Microsoft 'Baby Bills' will dominate market, or will they?

April 26, 2000
Web posted at: 3:07 p.m. EDT (1907 GMT)

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From staff reports

(CNN) -- Industry experts are mixed on what effect the proposed breakup of Microsoft would have on competition. Some say creating separate companies from Microsoft's software and operating system divisions won't threaten MS's market dominance while others contend the split would energize rivals and drive down prices.

Johnathon Weber of the Industry Standard, a technology magazine, thinks a breakup would do little since the so-called "Baby Bills" would still have virtual monopolies.

"That's specifically true in the application software space where you have, for example, Microsoft Word, which has 95 percent of the market for word processing," he said.

Similarly, the Redmond, Washington-based company's Windows crushes rivals in the OS market.

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"Microsoft the operating company would continue to have 80 percent-plus market share and a lot of momentum," said David Bunnell, CEO of Upside Media.

Even with unusually low Microsoft stock prices now, the divided companies would still be monster-sized in terms of stock value.

A Windows Operating System "Baby Bill" would be worth an estimated $173 billion, an Applications "Baby Bill" $230 billion. Either company would dwarf Linux-based Redhat and Apple Computer.

Carl Howe of Forrester Research expects the market to become "more confused" for a time should a U.S. court break up Microsoft, founded 25 years ago by Bill Gates. "People who felt like MS products were a no-brainer may have to think a bit longer."

But Howe thinks the break up will eventually be good for the market place and consumers.

"Ideally, both companies end up competing harder. There will be pressure on prices downward," said Howe, who expects "more innovation and more value for shareholders."

Gartner Group analyst David Smith expects "a prolonged period of uncertainty" before the court imposes final conditions for anti-trust remedies against Microsoft.

"Breaking it up will be part of what's proposed, but not the only thing. We're going to have to deal with a long, drawn-out appeal process," Smith said.

The anti-trust suit technically concerns whether Microsoft could legally bundle Internet browsers into its Windows operating systems. But the Internet itself now imposes new competition that neither Microsoft nor the federal trust regulators envisioned.

"The Internet has accelerated everything. Microsoft was late to the party and there's just tons of new companies and new businesses. And you know Microsoft doesn't dominate the Internet," Bunnell said.

America Online, for example, has more members than Microsoft's MSN. AOL is awaiting approval of a merger with Time Warner, which owns CNN.com.

Nearly two out of three people polled informally by Time.com had an unfavorable view of the breakup. But the U.S. Justice Department's ongoing anti-trust suit against the Microsoft has been a boost for newer operating systems like Linux.

"I think that's what helped companies like IBM and Oracle to step out in support of Linux without fear of retaliation," said LinuxWorld's Nicholas Petreley.

Correspondent Greg LeFevre and CNN Interactive Technology Editor Ian Hopper contributed to this report.

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