Rumors that the Justice Department is looking to chop Microsoft Corp. into several “Baby Bills” have been denied as “inaccurate in several important respects.” However, by all accounts, the option remains on the table.
Some observers argue that the breakup scenario is a ploy to prod Bill Gates and Company into serious negotiations, but the fact that the Justice Department has hired Wall Street investment advisor Greenhill & Co. for advice lends extra credence to the possibility.
The surprising announcement that Bill Gates has passed his CEO reins to Steve Ballmer will also fuel speculation of a breakup. Don’t believe it…
It is highly unlikely that Gates will change his mind. After all, he still holds 70-odd billion dollars (US$) in Microsoft stock. Furthermore, Microsoft’s senior management is not likely to favor such a breakup.
Microsoft Rejects Any Wrongdoing
Microsoft is hanging tough, according to people close to the case, as both sides continue to meet separately with federal mediator Richard Posner.
Microsoft remains adamant that it never broke any antitrust laws, and considers this week’s proposed merger between America Online, Inc. and Time Warner, Inc. as an ironic form of vindication.
“The notion of breaking up Microsoft is an extreme and radical proposal that’s not justified by anything in the case and does not reflect the reality of our competitive industry,” a spokesman said.
Ballmer echoed that sentiment, terming a Microsoft breakup “reckless and irresponsible.”
Three “Baby Bills?”
Still, it has been reported that some state and Justice Department officials are saying that a three-way breakup makes a lot of sense.
One scenario would have Microsoft Windows 98 and Windows NT operating systems declared the business of one “Baby Bill.” A second would own Microsoft’s applications, including Office, Excel and Back Office. The third would operate Microsoft’s e-commerce holdings, including MSN.
Should Microsoft Be Broken Up?
There is a good argument on both sides whether Microsoft should fight the government to the bitter end or give in and make the best of it.
On one hand, the government was very successful in breaking up Standard Oil at the turn of the last century, and AT&T in the early 1980s. Both battles turned out to be big wins for the government and the average citizen.
On the other hand, IBM very successfully battled the government in an antitrust suit that lasted through most of the 1970s and 1980s. IBM remained a single entity and was then exposed to extensive competition in the 1990s from personal computer vendors like Dell and others.
IBM’s demise as an alleged monopoly was followed by the rise of Microsoft and Intel. While IBM remains a strong company today, it is hard to imagine anyone thinking of it as a monopoly.
Today, there probably even exist 20-something Internet millionaires who do not even remember the U.S. versus IBM antitrust suit. Yet, IBM had what appeared to be a greater stranglehold on the computer industry in the 1970s than Microsoft has today.
Should Microsoft Give Up and Accept the Inevitable?
There is another way to look at this issue: Should Microsoft give up and accept the inevitable? Why would the company push this heavy rock uphill, consuming valuable corporate resources, when it could break up into three powerful companies that would each have revenues in the multi-billions of dollars?
The Bright Side of a Breakup
Some industry observers believe that Microsoft could actually benefit from such a breakup. International Data Corp., for one, has said that a voluntary Microsoft breakup would be “a brilliant leapfrog maneuver that would time-warp the company into the new millennium with renewed purpose.”
Consider the possibility for a moment. MSN could spin off an IPO and be freer to pursue partnerships and acquisitions in the quickly shifting e-commerce arena.
Additionally, an independent Microsoft Windows operating company might decide to forge a partnership with a Linux operating system company, while the applications software company would dominate the standard desktop for years to come.
Don’t Count On It
At the end of the day, despite all of the rhetoric, I have to offer a word of warning: No one should hold their breath. The AOL Time Warner merger and the rise of the Internet, which Microsoft clearly does not dominate, gives the company strong ammunition against such a government-imposed sanction.
What do you think? Let’s talk about it.