Microsoft Faces Breakup as Government Proposes Split of Company into Two

Microsoft's top management assured employees yesterday that there was no chance the company would be split up, but reports suggest the government is moving forward with a proposal to break the company in two. The Justice Department's antitrust case against Microsoft has reached a critical stage, with the government's remedy proposal due by Friday. The proposal calls for Microsoft to be split into two companies, one with its operating-system business and one with its Office software and most other operations.

Key Takeaways:

• Microsoft's president and chief executive, Steven Ballmer, sent an email to employees titled "Bullish About the Future," expressing enthusiasm for the company's business prospects and assuring employees that the company would not be broken up.
• Ballmer stated that "absolutely nothing in the current case justifies breaking us up," and Chairman William H. Gates went further, saying that Microsoft has done "absolutely nothing wrong."
• The Justice Department's proposal, according to people close to the situation, calls for Microsoft to be split into two companies and for restraints on Microsoft business practices.
• Each of the two companies would have an effective monopoly, with Windows holding nearly 85% of the market for PC operating systems and the Office software holding more than 90% of its market.
• The government believes that creating separate companies would foster increased competition in the industry, as companies like VA Linux Systems and Red Hat would gain a foothold in the desktop market.
• Venture capitalists were guardedly optimistic that the government's plan might foster somewhat more competition, but cautioned that the success of the plan would depend on its execution.
• Gordon E. Eubanks Jr., a veteran software industry executive, testified on Microsoft's behalf at the antitrust trial and said that he did not think the industry would suffer from the remedy proposed by the government.

Statistics:

• Microsoft has 34,000 employees.
• The government's proposal would split Microsoft into two companies, one with its operating-system business and one with its Office software and most other operations.
• Windows holds nearly 85% of the market for PC operating systems.
• The Office software holds more than 90% of its market.
• VA Linux Systems sells computer workstations and data-serving computers that run on Linux, an increasingly popular version of the Unix operating system.
• Red Hat, a Linux company, believes that the government's plan would accelerate the advance of Linux.
• Gene Sperling, the president's chief economic adviser, said that the White House had received a similar briefing at the start of the government's case against Microsoft and believed another one was appropriate now, near the end.

Sources:

• "The New York Times," "Microsoft Denies Plan to Break Up Company," by John Markoff and Stephanie Strom, February 25, 1998
• "The Wall Street Journal," "Microsoft's Ballmer: We'll Survive Breakup," by Douglas Fraser, February 25, 1998
• "The Washington Post," "Microsoft Officials Express Confidence in Face of Breakup Plan," by Susan E. Dudley, February 25, 1998
• "Nightly Business Report," interview with William H. Gates, February 24, 1998