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. Last Updated: 07/27/2016

Microsoft's Market Control Under Siege

SCOTTSDALE, Arizona -- In taking action against the Microsoft Corp., the Justice Department is trying to seize control of the computer industry's competitive ground rules that the software giant has increasingly dictated in the 1990s.

At stake is Microsoft's ability to blend a World Wide Web browser program seamlessly with its Windows 95 operating system, thus effectively eliminating the browser market for its rivals -- primarily Netscape Communications Corp., the leader in browser software for navigating the Web.

But the dispute extends beyond browser programs. In a broader sense, the issue involves the means for gaining access to information through a personal computer -- and whether the primary means for doing so will continue to be the desktop operating system software that Microsoft dominates, or through Internet-based software like Netscape's.

Microsoft chairman Bill Gates, interviewed at an industry conference here, expressed surprise at the move by the Justice Department. He said he and his executives have been discussing the government's concerns about the company's browser strategy with department officials.

Though other Microsoft executives sought to minimize the significance of the Justice Department's petition in a hastily arranged teleconference Monday afternoon, many industry executives assembled here Monday said they believed a government victory could have a significant impact on Microsoft's marketing strategy.

So far, Microsoft's browser, Internet Explorer 4.0, is a separate program from the Windows 95 operating system. But it is a product that buyers of new personal computers automatically receive because Microsoft has required PC makers that install Windows 95 on the machines they ship to add Internet Explorer as well. It is that sort of linkage which the Justice Department says violates its 1995 antitrust settlement with the company. The next version of Microsoft's operating system software, Windows 98 -- which is planned for introduction next year -- is supposed to incorporate Internet Explorer directly into the operating system. But if the Justice Department succeeds in preventing Microsoft from folding the browser directly into Windows 98, PC users might have less incentive to upgrade to that newer Windows version.

Monday's action by the Justice Department came only hours before Microsoft posted a strong first quarter that slightly exceeded analyst expectations.

Revenue was $3.13 billion, a 36 percent increase from the $2.3 billion reported in the comparable quarter last year. Income for the quarter was $663 million, or 50 cents a share, including a previously announced write-off of $296 million related to the purchase of Web TV, a provider of Internet service via television sets.

Excluding the one-time write-off, per-share earnings were 72 cents, a 53 percent rise from the 47 cents earned in comparable quarter a year ago.

Such is the money machine of Microsoft, whose rivals have long complained that its control of the Windows operating system software -- which is used by roughly 90 percent of the world's PCs -- enables the company to engulf competing products and add copies of those products as features of Windows.

In their defense, Microsoft officials have long argued that it is simply not possible to establish fixed boundaries to determine which functions are part of the computer's operating system and which should be reserved for other applications like an Internet browser.

By folding an increasing array of features directly into the basic Windows program, Microsoft insists that it has been able to fundamentally improve the computing experience for most users.