Posted on: Thursday, August 7, 2003

Microsoft's server software challenged

By Paul Davidson
USA Today

The European Commission showed most of its cards yesterday in its case accusing Microsoft of undercutting competition in server and media player markets.

The question, however, is the same one that dogged U.S. antitrust enforcers in their epic case against the software giant: In light of Microsoft's dominance, will the EC's proposed penalties matter?

In server software, they could make a difference, analysts say. In media players, probably not.

Microsoft is accused of using the dominance of its Windows operating system on PCs and servers to shut out rivals. Servers run Web sites and corporate PC networks.

The proposed remedy would force Microsoft to disclose Windows' underlying code so competing systems could work with both Microsoft PCs and server software. Windows has 90 percent market share on PCs and about 60 percent on servers.

The EC proposal "will have more of a long-term effect" than the U.S. settlement with Microsoft, says analyst Chris Le Tocq of Guernsey Research. Vendors of software for corporate databases or e-mail systems "will have more opportunity to hook into Microsoft servers."

In media players, the EC accuses Microsoft of bundling its music and video software in Windows, discouraging PC makers from including rival products from RealNetworks, Apple and others.

The EC wants Microsoft to either offer PC makers a version of Windows without its Media Player or include competing players in the operating system.

Analyst Rob Enderle says the company probably would prefer to pry Media Player from some Windows versions; providing technical support for rival players "would be a nightmare."

But Le Tocq says that in the U.S. antitrust case, Microsoft has steadfastly argued that its browser and Media Player are part of Windows and can't be removed.

Media players are free to users. Software firms get revenue by selling the streaming software to music and video content providers. By having a larger base of users, they have a bigger selling point with the content providers.

Yet, analysts say both remedy options are likely too little, too late. Microsoft is dominant in media players, so programmers "will write for the Microsoft format anyway," Le Tocq says. And PC makers will likely continue to bundle Media Player "because it keeps them in good with Microsoft." A similar dynamic in the U.S. antitrust case made it nearly impossible to make a dent in Microsoft's browser market share.

Still, Washington antitrust lawyer George Cary says the EC proposal "at least puts down a marker and says the ballgame is not over."

While many legal analysts expect the EC and Microsoft to reach a settlement that waters down the remedies, law professor Bob Lande of University of Baltimore believes the commission will "hang tough."