05.19.08

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A Decade After US Anti-trust Ruling, Microsoft Likely to Topple Itself

Posted in America, Antitrust, Courtroom, Finance, Google, Microsoft, Novell at 11:49 pm by Dr. Roy Schestowitz

“We need to slaughter Novell before they get stronger….If you’re going to kill someone, there isn’t much reason to get all worked up about it and angry. You just pull the trigger. Any discussions beforehand are a waste of time. We need to smile at Novell while we pull the trigger.”

–Jim Allchin, Vice President, Microsoft

They say that regulation is needed to ensure that the Trust is every now again weakened or dissolved. While a new target for severe anti-trust action seems to be Intel (we will not focus on this here), Microsoft seems to be gradually undoing its own business not due to regulation, but due to its own failures and "hubris-infected" leadership. Let’s recap some timely interesting figures.

When you assess the financial state of Microsoft (MSFT), then you are rather likely to think about the value of the stock, but it rarely tells the full story. It merely represents the combination of public and potentially private holdings in the stock. Chairman Gates has been loosening his grip on MSFT for the past 2 years, based on reports that were published after obligatory disclosures. It’s a gradual process, which is also mandatory for one with a personal stake in the company (prevention of inside-trading and the likes of that).

“Chairman Gates has been loosening his grip on MSFT for the past 2 years, based on reports that were published after obligatory disclosures.”Watching the graphs of MSFT, you will most likely miss a very important factor and a hidden ingredient. It was only mentioned in isolated places in the press way back in 2006. One would need to at least point out that Microsoft has been pumping approximately $36,000,000,000 of its own savings into its own stock since then. It’s important because it means that real investors have been departing. If they didn’t, the stock would go up through the roof. The stock, therefore, does not tell the truth and it's not a function of might.

Assume that we’ve agreed that the stock says too little. It’s not an encouraging sign. But that’s not the whole story. The degradation, as recently described even by Cringely, affects other forms of financial balance. Microsoft has been left with just about $26 billion the bank (Apple is a close second this latest technology survey) and it has also lost $30,000,000,0000 in terms of market cap since February, which is when the bid for Yahoo was made. If Microsoft buys significant portions of Yahoo (and returns money that investors expect), it could find itself in debt.

The company’s grip on its core business is evidently slipping too. That’s where long-term hopes continue to reside because newer businesses (or separate divisions) generally lose heaps of money. Had they been an isolated entity, they would have gone bankrupt by now. One of the latest noticeable articles about the key issue was published some hours ago and it states:

I call it the “tyranny of the installed base.” I saw plenty of it when I worked at minicomputer Data General in the 1990s. Customers want bug fixes and enhancements to their existing products–even if it’s some legacy database that fewer and fewer people used with each passing year. The result is that lots of resources get sucked into supporting the “old stuff,” leaving that much less energy, money, etc. for the “new stuff.”

But the real issue here is more insidious. A company, especially a public company, can’t really “Just Say No” to that installed base and tell them to take their business elsewhere. Imagine if you would this scenario: Ballmer wakes up next Monday morning after having an epiphany over the weekend. He walks into Redmond, tosses a few chairs for emphasis, and announces that Microsoft is going to immediately discontinue selling and developing its Windows operating system and Office products because they’re mired in the past and have become too much a distraction from what’s really important–its online services business.

The point to be made here is that one needn’t necessarily rely on regulators alone. The market is able to see the abuses and — in accordance — raise its nose in the face of Microsoft’s offers. Just watch the retorts of Yahoo!

Moreover, Microsoft’s stubbornness in this dilemma, where it struggles keep its cash cow’s expansion (similar to Novell's dilemma), turns out to be rather suicidal because it leaves the door open for competitors in tomorrow’s generation of software.

By all means, none of this will ever change the fact that Microsoft has abused and corrupted. It carries on to this day. It has all been learned and filed, no matter how much denial and history-rewrite attempts are being made. Bill Gates wants to control the museum of computing, but he can be trusted as much as leaders that spread self-glorifying sculptures of themselves around town. And then there’s the 10-year anniversary of a significant court ruling that brought a gold mine or a treasure trove filled with smoking guns.

When the government and 20 states filed their antitrust lawsuit, they charged Microsoft with exerting a ”choke hold” on rivals while denying consumer choice.

The lawsuit we filed today seeks to put an end to Microsoft’s unlawful campaign to eliminate competition, deter innovation, and restrict consumer choice. In essence, what Microsoft has been doing, through a wide variety of illegal business practices, is leveraging its Windows operating system monopoly to force its other software products on consumers.”

That reads like a blast from the past. I spent the better part of two years watching lawyers for Microsoft and the trustbusters argue before the bench. Beyond the day-to-day, though, this was fundamentally a debate about the future of the desktop at a time when the Windows operating system was under challenge from the Internet.

Bill Gates and his closest managers truly feared what would happen to Windows if Netscape’s browser became the preferred conduit to the Internet. The court ultimately found Microsoft guilty of predatory behavior, but the company avoided potentially crippling, worst-case sanctions.

For more information about Microsoft’s slightly older market abuses, there’s always Groklaw’s brilliant coverage and accumulation of exhibits. █

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