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Saturday Morning News

Reporter's Notebook: How Will the Microsoft Split Affect Consumers?

Aired June 10, 2000 - 9:38 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, ANCHOR: We're taking your calls. We're about to talk with Kathy Rebello, senior editor for "Business Week," about the Microsoft ruling. If you have a question for her, call us, 404-221- 1855.

There seems to be no end to the government's case against Microsoft. The company says it will also appeal the latest decision ordering a split of the software company. How is it all going to affect consumers?

We know you have lots of questions, so Kathy Rebello, senior editor at "Business Week" magazine, joins us from New York to help us with some answers. She covers the software industry and edits the magazine's Information Tech section.

Thanks for joining us, Kathy.

KATHY REBELLO, SENIOR EDITOR, "BUSINESS WEEK" MAGAZINE: Thank you.

PHILLIPS: OK, we're going to begin with an e-mail. We're going to bring it up right here. Here's your question. "Should we sell Microsoft stock at a loss, or hold onto it?"

REBELLO: Well, I'm certainly no expert on the stock situation, so I think this comes down to whether or not you believe Microsoft, in the long run, is going to be successful. I mean, either which way, even if the company is broken up, certainly the two pieces are extremely valuable. So this is a company, whether it's in one piece or two pieces, that will be here for a while.

PHILLIPS: All right, Kathy, we're going to move to our phones -- phone call, Ed from Michigan is on the line, has another question regarding the government. Go ahead, Ed.

CALLER: Yes, my question is that in the course of discussion, both on the business side and from the legal side -- I am a computer scientist, I have a Ph.D. in math and computing -- I am amazed that they take as a given that the Microsoft products are good products, that they're excellent, but we might have new and better ones, and they give examples of some that have been scrubbed.

Within -- I'll be very specific. The lack of stability of Microsoft Windows, even Windows NT and 2000, and the fact that among the basic suite of the -- you know, the Office suite, the only one that really could make it on its own, according to most of us in the industry, would probably be Excel. Word was not as good a product and never has been as its competitors. Same thing with the presentation program and the same thing with Access.

I'd like you to comment on this general presumption that...

(AUDIO GAP)

... we do not feel that's true.

REBELLO: Well, Ed, I think, first off, there isn't a presumption that they're excellent. I think there's a presumption that they're very popular and have been very successful. I think some people think that they do a very good job, but that maybe there are products out there that could yet be better. And this is exactly about innovation, that's exactly what this case is about, is allowing innovation.

So obviously there are quite a few people who feel there needs to be more innovation in the industry.

PHILLIPS: Here's another e-mail for you, Kathy. This one comes from New Hartford, New York. "If Microsoft is split, won't this hamper the research and development funding for products such as Office or Windows? The vast financial resources that Microsoft has will be divided to create two average companies."

REBELLO: Well, there are two ways of looking at this. No doubt that the resources are going to be divided. But both of the companies, whether it's the applications group or the operating system group, has a very, very big cash flow. Both products, the main products in both those two companies, has a very, very high market share. In fact, the Office suite in the applications group has a higher market share than the Windows does in the operating system group.

And both turn out a lot of cash. So I think their resources are going to be pretty big.

PHILLIPS: So you don't think it'll cause more pain for investors, since the market will probably suffer as a result, Kathy?

REBELLO: There is definitely going to be a lot of disruption, there's no doubt about it. You can't take a company this size that's this fundamental to the industry and not expect that there's going to be a lot of disruption. That's absolutely going to happen. And while things sort themselves out, there will be a lot of chaos and confusion about what's going to go on.

Now, let's all remember, though, that this case hasn't concluded. This is going to be appealed, so there's no certainty this company's going to be broken up.

PHILLIPS: OK, let's go to another e-mail. This one comes from Sandy Cohen. "Isn't it true that for most consumers, computer users, a breakup of Microsoft would not mean one single difference in their computer experience?"

REBELLO: I think initially that's very true. I think that, especially for the next 90 days, you're not going to see anything that's any difference. But after 90 days, there are some business practices that the government is requiring some changes in.

Now, some of that could result in some differences that you see in your software. For example, one of the things is this allows PC makers to basically configure Windows on their desktop. Now, we might see some new creativity in that. We might see some new software, some new shells, programs that are not Windows-based, appearing first on your screen.

So there could be some differences some 90 days out.

PHILLIPS: Joe from Georgia on the phone with a question for you, Kathy. Go ahead, Joe.

CALLER: Yes, Kathy, thank you very much. What is the long-term impact on Microsoft stockholders of this action, and what companies do you think could be next? This could be a disturbing trend.

REBELLO: Well, the long-term impact -- there's a lot of feeling out there that if you divide this company in two, that there's a good chance you're going to have two very successful companies. And there has been a lot of focus on the operating system side because this has all been about Windows. But there is a tremendous amount of activity and possibility in the applications side of this company if the breakup actually occurs.

In fact, some people think that where software's headed in the future, which is all of the Web stuff and all of these services being delivered over the Web, that the applications group would be better position to take advantage of that. So there could be great growth in that applications group.

PHILLIPS: Kathy, Microsoft has already lost more than, I think, it's 35 percent of its value. Do you foresee, you know, much more of a downside for shareholders than now?

REBELLO: Well, I do think -- you know, I can't predict the way the stock market's going to go. But I can expect that if the company is actually broken up, as I said before, I -- it's impossible not to think there won't be disruption. Dividing a company this large that has this many products that criss-cross over their different divisions is going to be disruptive, and it will slow down some development within Microsoft for a period of time.

The most crucial piece of this is that Microsoft's planning on introducing a very big software initiative on June 22, they call it Next Generation Windows Services. And the impact on that could be pretty large.

PHILLIPS: OK, we're going to move on to another e -- no, we're not going to move on to another -- are we going to wrap this up? Or do you want to take another question? We got another e-mail, there we go. Sometimes we have computer glitches there, Kathy, thanks for your patience. This comes from Mark in College Station, Texas. "Hasn't this really been just an exercise of futility of the Clinton Justice Department? After all, the judge is leaving the operating system part of the Microsoft intact. That's where the real power of the Microsoft monopoly lies."

REBELLO: Well, that's a very interesting question, because there are those who think that this really and actually is more about where software in the industry were some years ago or currently, but not where it's headed. In fact, most people think most of the action is going to be on the Web, and with software programs created for and delivered on the Web. And that's not the Windows operating system.

And so there are those who feel that this really isn't about the future of the software industry anyway, but about the past.

PHILLIPS: Well, we'll definitely be following the future of this case.

Kathy Rebello with senior -- or senior editor, rather, of "Business Week," thanks for being with us.

REBELLO: Thanks for having me.

PHILLIPS: OK.

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