Court, AOL Strike Blows to Microsoft

Just as the discussions of the Linux-effect on Microsoft Corp.'s market share were about to subside, two decisions -- one in the courtroom and one on Wall Street -- have rocked the Redmond campus. But as the smoke clears, will Microsoft be weaker or stronger?

Just as the discussions of the Linux-effect on Microsoft Corp.'s market share were about to subside, two decisions -- one in the courtroom and one on Wall Street -- have rocked the Redmond campus. But as the smoke clears, will Microsoft be weaker or stronger?

The software giant took a big hit November 17, when the judge in the Sun Microsystems Inc. vs. Microsoft case in U.S. District Court in Northern California ordered a preliminary injunction barring Microsoft from selling products that use Java unless they adhere to Sun's testing suite.

Microsoft has defended itself saying that products such as Visual J++ give programmers the ability to utilize Java for cross-platform interoperability, but that the company wanted to give developers a way to utilize the language to build Windows applications. When it comes right down to it, most developers are developing for Windows, says Prashant Sridharan, a Visual J++ product manager at Microsoft. Besides, Sridharan says, platform independence is a dead-end anyway. "Cross platform has been ideal for years and years, and it isn't going to work," Sridharan says.

Sun, however, says anything is possible without Microsoft-specific APIs. "Microsoft ought to be able to produce new protocols without breaking the license," says Lisa Poulson, Sun's group manager of corporate affairs. "If they want to build Java APIs, that's fine, but [they] have to pass the test."

The default setting in Visual J++ is to write applications that are Windows specific. Now, as Ron Rappaport, an analyst with Zona Research Inc. (Redwood City, Calif., www.zonaresearch.com) says, Sun has secured the default status to be for pure Java. Rappaport says, however, that the court isn't giving developers enough credit. "The developers know the intricacies of platform-specific and platform-independent better than any judges," Rappaport says. "They'll still be able to write Windows-specific Java applications."

Now that the Redmond is in a position of perceived weakness, it seems as if a lot of companies are suddenly ganging up on Microsoft. Zona's Rappaport says the sentiment has always existed. "There's always been an ABM [Anybody But Microsoft] crowd doing ABM initiatives. I think the difference is that now we see that energy turning into action," Rappaport explains.

One possible example is the recent plan of America Online Inc. (AOL, Dulles, Va., www.aol.com) and Sun to acquire Netscape Communications Corp. AOL wants to run Netscape's Netcenter portal site and distribute Netscape's browser. Sun would run the server business end and get widespread distribution of its Java technology for running Internet applications among AOL's 14 million subscribers.

This $4.2 billion deal is relevant to the federal antitrust suit against Microsoft that continues in Washington. Part of the government's antitrust position cites an AOL-Microsoft agreement in March 1996 through which AOL would distribute Microsoft's Internet Explorer browser in exchange for prominent placement in Microsoft's Windows 95 operating system, while excluding distribution of Netscape’s browser. Now, in a twist of fate two and a half years later, Netscape is the recipient of AOL access, and Microsoft could be marginalized.

Ironically, an AOL-Sun-Netscape deal may not be harmful to Microsoft, but instead could be just what the company needs. Microsoft can now argue that what the prosecution has said was anti-competitive in March of 1996 -- the deal with AOL -- is now happening in Microsoft's disfavor. Microsoft also can say that the proposed deal relates directly to the discussion Microsoft had with Netscape executives in June 1995 to divide the Internet software market between each other -- a discussion the government says was anti-competitive.

Charles Rule, a Microsoft legal consultant and former senior Justice Department official, says that is exactly what Microsoft is contending. "Unless [the Department of Justice] is about to go and criminally charge the Netscape and AOL and Sun people, which they aren't, then they can't claim these kinds of negotiations are improper," Rule says. Microsoft contends that the fact that this deal could even occur demonstrates clearly that there is vibrant competition in the marketplace and that Microsoft does not have the market stranglehold that the government argues it has.

Another recent change in market dynamics could help Microsoft as well. Government lawyers have contended that Microsoft owns the operating system market. But with the recent news about Linux and the gaining market share for the version of Linux that Red Hat Software Inc. (Research Triangle Park, N.C., www.redhat.com) distributes, Microsoft can argue that it doesn't own as much of the industry as the government says it does.

Now it seems that some of Microsoft’s enemies could be helping their old nemesis through some of their bold strategic moves. "You've got a whole bunch of powerful companies ganging up against one," Zona's Rappaport says. "It really helps Microsoft when these big companies come out against [it] like this."