2005: A Microsoft odyssey

First in a three-part series.

Win, lose or draw, the government's highly publicized antitrust case against Microsoft will change how the company conducts business for years to come. And just what those changes might be has been the subject of the wildest of imaginations.

Granted, the trial isn't over; It's only recessed until mid-April. But the smell of blood is in the air. Microsoft's legal missteps and the endless amount of executive half-truths exposed by government lawyers have shaken the defense. By most accounts, the government is winning. Assuming it does: What's next?

Some say treat Microsoft like the grand monopolies of yore and carve it up. Others say open up Windows source code to the free world. A third, more conservative faction suggests keeping Microsoft structurally intact but limiting its more controversial business practices.

In this three-part pseudo-science fiction series, we will illustrate just how these three scenarios might play out. While based on dozens of conversations with legal types, industry analysts, Microsoft partners and users, this series does exercise some artistic license as it takes these opinions and uses them to form a picture of the future.

So let's step into the Microsoft time machine, shall we?

The year is 2005. It's been five years since the Microsoft Empire was split five ways. MS1 has Bill Gates and Windows. MS2 and MS3 - originally separate companies selling desktop and server applications, respectively - have merged under the leadership of sales guru Steve Ballmer. Former Internet Explorer guru Brad Silverberg came out of retirement to take the reins of MS4 - the entity that builds application development tools. Video expert Jim Allchin heads up the consumer games business of MS5.

Where did Bill go tomorrow?

Bill Gates sits in the same rumpled Redmond, Wash., office as he did as CEO of Microsoft proper before the turn of the century, pondering the same basic question he's asked of his company for nearly 20 years: How can Windows make me more money?

The swivel of his heated leather chair lets him view the multiscreen Windows 2004 PC on his desk and the WebTV network device covering the north wall without getting whiplash. Gates is physically comfortable, but his blood is boiling thinking about how he has to pay former partner Steve Ballmer more for the MS2 browser than he shells out monthly for his T-7 link to the Internet. But then again, Gates knows that paying Ballmer is better than using America Online's industry-leading freeware.

To Gates, sticking with a Microsoft-inspired browser is a matter of principle.

Gates clicks over to his net worth icon, secure in the knowledge that his Windows monopoly is safe and his stock is still rising. He reflects on the first two years of the Windows-only business, when OEM revenue more than doubled. He silently thanks the U.S. judicial system, which ruled that Gates could not cut any special deals. So now everyone pays top dollar, regardless of volume or special side deals. Gates looks away from the bank of flat screens to remember that call to Compaq back in 2001 when Gates broke the news to CEO Eckhard Pfeiffer that Gates was legally bound to triple Compaq's cost of licensing Windows.

"Yeah. Yeah, Eckhard. I know that Podunk PCs only sold 100 Windows machines last year. But my hands are tied! I can't cut deals. I have to charge everyone the same price for my operating system," Gates fondly remembers saying.

It was about that time that Gates latched onto another idea to keep Windows profits rolling: charging every application developer who builds on top of Windows. Gates kept the licensing fee at a modest one-time $100,000 charge per application. But with hundreds of thousands of Windows programs shipping, Gates knows that MS1 stock will always be a Wall Street darling.

His only regret? That this money-making plan isn't making him any new friends and is harming a handful of long-term relationships. Old-time pal and now MS2/3 crew chief Ballmer publicly and frequently rails against the Windows licensing fee.

Bill tenses as he thinks about the virtual Comdex show attended by 10 million Web browsers where Ballmer gave the keynote, "The Top Ten Ways to Not Give Bill Your Money." The No. 1 method: Build your applications on top of anything but Windows.

Ballmer wasn't done. He then announced to the world that he had hired Linux point man Linus Torvalds as lead product manager for The WayBackOffice suite. This package now includes a Linux-based mainframe replacement, 24-way real-time video and corporate cyber-catering services. And it is half the price of the similarly featured Windows BackOffice suite. Bill reminds himself that Linux is still only used by those with Ph.D.s in computer science or those with some kind of a beef against the M1 CEO. That taken together turns out to be about 9.8% of the population.

Finding ways to needle Bill - like supporting Linux - is what Ballmer likes to do in his spare time. Unfortunately for Steve, the MS2/3 applications don't have the home-field advantage that they used to under the united Microsoft. Oh yeah, immediately after the split, all of the BackOffice programs stood heads above their competition because the MS 2/3 engineers still had intimate knowledge of Windows 2000. Ballmer slept easy at night knowing no other Windows independent software vendor (ISV) had been in bed - so to speak - with the underlying operating system, as he had.

But Bill's onto new things now. He's been talking about Windows 2004 for three years and has sold off the rights to every API imaginable to any ISV with cold, hard cash. Gates knows his old partner has lost his Windows sugar daddy and that Steve's 10-mile morning run is fueled by his fear of having to compete fair and square with the likes of Lotus and the Netscape division of AOL.

"Now we have to actually build software that actually works better than the other guys, and we have to ship it on time," Ballmer was quoted as telling his senior staff at a retreat recently. "Anybody ever have to work that into their long-term strategy before?"

Coming next week, a look at Scenario 2: What happens in a free Windows world?