Microsoft: Everything's O.K. Now, Right? Wrong

By Karl Taro Greenfeld

Judge Jackson, your honor, Microsoft would like to enter into the record the exhibit marked "AOL Time Warner."

Though Microsoft's lawyers haven't had a chance to make that statement yet, company spokesmen did ballyhoo the AOL-Time Warner deal as proof that the high-tech industries in which Microsoft competes--unfairly, according to the Justice Department--are evolving so quickly and convulsively that to assert Microsoft exerts monopolistic power is "almost comical."

Yet sources close to the government reported that Justice is still not amused. Throughout last week, the feds continued to favor the most draconian of penalties for Microsoft: a breakup of the software giant. The AOL-Time Warner merger may have altered the landscape today, the reasoning goes, but the government's antitrust case is built around events that happened in 1994 and 1995. Microsoft's business practices back then--stifling competition and bullying clients when it had market-share dominance--are the issue, not the company's position in today's media world.

Justice may be more mollified by another announcement made last week: Microsoft founder and chairman Bill Gates relinquished the title of CEO. Steve Ballmer, 43, president since 1998, was named to replace him. "Gates' sidestepping helps a little bit," says George Washington University law professor William Kovacic, "to the extent you change the face you have to deal with. Nobody speaks of Ballmer as the villain."

Both Gates and Ballmer emphasized Microsoft's identity as a software company, rather than, say, as a content and Internet company like AOL Time Warner. The word content, which figured prominently in Microsoft pronouncements and acquisitions just a few months ago, was barely uttered. "Software is our heritage, and it's our future," said Ballmer. "Our plan is to develop a new software-services platform that will ignite opportunities for partners around the world." Microsoft, by developing what it calls Next Generation Windows Services--software that will shift applications such as databases and word processing from your computer to a server--appears to be preparing not only the technology but also the business model that can carry the company into a divested or undivested future. Just as you would have to visit AOL Time Warner to access its content, you will have to hit, or subscribe to, Microsoft's sites to use its services.

If Microsoft can succeed in coming up with its own protected, pervasive network architecture--a computer-instruction language linking everything from wireless devices to kitchen appliances to PCs--then the company could dominate the network with NGWS in the same way it has ruled the desktop with Windows.

That may be Microsoft's greatest challenge to date--and exactly what Justice wants to thwart. "For Microsoft to come in and impose proprietary source codes will be very difficult," says Dan Kusnetzky of International Data Corp.

Figuring how to beat the competition without setting off the alarm at Justice is the job of Microsoft's newly appointed chief software architect. His name: Bill Gates.