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Microsoft Break Up Would Have Slight Retail Impact

A plunging stock price and a new proposal by Federal officials to break up Microsoft last week gave Microsoft executives a series of headaches that no amount of Excedrin could cure, but industry analysts believe neither action will have a major long-term effect on the company’s retail situation.

Whether Microsoft is split into two or more entities, as was suggested by the Justice Department last week, or allowed to continue operating in its current form, retailers and consumers will notice little difference, said Dan Kusnetzky, a software analyst with IDC, Framingham, Mass. Retailers and manufacturers may experience some financial savings if Microsoft can not be as demanding in its licensing agreements, he added.

“Our estimation is that people now committed to Microsoft software will stay so and all its debunkers will say, `see I told you so,'” Kusnetzky said.

U.S. District Judge Thomas Penfield Jackson found Microsoft guilty of breaking antitrust laws by abusing the monopoly it has through its Windows operating system. IDC lists 87% of all software as being Windows based. Apple’s Macintosh OS has 5% and the much-touted, but little-used Linux 4%. The Justice Department and 17 of the 19 states that filed anti-trust complaints against the Redmond, Wash. software powerhouse submitted a tentative plan that would divide the company in half. One half would handle the Windows operating system business, while the other Microsoft’s software and Internet products.

Microsoft’s real punishment may come in the effect the breakup talks have had on its stock price. Microsoft shares plummeted early last week to a 52-week low of $65 per share down from a high of $119. Early trading Monday saw the stock open trading at $73 in very heavy activity, about $4 more than its Friday closing price.

If the software giant is carved into smaller portions it will take years before any difference is noted, Kusnetzky said. The appeals process that would follow a decision to break up the company would take time and the task of restructuring the firm could might mean mini-Microsoft’s would not appear for almost two years.

The thought that the government actions are punitive and arriving far too late to have a real impact is valid. “The litigation itself is about history and how Microsoft behaved at an earlier time and about Internet Explorer being placed in Windows 98 so the case is a moot point.

Roger Lanctot, research director for PC Data, Reston, Va., concurred but said there is much more to the government’s actions than penalizing Microsoft. Breaking the company up would address issues beyond Microsoft’s heavy-handed tactics of forcing PC vendors to use Internet Explorer as its primary browser. Microsoft uses its position to push its other, higher-margin product lines that are outside the Internet browser category.

Lanctot said merely separating Microsoft’s operating system development from its other consumer products could prove beneficial to a wide range of companies. Microsoft’s modus operandi when it launches new and upgraded versions of its OS is to cross promote it with its other products like keyboards, mice and application software.

“When the Windows 98 update was launched Microsoft tied it to its accessory sales so all the other accessory companies suffered a slow period,” Lanctot said. Retailers have also felt Microsoft’s weight during an OS introduction. “It will give them more flexibility. When an OS launches Microsoft shanghais everyone’s marketing dollars for cross promotional campaigns,” Lanctot said.