Whoa. Wasn’t Microsoft supposed to be having some kind of antitrust headache? The Federal Trade Commission won’t comment, but Microsoft acknowledges it is the subject of a two-year inquiry. The investigation phase appears to be winding down, and the FTC could act at any time. Rivals say Gates’s commandos use unfair methods to preserve their dominance-including taking advantage of its near stranglehold on “operating systems,” the software that controls a computer’s basic functions. Microsoft’s MS-DOS operating system runs more than 80 percent of all PCs, and its Windows, an add-on that makes IBM-compatible PCs easier to use, is selling briskly. If Microsoft is abusing that leverage to give an advantage to its applications programs–like word processors and spreadsheets–that might violate antitrust rules.
Many press accounts even suggest the FTC could try to break up Microsoft-an unlikely prospect smaller rivals promote gleefully. Take Philippe Kahn, Borland International’s CEO. “The breakup of AT&T was a major boost to the U.S. communications industry,” he says. “It generated a flurry of strong competitors … The software industry might be at the same juncture.”
Microsoft denies that it cheats. Says Gates of the Feds: “They’ll study the software industry and see that it’s very competitive.” Whatever the outcome, the FTC could ultimately change the rules of the game for the young and unruly industry.
The FTC has cast the net wide. Jeffrey Tarter, publisher of Softletter, an industry publication, says there have been so many depositions that “if you haven’t been deposed, you’re not an important person in the industry.” Rivals detailed their gripes about the big-elbowed Microsoft. William Baxter, an antitrust chief under Ronald Reagan, says much of what’s been thrown at Microsoft adds up to sour grapes: “There are a lot of companies bellyaching that Microsoft is too effective a competitor. Let us pray that that is not seen as a bad thing to be.”
Those who have watched the FTC action closely surmise there are two major hot spots. The first is the crumbling of Microsoft’s “Chinese wall.” Microsoft execs had long insisted they had built a wall between their operating systems and applications groups. Competitors say Microsoft has given its applications developers the lowdown on arcane, allegedly hidden features in the operating system. If so, that could give Microsoft’s “apps” an unfair advantage over rival products–they would run better and get to market more quickly. These undisclosed features are known to software developers as “undocumented calls”; all operating systems have them. Firms like Microsoft don’t document all features in their manuals. Why? One reason: there are too many calls in a typical operating system, and the developer doesn’t want to guarantee their reliability to applications makers. Despite the supposed Chinese wall, a book published this year, “Undocumented Windows,” cited a number of undocumented calls that made their way into Microsoft applications.
Microsoft execs now admit that there’s been some sharing across the wall–buy deny it helped the home team. Pam Edstrom, a Microsoft spokeswoman, says, “Did they get any competitive advantage? No. Did the developers use it? Yes. Should they? No.” Yet Andrew Schulman, a software engineer and author of “Undocumented Windows,” says he found at least one undocumented call that boosted a Microsoft application: a computer programming language. Without the feature, a PC trying to run under earlier versions of Windows could malfunction. Rivals would have to write their own fix. Schulman nonetheless says that while Microsoft might have stepped over the line, “the company’s competitive strategy does not depend on sticking nasties in their code or taking advantage of things that they don’t let other people see.” If the FTC acts, it would likely tell Microsoft to be more rigorous in documenting its software-something Microsoft has already pledged to do.
The second hot spot: according to the Washington-based newsletter FTC: Watch, competitors charge that Microsoft’s operating systems royalty agreements with computer makers exact payment for each computer of certain models manufactured, whether each machine actually ends up with a Microsoft operating system or not. The buyer gets a volume discount, but the deal makes offering other operating systems more expensive-and might have discouraged the rise of competitors. Microsoft responds that such bulk-discount deals are optional-the company doesn’t force manufacturers to license DOS for all models. If the FTC decided to act, Microsoft could simply agree to charge only for the machines with MS-DOS.
FTC staffers have been wrapping up their inquiry, according to FTC: Watch, and were scheduled to send recommendations to the commission this month. But Microsoft haters shouldn’t start celebrating yet. With a new administration and the recent resignation of antitrust director Kevin Arquit, few expect quick action. Art Amolsch, the copublisher of FTC: Watch, says that even signed consent agreements can lie around without action for two years; he prints a “black hole” column on stalled inquiries. If the FTC eventually does rule against Microsoft, the company could appeal, lobbing the whole case into the federal appeals courts-and Gates, a lawyer’s son, has the temperament and resources to mount a fierce defense. Gates is cooperating and says, “We don’t think it’s going to have a material effect on how we do business.” Gates also says the FTC has a better understanding of his industry than journalists do: “Will the press ever love a successful company? Maybe not … The data points aren’t very encouraging.”
Some observers with no stake in the outcome of the case say that if Microsoft does break the rules, it’s due to sloppiness, not strategy. “I don’t think that Microsoft went out to do something that was legally wrong,” says San Jose, Calif., consultant Tim Bajarin. “We’re making the rules as we go along.” And testing those rules, says Paul Andrews, who coauthored a Gates biography to be published in January: “They’re a very smart company and they push the boundaries, and nobody has told them they can’t.” The entire industry is trying to work its way through problems like these. It’s normal for adolescents to push the boundaries. Microsoft, a 17-year-old company, is acting its age. But if Microsoft can’t mature with grace, the Feds might still offer it–and the industry–a little parental guidance.
SOFTWARE SAMPLER
Homegrown Access joins the programs that Microsoft picked up in the acquisition of Fox Software. The main target: Borland.
The Microsoft Word programs are second to WordPerfect, with 30 percent of the market, but are tops in word processing for Windows.
Microsoft is lagging in third place in a crowded market for tools that make presentations look good.
Lotus 1-2-3 is still king of the total PC market, but for Windows users Microsoft’s Excel outsells Lotus.
