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E-conomy / Paul Andrews
EC ruling's big impact is on bundling

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And guess what? It looks like a settlement.

In last week's ruling, the European Commission (EC) ordered Microsoft to disclose enough of its Windows code to enable competitors' servers to have equal footing with Windows servers on corporate and institutional networks. But Microsoft can charge for the service, and how much of a look is "enough" is sure to be a point of contention.

Microsoft must also provide a version of Windows without its market-leading Windows Media Player, but can charge computer makers the same amount for either version. This is like ordering McDonald's to give the option of "fries-with-that" or without — for the same price.

The European Union's biggest fine ever against one company, about $612 million, is just slightly more than 1 percent of Microsoft's cash on hand, and is actually less than the $750 million Microsoft voluntarily agreed to pay Time Warner to settle an antitrust action over America Online.

Still, there is reason for Microsoft to be genuinely unhappy over the decision. It has to do with the Redmond giant's hallowed "business model," which consists of taking highly profitable innovations by other companies and folding them into Windows.

In and of itself, the EC decision does almost nothing to hinder that model. Whatever code Microsoft discloses to competitors, its servers will still hold the advantage of saying "Microsoft" and "Windows" on them. For most customers, that equates to working better together.

As for media players, it's unclear that Microsoft gains an advantage through bundling. Try surfing the Web without Windows Media Player installed. Somehow, your Windows PC soon lands a version. But the same is true of Apple's Quicktime and RealNetworks' RealPlayer. The future of media players is in licensing content that compels the user to download the (updated) version of the player.

Fears that Microsoft will make Hollywood subservient to Windows are laughably groundless. That industry knows a monopolistic ploy when it sees one, and Microsoft's tactics are well understood.

In fact, Microsoft's tactics are what took the real beating in the EC decision. In negotiations, commissioner Mario Monti made it clear that any actual settlement would involve concessions from Microsoft over plans to fold in, or tie, applications and services to Windows. Microsoft found the suggestion so loathsome it withdrew from antitrust negotiations.

Still, Monti sent Microsoft a clear message that future "bundling" is going to be agonizingly scrutinized. So, barring a successful effort by Microsoft to delay or reverse the penalties in European courts, that's bad news indeed for the next version of Windows, code-named Longhorn.
 
Microsoft wants to build Google-like search capability into Longhorn. It wants to build synergies between content — music, images, video, text — on your hard disk and the Web. It wants to make your cellphone messaging and Web surfing interact seamlessly with your PC. It wants your PC to be the brains of your home theater.

In Microsoft-watching shorthand, all of these involve a potential "next Netscape" — a reference to the pioneering browser company squashed to oblivion by Microsoft bundling tactics. Is Google the next Netscape? How about Adobe, whose Photoshop Album offers many of the features Longhorn wants to build in free? A Longhorn version of Apple's iTunes seems a given. And what about RealNetworks, which despite a $1 billion lawsuit against Microsoft lacks the resources to withstand a Microsoft cloning of its approach.

Who will be the next Netscape? Whether or not there is one will prove the true durability of the European ruling.

Paul Andrews is a freelance technology writer and co-author of "Gates." He can be reached at pandrews@seattletimes.com.

Copyright © 2004 The Seattle Times Company