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No major changes likely for consumers after breakup

The proposed division of Microsoft probably wouldn't mean any drastic changes for consumers, at least in the near term.

The proposed division of Microsoft probably wouldn't mean any drastic changes for consumers, at least in the near term.

Habit, familiarity and the relative dearth of buoyant alternatives are some of the intangible factors that will likely allow the Windows operating system and the Microsoft Office software suite to maintain their dominant positions on the desktop.

"Everyone is using Office, Breaking the giant: Special Coverage and that isn't going to change in the near future," said Stephen Baker, an analyst at PC Data. "The software industry seems to standardize on one or two products."

Others say the landscape could change over the long run if the split creates two giants that eventually partner with competitors of the other. "It certainly would make a difference," said Bob Young, chairman of Red Hat Software, whose products compete with Windows. "It would allow the application company to port their applications to non-Microsoft operating systems."

Until then, however, analysts say the momentum will remain with Microsoft. "You would have an applications company that would obviously be the dominant company in the industry with an incredible installed base," said James Ragan, senior analyst at investment bank Crowell Weedon. "It will also probably be able to maintain its leadership position."

Under a proposal issued today, the Justice Department (DOJ) and participating states have requested that Microsoft be broken into two companies: one that controls operating systems and another that concentrates on software applications such as word processing and spreadsheets.

The financial stakes are enormous. Last quarter, the Productivity Applications Group, which is responsible for Office, accounted for $2.59 billion in revenues, more than the $2.3 billion garnered by its Windows counterpart.

In theory, consumers will benefit from new competition if Microsoft is unable to extend its dominance in operating systems to other markets. The courts have found that Microsoft used its Windows franchise to grow its immense market share for software packages like Microsoft Office.

But the government may well find that it is one thing to issue a proclamation and another to enforce it. Many believe, for example, that Microsoft Office will continue to enjoy strong popularity simply because people know how to use it.

Some competitors agree, prompting them to advocate different remedies. "The Microsoft breakup would only split one huge monopoly into multiple monopolies working in tandem. A breakup is unlikely to weaken its position in the marketplace," Corel chief executive Michael Cowpland said in a recent statement. Corel makes competing office software.

Instead, Cowpland suggested behavioral remedies that would make it impossible, for instance, to offer computer makers Windows at a cheaper rate if they also bundle Microsoft Office.

A breakup would likely have more impact on emerging markets where consumer habits have not yet become ingrained. But even then, competitors would not automatically have an upper hand: Like consumers, PC makers and software developers may not change their practices much either. Many have actually benefited from the dominance of Windows because they don't have to develop for multiple operating systems.

"The fact that you've got one relatively stable OS that everyone can write to, it makes development of all products more cost-effective," Baker said.