only is critical, it is running out.

Microsoft has made strides in the telecom space during the last 18 months by investing in telecom-related companies. It also has released Windows 2000, which touts demonstrable improvement in reliability over Windows NT - a major hurdle to overcome before telcos would consider a Windows-based platform in their central offices or data centers. Recent partnerships with Compaq Computer and Stratus Computer are moves in the right direction.

However, self-direction may be out of Microsoft's hands. Ironically, Microsoft's server software, which played a small role in the trial but leads the company's future plans to serve the expanding telecom and ISP markets, could be most affected. It was unclear at the end of last week where Microsoft's server software would fit in the DOJ's recommendation to restructure the company.

Pending appeals, U.S. District Judge Thomas Penfield Jackson could impose other interim restrictions on Microsoft's relationships with computer companies and ISPs, further hampering its ability to pursue its telecom initiative.

"I consider [Microsoft's] ability to offer intranet and Internet applications in the telecom and enterprise market...a strength," said Verne Anton, senior analyst at GartnerGroup. "But Microsoft is not a full OSS player yet. They have a long way to go and will meet a very active set of competitors."

Changing the mindset of service providers comfortable in their Unix environments may require more ingenuity. "If they can unleash the original entrepreneurial spirit [by] creating innovative software and not [by] re-packaging and marketing the same old thing with a few tweaks, bells and whistles on it, then they could become a potent force," said Francis Duffy, research director of intelligent networking at Communications Industry Researchers.

Still, Microsoft 2000 is selling four times faster than Windows NT. Since its February launch, 1.5 million copies have shipped, according to comments made last month by Tod Nielsen, Microsoft platform group vice president.

There's a silver lining in the market-value drop of Microsoft stock during this ordeal, Davis said. "Microsoft executives felt the stock may have been overvalued, and it's not bad to have a correction that gets it in the range of reality," he said.

But in general, this is certainly a negative for Microsoft, giving employees a siege mentality that can compromise their efficiency and focus, Davis said.

"They are highly skilled professionals who are proud of the job they do," he said. "Suddenly being apologetic for working at Microsoft is not a good position to be in. It wears on you."

Microsoft was unavailable for comment on the DOJ's proposal.