The big news this week is the Microsoft antitrust trial, which is entering a new phase as Judge Thomas Penfield Jackson prepares to issue his conclusions of law. In the ruling, the judge will finally spell out which laws Microsoft has broken. Jackson is expected to come down hard on Microsoft, which he has characterized as a bullying monopoly. Hoping to head off what would be a humiliating defeat, Microsoft went into damage-control mode last weekend, offering its Department of Justice (DOJ) counterparts various concessions in hopes of reaching a settlement. Although sources report that the DOJ remains unimpressed with Microsoft's proposals, there is still hope as I write that the company can pull off an eleventh-hour settlement.
In fact, Microsoft has backed off from some of its most inflexible convictions. Although the trial was ostensibly about a wide range of antitrust violations, it centered decisively on the company's bundling of Internet Explorer (IE) and the resulting harm to competitors, especially to Netscape Communications. One could effectively argue that Netscape did as much as Microsoft to precipitate its downfall, but Microsoft maintains that the product bundling was done simply to benefit consumers and not to harm others. However, Microsoft has apparently offered to provide a version of Windows without IE. This is a huge reversal for the company, which has argued strenuously for its right to innovate as it sees fit.
But that wasn't the extent of the concessions. Microsoft's Windows pricing structure has favored close partners such as Compaq and Dell. Vendors such as IBM, which compete with Microsoft in other markets, have had to pay more for Windows, regardless of sales volume. For many companies, this sort of behavior is not illegal, but as an alleged monopoly, Microsoft must offer its customers prices that aren't affected by other relationships. Microsoft has offered to standardize its pricing for all customers, which is basically a legal requirement, but a concession nonetheless.
Finally, Microsoft has offered to give third-party developers access to the company's crown jewels, Windows source code. Although details are scarce, two possibilities are emerging. One possibility involves companies such as RealNetworks and Netscape Communications bundling their products in Windows (the computing equivalent of Coca-Cola offering two cans of Pepsi in every six-pack, as Bill Gates likes to say). Another possibility involves the widespread distribution of the Windows source code so that developers could more easily create products that integrate with Windows. This is less likely than the first scenario, but a melding of the two offers would be interesting. Netscape, for example, might be able to modify Windows so that its Web browser product, shipped with Windows, would work more seamlessly with the OS.
What these concessions don't provide, of course, is a structural remedy. Microsoft would remain a single entity with at least two major monopolies in the computer industry. And although Microsoft would permit government regulation of some of its business practices, it's unlikely that a company of its size could be effectively monitored. In addition, Microsoft's past agreements with the government don't provide a solid base for future trust; alleged violations of its 1995 consent decree got the company in trouble in the first place. But the government has clearly softened its stance on a potential breakup of Microsoft, opening the door for the company's proposals. If the two sides can meet somewhere in the middle, a settlement is indeed still possible.
By the time you read this, one of two things will likely have happened: Microsoft's settlement proposal will be rejected and Judge Jackson will issue his conclusions of law, or the settlement will be provisionally accepted and both sides will head to the mediator's table in Chicago. Either way, things will change dramatically for Microsoft this week. If the company makes the wrong moves, it may ultimately be unable to control its own destiny—and Windows users will feel the ramifications for years to come.