Microsoft’s New Day in Court

Today, Microsoft and the European Union’s Competition Commission started three days of closed-door hearings that could determine the outcome of a four-year antitrust investigation. The hearing is vitally important to the software giant, because the European Commission’s case revolves around a central Microsoft business and technological practice: Integration.

In the U.S. antitrust case, among other allegations, trustbusters argued that Microsoft illegally tied its Web browser to the operating system. (Tying typically refers to a monopoly using its dominance in one market as leverage into another market.) But, in its June 2001 ruling, a U.S. federal appeals court kicked the tying claim back to a lower court. Months later, the Justice Department dropped tying from the case, which later was settled by federal and state trustbusters.

The appeals court did find that Microsoft’s commingling of browser and OS code had an anticompetitive effect. Before the same appeals court last week, the Justice Department and Microsoft argued that a settlement provision letting consumers remove access to the offending code covers the commingling finding. Massachusetts, the lone state rejecting the settlement, filed the appeal.

The European Commission’s case renews the attack on Microsoft’s longstanding practice of integrating new technologies into Windows. In preliminary findings disclosed in August, the European Commission revealed it was inclined to fault Microsoft for integrating Windows Media Player into the operating system. The European case is different in scope than the U.S. case. U.S. prosecutors focused on the browser market, while European regulators are addressing allegations that Microsoft used its dominance on the desktop to gain unfair advantage on the server.

Since I am not a lawyer, I’ll skip the thorny legal questions and get right to the technological implications. The European Commission has indicated that Microsoft could be forced to unbundle the media player from Windows. Additionally, European regulators could require Microsoft to reveal more details about the inner workings of Windows to competitors. Unbundling would strike at Microsoft’s longstanding integration strategy, at a time when the company is putting more emphasis on cross-integration of features.

One of the messages heard loud and clear at Microsoft’s professional developers conference two weeks ago is the importance of integration. Next-generation-Windows Longhorn incorporates database technology, Web services, developer tools and synchronization services, among other technologies. But, even ahead of Longhorn, Microsoft has increased the amount of cross-integration between desktop products, like Office, and server products. I address the implications of that strategy in the Jupiter Research report, "Microsoft’s Integrated Innovation: Weighing up Customer Benefits, Risks."

Any European Union ruling against Microsoft would affect the company’s products sold only there. So, in one sense, any impact would be contained to the one region. However, the precedent of the finding against integration of other technologies into Windows could feed competitive attacks against Microsoft in other markets. Microsoft has tremendous incentive to convince European regulators that unbundling is not the solution to any possible ruling against the company.

Microsoft is by no means alone pursuing integration as a product strategy. Apple, IBM and Sun, for example, all favor integration of operating systems with other technologies. I first surfed the Web in October 1994 with the Mosaic-derived browser IBM included in OS/2. Unlike Microsoft, these three other companies also benefit from tight integration with hardware, as they also build the computers that run their operating systems and applications (Of course, IBM sells Windows, too). Apple’s iLife is an excellent example of a tightly-integrated suite of applications, in this case for doing digital photos, movies and music or burning DVDs.

From a strictly technological perspective, Microsoft's basic approach is fairly typical. European regulators are looking at the competitive impact of Microsoft's integration approach, in part, given the company's OS monopoly on Intel-based PCs.

Posted by Joe Wilcox at November 12, 2003 11:20 AM