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The Microsoft breakup that never happened

'Baby Bills' would have been more agile, experts argue

June 18, 2013 02:19 PM ET

Computerworld - Thomas P. Jackson, the former federal judge who in 2000 ruled that Microsoft should be split into two companies as punishment for monopolistic business practices, died Saturday at his Maryland home. He was 76.

Jackson's demand that Microsoft divide was overturned by a federal appeals court in 2001, in part because the panel believed public comments Jackson made during and after the trial portion of the Department of Justice's antitrust case showed bias against Microsoft.

Jackson had compared Microsoft's executives to "drug traffickers" and "gangland killers," said Bill Gates had "a Napoleonic concept of himself," and lashed out at what he called duplicitous testimony during the trial.

While Jackson's findings that Microsoft abused its dominant market position went untouched at appeal, the change in administrations after President George W. Bush took office led to a settlement between the government and Microsoft in late 2001.

That settlement did not include Jackson's solution: to separate the operating systems side of Microsoft from the rest of the firm to create a pair of corporations.

But what if? What if Jackson's remedy had been put into place and a dozen years or so ago Microsoft splintered into parts?

Two better than one?

Industry and legal analysts who played along with the counter-factual believed that the collective parts would now be better off than the single entity is currently.

"The Baby Bells each became sharks, and innovated, innovated, innovated," Robert Lande, a law professor at the University of Baltimore and director of the American Antitrust Institute, said about the antitrust-driven 1982 breakup of AT&T. "You could argue that we wouldn't have the cellphone industry without the breakup. At the least, it sped that up by several years, because you had seven innovating rather than just one."

Lande's point was that the more companies, the more competition, and the more competition, the more likely innovation.

"What if, 13 years ago, Microsoft had been broken into two very formidable companies? Eventually they would have started to compete with each other," Lande said. "In search, Microsoft was a day late and a dollar short. But with two Microsofts, maybe one of them would have pushed [into search], perfected the search engine, and now be serious competition for Google."

A breakup would also have put at least one of the resulting mini-Microsofts in the hands of someone other than Bill Gates, in 2000 still at Microsoft as its chief software architect.

"Gates was focused on the 'black box,'" Lande said. "He personified that part of the company."

Without Gates, Lande argued, one of what he called the "Baby Bills" would have been more likely to push beyond the confines of Windows and Office, and be more aggressive in trying new markets than did the company in reality.

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