Justice Suit Barely Slows 'Unstoppable' Microsoft

The government may have struck a small blow against software giant Microsoft last week, but don't expect Bill Gates's company to go into hiding anytime soon.

Many software executives and independent analysts believe that the Redmond, Wash., corporation is unstoppable, despite the antitrust lawsuit the federal government has brought against it recently. Indeed, even though Microsoft settled a part of that suit on Thursday, giving computermakers more leeway in how they install its software, experts remain unswayed.

"Even if the government wins on this narrow issue, what is that going to do?" says Richard Donovan, an antitrust lawyer with the New York-based international law firm, Kelley, Drye and Warren. "Microsoft is still Microsoft."

At the heart of this sense of awe for Microsoft is the company's plans for the future. The firm, whose motto is, "A PC on every desktop and in every home," is spreading far beyond its personal-computer roots.

* Microsoft has created a software platform - the AutoPC - that runs everything from the radio to an in-car navigation system. Manufacturers will start shipping the first dashboard units by summer.

* It is cutting deals to make its software run the set-top boxes of next-generation cable television.

* It aims to move its software onto a new crop of wireless phones.

Setting legal precedents

Still, the government's antitrust case is likely to set important precedents, legal experts say. In October, the Justice Department sued the company, saying Microsoft was using its dominant position in operating systems software to take over the market for Web browsers.

The legal scrutiny of the operating system is key.

The operating system - which is the basic computer code that runs the hardware and organizes the rest of the software - is Microsoft's bread-and-butter product. For years, the company has added features to it. Now, Microsoft is merging its Web browser software with it, allowing users view the Internet.

In its antitrust suit, the Justice Department claims that the browser is a separate from the operating system. The company counters that it's simply another feature that belongs on the operating system and that the latest version of its operating system, Windows 95, is so intertwined with the browser that it can't run without it.

Nevertheless, Microsoft settled part of the suit, saying it would allow manufacturers to install Windows 95 on their computers without requiring them to add all the browser software.

The settlement allowed both sides to claim victory: the Justice Department, because manufacturers won't have to make Microsoft's browser visible to users, and Microsoft, because the agreement leaves 97 percent of its browser software embedded in the operating system.

The main issue - what can be included in Windows 95 - rages on. "The fundamental issue in this case is whether any software company has the right to have new features and new innovations in their products or whether the government can pick and choose what features and innovations are included," says Mark Murray, a Microsoft spokesman.

But it's hard to call Microsoft just "any software company." Its Windows 95 software runs more than 4 of every 5 PCs made today. Its general business programs lead in several categories. And its browser software is fast becoming as popular as the market-leading browser from rival Netscape Communications.

The real bonanza

Whatever the legal outcome, the real bonanza for the company may be a scaled-down version of Windows 95 called Windows CE.

Microsoft has already persuaded leading consumer-electronic manufacturers to incorporate Windows CE into two kinds of hand-held computers. If it can spread the system to wireless communications devices and (who knows?) home appliances, then the company's reach could be as broad in the noncomputing world as it currently is in the computing one.

But that success isn't guaranteed. Rival Sun Microsystems is pushing its own compact computer language called Java and has successfully made inroads into many of the same industries that Windows CE is targeting. It has even moved into some areas where Microsoft has not, such as smart cards, which carry tiny computer chips.

But with its deep pockets and broad reach, Microsoft remains a formidable competitor, so formidable that many independent observers believe its success is keeping newer, better solutions from coming to the market.

"What you've got is the Microsoft tree, which is huge and is blocking the sunlight that would let other trees grow," says Paul Saffo, director of the Institute for the Future, a Menlo Park, Calif., research group. "And the issue is: How do you prune the tree to let the sunlight in without killing the big tree?"