Microsoft marks 10 years of antitrust action

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John Borland CNET News

Published: 14 Apr 2004 12:30 BST

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While Ballmer is correct that no court ever said the browser bundling failed the rule-of-reason test, it must be noted that no court has ever had the opportunity to weigh the issue. In dismissing the original verdict against Microsoft, the US Court of Appeals ruled that the lower court had misjudged antitrust law, and that the so-called rule of reason should be applied to Microsoft's efforts to bundle the browser with Windows.

However, the Department of Justice soon afterward dropped the portion of the case dealing with "tying" the browser. Thus, that test of reason was never applied in the courtroom.

Adding features, building 'moats'
In a 1997 email to investor Warren Buffett, senior Microsoft executive Jeff Raikes summarised the company's strategy in simple terms. The operating system is the core business, and others are "moats" that protect it, he wrote. The Office software, the Web businesses, and other feature additions served as layers of protection for the company's core product, as well as potential profit centres, he said.

"If we own the key 'franchises' built on top of the operating system, we dramatically widen the 'moat' that protects the operating system business," Raikes wrote. "If I owned the most successful daily newspaper in Buffalo, I wouldn't want to leave it to my competitor to own the Sunday edition."

Microsoft's recent statements have made it clear that it is set on continuing to widen those moats via other features and businesses, despite the growing pressure of fines and judgments. Here are a few examples of what Microsoft now refers to as "integrated innovation" that could become fodder for future court skirmishes:

Search -- in a widely covered recent speech, chief executive Steve Ballmer conceded that the company was late to recognising the importance of Internet and data searching. He reiterated earlier statements that Microsoft is building its own new search engine to be added into the next version of Windows, bringing it in close competition with current leaders Google and Yahoo.

Gaming -- the company continues to subsidise heavy losses on the Xbox game console, while trying to catch up to leader Sony. Microsoft recently released new tools that would let game developers streamline an increasingly expensive production process by using the same components for PC and Xbox games.

Mobile phones -- the company has tried with little success for a decade to move into the mobile phone OS business. But recent product releases from Motorola and AT&T have some worried that the company is finally gaining traction, aided by the high-powered phones' ability to tap into corporate Outlook email servers.

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