Will you be my friend?
To grow, Microsoft loses its hard-nosed edge
After a firm scolding from the European Commission in March, Microsoft suddenly seems eager to play well with others. In the past week alone, the company struck up two new friendships. After two years of wrangling, game developer Electronic Arts agreed to adapt its popular video games for Microsoft's online Xbox Live. And Microsoft and business software maker SAP pledged to make their respective products more harmonious.
These companies are the latest to join Microsoft's growing buddy list. Barely a week after the EC fined Microsoft some $600 million for using its desktop monopoly to squelch competitive media players, Microsoft and longtime nemesis Sun Microsystems made peace after Microsoft paid $1.95 billion to settle an antitrust suit filed by Sun in 2002. Microsoft also cozied up to InterTrust Technologies, shelling out $440 million last month to end a long-standing patent dispute over InterTrust technology that helps companies protect their digital information. Also in April, Microsoft settled a class-action antitrust suit with the state of Minnesota.
The sudden burst of bonhomie toward Sun is easy enough to understand. Microsoft is appealing the EC's ruling and, since Sun instigated the EC investigation, good relations between the companies can only help Microsoft's case. But the company's congenial conduct may be more than making nice in front of the grown-ups. Tighter IT budgets, the fusion of computers and entertainment, and the increasing need for networks to talk to each other are all making cooperation more vital than ever. Indeed, the company's growth may now depend on its ability to put the "soft" into Microsoft. "We want to have a better relationship with others in our industry," says Brad Smith, Microsoft's general counsel.
Memories. That's quite an about-face for a company that's been found guilty on two continents of abusing monopoly power to gain sway over new markets. "Nobody's going to forget that Microsoft trampled little Netscape like an elephant stepping on a mouse," says Laura DiDio, senior analyst at the Yankee Group, a Boston-based research firm.
Clearly, Microsoft has a lot of bad blood to overcome. So why bother making friends at all, when Windows owns more than 90 percent of the desktop market? Because changes in the technology industry demand that companies work more closely together. And Microsoft's very dominance on the desktop poses a problem for its growth. "Where does your revenue growth come from when you're as big as Microsoft?" asks Ted Schadler, vice president of Forrester Research, based in Cambridge, Mass. "You have to pursue markets where you're not dominant, and that means you need to play well with others."
One playground where Microsoft longs to romp is the growing field of digital media--the convergence of computers, digital devices, video, music, and other technologies. But the digital media field requires teamwork among software firms, entertainment companies, and computer, phone, and PDA makers, as well as providers of Internet, cable, and wireless service. With so many players, there's simply no way for one company to hog all the revenues. That's a whole different ballgame from the browser wars, when Microsoft could use its power over computer manufacturers to force competitors off the desktop. To succeed in digital media, Microsoft needs to convince old rivals that it has finally learned to share. "A lot of what Microsoft is doing is to alleviate the concerns of potential partners," says David Smith, vice president of research firm Gartner in Stamford, Conn.
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