Microsoft: The Next Chapter ‘A Case Seudy on Microsoft's Competitive Practices and Business Strategy Introduction Microsoft, one ofthe top software companies to emerge during the information age, continues to fighe a long, drawn-out anticrust battle with European Union (EU) regulators. Microsoft setled part of ts antitrust case with the United States Department of Justice (DO)) and 20 state attorneys general in 2004; the company i stil under oversight by the Department of Justice until 2009. Observers note that maybe the EU can ‘obtain just concessions from the company that the U.S. DO} could not and has not, More recenty, “The (EU) ‘Commission hit Microsoft with a $7BIm (497m euros) fine and again later, with a fine of $440m (280.5m euros) for non compliance after Microsoft lost an appeal against the fist fine. The February fine covers the period of, non compliance since the second fine through to October 21, 2007.” Microsoft has appealed. (The Register, uly 7, 2008). The venerable software giant i at another crital turning point in its development: thas to either adapt 1 the changing new global technology environment where collaborative open-source software such as Linux play and team with the likes of Google, or continue to be hounded and fined by the EU. Ie appears Microsoft may be cautiously opening up. The company has bogun to make changes to its current business model, embracing radical, innovative new thinking incorporating other companies and technologies into its domains, and pursuing Yahoo! to better postion itsein the search business. It has also joined a handful of US. companies who wish to dominate the market for "cloud computing” —adomain thatincorporates central processing toreplace desktops, and that... involves the centralized storage and processing of information—a shift that could reduce the role of desktop computers and the servers and other equipment run by many companies...” With regard to business ethics, a major question about Microsoft remains: will the approaches the company takes Involve or attempt to dominate and control competitors? ‘The Road Less Traveled Microsoft has focused primarily on product development sine January 2005, making acquisitions of complementary businesses (or potential future rivals along the way. Its chief adversary over the last year and ahalfhas been the European Union, which isued is orignal Sntrust ruling in March 2004 and a more recent fine for noncompliance with the ruling in December 2005. Microsoft has also shifted ls marketing focus, tangled with Google over a search engine issue that i loosely reminiscent ofthe orginal antirust aim made by Netscape nearly a decade ago, struggled to buy Yahoo!, and announced a looming change in business strategy alongside an administrative shake-up. Microsoft's attempts to take over Yahoo! have, to date, not succeeded. Both Goggle and Yahoo! do not appear as naive or vulnerable 2s Microsoft's competitors inthe |990s ‘Monopoly: The Battle with Europe The US. DO) settled its antitrust case against Microsoft in November 2001, and the state attorneys general folowed suit shorty thereafter. The settlement dictated that 1) customers must have a choice about what Windows components are mandatory in any installation of the operating system, and @2) Microsoft muse disclose certain information to allow third-party developers to create software that beter Interoperates with Windows. The end of the DO's pursult of Microsoft essentially closed the door on further Investigations into Microsoft's business practles in the United States, and forced Microsoft's high-profile compe tition £0 look elsewhere for support of their assertions of Microsoft's monopolistic tendencies, IBM Corporation, ‘Oracle Corporation, un Microsystems, RedHat, RealNetworks, Adobe Systems, and more recently Google have all entreated the European Union to use its authority to regulate Microsoft on their behalf and forthe protection ‘of the sofeware giant's myriad customers. “The EU began its antitrust investigation of Microsoft in 1998 when it received 2 complaint from Sun Microsystems alleging that Microsoft was wilfully concealing information that Sun required for its software to successfully interoperate with Microsoft Windows. Subsequently, the EU opened a second unrelated investigation ‘of Microsoft in 2001 when the company began shipping its operating system with freely atached media player software that competed directly with rival offerings such as RealNetworks’ RealPlayer. ‘Alter five years of investigating Microsoft's tactics, the EU issued antcrust rulings in March 2004 and again in 2008. The EU's decision broughe with a $613 millon ine and required Microsoft to alter its business practices to Increase competion In two areas that satisfied both ofthe independent investigation: (I) Microsofe must not ship Windows with its own embedded media player, and (2) the company was required to produce documen- {ation to assist ts rivals in writing Windows Office productivity sofeware Meanviile, Microsoft settled out of court with Sun, Novell Networks, and RealNetworks fr a total of more ‘than $3 billion so that each company would forego its related complaints in both the EU and the United States, wich weakened the EU's stance on the antzrust case. However just over a year later, the EU began receiving complaints that the company stl had not made any progress on either tenet of the 2004 antitrust ruling, The ‘commission threatened new fines, and Microsoft made an effort to adhere to the terms of the ruling and to smooth its relationship with the EU. Microsoft began shipping Its stripped-down version of Windows in Europe in 2005, satisfying the first requirement ofthe EU ruling. However, a number of meetings and information transfers have ensued regarding ‘the documentation requirement, which nether side has found mutually satisfactory. Microsoft chose to air the ‘conflict to the press, which consummated in July 2006 when the EU levied a $356 millon fine against the software ‘lant for fling to comply withthe 2004 ruling. The EU has threatened to fine Microsoft nearly $4 milion each day until the company complies. Microsoft has a number of pending appeals in the EU case, both ofthe orginal ruling and of the most recent noncomplance fine.A Shift in Business Strategy While Microsofts battle wth the EU continued, Google fled a complaint with the US. DO} and with the EU's antitrust authorities in March 2006, The complaint alleged that Microsoft had designed its new Internet browser, Internet Explorer (IE) 7, to primarily use a Microsoft search engine, which ‘would place Google at a competitive disadvantage in the Internet search market. However, the DO} found in May 2006 thatthe default settings inthe browser were not a competitive threat to Google. Industry analyst Paul ‘Thurrott describes the finding: Ina court fling, che DO} noted that Microsoft had first briefed it about IE 7's search box months ago. The feature is easily modified to use any Internet search engine, including that of Google, the DO) said, “using 2 relatively straightforward method forthe user to select a diferent search engine from the intl default. Furthermore, the DO) wrote, Microsoft's actions with IE7 area far ery from the anticompetitive behavior ‘that got the software glant into legal hot water almost a decade ago. The reason? IE 7 respects changes that the user made prior to instaling ths version of the browser. I the browser was previously using a search service from Google or Yahoo by default, IE 7 will not change that choice to MSN Search when the product is installed, 1E 7 “only uses MSN Search fno default has been set” The DO) has “concluded [ts] work on this ‘This behavior is willy diferent from the lercely anticompetitive and monopolistic tactis that Microsoft hat used to thwart ts enemies inthe past. This change indirection provides direct evidence that a new school of ‘thought is emerging within the old sofware giant. An atmosphere likened to that ofa startup sofeware company 's emerging within ths large multinational, one that values building trusting relationships with partners. The ‘company has even taken a renewed interest in its marketing initiatives by elevating its Chief Marketing Officer Mich Matthews to directly report to CEO Steve Ballmer. A clear motivator for increased marketing igor can be directly attributed to the “evil empire” moniker attributed to Microsoft in free-sofeware development and ‘operating system circles, to of the company's main competitive foes. Meanwhile, i late Apri 2006, Microsoft's share price plummeted 1196 ina single day after the company sid ie would spend $25 billon to compete against rival game consoles and search technology, and to develop alternatives tothe new versions o ts Office productivity software and the next version of the Windows operating system, Windows Vista. As Microsoft pours funding ito its research arm, the door to the next wave of Internet technology is upon it, and the key to that door wil be the Incernet browser. Notes The Economist: "The extent ‘© which web browsers are open to outside firms is important because they represent a platform for providing services via the Internet, overshadowing the primacy of the operating system asthe platform for PCs. Whoever controls these platforms is in position to determine what users can do—as wellas steer sales.” Service provision va the Internet s that next wave, and innovation in that arena has already begun. Microsoft has reluctantly come to the same conclusion, even flit late. “The stakes are high in the markets where Microsoft and its closest competitors play. Google's market share ‘could approach 90% of the search market in the coming year. Microsofts sales of Windows Mobile platform products are projected at 40% of the global smartphone market by 2012, according to Eddie Wu, managing director of Microsoft ODM embedded devices, Asia It snot in Google's or Microsoft's interest or competitive nature to allow uncharted markets and technology domains to be dominated without vigorous battles. Google's complaint against Microsoft is a result ofthe Integration of browser search technology. This technology wil provide access to a myriad of Internet services once it proliferates. Microsoft avoided regulatory hurdles with that particular complaint, but the EU is paying close attention tothe features that will be available in ‘Windows Vista and has warned that embedding new, anticompetitive functions Into that operating system could Violate further antirust rues in Europe. ‘With regard to the U.S. Department of Justice's monopoly casé and oversight of Microsoft’ practices, a spokesperson forthe company announced that judge Colleen Kollar-Kotelly's order, issued atthe end of 2008, ‘was extended through November 12, 2009. "The court's action came in response to requests by a number of states involved inthe case to extend the consent decree by fe years.” Microsoft Chairman Bill Gates has always been a firm believer in the power of Innovation, and strives to reinvent Microsoft ahead of eisuptive technology curves. Microsoft's current business model relies on charging license fees for boxed or downloadable software, o the company may contro it distribution and use. With the Impending paradigm shift to Web services, “cloud computing,” and virualsation technology, Gates noted in an intemal corporate memo that “the coming services wave wil be very disruptive” —perhape even to Microzoft sell. As both Gates and CEO Steve Ballmer also continue to chase Google in the Internet search war, they keep an eye on their rear view mirror at the EU's regulatory and compliance arm that has proven more effective than the USS. Department of Justice in constraining the software giant.