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Microsoft Strategy Unchanged After Anti-Trust Guilty Verdict

By David Streitfeld

and Ariana Eunjung

Three thousand miles away from the courtroom where Judge Thomas Penfield Jackson was readying his devastating verdict, it was business as usual for Deanna Sanford.

The lead product manager for Microsoft’s Internet access operation, Sanford was in Silicon Valley to tout the division’s umpteenth retooling. “It has gone through several versions over the last five years,” she conceded. “But now we’re clearly focused.”

Perhaps this incarnation of the Microsoft Network service, which has only a tenth the subscribers of America Online, will succeed. If not, Microsoft will assuredly try again, pouring as much money and sweat into the process as necessary. Like the villain in some cheesy Hollywood horror movie, the company can never be counted out.

Monday’s verdict, which slammed Microsoft for anti-competitive practices, won’t change that, a half-dozen experts said. In some ways, they added, the trial has even strengthened the company -- which was and remains the single most dominant technology firm in the world, despite its struggling MSN service.

“There’s a saying along the lines of ‘Nothing concentrates the mind like the news you’ll be hanged in the morning,’ ” said Seattle software consultant Frank Catalano. “This verdict was Microsoft’s deadline. And they used it to integrate the Internet into everything that they’re doing.”

Microsoft’s core businesses -- its Windows operating system and Office software -- may be threatened on various fronts, but at the moment they’re still generating tremendous revenues and profits. As the company tries to get a grip on a future that involves wireless communications, hand-held devices and all sorts of other new technologies that are distant from its core competencies, that boodle is proving extremely useful.

“Microsoft’s basic business strategy is to use profits from the businesses it unquestionably dominates to subsidize money-losing entrants into new businesses,” said Richard Shaffer, a consultant with Technologic Partners. “Microsoft goes to the heart of the business models of its competitors, giving away what others must sell.”

Sanford was announcing just such a development. Until Monday, a subscription to MSN’s service cost the same as AOL: $22 a month. But since MSN wasn’t gaining ground fast enough, Microsoft will now give it away free for the first six months.

Observed Shaffer: “Using this strategy, there’s no business that Microsoft couldn’t get in. The only reason it wouldn’t dominate is the same factor that has held it from dominating other markets it has entered: its own incompetence.”

Microsoft has never been accused of being a technological innovator. But it’s brilliant at “reverse engineering” -- taking another company’s successful product, figuring out what made it work, and copying it. This is what it did with Netscape’s Internet browser, of course, which lead directly to the antitrust suit.

In jump-starting MSN this time around, for instance, Microsoft will give away 13 million free CDs to make it as easy as possible to get consumers hooked up -- the same strategy AOL used. Microsoft plans to spend $150 million on television and magazine spots.