I know it's been a long time since the Feds and Microsoft finished their row over Microsoft's monopolistic practices, and I understand that the Court of Appeals "let Microsoft off" with a slap on the wrist after basically reducing Thomas Penfield Jackson's original decree null-and-void. However, I'm thinking that it might have been in Microsoft's best interests if they'd listened to him in the first place.

I'm getting a bit crotchety in my old age. There's no doubt about it, although I'm still a died-in-the-wool capitalist and free marketeer, I do think there may be some situations when companies get so large and bulky that the wield power that creates situations which are anti-competitive.

There... I said it. Now, before you go and hang me up by my capitalist belt, let attempt to save myself here by pointing out that it is mostly through government protections and intervention that these types of situations occur, especially in the area of technology.

Cast your mind back a couple hundred years when the founding fathers were thinking about innovation and establishing the patent and copyright system. This system was designed to give an individual (or a company) a limited monopoly on the ability to produce and license the technology or work that it had created for a period of time. Mostly these works were mechanical devices (in the case of patents) and books (in the case of copyrights). Each of these required a substantial amount of time to create and usually didn't go out of date for a number of years, if not decades. In recognition of the fact that these monopolies were granted by the government, the government required that the individuals/companies who invented/produced these items pay a price. In the case of both patents and copyrights, the price was putting the end result into the public domain after the expiration of the limited monopoly. Not such a tough thing for the copyright holdersssince their work was an "open book" already, but the patent holders actually had to write a document disclosing how their inventions work, giving their competitors an opportunity to copy them or beat them at their own game.

Pull back to the present now. Copyright periods have been extended manifold since the days of yore (despite the fact that the information in the works is made obsolete much sooner and information technology has grown to allow the spread of information much more quickly). In 1790, the term of a copyright was 14 years, with the possibility to extend for another 14. Since then, the term has been expanded many times:

• 1831: 28 years with a 14 year extension
• 1909: 28 years with a 28 year extension
• 1976: life of author+50 years (75 years total for works for hire)
• 1998: life of author+70 years (95 years total for works for hire)

(Thanks to the Copyright Timeline from the Association of Research Libraries)

Yes, I know, I've benefitted from copyright protections (InterCon Systems being the best example of that), but we always felt that if we weren't constantly innovating, we were going to get trashed by larger companies that ran with different implementations of our ideas, so it kept us nimble.

What if you were the world's (second) largest software firm and your software ran on 90%+ of all computers running in the world? Would you feel that your position was likely to be usurped by a group of 10 developers? Probably not.

In 1995, Microsoft was sitting pretty, they were trouncing the competition (not that there was much of it, except Apple, and they were always a niche player) and it looked like they'd figured out a way to take over this whole Internet thing. They'd just license the most popular browser core from the University of Illinois and create the browser-to-end- all-browsers, Internet Explorer. As much as they didn't want this whole "Internet thing" to become big, it was looking that way and they needed to be in on the ground floor with a move to lock up the competition.

So, Microsoft poured money into their internet initiatives and looked for ways that they could take this technology that initially started on UNIX computers running windowing systems such as X and spread to the likes of the Macintosh and Windows without Microsoft's help, and turn it into something that they could control. How could they do this? Well, it certainly wasn't going to be through standards. With standards, everybody is on the same playing field and each of the new innovations on the network was going to be a rising tide, not helping Microsoft at all.

Instead, Microsoft chose to create a set of extensions to their browser that would only benefit users of Microsoft's Windows operating system. This way, developers who wanted to get features unavailable directly using the HTML and HTTP standards (the standards on which the Internet was based) could just implement them using the Windows-standard methods instead of having to find a way to create extensions to the existing standards to make things work.

The plan almost worked. If you were doing any kind of corporate work in the late 1990's, when people were starting to make Intranets the rage, you were probably forced to use Windows at one point in time or another because of some extension (likely a piece of "ActiveX") that was required to do some essential part of your daily work such as time-card reporting or expense reports.

Fortunately for the community as a whole, Microsoft failed to take over the Internet (or so it appears right now), though a series of intentional or lucky moves by the world's other large players in computers: Sun, Oracle, and IBM. By this point, all three of these players were concerned about Microsoft.

Sun realized that without flexibility to rapidly create and deploy interactive content, the web was going to fall into the hands of Microsoft, so they created Java as their last-ditch effort to keep it out of Microsoft's control. I say "keep it out of Microsoft's control" because of the way that they chose to license it. By effectively giving away java, they had managed to play on the old truism that "the enemy of my enemy is my ally." Since Sun was ensuring rapid development and a single-point of control, they were able to keep quality fairly high while managing to create a system that was about as agnostic as possible. Also, intentionally or not, their use of a system- agnostic pseudo-code meant that they could put in much more effective security that Microsoft's x86-executing ActiveX controls. Since Java is interpreted, the interpreter will catch the errors, instead of allowing the kinds of errors that can corrupt (or give access to) the operating system.

IBM wasn't stupid, they saw the benefits of being able to leverage their various processing platforms by using Java, which also gave them the ability to choose when and where they ceded market to Microsoft (certainly something they wish they'd done better in the early 1980's, when they effectively gave away the entire personal computer market).

Oracle, also in a position where they were using a variety of different platforms, chose also to toss their chips in with Java for their User Interface (UI) for their "popular" accounting packages and other tools. This method reduced their support load, but also provided them with some insulation from Microsoft.

Even with all of these other players arrayed against it, Microsoft was still making headway--they'd effectively beaten Netscape at their own game (blowing away all of the small players in the browser market by "extending" standards unilaterally at a pace nobody could keep up with) and won the browser wars. Use of Internet Explorer (on all platforms) was close to universal and the special capabilities of the Windows version was continuing to provide Microsoft with a reason to push their software. In fact, by including Internet Explorer as part of the operating system, they could even convince users to upgrade to the feature-enemic next version of their OS.

Everything was looking pretty good, except for two things:

1. The investigation into anti-competitive practices
2. Human nature

Although the former was certainly the most interesting one to the company (on the basis of their SEC filings), they would throw enough time and money at that to make it go away.

Today, the real problem (human nature) is what is giving Microsoft the biggest troubles.

Unfortunately for Microsoft, network-based computing and cheap computers are really likely to give them a lot of trouble going forward. For many applications, especially those in business, there is need for little more than a display terminal with a keyboard attached to it (holy 1960's batman!). Completing reports can be done online more effectively than by creating the report in Word and emailing it or mailing it off. Most data in databases is available via a web front end so there is no desktop software to maintain, etc.

In any place where networking is important, corporations are looking to ways to remove the stand-alone software from machines in order to reduce the effort to maintain them. Obviously, there will still be markets for disconnect and partially-disconnected users (those with laptops, as an example).

That, in itself, isn't the problem for Microsoft. However, the lack of trust is. Microsoft had built its systems on the grounds of being able to control most, if not all, of what goes on in the systems that it supplies software to. In order to allow a more fluid interaction between the users and the operating system, even when they are connected to the Internet, they have played fast and loose with security, and now everyone expects those integrated pieces to continue to function and they are expecting the kinds of security that they had before their computers were attached to the Internet at all times.

Unfortunately for Microsoft, this leaves them in a pickle. If they close up the holes and start using the types of systems provided with standards-based software, then they are becoming just another outlet for a screen with a keyboard attached to it.

If they can't plug the holes without removing their "competitive advantage," companies will (and are already showing a propensity to) move to the standards-based mechanisms. This, in the end, is exactly what Microsoft does not want, because it whittles away yet further from their competitive advantage.

However strong showings in the adoption of the upstart browser, Firefox (AKA the revenge of Netscape) have shown that people and companies are doing just that. Corporations cannot afford the security hassles of running Internet Explorer (and Outlook/Outlook Express) on their machines because of risks.

As more organizations continue this march toward standards-based systems, everyone who manufacturers operating systems is going to be perplexed by how they can lock people in to future OS upgrades, and this means Microsoft too. All are going to have to focus on the areas where individual computing power are still necessary (or, in many cases individual storage, as that is much more important these days).

Interactive games

Interactive games are important because they require a ton of computing power. It's my belief that Microsoft saw the writing on the wall on this one, which is why they have done two things: split off from OpenGL to create DirectX, and created the XBox. Both of these are moves to create a separation between Microsoft and the rest of the market. With DirectX, they can attempt to ensure that the high-end computer-based games favor Microsoft's proprietary platforms because the graphics pipeline is the most important portion of any interactive game. If they'd stuck with OpenGL, which they helped with in the early days, then they'd just be making the job easier for folks to port games to other environments, such as MacOS X and Linux.

The XBox is probably the more obvious play to this area. On the XBox, they can lock customers in not only to the OS, but to all software titles and the hardware as well. As we know, there are few areas where computational power increases are really felt these days, but graphics-based interactive games are definitely one of these. (We'll revisit this later in regards to media management).

Mobile computing

Another important area is mobile computing. Whereas many corporations and services are pushing users to move their data to their facilities directly, mobile computer users are often off-net and unable to access those resources (either due to security reasons, bandwidth problems, or being in the middle of nowhere). Regardless of the reason, the mobile computer user needs access to lots of information quickly. This would be the reason for increased concentration on searching technologies (see Spotlight on Tiger and Longhorn's not-too-soon-to-be-released search technology). These mechanisms allow local users the kind of ability to find information stored on their computers that they have become familiar with by using Google.

Setting aside the issue of search for a moment, capacity is also an issue. Mobile users are interested in taking their movies, music and information with them. All of these things consume space and thus require memory storage of some kind. Apple Computer has been pushing technologies such as the iPod, Palm has recently released LifeDrive, a multi-media PDA, and Sony has recently released the very capable PSP (don't think of it as just a game machine, because with WiFi and excellent sound and video, it might be your VOIP handset of the future).

Media manipulation

Sound, pictures, and video. If you check out Apple's push for the last few years, they keep talking about this "digital hub" they've been working on, anchored by the iLife suite. Many, especially in the PC world, have dismissed it as a gimmick. Why would you need this when you can grab a bunch of software from a variety of vendors to do similar things? Well, they're wrong. Even though I use the high-end Pro applications for video editing, the iLife products are very well designed for the more casual user.

But, I'm getting ahead of myself. Why is this an important area? Because of storage and bandwidth. With the push for megapixels in digital cameras and the move towards HD video, the storage requirements for pictures and video are soaring. Even with the massive increase in storage capacity afforded by affordable disk drives, 8-megapixel cameras these days are churning out compressed images that weigh in at over 5MB each and uncompressed images at 6-8 times that. Even with a sophisticated broadband connection, you aren't going to be uploading and manipulating that any time soon. Further, although cheap disk drives are cheap, they're not so cheap when you have to buy a football field of them, as would be necessary to handle this kind of data for everybody in the country.

As such, sophisticated software for cataloging, manipulating, viewing, and culling this kind of data is going to continue to be important. Apple's concentrating on this space with iLife and their pro media products. Adobe has dumbed-down their professional-grade Creative Suite to provide basic video and photo editing (the Elements series). But, Microsoft's offerings here have been late and confused. They've had a difficult time deciding what to put in the OS and what to stick into their consumer and pro products and how to do all of this without eating their partners lunch.

Wither competitive advantage?

So, where does this leave Microsoft's competitive advantage that they've worked the last 20 years to institute? Well, oddly enough it leaves it in the courts. If you watch many of Microsoft's big pushes recently with their developers, they keep pleading for people to license technology from them (in the case of some technology, it's not even stuff they appear to have had a hand in making). Through executing these agreements and filing huge numbers of patent claims, the company is attempting to erect a bullwork in hopes of staving off competition if they start losing the fight for upgrading computers or if white-box retailers start switching to lower-cost operating systems such as Linux.

Right now, they've got some interesting potential in the XBox, in particular if they let it compete with their Microsoft Windows Media Edition and become a full-fledged entertainment device (or home entertainment network). By leapfrogging people like Sony and Apple and introducing a product that would be capable of handling video, sound, pictures, television, satellite, etc. around the house and for mobile uses (and with the blessing of the MPAA and RIAA because of their restrictive and well-controlled rights-management system), Microsoft could turn themselves into the Sony of the 21st century.

But....

One problem with turning themselves into the Sony of the 21st century, though... their market cap is already $280B, whereas Sony's is only $40B.

Unfortunately, Microsoft may still have quite a bit to fall before they bounce. If they'd been broken up by the government into a series of smaller entities, they might not have seen the meteoric rise, but they may have saved themselves the big crushing fall. So far, they've declined about half since 2000. That still leaves them at 5X what they were in 1995, and $56B was nothing to sneeze at then, but if they'd been broken into different companies with separate agendas and the freedom to move without regard for the other entities (no bundling agreements, no need to use all of the secret features of the next release, etc.) they might have been able to push further, or at least isolate themselves from what might well be next.

Imagine that the Office products were separate from Windows (this is the only place where they have any Macintosh presence any more). Although it is acknowledged that much of their leadership in this area is due to bundling of their Windows version with Windows on many PCs, it doesn't change the fact that they've got a nice little Macintosh business as well, and it can't depend on the latest changes in Windows to progress.

Assume for a moment that the XBox group was separate and didn't need to steer clear of killing of Windows Media Center Edition and could fight head-to-head with the consumer electronics giants as a media hub instead of just as a game console. Where would they be going now? How aggressively could they pursue this?

Assume that their games division was agnostic and didn't care about platforms. They could continue to develop games for OpenGL and have them running on other platforms much faster. This could be consoles, or other PCs (even Linux if they felt the need). Further, it would be a good reason to continue backing the industry group that competes in graphics by competing around a standard instead of competing between standards. The DirectX/OpenGL split hurts players in every area.

In the end...

In the end of the day, I may be full of it, but I can't help but think that there is a possibility that, 10 years from now, when people look back on Microsoft, they may very well consider that although breaking up may have been hard to do, it might have saved the company's long-term bacon.

But then again.... with the copyright an patent wars continuing apace, they may just succeed due to sheer size and patent portfolio. They're no Microsoft of Fujitsu, but they're trying hard to get as much stuff in their name as possible, so that if they can't succeed through success, they might be able to succeed through litigation.