'Microsoft deal fails to ensure public has choice'

After more than three years, Bill Gates might have thought it was all over last Friday when the US Department of Justice announced a draft agreement with Microsoft, the company he chairs and co-founded. Convicted as a monopolist who tried to choke competitors in new markets, the company thought it had eked out a deal.

Not quite. Nine of the 18 states which co-prosecuted Microsoft with the DoJ are not signing up. They're pushing for more – but not a break-up. Just better oversight and more caution in the provisions against future behaviour. Mr Gates sounded impatient on Tuesday, when he urged the recalcitrant states to join the settlement and "avoid the unnecessary costs and delays of further litigation". He seemed notably unworried about any legal restrictions that might follow.

Yet while many in the industry are furious that the company has been, as they see it, let off lightly, there is also a mood that Microsoft has become a fixture in the computer world – and that there is no sane business option except not to compete with it. Those who do get crushed or marginalised. Ask Apple Computer or WordPerfect Corporation.

Or ask Netscape, whose corporate strangling by Microsoft's manipulation of Windows and contracts with PC makers triggered the whole trial. "[This] agreement fails to protect consumer choice and promote competition by leaving Microsoft free to continue to abuse its monopoly," said Paul Cappuccio, general counsel for AOL Time Warner, which now owns Netscape.

But that does not mean Microsoft is there for ever or that there is no option, said Mike Malone, the editor of Forbes ASAP magazine, who lives in Silicon Valley and talks regularly to the executives there. "Yes, Microsoft has a monopoly," he said. "But there's no real lasting monopoly ever in computing. Even if you completely control one market, you're going to get replaced in a few years by something totally new that you, as a big company, can't react quickly enough to."

And the PC isn't going to last for ever. Microsoft knows it, and so do its rivals – and that is what makes the latter group furious about the DoJ's agreement.

The only other potential fly in Microsoft's ointment is the European Commission, which is investigating its tying of its own software into Windows, and its behaviour in the small-scale web-server market.

Brussels could potentially be much tougher than the US. The question is whether they will affect the company as it is – rather than as it was.

The proposed agreement requires the following: for Microsoft to provide timely technical details so rivals can tailor their products to work with Windows; to end restrictive contracts with PC makers; to let PC makers change the screen layout on computers they make; and to give an independent three-person team on its campus oversight of its books and plans for five years.

But critics say the timetable for releasing the technical details is slow, and the three-person team (one appointed by the court, one by Microsoft, the third by the first two's choice) would be hobbled. And many of the definitions are legal pudding, open to endless reinterpretation.

The biggest criticism is that it is backward-looking in an industry that is always moving forward. Instead, they say it should have done what anti-trust settlements are meant to do: prevent Microsoft extending its monopoly in new markets.

Microsoft knows that the PC is a dying platform, which will be replaced by something niftier and more profitable – say, handheld computer-phone-organisers that can play sound and video and are always linked to the Net. So it needs badly to wedge itself into that market. Contrary to belief, Windows is not the company's great cash cow; that laurel belongs to Office, its suite of programs for word processing, spreadsheets and so on. But companies and people are increasingly reluctant to buy new copies of Office. Some are even abandoning Microsoft altogether. Amazon, for example, saved 25 per cent of its IT costs by moving from Microsoft to the free-operating system Linux. The motor manufacturer, Ford, is considering a similar move.

Microsoft has embarked on a new strategy, ".Net" (pronounced dot Net). The strategy is vague, but it will be about using the Net seamlessly, with other companies able to write programs that hook into it, to offer services such as calendar systems, payments and so on.

Jakob Nielsen, a guru in the field of Web interoperability, and a champion of users and "usability", says that "in the future, the network itself becomes the platform and Microsoft's .Net is the back-end which processes everything. In that world, Microsoft becomes the way that you get paid for Web transactions and purchases and simply everything. And then if you don't work with Microsoft then you go bust because you can't get paid."

But won't Microsoft itself get replaced in time? "Sure, 30 years from now I can see Microsoft having 10-times the revenue, yet being less important than it is now. The trouble is that in five years from now they will have this locked up. So the period we have to worry about is from 2005 to 2030."