E-business could pay a high price if Microsoft is forced to break up

Bill Gates and Stephen Ballmer have vowed to fight the ruling that Microsoft must split in two. But if their appeal fails there are fears it could lead to more expensive software and a breakdown of standardisation that would hit e-commerce

By Helen Beasley

Last week’s US court ruling on the break-up of Microsoft may hamper the growth of e-business in manufacturing industry and could mean more expensive software, according to some experts.

Judge Thomas Penfield Jackson ruled last week that Microsoft had used its dominant position in the computing and software market in an attempt to drive Netscape, the internet browser provider, out of business.

Under the ruling, Microsoft would be split into two separate companies, one of which would produce the Windows operating system. The other would make Microsoft Office and other applications, such as its Internet Explorer web browser which first sparked the controversy over Microsoft’s practices.

But it is the restrictions Judge Jackson has imposed on the company and its Windows operating system that worry Microsoft.

The conditions, which will go into effect in 90 days if they are not stopped by an appeals court, include the redesign of software to enable PC manufacturers to remove components, such as the offending Explorer browser.

Also demanded is the general disclosure to competitors of the company’s operating platform source code, and an end to individual technology-sharing partnerships between Microsoft and third parties.

Stephen Ballmer, who recently took over from Bill Gates as chief executive of Microsoft, says the company will focus on this area of the judgement in its appeal. `There is one key issue we’ve been arguing for throughout this process, and which we will continue to pursue, and that is do we or do we not have the right to continue to add features to and improve Windows? It’s hard for me to believe we’re not supposed to improve our product.’

Sean Toomes, international marketing director at pneumatic control and automation company IMI Norgren, says the decision would make software more expensive in the short term, because Microsoft has such a large research and development budget. But he adds that eventually another company will come along to replace Microsoft.

Even Ballmer accepts that Microsoft is not irreplaceable: `The world can do without any company, but then the question is: is the world better off without it?’

Ralph Seeley, principal consultant at Cambashi, says companies may be tempted to move away from Windows NT-based applications towards Unix-based software, reversing the trend of recent years.

`In areas where Windows NT is already firmly entrenched, such as CAD/CAM and ERP systems, it will probably be seen to take the wind out of Microsoft a bit, as people hedge their bets about what operating system they use,’ he says.

However, he does not believe the split would lead to a sharp rise in software prices, with Unix and Linux offering an `escape hatch’ for industry.

But Barry Cowing, a director at accountancy firm KPMG, endorses the view that Microsoft does not have a damaging monopoly – unlike US telephone giant AT&T, which was broken up in the 1980s because its dominance was crippling other businesses.

Splitting Microsoft would not be the best thing for business, Cowing says, as the company has been good for the development of e-business. `The standardisation of software infrastructure has accelerated the growth of e-business and computing generally, not just in manufacturing but across all industries. If they’ve made a profit on the back of that, then so be it.’

Predictably, Ballmer claims splitting up the company would mean less innovation and software development. `Our company spends $4bn (£2.7bn) a year on research and development. That spending is not always organised by product, we share innovation amongst our products,’ he says.

The effect of this could be felt in the UK as well as in Seattle. Microsofts’ Cambridge research centre, set up in 1997, conducts computer science research into areas such as security, operating systems and networking, thus crossing the divide between the operating system and applications arms of the company.

Splitting the research centre along these lines would cause problems, as the ruling prohibits close collaboration between the two proposed companies.

However, a spokeswoman for Microsoft said it was too early to speculate on what would happen to the centre should the break-up take place.

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