Will Massive EU Fine Impact Microsoft's Thinking?

the whopping fine levied against Microsoft software

Just last week, the Redmond, Wash.-based software licenser launched a major public relations campaign for what CEO Steve Ballmer described as Microsoft's "four-point plan" for making nice with the open-source community. The ink had barely dried on that pledge when Microsoft was hit with a record penalty of $1.35 billion for overcharging software developers for access to Windows protocols in defiance of European Commission anti-trust rulings, bringing its total tally of EU fines to about $2.5 billion.

The unfortunate timing wasn't lost on Jim Zemlin, executive director of The Linux Foundation.

"That's got to hurt, a week after you announced a big open-source and interoperability initiative. And on the day you're launching your 'Heroes Happen Here' event," said Zemlin, who remains dubious about Microsoft's claims to have gotten open-source religion.

Given the sequence of events, some speculated that Microsoft may have been seeding the court of public opinion with its recent open-source PR blitz, to deflect some of the hits it expected once the EU fine was announced. IDG's Paul Meller, for example, reported that Microsoft's unveiling of a new interoperability initiative came within the context of the company "anticipating new fines."

Zemlin, though, wasn't sure that was the case.

"I don't know that [Microsoft] had foreknowledge of this fine being announced when it was. Besides, another fine isn't exactly news to them. This has been going on for three or four years. And we've heard these kinds of promises about open-source over and over again from Microsoft," he said, describing periodic mash notes to the open-source community as "a long-standing tactic of Microsoft."

He suspected that there was an epic struggle going on within Microsoft, with some in the company wanting to continue "milking the cash cow" of closed software development, licensing and delivery systems, while others "want to move towards a world of open standards."

"I will say that if ever there was a time for a company to be introspective of the situation they're in, now is that time," Zemlin said.

Another question asked by many was whether Wednesday's fine, large as it was, would even faze the Croesus of Redmond.

"My personal take is that so long as the fines are less than the benefits Microsoft enjoys by employing their business practices, Microsoft isn't going to change," said Travis Fisher of Inacom Information Systems.

Fisher, VP of sales at the Salisbury, Md.-based Microsoft Gold Certified Partner, theorized that even really bad press might not matter to "a no-holds-barred, take-no-prisoners kind of company."

"So until the regulators really clamp down to the point where it doesn't pay to do these kinds of practices, they'll continue doing them," he said.

Zemlin agreed that Microsoft might have a "cost of doing business" strategy with regard to regulatory setbacks, but doubted that such a plan was viable in the long run.

"Look, in the conversation we're having right now, they just profited a million dollars. But the world around them is going to hosted software platforms and open standards of development, and they're not synched up with that. What's a fine today is going to be a loss of customers tomorrow if they don't come up with higher levels of innovation," Zemlin said.

"Anyway, the fines are starting to add up, even for Microsoft."

Meanwhile, observers had mixed feelings about the wider impact of the Microsoft case on other high-tech companies dealing with their own anti-trust proceedings in Europe and elsewhere. Intel, Qualcomm and Rambus are among the most prominent firms EC regulators are investigating for anti-competitive practices.

Zemlin said he doubted that Wednesday's fine sent a broader message about other anti-trust proceedings, due to the "extreme, even unique nature" of the Microsoft case. But one source close to legal proceedings in the semiconductor arena said the EU's display of teeth would have "shaken" key people at other companies being investigated by European regulators.

Through the use of a colorful but unprintable metaphor, the source described the reaction of executives at those companies as being particularly unpleasant for their dry cleaners.

Microsoft did not reply to requests to comment on this story.