Fool.com: They're Laughing in Redmond [Fribble] June 2, 2000

Fribble They're Laughing in Redmond

By Bud Tower (budtower@bellsouth.net)
June 2, 2000

Common sense on Microsoft (Nasdaq: MSFT):

  • The government says it's a monopoly.

  • The government says break it up into two pieces: an operating system company and an applications company.

  • Microsoft has egregious profits, which is to be expected because it's a monopolist.

  • Microsoft actually has two monopolies: Windows and Microsoft Office.

  • So, the government is proposing a structural remedy to ensure that Microsoft will maintain its two existing monopolies!

  • This structural remedy ensures that Microsoft will maintain its egregious profits.

  • How is that bad for investors?
The real structural remedy would be to create several Baby Bills or mini-Microsofts. Let them all start out on day one with a copy of Windows and a copy of Office, Explorer, etc., and let them duke it out. This makes manifest sense as the only way to really break up the Microsoft monopolies.

So why isn't that what was proposed? Well, interestingly, Judge Jackson hinted at that when he asked the Department of Justice (DOJ) attorneys why they hadn't proposed a three-company breakup. But the DOJ didn't take the bait: two companies it is. The reason it was not proposed is that we all like our one operating-system world (except Scott McNealy, Larry Ellison, and Steve Jobs). Who wants multiple flavors of Windows? Gee, it would be Betamax all over again.

(Of course, we consumers might like buying Windows for $30 or Office for $99. Moreover, we might like the punchy, streamlined new Baby Bill-rewritten versions of the bloatware Microsoft foists on us now. I'd just love to run a version of Powerpoint on my Mac, whose preferred method of shutting down is NOT crashing with a Type 1 error.)

The market has looked at all of this and tanked Microsoft, assuming that Bill & Co. are all sitting around Redmond in a despondent funk. Heck, I think Microsoft probably threw a party when they heard the DOJ's plan to ensure the continuation of its two monopolies. But, consummate businessmeister that he is, Bill put on the long face and went out and warned us all that the government was stifling innovation -- limiting Microsoft's ability to innovate. Oh, gag me with a spoon. Microsoft doesn't innovate, they imitate. That's what Bill and his evil twin Steve Ballmer should be saying: "This extreme proposal will make it harder for us to imitate creative new start-ups like Netscape and RealPlayer and then crush them like the cockroaches they are. How dare they try to compete with us? We'll make sure not a single PC manufacturer in this country pre-loads their software!"

So, while we all assume Microsoft's fighting for its existence, Bill and Steve are executing a misdirection maneuver. Maybe they will be successful and a new administration will cut them some slack, and they will get their "behavior" remedy (which also allows them to keep their monopoly). In either case, Microsoft's monopoly profits are not going to go away. As such, it's only a matter of time before this stock climbs back to $100-plus per share and onward from there.

"But what of this new Internet economy?" you say. What about Internet appliances running limited operating systems? What about Linux? What about a broadband world of video and audio feeds where it makes more sense to morph RealPlayer into a browser than imbue Explorer with A/V functionality? Well, all of these things are concerns, but do they justify cutting $300 billion from Microsoft's market cap? I don't think so. They are just competitive threats that the new Microsoft monopolies will have to deal with.

Conclusion: Buy Microsoft now or forever kick yourself.