The US government should understand the concept of “monopoly”; after all,
it is the biggest one in the world. Even the richest company in the world
cannot defeat the awesome power of the US federal government.
As expected, the US government unleashed its power against Microsoft (MSFT)
yesterday, ruling that — surprise, surprise — Microsoft is a monopoly
in operating systems software. What’s more, Microsoft attempted to
monopolize the Web browser market.
Investors, of course, sensed danger, as Microsoft’s stock price plunged a
stunning 14 percent, eliminating about $80 billion in its market cap.
The severe damage to the stock price may have ended. But the big question
is: Where does the stock go from here? Will it continue to be a high flier?
I think the answer is no.
First of all, the company is undergoing a “brain drain”; that is, key
employees are leaving the company (even Chairman Bill is no longer CEO).
Part of the reason is that the employees are rich. The other reason? They
want new opportunities. Let’s face it. Being part of a company that is
undergoing a huge antitrust case is no fun. Will federal regulators subpoena
my e-mails? Will my software project get canceled because the feds think it
violates antitrust laws?
Next, the federal government will exact penalties against Microsoft. The
extent is too hard to gauge. However, it is going to involve some pain.
Moreover, Microsoft’s ability to leverage its prized asset — the operating
system — is hampered. This has always been the unbeatable weapon for
Microsoft. No more.
Interestingly enough, the adverse federal court rulings will unleash a
flood of litigation — from the states and private plaintiffs (perhaps AOL).
Think of it as the modern-day version of asbestos litigation. The
litigation is time consuming and the liability exposure indeterminate, but
nonetheless expansive.
In fact, the litigation with the federal government will probably last
several more years. So Microsoft will continue to live under dark cloud of
uncertainty. Already, Microsoft is starting to lose its edge. For example,
it is not the MS operating system that dominates the digital handheld
market, it is Palm’s.
In a sense, the US government is Microsoft’s main competitor. So far, the
government has won every time. Look at AT&T and IBM. Both companies were
mired in costly antitrust litigation that sapped the companies for many
years. Unfortunately for shareholders, it seems to be happening to
Microsoft.
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