RealTime IT News

Decision Time For Microsoft -- And OEMs

Today's European court denial of Microsoft's request to suspend antitrust penalties is a blow to the company, but evidently not unexpected.

General counsel Brad Smith told reporters that Microsoft is ready and able to comply with the penalties imposed by the European Commission. The ruling by Judge Bo Vesterdorf of the Court of First Instance upheld the European Commission ruling that Microsoft must unbundle its media player from Windows and license more of its server protocols.

But what is unknown and unexpected is whether Original Equipment Manufacturers and other computer resellers are all that interested in selling PCs without Windows Media Player loaded.

Also left in the air is whether Microsoft will ultimately seek another stay of the penalties by appealing this ruling -- which is separate from its longer term appeal of the antitrust case.

While Smith said the company is ready to comply with the penalties imposed by the European Commission's antitrust order, he also said during Wednesday's conference calls that the company was still reading through the decision before making a final decision.

Analysts generally expect Microsoft to deliver a version of Windows stripped of Media Player to OEMs by January, which Smith said the company would deliver. The stripped down version will not be sold at a cheaper price, as Microsoft has done with de-featured versions of Windows it's produced for Asian markets.

"Under the ruling, we can't offer the version at a higher price, but we are permitted to offer it at the same price, and that's what I expect to be the case," Smith said.

Directions on Microsoft analyst Matt Rosoff said this part of the judgment should have little effect. "I can't see any OEM wanting to ship a version of Windows [without Media Player, for the same cost]," he said. A different version would likely generate more support calls from customers, he said, and cost the OEMs more money.

Besides, Rosoff said, "shipping the player in every copy of Windows really hasn't been that successful" for the company's overall digital media strategy. There are too many other factors at play in the industry. Apple came out of nowhere with its successful media platform and now offers the market leading portable player iPod. Rival RealNetworks interoperates with both Apple's and Windows' digital rights management formats, Rosoff pointed out.

"I just don't think the availability of a PC without a Windows Media Player in one market is going to have a big effect on the overall digital media landscape. There are so many other factors, so many competitors."

Plus, Microsoft has a lot of tactics to use, such as supporting the Windows media platform in portables, getting content owners to offer their content for download, getting Digital Rights Management to interoprate, so consumers don't get frustrated and end up downloading illegally.

"I can't imagine that any OEM on the planet will want to sell a Windows Media Player-less version," added Peter O'Kelly, Microsoft analyst with The Burton Group. "Why would they want it if there are no licensing and cost advangages? There aren't."

Regarding the second part of the Commission's order, to license Microsoft's server communication protocols, a lot of water has gone under the bridge since the EU first launched its investigation.

Microsoft paid Sun Microsystems $1.95 billion to settle a patent infringement suit brought by the network infrastructure and software vendor and signed a 10-year technology-sharing agreement. Sun was one of the companies that complained to the European Commission about Microsoft's practices in 2000, setting off the investigation that led to the ruling and fine.

In the teleconference, Smith said that because of the settlement, Sun already had access to the server communication protocols that Microsoft is now forced to license.

"So, Sun has already had access, and they are by far a company that had the greatest interest," Smith said. He implied that Novell , which did not directly participate in the Commission's investigation, but did intervene, was not interested in licensing the server technology.

"One can draw the inference that Novell was prepared to settle without insisting on these kinds of licensing requirements."

Smith noted that both aspects of the penalties would affect only consumers and businesses in the EU. Microsoft has no plans to offer the stripped-down Windows outside of the EU. While any company can license the server protocols, Smith noted that any software development using them must take place in the European economic area, and any resulting products can only be distributed there.

Rosoff said that Unix and Linux server software companies could use the protocols to write applications that could duplicate some functions of Windows servers.

He said that Windows Server is still strong around the world. "It's a strong business for them. Linux is still the upstart and the competitor," he said. By most accounts, Microsoft's Windows Server products grew by about 20 percent last year.

O'Kelly noted that Microsoft and SAP recently publicized that more than 60 percent of new deployments of its enterprise software systems are on Windows. Linux is growing fast, but Microsoft is still gaining market share at a faster rate, he added.

Microsoft definitely will charge for licensing the server protocols, but Smith said he had no information about the cost or licensing structure at this point. Microsoft already offers three types of licenses, fully paid ($50,000); flat fee per unit; or percentage of revenue. The company's Web site with the information was expected to be live by late Wednesday.

Smith did take a swipe at the open source movement.

"The Commission's decision in March and comments today acknowledged one other aspect that is a fact of life," he said. "While we are obligated to license these communication protocols, we are permitted to charge a royalty and license fee. Developers of certain free software products will have to assess that."

Erin Joyce contributed to this story.