Published Thursday, June 8, 2000, in the San Jose Mercury News

Is outcome trouble for valley firms?

Mercury News

It's not the size of your monopoly that counts. It's how you use it.

That seems to be the lesson from Wednesday's Microsoft ruling that many are drawing in Silicon Valley where some of the most successful firms have become almost as dominant in their respective markets as the Redmond, Wash., giant.

``Microsoft was not being prosecuted for their market share,'' said Mitchell Kertzman, president and CEO of San Carlos-based Liberate Technologies, which competes against Microsoft in the market for interactive television software. ``They're being prosecuted for doing what is illegal, which is using their market share for driving other companies out of the market.''

In a decade that has seen radical changes with the emergence of the Internet, mobile phones and handheld computing devices, many valley firms have remained constant in their desire to see Microsoft punished for what they saw as predatory behavior. But should they have been careful of what they wished for?

Some observers wonder whether the Microsoft ruling will spell trouble for companies such as Cisco Systems, Intel, eBay and Oracle, which have achieved commanding leads in their fields that some argue would border on monopoly status. In the case of Cisco, Intel and eBay, that success has already led to some scrutiny from federal investigators.

These companies are quick to point out that Microsoft is not being penalized because it has a monopoly on the operating systems for personal computers. The judge ordered the company split in two because he believed Microsoft used its monopoly power to bully customers and squash competitors such as Netscape.

``If you follow the laws, you have nothing to worry about, no matter how successful you are,'' said Michael Morris, vice president and general counsel of Sun Microsystems. ``They broke the law. Companies that don't break the law have nothing to worry about.''

Closely watched

Over the past two years, the antitrust lawsuit has been closely watched in Silicon Valley. Microsoft seemed so dominant at times in high-tech circles that no matter how brightly some of the valley's stars shined, they still seemed like mere planets circling a Microsoft sun.

Large companies such as Oracle and Sun tried to design new computer systems and software platforms whose sole aim seemed to be to loosen Microsoft's stranglehold on the PC market. Start-up companies lived in constant fear that Microsoft would enter their market or begin giving away a version of their product as a feature on Windows and crush them completely. Netscape was merely the most highly publicized incident where this occurred.

As they despaired of beating Microsoft in the marketplace, many of these companies began agitating for the federal government to step in and rein in Microsoft. After several years of lobbying and months of court-watching, many finally got their verdict.

``I think we feel vindicated,'' said Jim Barksdale, former CEO of Netscape who sold Netscape to America Online when it could no longer compete against Microsoft's free Internet browser. ``Obviously we wished it would have happened a couple years sooner.''

Both established stars and new companies in emerging markets believe the verdict would allow them to compete more fairly against Microsoft.

Conduct limits proposed

While the judge ordered Microsoft split into two separate companies, he also delayed this part of the verdict until the appeals process is complete. But he also proposed a number of limits on Microsoft's conduct that would go into effect unless the company gets a stay from an appeals court.

These conduct remedies limit the ability of Microsoft to bundle its products together and its ability to restrict customers from using competitor's products. Companies facing competition from Microsoft in emerging technology markets such as mobile products, Internet services, interactive television and PC appliances such as hand-held organizers say these rules should prevent Microsoft from using its muscle to dominate these fields.

``One of the risk factors that always hangs over the head of young companies such as ours is that Microsoft will use its Windows system to enter the market once it matures and crush you,'' said Alain Rossmann, president and CEO of, a Redwood City-based company that makes Internet browsers for mobile phones. ``It's always there in the background. We've done well so far against them. But this verdict will keep things fair.''

Of course, many of these small companies aspire to be big ones. And big companies hope to dominant. In the wake of the Microsoft verdict, there's some concern that the Justice Department will be more active in scrutinizing the practices of companies with dominant market share.

``Every large tech company is exposed as a result of this,'' Rob Enderle, vice president of desktop and mobile research at Giga Information. ``While Microsoft did bring this upon themselves, the Justice Department will be emboldened. And smaller competitors will try to use this as a venue as an attack.''

Enderle said the key to avoiding trouble is to be more diplomatic and flexible than Microsoft was in its dealings with the federal government. He said the company should have accepted a settlement much earlier and modified its business practices to satisfy investigators.

``Microsoft went into this with the equivalent of a speeding ticket and they decided to fight this to the end,'' Enderle said. ``And they came out of this with the equivalent of the death penalty. If you can get out of the process with a relatively small amount of pain, it's better to do that rather than go through the whole nine yards and end up with a bazooka pointed at your head.''

Firms as models

Several observers pointed to Cisco and Intel as models for how to deal with federal investigators. Cisco -- which dominates the Internet router market -- maintains a sizable Washington lobbying presence and is continually courting federal officials to explain their products, strategy and marketing. Although it's faced scrutiny in recent years for deals with competitors such as IBM, Lucent Technologies and Nortel Networks, Cisco has emerged unscathed.

Last year, Intel was investigated by the Federal Trade Commission for possible violations of antitrust law. In the end, the case was settled with no concessions from Intel about operating as a monopoly.

``Intel's philosophy is to respect antitrust laws,'' said Intel spokesman Chuck Mulloy. ``We believe as a company that we're in compliance. We work very hard to ensure that our business practices are in compliance.''


Contact Chris O'Brien at or (408) 920-5464. Contact Sam Diaz at or (408) 920-5021.