Microsoft rivals savor the moment

Industry rivals responded with glee to the prospect of major punishment for Microsoft. Many of them--notably Sun Microsystems and several companies that sell the Linux operating system--have offered advice on how to deal with the situation.

"This is a happy day," said Royce Bybee, vice president of sales and marketing at Caldera Systems. The Linux seller's stock rose from $13 to $14 in after-hours trading today, buoyed by the Department of Justice's recommendation that Microsoft be split into two major parts. One part would handle Microsoft Windows, while the other half would manage Microsoft's higher-level software, such as Microsoft Office or Internet Explorer.

The division--if U.S. District Judge Thomas Penfield Jackson agrees with the proposal and it holds up against Microsoft's appeal--has the potential to unseat the prevailing balance of power that exists in the technology industry today.

On the one hand, a company in charge of Microsoft Office but not Windows could try to expand Office's market by adding versions for Linux or other operating systems--thereby boosting their usefulness and popularity. A Linux version of Office would give these companies an ability to tie their products to one of the most popular pieces of software on the market. Software for corporate desktops could follow.

On the other hand, current makers of Linux office software such as Corel, Applix' VistaSource or Sun Microsystems' StarOffice would face a fierce new competitor already established as the standard. Netscape might not be the standard Linux browser. And Windows Media Player might give RealNetworks' RealPlayer even fiercer competition.

These companies would also face formidable competitors in the two Microsofts. Both companies would be multibillion-dollar enterprises with dominant market shares and track records for burying competitors in relentless product upgrades.

Bernie Thompson, president of the newly created VistaSource subsidiary of Applix, concurred that his Linux products would face steeper competition if Microsoft Office for Linux arrived. "But I think every competitor would welcome this tradeoff, in return for a level playing field" in which companies like VistaSource could take advantage of undocumented features of Windows.

"Microsoft documents maybe 95 percent of what they do. The problem is that their Office group has access to that last critical 5 percent, while other competitors generally have not," Thompson said.

Microsoft has left a trail of bruised competitors as it spread across the computing landscape. IBM's OS/2 operating system has withered. Sun Microsystems has made only limited inroads into the desktop computing market and mostly has bypassed it in favor of gadgets and servers. Novell has seen its NetWare operating system lose market share and has focused on other software products. Apple has survived--with a little help from Microsoft--but Be's operating system has languished.

Ironically, Linux, relatively unscathed by Microsoft, was developed mostly by an army of volunteers. Only in recent months have corporations begun to sink major development funding into it and has Microsoft begun to pay it more serious attention.

Stocks of Linux companies surged in after-hours trading today. Red Hat rose to $30.88 from its market close of $25.06. Corel jumped from its close of $6.63 to nearly $10. VA Linux Systems moved up from a close of $41.63 to $49. Applix rose from a close of $6.44 to $7.50.

Linux has caught on primarily for use in low-end servers and has penetrated into the turf of Microsoft Windows NT and Windows 2000. However, Linux doesn't have much of a presence in the desktop computer market where the antitrust trial has focused.

Red Hat chairman Bob Young advocates splitting up Microsoft, following the DOJ argument that the result would mean more choice for consumers and more competition among companies. Like others before him, he has derided Microsoft's attempt to wrap itself in the mantra of innovation, saying AT&T made the same argument while it in fact sluggishly advanced products.

Young argued that Microsoft should be required to publish its Windows source code, the programming instructions that underlie the operating system. The move would allow companies to assure themselves Microsoft wasn't adding secret obstacles that would trip other companies trying to sell software that competes with Microsoft's.

Young didn't suggest that Microsoft release control over the code as well, the model used for the open-source Linux operating system. The DOJ recommended that some hardware and software company representatives be allowed to pour through the Microsoft source code more easily.

Sun, in the past one of the most vociferous companies targeting Microsoft, said only that the proposed remedy is "an appropriately serious response to the serious harms caused by Microsoft's violation of the antitrust laws," and that it will study the proposal further.

One Microsoft foe criticized Microsoft chairman Bill Gates' opinions on whether higher-level applications have any special advantage from being closely joined to Windows. "In court he argued that the application business gets no special advantage against third party (software). Today he argued they do. Which is it, Bill?" said Ken Wasch, president of the Software and Information Industry Association, a backer of the government's side.

Oracle, which sells database software that runs on the Windows operating system but competes with Microsoft's SQL Server, didn't respond to requests for comment. However, in the past, chief executive Larry Ellison has called for Microsoft to be broken up into three or four parts.

But Ellison earlier disparaged the two-company split proposed today. "It's very silly to break Microsoft into a Microsoft Office company and a Microsoft Windows company--then you've got two companies, both monopolies, which makes no sense at all. You've got two monsters instead of one, like those horrible sci-fi movies," he told News.com in an earlier interview.

Novell declined to comment. IBM representatives didn't return messages, but in the past have said they won't comment on the case.

Intel, which itself faced an earlier antitrust investigation, declined to comment on the merits of the case or the proposed remedy. Nonetheless, the company said a split up would mark a major shift.

"A structural change at Microsoft would represent a significant change for this industry, but we are confident that the industry would find a way to adapt," said Chuck Mulloy, an Intel spokesman. Asked what he meant by significant change, he replied, "You'd be dealing with two companies."