Microsoft Case May Change Tech Sector

Published March 24, 2004

| Associated Press

By the time Microsoft Corp. (MSFT) settled its antitrust case with the U.S. Justice Department, the Internet browser war that precipitated it had already been fought — with Microsoft the victor.

In the ensuing years, technology has moved so fast — and the legal process so slowly by comparison — that the software behemoth similarly won other market battles before legal challenges could be resolved.

That may not be so with the European Commission's (search) ruling against Microsoft Wednesday.

The European Union's executive body fined Microsoft $613 million and ordered the company to offer a version of its flagship operating system in Europe stripped of Windows Media Player (search).

That gives European regulators a rare chance to influence Microsoft's current behavior, rather than trying to make amends for alleged wrongdoing against already sunken competitors.

Microsoft is just one of the companies battling over how people will hear and see music and videos online when a market now in its infancy matures.

"The EU decision comes when the media wars, if you could call it that, are ongoing," said Joe Wilcox, senior analyst with Jupiter Research (search).

About 34 percent of U.S. Internet users played a song or watched video using Microsoft's Windows Media Player in February, according to Nielsen/Net Ratings. That compares to about 20 percent who used rival RealNetworks' (RNWK) format, and about 9 percent who used Apple's (AAPL) Quick Time.

Other media players also are snagging smaller audiences, and some people likely used more than one player.

That wasn't the case in the browser battle between Microsoft's Internet Explorer (search) and Netscape's Navigator (search). By the time the courts ruled that Microsoft abused its monopoly when it included its browser with Windows, Netscape was virtually vanquished.

Experts say Microsoft still holds about 90 percent of that market — about the same as its desktop operating system share — and that's unlikely to change.

The potential for competitors to benefit from a negative ruling in the European Union case is particularly strong if Microsoft is forced to sell a version of Windows without the media player at a slightly cheaper price, said Phil Leigh, an analyst with Inside Digital Media.

That would allow other media player companies such as RealNetworks to offer computer manufacturers their players for free, improving computer makers' slim profit margins and giving a competitor the immediate consumer access that Microsoft has enjoyed until now.

"Without a doubt it will create an opportunity for (competitors)," Leigh said.

Microsoft spokesman Jim Desler said the company believed it was premature to speculate on any potential market impact.

If Microsoft were forced to ship a version of Windows without its media player, that could also mean it would have to start persuading users to download its player from the Internet — just like its competitors.

Even in that case, analyst Ted Schadler of Forrester Research says, Microsoft's dominance may again give it an advantage.

"Microsoft has incredible brand recognition," Schadler said. "It's easier to convince people (to download the Windows Media Player) than to convince people to download the Real player."

Schadler said the overall market for music and video online could suffer as many people opt not to download any media player at all. He thinks the best option for all involved would be to include a number of players with Windows.

Wilcox disagrees, saying most Internet users know how to download media and software.

RealNetworks, which also is suing Microsoft for antitrust violations in U.S. federal court, says an EU ruling against Microsoft would help it but isn't critical for survival.

"We have a plan to succeed in this space with or without an (EU) ruling," said Bob Kimball, Real's general counsel.

Microsoft has defended its business conduct and accused RealNetworks of using its lawsuit to try to gain market share.

Regardless of how the legal battles play out, some people, even those at Microsoft, say this may never be a winner-take-all market. Will Poole, a senior vice president at Microsoft, told journalists in February that the media player market is "not a VHS/Beta thing," in reference to the war over video formats, in which VHS eventually dominated.

Wilcox, the Jupiter analyst, said he believes the online media battle may eventually be more about the format in which online content is recorded and delivered than which media player is easiest to find.

For example, he says, Apple has succeeded with its music store because people like the variety of songs available — not because of what player they use. Also, most players can deliver songs and video in some competing formats.

That the market remains so competitive may even raise the question of whether the courts should intervene at all, Wilcox said.

"If there is plenty of competition," he asked, "is there a need for an enforcement action in the first place?"

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