Small Fish In Microsoft's Pond

What happens in the Microsoft trial could have huge implications for future high-tech businesses, especially for the "little guys," the start-ups in California's Silicon Valley or New York's Silicon Alley. But the opposing sides in this case are not as clearly defined as you may think. CBS News National Correspondent Rita Braver reports.



The battle for control of the Internet is on. And it's no game. Under attack is Microsoft, the giant corporation whose computer operating systems dominate the entire market. "As one person put it to me, Microsoft's not just the biggest fish in the sea, they're the water we swim in," says venture capitalist Derek Proudian.

Proudian is CEO of ZIP2, a California company that provides online access to information about cities around the country, everything from where to eat to how to get around.

"You imagine the possibilities," says the company's chief engineer and founder, 27-year-old Elon Musk.

Musk was 23 when he started the company. It's a classic Silicon Valley story. Before there was the vintage Jaguar, the six-figure salary, the cute dog, and the nice house to share with his pretty girlfriend, there was the $200-a-month office with the leaky roof: "It was just the nastiest place you can imagine," Musk says. "I lived in it, too, and showered at the YMCA."

Now, Musk has his own computer command center and his business is thriving. To his delight, Microsoft has tried and so far failed to get a hold in ZIP2's market. So, does he keeps an eye on Microsoft? "You bet," he says with a laugh.

Everyone in Silicon Valley is keeping an eye on the battleground, a continent away at the Federal Court House in Washington. It's there where it will be decided whether Microsoft and its founder, Bill Gates, are our generation's equivalent of John D. Rockefeller and his Standard Oil. That was the monopoly that the government broke up in a landmark case that really started anti-trust enforcement at the dawn of the century.

Leading the charge this time is the Justice Department's chief trustbuster, Joel Klein. He claims Microsoft has bullied and intimidated a wide array of high-tech firms: "We will show a significant effort to stifle competition, harm consumers, and prevent the market from having people compete on the merits," says Klein.

Defending Microsoft is attorney Bill Newcomb: "Microsoft is a vigorous but very fair competitor. As a result of our competition and our innovation, customers have benefited by getting better technology quicker and at lower prices."

In an important example, Microsoft did streamline things for consumers by adding its own network browser, Internet Explorer, to its popular Windows operating system for free.

The government complains that by bundling, or tying its browser to its other products, Microsofdenied consumers a choice and unfairly blocked another company, Netscape, from marketing its own browser.

As Elon Musk sees it, "Microsoft should not be allowed to own the browser market. If they do, they will own the gateway to the Internet for every consumer and it's almost certainly likely to result in a less valuable experience for the consumer."

Not everyone agrees. "If you're not willing to engage in competition why are you in Silicon Valley?" asks T.J. Rodgers, founder and CEO of Cypress Semiconductors. And, Rodgers adds: "The men who started Netscape became multimillionaires overnightÂ…and now they're whining and crying because Microsoft had the force and just went 'whack' and said, 'here it is, a better software package - not just a browser but anything you want, guaranteed to work in one package, running on your computer, 99 bucks! What do you think?'"

Well, some competitors think that Microsoft's tactics are unfair. Peter Dougherty owns Digital Bitcasting, a small Massachusetts company that makes software that channels audio and video onto the computer screen.

If some out there paint Microsoft as a sort of benevolent dictator, Dougherty says that's because "the man who runs the company sets the tone for the company and I think that's true in most companies." He says the Microsoft tone is: "extremely aggressive, intelligent, and I think the reality is that they're not a benevolent company."

Peter Dougherty has felt the brunt of Microsoft competition:
"Microsoft comes along and they have the Windows media player and it is what's called 'overriding' our technology, so you can no longer use our technology."

Rita Braver: "So Microsoft's software, once it was loaded, basically disabled or overrode it?"

Dougherty: "Exactly."

Braver: "Why would the consumer care?"

Dougherty: "An end-user has paid for our software. They're used to using it, they should have the right to be able to use it."

Dougherty has now channeled his business into areas that don't directly compete with Microsoft. Though he generally dislikes government intervention he thinks it may be needed to control Microsoft. "It's the killer whale in our business... so I do think the government is going to have to be involved," he says.

For Rodgers: "A successful attack on Microsoft by the government says improving our products, making things better, making them cheaper is against the law. And I think that's immoral and un-American."

Back in 1969, the Justice Department filed another big anti-trust suit that rocked the computer industry. The target was IBM. The case dragged on for 13 years, until the government finally dropped it. And there's one thing that Peter Dougherty and T.J. Rodgers do agree on: that without government intervention Microsoft, like IBM, could still eventually fall of its own weight.

IBM was large," says Rodgers. "Some people tought they were arrogant, but what happened was, IBM brought out the personal computer and then other companies, like Apple Computer for example, said, 'we have a better idea, we'll make it more user friendly.' And now today, IBM instead of owning the personal computer industry is one of the players - not even the leading one or number one or number two."

There are so many scenarios for how the Microsoft case could conclude that none of the experts will predict an outcome. And many in the scrappy computer industry that prides itself on rewarding innovation say they haven't chosen sides in the U.S. versus Microsoft Battle.

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As venture capitalist Derek Proudian puts it: "It's a delicate ecosystem. The government could, with too heavy-handed an approach, create barriers or stifle that climate. Similarly, a large player like Microsoft, if it was too heavy-handed, could also stymie that environment."

And so, in the world of Bill Gates, Peter Dougherty, T.J. Rogers, and young Elon Musk, there is a brooding anxiety over the landmark trial that will map out the rules of the road to the Internet.

©1998 CBS Worldwide Corp. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed
  • CBSNews.com staff CBSNews.com staff

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