So the yoke of uncertainty about antitrust remedies has been lifted from the shoulders of Microsoft (Nasdaq: MSFT) and investors rejoice.
Apparently a Solomonic halving appeals to Wall Street more than Baby Bills. Even if it doesn't, appeals could tie up this affair for quite awhile. In any case, the market probably decided the bad news was more than priced out of the stock already.
I'm still wondering about the reason for a rebound, though.
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I have as much faith as anyone in the ability of Microsoft managers. And at least on the surface, a breakup along the government's proposed lines simply creates two monopolies instead of one.
But to repeat a question raised after Microsoft's latest quarterly conference call, where does growth come from in the future? Even a united Microsoft sees a slowdown, and the divided companies won't be able to play the game of Buy-Office-If-You-Want-Our-OS.
Microsoft optimists believe an independent applications company will be free to produce versions for other operating systems. But even economic advisers for the government believe a breakup probably won't do much to reduce the Windows monopoly, so there probably isn't much revenue to be derived from alternative OS versions anyway. Even if other operating systems achieve meaningful market share gains, that's merely revenue replacement, not growth.
As for the Internet businesses that supposedly will drve Microsoft's growth in the future, it's worth asking: how much traffic would those sites have if MSN wasn't the default home page on the Internet Explorer browser? You know, the browser that won't be bundled with Windows anymore if the government's remedy is accepted.
On the OS side, the new company wouldn't be able to play pricing games anymore, under the government's plan. And its ability to enter new lines of business would be so restricted that you'd essentially end up with a really big, Windows-centric version of the Santa Cruz Operation (Nasdaq: SCOC). Not a bad business necessarily, but nothing like the dynamic firms that get high multiples on the Nasdaq these days.
This all assumes the government's entire proposal will be adopted. That's not guaranteed or even likely, which leads us back to the beginning: more uncertainty ahead.
While we're on the topic of lawsuits...
Maybe Wall Street just isn't inclined to beat anything down too far in the current environment. Shares of MP3.com (Nasdaq: MPPP) regained a bit of ground today after taking a drubbing last week.
The optimism here seems even more surprising, considering a federal court declared My.MP3.com one big copyright violation. Again, there's no guarantee the decision will hold up, but I wouldn't hold my breath for a reversal; after all, this was a partial summary judgement, which tells you the record companies have a very strong legal argument.
Mind you, that's a strong legal argument, which shouldn't be confused with a good case in practical terms. If music labels think they're going to stop digital music transfers, they can forget it.
Which leads to a larger reason for doubting MP3.com's long-term future: Napster. The controversial software for exchanging music files -- and Napster is far from being the only one -- is easier to use than My.MP3.com when it comes to finding music by your favorite artists. For instance: as of mid-morning West Coast time, there were 593,564 songs available from 4,377 user libraries.
Musicians are challenging the software's legality as well, but it's hard to see how Napster is guilty of anything, because the company doesn't store any music; it simply connects users with each other. That kind of solution might not make a great business model, but whether or not it actually makes money for its creators, Napster will be hard to beat not only for the music powers that be, but also would-be digital music czars like MP3.com.
I suppose MP3.com could focus solely on its original business of promoting new and unknown artists. But what usually happens when an artist makes it big? They gravitate toward big money, and that usually means big record labels. Followed by someone ripping the CD and sharing the files over the Internet. 22GO>