Microsoft's Bad Eurotrip

The news organizations would have us believe that every day there's a huge, must-know story. Today's media circus will feature, in the center ring, the European Commission's continuing war against Microsoft (Nasdaq: MSFT).

Maybe it's because I was up at 4 a.m. to talk about this with the folks at CNBC in London, but I find this news to be an absolute yawn. And a predictable yawn at that.

Sure, the European Court of First Instance upheld the $600-million-plus fines against Microsoft, but the effect on current shareholders will not be nearly as dramatic as the media hand-wringing (or, should I say, fist-pumping and high-fiving?) today. First off, that money's a drop in the bucket for Microsoft. This is the same company that blew a billion bucks by doing a lousy job engineering the Xbox 360, remember?

More importantly, those fines have already been expensed and paid, so Microsoft lost nothing here except the effort expended on trying to get that money back. Well, maybe a little hope, too: hope that European market regulators might open their eyes and see reality, rather than a pale reflection of the fears they had half a decade ago.

Dumb decision, dumber remedy
Microsoft still has to package a version of Windows without the Media Player, despite the fact that no one actually wants that. (This version has sold only a few thousand copies.) That little revelation alone should have been enough to convince both the EC and the Court that the Media Player restrictions were patently ridiculous. Alas, it seems the European market regulators would rather make findings based on their fears of potential problems than examine the evidence at hand. They're "protecting" consumers from something they want, and sillier yet, from something that's obviously a non-threat.

Fact is, Microsoft has done an absolutely terrible job leveraging its market share in operating systems into a lead in new media technologies. The Zune doesn't even compete with Apple's (Nasdaq: AAPL) iPod. Web video is dominated by Google's (Nasdaq: GOOG) YouTube, and other, similar upstarts using light Flash players from Adobe (Nasdaq: ADBE). Microsoft has already squandered its market position and screwed this up. While packaging a gimped version of Windows just to satisfy a few blinded European regulators may be an utter waste of time and money, it's not likely to change Microsoft's fortunes in that space.

Who got served?
What's more difficult to judge is whether the judgment on server technologies will hinder Microsoft or give an edge to its feisty competitors and detractors. Complaints that Microsoft didn't share adequate information for interoperability -- originally lodged by a disgruntled and increasingly irrelevant Sun Microsystems (Nasdaq: JAVA) -- were also upheld in the ruling, specifically, that Microsoft must "make the interoperability information available to any undertaking having an interest in developing and distributing work group server operating system products and shall, on reasonable and non-discriminatory terms."

Like the Media Player complaint, a few years' worth of technological advances have made this less relevant. As Microsoft has reached out to former victims like Novell (Nasdaq: NOVL), virtualization technologies like those from VMware (NYSE: VMW) are further redefining the space. However, the EC seems determined to make sure that Microsoft not only turns over what Redmond says is proprietary information, but that it does so for the price the EC deems fitting. The EC found Microsoft's proposed licensing fees for that information to be "not reasonable," and threatened Microsoft with another $1.6 billion in fines. They're still haggling over that price. (Given today's decision, what do you want to bet "free" is the satisfactory price?)

Foolish final thought
This is where the real potential for problems lies. The devil is always in the details. (And I certainly haven't made it all the way through today's 250-page decision.) If the EC and court are hell-bent on appropriating Microsoft's technologies for what they see as some undefined greater good, and they persist in preventing Microsoft from delivering better, media-integrated operating systems -- products that consumers clearly prefer, Mr. Softy's fortunes will be diminished, possibly to a great degree.

Stifling innovation by hobbling Microsoft -- one of the biggest IT R&D shops in the world -- is a bad idea. Sure, it might please haters at a variety of levels, from the jerking-knees at Slashdot to the loudmouth CEO at Salesforce.com (NYSE: CRM), who told Reuters, "If it could, Microsoft would like to stop innovation."

But bashing the big -- especially in areas where size is a pitfall -- doesn't really foster innovation. Only a Luddite could call it progress.