by Joel Dreyfuss
One day, we may look back on Sept. 17 as the official beginning of the end for Microsoft's dominance. Two separate events signaled the shift; one was the European Union court's harsh ruling against Microsoft itself, charging that the world's No. 1 software maker had abused its monopoly power to harm competitors. The verdict was expected - and showed that European bureaucrats had more courage than the U.S. Justice Department.
The other important announcement was IBM's offering of Lotus Symphony, a suite of office applications, for free. This is just the latest bullet to the head of Microsoft's cash cow. Years ago, when Google CEO Eric Schmidt ran Novell - and tried to save the faltering networking company - he argued that Microsoft's real stranglehold on the PC market was not the Windows operating system but its Office productivity software suite.
Most users could care less about operating systems, he said, but they wanted to run Microsoft Office to be compatible with everyone else. After all, Schmidt argued, others, including IBM (OS/2) and Apple (Macintosh), had already shown they could write a better operating system.
It is no surprise, then, that Google has gone after Microsoft by providing an ever-expanding list of online office applications that include a word processor, a spreadsheet, a calendar - and soon presentation software to compete with PowerPoint. Others have been chipping away at the office market that provides 40 percent of Microsoft's revenues. Sun has also distributed its version of Open Office, a suite of apps developed under the open source model and therefore improvable by users that is also the basis of IBM's offering.
Microsoft, fully loaded with smart guys, has not ignored the dangers that free online apps pose to its dominance. The company has thrown a full court press at the open office movement, which wants to set standards for document formats. Predictably, Microsoft has lobbied hard to win a prominent role for its own technology in the standards. Responding to the evolution of on-demand software, Microsoft has also launched Microsoft Live!, a set of online apps that are still limited, for example, providing tools to help small companies design web sites.
But is Redmond willing to cannibalize its own highly-profitable packaged products with online versions? The company has indicated it will not. But Steve Ballmer may not be able to avoid giving away the store. It is clear now that Microsoft has become the legacy company of the 21st century, playing the kind of defensive role that IBM played when the upstart from Redmond outwitted the incumbent in Armonk and walked away with the best parts of OS/2.
The EU court this week ruled that Microsoft had abused its power by adding a media player to Windows to undercut the leader, Real Networks, and upheld record fines of almost $700 million. Microsoft's allies (including the Bush administration) have sounded the predictable laments. In a statement, Thomas Barnett, an assistant attorney general in charge of the antitrust division, warned that the European decision, "rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition." Only Bushspeak would translate a slap against monopoly behavior into a hindrance to competition.
Far more people in the tech industry will argue that Microsoft's dominance has discouraged software developers and venture capitalists from creating products that compete with the software giant.
No one should think the war is over. But the run of battle is clear. With $51 billion in revenue in fiscal 2007, up 15 percent from the previous year, Microsoft is hardly on its deathbed. The real issue is how quickly Microsoft can adjust to the realities of the on-demand era.Can it transform its products to co-exist with a growing on-line infrastructure and still generate those massive revenues? Will a Lou Gerstner emerge from the ranks of management to push a massive transformation of how things are done in Redmond?