Instead of starting with a couple of Stanford geeks with a Web site, Joel Klein seeds his incubator with a famous $400 billion enterprise and splits it in two, giving one the world’s dominant operating system, the other the world’s most successful applications. What used to be Microsoft will be… Microsoft and Mini-Microsoft. Or, as Klein’s team puts it: “Ops Co” and “Apps Co.” (Somebody had better nail down the domain names.) Will it be painful to split apart the world’s most successful software company? Piece of cake, says Spreadsheet Joel, who promises that the operation can be performed at “a modest cost” and minimal disruption to consumers and even employees. Don’t think of it as a breakup–it’s a “reorganization,” says Klein.
Klein’s comparison is to the AT&T case, the last time the government saw fit to perform the saw-the-monopolist-in-half trick. That was a case where one company owned the wire to everyone’s house and was delighted to sit around and collect its tariffs. Though you may not like your local phone bill now (you may not be able to read your phone bill), that breakup clearly unleashed some innovation.
But Ma Bill isn’t Ma Bell. Microsoft may be a monopoly, but no one would call it complacent. Its attitude toward customers is not imperious but irrepressible. Yes, Klein’s minions proved that Microsoft played unfairly, and it should never be allowed to abuse its dominance again. But plenty of people in Silicon Valley think that Windows will soon find itself less relevant as the action shifts to nondesktop Internet devices like palmtops and game consoles–areas where Microsoft hasn’t dominated.
Klein’s business plans don’t account for that paradigm shift. And when it comes to assessing the difficulty of his proposed reorg, he’s misinformed about the present. His prosecutors claim that Microsoft’s apps and OS are created in isolation, and that “separating those Businesses will not impede the development of either company’s products… and in fact will increase efficiency.” Hasn’t he learned anything by reading all that ‘Softie e-mail? Microsoft is a single, formidably organized army, designed to fulfill a unified mission.
Its current companywide crusade is called Next Generation Windows Services, a remake of its entire product line to fit upcoming Internet technology. Its interface designers, for instance, come up with ideas that will be used in new versions of Office, Windows and the Microsoft Network. Its researchers work on voice recognition that will be used companywide. Microsoft says that NGWS is a “bet the company” gamble–but there’s really no way that such an all-encompassing effort could happen when Ops Co and Apps Co can’t collaborate. (Presumably, Klein would place sentry guards on the Redmond campus to ensure that nerds don’t sneak across the soccer field with smuggled APIs.)
Nobody can really predict what effect a Microsoft breakup would have on consumers. The one sure thing is that Klein’s plan would kill Microsoft as we know it. The two new companies might indeed, as Klein believes, serve consumers by increasing competition from innovators who didn’t want to face the currently constituted behemoth. But they may turn out to be Evil Twins, two abusive monopolies instead of one. Or they may become the Blues Brothers, two government-regulated orphans without missions, floundering to compete in the fast-paced tech world. Who knows?
The prosecutors acknowledge their legal obligation to take the least risky course, then shrug it off. Instead they offer Panglossian assumptions about their cool new companies. They think, for instance, that Apps Co will immediately write a version of Office for Linux. But Apps Co might not want to bring its crown jewel to a market where software is basically free, and users demand source code. Here’s another scenario: Apps Co realizes that the old Microsoft’s reason to support Office on the Macintosh is no longer operative. (It was a result of the sort of deal that the proposed Final Judgment seems to make illegal.) So it decides to put its resources elsewhere. Wouldn’t it be ironic if this attempt to create new competition wound up reducing it?
What Joel Klein should have done was to scrap the business plans and work harder on his backup plan–the alternative conduct-based remedies he outlines as an interim step toward his preferred Final Judgment. They may be difficult to enforce, but using that as a rationale for CEO Klein’s corporate fantasies is like recommending the death penalty because incarceration costs too darn much. Somewhere in that list is a reasonable set of restrictions that will curb the behavior deemed unlawful by Judge Jackson. It’s long past due for the government and Microsoft to forge a settlement that preserves competition while preserving the flagship company of the new economy. And ends all this monkey business.
