Making the Case for Keeping Microsoft Whole

The achievement of a standard, ready-to-use operating system benefits both users and programmers.
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Yesterday I mentioned the

USA Today

story reporting that the

Justice Department

was lining up behind a proposal requiring the division of

Microsoft

(MSFT) - Get Report

into two separate companies. And I wondered if, as bad an idea as I think chopping up the company would be, a smart tactic for Microsoft might not be to come up with its own dismemberment scheme.

That idea was offered more tongue-in-cheek than seriously ... but not

entirely

tongue-in-cheek. Microsoft has, inevitably, been in a reactive mode in these proceedings -- and especially, reports say, in the post-finding-of-fact negotiations now under way in U.S. District Judge

Richard Posner's

offices in Chicago.

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Microsoft

Since Microsoft is on the defense here, trying to keep the company whole and preserve what it sees as essential management prerogatives in choosing strategies and tactics, that's not surprising.

But getting off high-center in these negotiations is going to take bold action from someone, and I think that's unlikely to come, at least in a rational way, from the DOJ side. So yes, maybe a far-seeing Microsoft proposal to divide itself into some number of smaller companies might indeed shake things up.

Sure would be fun to watch, eh? Oh, to have been a fly on the wall of Judge Posner's conference room over the past month! And for the next few weeks, as well.

These thoughts on the rights and wrong of breaking up Microsoft are stirred by a story

today in

The Washington Post

, essentially confirming the

USA Today

story but suggesting the likeliest division is into three new companies, not two.

I have consistently resisted the idea of a structural, break-'em-up "remedy" in this case, rather than an ongoing procedural remedy that would proscribe certain kinds of behavior by the 'Softies, because I see a breakup as a disaster for PC users and the computer industry.

Indeed, I think the only beneficiaries of such a move would be current Microsoft shareholders, who instead of owning one company would then own pieces of two, three, four or even more -- the collective worth of which would, I believe, very shortly exceed that of the pre-breakup Microsoft share price.

So if you're a Microsoft holder, you might think I should shut the hell up here, let the feds and their nipping terriers from the participating states' attorneys-general offices have their way, force a breakup ... and then we could all watch the value of the divided company's offspring rise.

But it doesn't work that way.

If a deal's bad for a company's customers, it's a bad deal, period

.

The Splinter Effect

Every time I say how opposed I am to a breakup, I get a pile of angry emails from

TheStreet.com

readers -- some from good people who just disagree or who don't understand my position, many from Microsoft-bashers who live for that glorious moment when their nemesis is crushed.

I probably can't make any headway with the last group, because I disagree with their larger agenda. But for the former group, let me try once again to spell out why I think breaking up Microsoft into any number of small companies would be a Bad Thing.

Bear with me: This will be a little longer than usual, but it's complicated, and I want to get it all out on the table.

I should say as a preface that there's been a lot of talk about whether to break up Microsoft horizontally or vertically. That is, should any forthcoming division be done vertically, between lines of business -- a Windows company, an Office 2000 company, a Net company -- or horizontally, with more than one company having the rights to sell Windows, more than one ... You get the idea.

I find either approach, or the much-discussed hybrid of the two approaches, equally flawed.

Proposed: Breaking up Microsoft would be bad for consumers because it would fracture and eventually hopelessly fragment the industry standards that have led to the success of the PC, to the success of the idea of individual computing.

The real role of DOS, then Windows, has been to make it possible to build computer hardware incredibly cheaply, from standardized components available from many sources, to meet well-understood, open technical standards. It has also made it possible to write and sell applications programs for those computers that run reliably and need exist in only one standard version to run on the overwhelming majority of the PCs in existence.

Many

TSC

readers won't remember the early days of the PC business -- which I mark from August 1981, when

IBM

(IBM) - Get Report

shipped its first, now hopelessly feeble personal computer. It ran PC-DOS from Microsoft, but Microsoft had wisely kept the rights to sell the DOS product to other companies as well, as MS-DOS.

Competitive PCs appeared quickly, especially after

Compaq

(CPQ)

broke through the true-compatibility wall with its first "luggables," those 25-pound-plus ivory-colored suitcases so many of us hauled around. (You wondered, maybe, why so many middle-aged computing managers' right arms are a couple of inches longer than their left arms?)

In those early days, important machines appeared, which required slightly different tweaks of the MS-DOS operating system. And that meant that, of course, special versions of the best software of the day were required for each of those machines.

I vividly recall the days when I had an IBM PC, a

Texas Instruments

(TXN) - Get Report

PC and a

DEC

Rainbow PC, all lined up on a bench in my office. All were "PC compatibles," but each required a custom version of DOS -- and thus, each required a separate version of, say,

1-2-3

.

It was

madness

.

With the advent of a standardized DOS, PC prices fell, and software developers had a much easier job of bringing their creations to market.

By the late 1980s, we had an unbelievable array of PCs, with many different features ... but all running the base version of DOS, and thus all capable of running the 5,000 or so shrink-wrapped DOS applications then available.

Windows took us another step down the standardization path. Not only did Windows create an even larger, easier-to-use (note that I didn't say

easy

-to-use!) group of PC applications, it also made it easier to write and bring to market those applications because Windows handled a lot of the basic plumbing, leaving coders free to focus on what programs

did

.

Remember, if you're an old-timer, the incredible range of printer drivers supplied with

WordPerfect's

DOS versions? Writing those drivers took forever and added huge costs for WordPerfect Corp. Ditto nearly every other applications developer.

Windows made that unnecessary; it came with a wide variety of Windows printer drivers usable by any application program running under Windows, and users could get even more drivers, for the really obscure printers, from the companies that sold those printers.

Overall, over almost 20 years, the biggest contribution from Microsoft has been to make possible this standardized, compatible marketplace.

You and I wouldn't have a fifth, maybe not a tenth, of the great software we have today, without that evolving-but-reasonably-consistent Windows standard. You and I wouldn't be able to buy high-performance PCs for under $1,000, pretty-much-OK PCs for $695, and monster, workstation-killing power PCs in the $3,000 range, without that standardization on Windows.

Click

here for the conclusion of this column.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.