10 years after they broke up Microsoft

Microsoft employee working

Editors Note: 'What if' hypothetical history follows. The events described in this article didn't actually happen. But they might have...

It was all over when the U.S. Supreme Court refused to reconsider the judgement of the Court of Appeals upholding Judge Thomas Penfield Jackson's antitrust breakup of Microsoft. A shotgun divorce is an ugly thing in business.

Microsoft had to overcome some considerable obstacles in order to separate in the way ordered by the Court. Having the large majority of their staff at one campus outside Seattle was an immediate problem. It was quickly decided by the Court that splitting the buildings between the two companies was insufficient for a real separation, and so one of the "Baby Bills" would have to leave.

The new Microsoft Applications Corp. would retain the old campus, as it was felt the new entity had more opportunity for employee growth and the campus still had substantial unused capacity. Moving far away would be too disruptive, so a new campus was sited about 10 miles away and became the home of Microsoft Corp., now "just" an operating system company,

But the building stuff was small potatoes. The first really hard part was custody of the kids -- e.g. which employees went to which company. Microsoft had a long tradition of moving people around between products, so that quite a few people had experience and friends in both groups of products. The way to do it seemed to be top-down. Let managers fight over who gets to work for them once the levels above are decided. The first decision was made in Washington: Microsoft Chairman Bill Gates and recently appointed CEO Steve Ballmer had to split up, too.

To make a long story short, a reorganization like this is not good for productivity, and most of a year was pissed away in meetings that had little to do with making products to sell. Lucky for Microsoft (and
Microsoft) both companies had considerable market dominance and were able to absorb the shock. The latest generations of products (Windows 2000 and Office 2000) were pretty respectable compared to the trash they replaced and it would be years before they were widely appreciated as trash in their own right.

Speaking of products, that was the second really hard part: Which company would get which products? Judge Jackson was persuaded that toy apps like Paint and Notepad were inoffensive in an operating system, but obviously Internet Explorer had to go to the apps company. In fact, desktop Windows didn't really have it so bad, but server software vendors the world over lobbied hard to strip Windows 2000 of its web server, its management tools, and more. Novell argued that Active Directory, brand new in Windows 2000, should be unbundled to compete "fairly" with Netware Directory Services. The result wasn't pretty. Windows 2000 was far enough along that the court let it slide, but Windows Server 2004 came out a smaller and much simpler product.

Once the dust settled and customers saw what was there to buy, they went right on doing what they had been doing, but they did it with two vendors instead of one. They generally paid more for software and had more trouble doing it. The fact that Windows Server was smaller and simpler may even have made it more appealing in the market, and most of the competition was still declining. Nothing about the breakup gave customers the impression that the alternatives were any more viable.

The breakup order had some wacky provisions in it, allowing OEMs to opt to remove any of a number of components in Windows and get a proportional cut in their cost to Microsoft. How were these proportions determined? They were calculated (I kid you not, this is in the actual order) based on the percentage of bits used by the feature in Windows. This became impossible to implement owing to the use of shared libraries and the general idiocy of the idea, but in the end it didn't matter. Customers and app developers made it clear they didn't want Windows to have an indeterminate set of features. Nobody bought anything but full versions, and Microsoft segmented editions of Windows versions a bit more to give OEMs some price flexibility. But then again they pretty much always had done that.

The main envisioned outcomes of the breakup were that non-Microsoft apps would have a better shot on Windows and non-Microsoft operating systems would have a better shot with OEMs. Also, MSAPPS, the shorthand name for the application company, might develop for non-Windows platforms.

None of this really happened, especially the last part. Like other application software companies, MSAPPS dabbled in alternative platforms enough to keep the Court quiet, but it was a lot of trouble and didn't have a lot of promise. They remain to this day basically a Windows apps company with some Mac versions.

Most major non-Microsoft apps continued their steady slide to irrelevance. Some, like QuickBooks, maintained their own monopoly market shares, but MSAPPS Office remains to this day the overwhelming market leader. The absurdity of the situation was compounded many years ago when MSAPPS bought the remains of WordPerfect and Borland at fire sale prices.

OEMs tried to sell non-Microsoft operating systems on their hardware, but these offers inevitably failed to meet their targets and were withdrawn. Major OEMs maintain a few models they will sell preloaded with Linux, but it's non-strategic to them.

Finally, as many had predicted, stockholders made out like bandits in the deal. MSFT had already begun to stagnate, but both companies grew in value after the separation, and why not? They each had dominant market positions and decreased legal exposure.

If only Microsoft's appeal had succeeded. Things might have been different.

Photo Credit: Microsoft

Larry Seltzer is a freelance writer and consultant, dealing mostly with security matters. He has written recently for Infoworld, eWEEK, Dr. Dobb's Journal, and is a Contibuting Editor at PC Magazine and author of their Security Watch blog. He has also written for Symantec Authentication (formerly VeriSign) and Lumension's Intelligent Whitelisting site.

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