An Analyst's View of the Microsoft Antitrust Case

Shortly after Judge Thomas Penfield Jackson's Conclusions of Law finding Microsoft guilty of monopolistic behavior, Giga Group released Rob Enderle's report "Planning Assumption: Strategic Implementations of Microsoft Conclusion of Law" with advice for its clients. Enderle is a Giga Group vice president and one of the most widely quoted analysts following Microsoft. Enderle's take is that this decision will "represent little near-term impact on the company's operations but will have broad implications on Microsoft's ability to continue to compete in this rapidly changing market." He sees long-term prospects for Microsoft as increasingly dire and claims that things could get worse after the remedy phase. "Based on historical performance, unless something changes dramatically, the odds of Microsoft's escaping a disastrous outcome remain poor." The most interesting part of Enderle's analysis centers on how this trial impacts how others view Microsoft in the marketplace, and more importantly, what actions he advises his corporate clients to take. In his report, Enderle says, "The most valuable asset that Microsoft had was not its intellectual property portfolio, nor was it its employee base; it was the generally held opinion that Microsoft was virtually invulnerable." According to Enderle, this perception prevented competitors from obtaining funding, ended battles before they began, and drove Microsoft to the number 1 spot in market capitalization. "In addition, Microsoft products were favored over competitive offerings in bid situations, regardless of how executives felt about the company, because these products seemed the most strategic. This power helped drive partners like EDS and Anderson Consulting to Microsoft, and even helped IBM choose Microsoft's platforms over their own for the good of the company," the report states. According to Enderle, "This power, more than any threats from Microsoft, created the fear in hardware OEMs that had them in lockstep, grudgingly, behind the software giant. The implied threat of what they believed Microsoft could do was strong enough to keep them from acting against Microsoft's interests." Enderle feels that this perception died over the course of the trial. The report goes on to describe growing competitive threats to Microsoft in the marketplace. Enderle says that over time, companies will move away from using Microsoft as a core technology provider and toward companies that the industry sees as more stable—much the same as they did when IBM slipped from the number 1 position. Enderle suggests that using Microsoft as a sole source for software might seem imprudent in light of the potential remedies the courts might hand down. "Given the bad publicity that Microsoft will increasingly attract, it will remain a recommended high priority to make sure your decisions around Microsoft's offerings appear well considered," states Enderle. To deal with the fallout, Enderle suggests integrating more products from other vendors, such as Cisco Systems, IBM, Hewlett-Packard (HP), and Compaq, into heavily Microsoft-centric environments. This need is particularly apparent in large enterprise systems built around Windows 2000 (Win2K), Active Directory (AD), and other key Microsoft technologies. Enderle says, "Competitors will benefit from the problems with Microsoft" and names Intel and Cisco Systems, in particular. He also sees a reduction in the near-term threat to companies such as Oracle, Sun Microsystems, Sybase, IBM, Lotus Development, AOL, and Time Warner. In addition, Enderle says that Linux will increasingly become an alternative to Microsoft OSs on desktop and server appliances. Enderle advises companies committed to Microsoft technology to stay put, but he advises that if the legal situation with Microsoft doesn't improve in 12 to 18 months, these companies would be smart to develop contingency plans. Companies shouldn't put their critical systems at risk due to the fallout from the trial or the appeal remedies. In terms of future commitments, the report says, "Contracts should anticipate the increasing potential for a forced breakup of Microsoft and contain clauses to ensure that the contracts remain valid after the breakup." In addition, companies should ensure that contract assignment doesn't occur without their direct approval. Companies should consider contracts longer than 3 years to be increasingly risky because they can't predict the changes that might occur by then. Companies should take this risk into account when they negotiate a contract with Microsoft. Because the power is clearly shifting from Microsoft to ISPs, the short list of action items should include exploring outsourcing to an ISP during this uncertain period. Litigation is by no means certain, says Enderle, and the parties might settle prior to judgment. However, he makes the following fundamental recommendations: - Consider third-party service providers. - Don't react prematurely to the judgment. - Consider turning any sole-source bids involving Microsoft into competitive bids to make the decision more prudent. - Base your decisions on what the product does, not what it will do, as future product offerings might slip. - Continue to anticipate the move from desktop-centric applications. As you replace or refresh related products, work to move them to hosted environments when it makes sense. - Avoid contracts with Microsoft that extend beyond 2003, or ensure that the financial incentives in the contract offset any potential risks. - Ensure that contract clauses anticipate structural changes in any vendor, especially Microsoft, because the entire industry is passing through a transition and consolidation period. Enderle concludes by saying that the report's advice aims to insulate management and IT organizations from any judgment or settlement and to protect companies in a time of rapidly changing technology.

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