One day after a federal judge ordered the breakup of Microsoft Corp., some Chicago-area business leaders were expressing concern about the ruling’s impact.
Even as company Chairman Bill Gates vowed to begin a “new chapter” in the case on appeal, some Chicagoans were betting that the government’s antitrust activism would put a damper on entrepreneurship, especially in the booming technology sector.
But others predicted a breakup would remove a barrier to innovation and help smaller companies attract funding. And still others expect confusion in the software world if federal trustbusters have their way, and Microsoft becomes marginalized.
On Wednesday, U.S. District Judge Thomas Penfield Jackson approved the breakup proposal that had been offered by the federal government and 17 of the 19 states that joined in a suit against the company.
Jackson said any other action would encourage Microsoft to continue engaging in anti-competitive behavior, which the company disputed. The ruling would split Microsoft into one company for operating systems and another for its remaining software and Internet properties.
The venture capitalist
Far from stifling innovation in the technology arena, the Justice Department’s move to clip Microsoft’s wings will instead send more investment dollars into competitors’ coffers, leading to additional innovation.
So says Jim Crawford, general partner at Frontenac Co., a Chicago venture capital firm specializing in telecommunications and information-technology investments. Without the ominous threat of Microsoft, investors will be more willing to fund companies that compete with the wounded giant, he said.
“For the last 10 years, any investor who’s looked at a business in a space where Microsoft might be involved has always questioned the entrepreneur: `Are you going to be able to stay away from Microsoft? Are they going to crush you?’ ” Crawford said.
“Now there’s a greater likelihood that businesses will get funded that are closer to where Microsoft is successful.”
The downside for customers is that innovations springing from these freshly capitalized competitors are likely to cost money, whereas Microsoft had given products–such as its Web browser–away free with its operating system.
“It’s not at all clear that consumers will be the winners in this,” Crawford said of the possible loss of free new products.
Rather than tearing Microsoft in two, the federal government could have simply told the computer company to allow customers to substitute non-Microsoft products for its proprietary products. “I don’t think the breakup is necessary,” Crawford said.
NU prof sees weaker force
Mohanbir Sawhney believes Microsoft’s legal problems–as well as a shifting marketplace–have already weakened the software giant. Splitting the company, he said, would accelerate its inevitable fall.
“It’s not like they are going to disappear into oblivion, but they will certainly not be the force they are today,” said Sawhney, an e-commerce and technology professor at Northwestern University’s J.L. Kellogg Graduate School of Business.
Competitors are already daring to cross the mighty Microsoft, while the Internet has moved the center of the digital universe away from the Windows operating system. Microsoft is also losing talented employees at an alarming rate, Sawhney said.
“It’s not a good thing to say at cocktail parties that you work for Microsoft,” Sawhney said. “I’m starting to see that competitive edge getting a bit duller.”
Sawhney also thinks the company’s importance could quickly wane.
“They may be a mere shadow of their former selves,” he said. “There’s even a scenario where they may get swallowed up by somebody else.”
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For consumers, he said, the Microsoft decision will result in more “flavors” of operating systems, a development that could spur innovation, but may not be a positive.
“We all don’t like Windows, but we all like the fact that there is a standard,” Sawhney said. “The world is definitely going to become a more confusing place.”
Abbott executive’s worries
The soon-to-be chief scientific officer at Abbott Laboratories doesn’t believe a breakup of Microsoft will have an impact on operations for makers of medical products.
Still, Dr. Jeffrey Leiden, who will join Abbott July 1 from Harvard University, is concerned about the potential for similar future rulings dampening “the entrepreneurial” spirit of companies involved in research and development.
“I think that we as a society and a government have to be very careful about interrupting or interfering with the creative and entrepreneurial process,” said Leiden, a heart researcher and gene therapist who will join North Chicago-based Abbott from his current post as head of the Center for Prevention of Cardiovascular Disease at Harvard. “One has to be very careful not to accidentally inhibit the process.”
Leiden, who was at the University of Chicago before leaving for Harvard, focused his U. of C. research on replacing genetic material in damaged hearts and arteries–a subject with profound practical implications.”That freedom to commercialize products in a highly competitive environment is what drives this economy,” he said.
The antitrust lawyer
The Microsoft ruling may be a watershed, but it is far from the last word on the case, cautions Hillard Sterling, a partner specializing in antitrust and information-technology cases at the Chicago law firm of Gordon & Glickson.
The Jackson ruling may be reversed by a higher court, Sterling figures, and thus Wednesday’s climactic order “may ultimately turn out to be a footnote.”
Some of Sterling’s high-tech clients have asked about the ramifications of the case for them, he said. But in truth, he said, most companies “have nothing to worry about because they aren’t sufficiently dominant” in their marketplace.
Microsoft’s appeal of Jackson’s ruling will take more than a year, particularly if –as seems likely–the Supreme Court opts to hear the case, Sterling said. The Microsoft litigation likely will be “the high court’s first opportunity to interpret antitrust principles as they apply in these new, vibrant [high-tech] markets.”
The government’s theory “suggests that hardball conduct may cross the line into an antitrust violation” if such behavior stifles innovation, he said. On that basis, if this week’s ruling withstands Microsoft’s appeal, smaller information-tech companies “may be emboldened to compete more aggressively against the big guys on the block.”
On the other hand, if the ruling is reversed, dominant IT players may feel more comfortable seeking “to leverage their advantages to crush the competition.”
Options trader’s view
Microsoft could be in for a period of quiet trading in coming months, while other big tech stocks such as Oracle attract much of the action, says market maker Jon Najarian of the Chicago Board Options Exchange.
“People were nervous about Microsoft earlier in the year before they knew what would happen, and options were much more volatile,” said Najarian, a partner with PTI Securities.
Already, trading in Microsoft has calmed down considerably, he said. “Now it is a stand-pat stock with more normal options activity. While it is still a great company for longer-term holders, in the short term, the stock probably won’t get much above $75,” he said. Microsoft closed Thursday at $68.81 a share, down $1.81.