Trial Divides Silicon Valley

In Silicon Valley, where a company can be battered by the mere whiff of news that Bill Gates is looking its way, high-tech companies are watching the government's antitrust case against Microsoft with horror and fascination.

Oracle, Sun Microsystems, and Netscape Communications are among the region's titans that have complained of Microsoft's aggressive behavior. But even Microsoft haters have complex relationships with the software giant - a mix of strategic cooperation, healthy respect, and outright fear.

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They're also wary of too much government interference in an industry that has sprung up largely outside of Washington's influence. The trial began this week in Washington.

"You have to look at Silicon Valley's view as divided and fascinated," said Tim Bajarin, president of the consulting firm Creative Strategies.

Many acknowledge that Microsoft has made a vast contribution in pushing the personal computer as a consumer and business tool.

"Calmer voices do recognize that Microsoft has provided the platform from which the great chunk of wealth that the valley has earned in the past 10 to 15 years has come," said Craig Cline, an analyst with Seybold Seminars.

Hundreds of software companies write programs that run on Microsoft's operating systems. Network Associates of Santa Clara, for example, which makes software for big companies to manage and guard their data, has sold some $1 billion worth in the last year, all based on Windows NT.

"The strategy of our company from Day One was to bet on Bill," said Zach Nelson, general manager of the company's network management division.

Microsoft works closely with software developers to make sure the products run properly on operating systems, one reason it broke ground in August on a new 32-acre campus in Silicon Valley.

Yet while some get rich by cooperating with Microsoft, the fear of directly competing with its software and Internet products has stifled competition as well. Venture capital investors say they're wary of financing proposals that fall in the giant's path.

"If they're going into a market Microsoft is in already, or just making noises about getting into, we get worried right away," said Dado Banatao of Mayfield Fund in Menlo Park.

It's not impossible to beat Microsoft. Intuit Inc.'s Quicken financial software has been more favorably received than Microsoft's Money, for example.

But even companies that dare to compete suffer anxiety that Microsoft may leverage its presence on most desktop computers in the same way it integrated its Internet browser into Windows.

Zip2 Corp. of Mountain View is an Internet company devoted to partnering with newspapers to put classified ads and yellow pages online. Microsoft hopes to capture the same local advertising dollars with its Sidewalk division, which creates city guides for the Web.

What happens to Zip2 if Microsoft builds a yellow pages function into Internet Explorer that users could easily hit to find information and phone numbers?

"That's clearly the kind of thing that gives us a lot of concern," said Zip2 interim Chief Executive Derek Proudian.

Check Point Software of Redwood City vouches for what can happen to a company when there's even a vague rumor Microsoft is turning its way. Check Point, which makes security software for big companies' networks, reported earnings that beat expectations in April, said spokeswoman Emily Cohen.

She woke up the next morning anticipating a nice gain in the stock price. To her horror, it was sinking fast.

Microsoft President Steve Ballmer had implied incorrectly at a press conference that his company intended to compete with Check Point. To this day, wary investors have yet to push the stock back to its previous heights, despite a joint Microsoft/Check Point press release issue to soothe frazzled nerves.

Even so, Cohen has mixed feelings about the antitrust case's relevance.

"To me, it's eerily similar to what's happening with Bill Clinton," Cohen said. "You hear all these new revelations every day about what Netscape said in an email or what Microsoft said. I'm just not sure what effect it has on my day-to-day life."

Written By Greg Chang