Microsoft Responds to Threats

Microsoft's never been under greater threat, what with challenging litigation, a hobbling consent decree, virus writer attacks on its customers and products, and the EU's recent ruling, writes Rob Enderle.

With challenging litigation in several states, an ongoing and strengthening consent decree with the U.S. Justice Department, the ongoing attacks on Microsoft products and customers by virus writers, and the recent ruling by the European Union, the company has never been under greater threat.

In fact, I cant remember any company—technology or otherwise, with the possible exception of Standard Oil in the first part of the last century (which was, fortunately, before my time)—that has been under greater, and longer, sustained threat. Strangely enough, the company appears to be weathering the storm. However, while things appear very bad now, there are indications that this may be bottoming out for the firm.

How did we get here? I figure this is a question that the Microsoft executives must ask themselves on a regular basis. Much like IBM in the late 80s, at which point the same question was asked, Microsoft has over the course of a decade slid from being the child prodigy of a successful nation to being the standing example of what is wrong in that same nation. In fact, it is interesting to note, the United States is experiencing similar problems, and I believe the causes are similar—and, in the case of the European Commission decision, somewhat related.

For the United States, as it is for Microsoft, the problem has been the elimination, over time, of advocates. For the United States, the trigger event was the war in Iraq, which polarized enemies and alienated friends. For Microsoft, the trigger event appears to have been a pricing change a few years ago that wasnt fully researched. However, Microsofts image had been slipping for some time. It worsened when the Justice Department trial created an image of a company that misused power and behaved improperly. That image, coupled with the unilateral and poorly received pricing actions Microsoft took with its enterprise customers several years ago, put Microsoft advocates on the endangered-species list. During the Justice Department trial there were already a distinct lack of credible advocates for Microsoft, which made this problem, even then, painfully obvious.

Strangely enough, I believe it is actually the combination of the slipping image of the United States and Microsofts own image problems that resulted in the European Commissions decision. This decision appears to have several components, including a large fine; the removal of the Windows Media Player, which has no European counterpart; and changes to the interoperability provisions already in place as a result of the Justice Department settlement. The actual details of this decision are expected to be released by the commission on Wednesday.

Much of this was questionable to begin with. The initial action was brought by Sun, another U.S. company. Moving against one company at the request of another is, to my knowledge, unique in the history of the European Commission. Europe is pissed at the United States, and Microsoft is on the short list of firms that are undisputed targets for this anger. Few came to Microsofts defense, and even the U.S. government was strangely absent— which is interesting, given that any fine will pull resources from the United States and put them in Europe at a time when even offshore outsourcing is an election issue.

The lesson here is that even companies like Microsoft cant go it alone. However, things may be getting better.

Next page: The light at the end of the tunnel.