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SURPRISE SETTLEMENT EVENLY SPLITS MICROSOFT

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SURPRISE SETTLEMENT EVENLY SPLITS MICROSOFT;
ONE FIRM TO MAKE SOFTWARE, OTHER TO MAKE PATCHES

Decision Keeps Redmond from Monopolizing Massive Microsoft Patch Industry

Redmond, Wash. - In a surprise settlement today with nine U.S. states,
Microsoft agreed to be split into two independent companies - one that will
continue to make Microsoft operating systems, browsers, and server software,
and another, potentially larger company that will make patches for Microsoft
operating systems, browsers, and server software.

Critics immediately charged that the settlement - which overrides a previous
agreement with the U.S. Department of Justice - does nothing to diminish
Microsoft's standing as the world's most powerful software company. But
industry analysts argued that providing patches for security holes in
Microsoft programs is a major, untapped growth industry, and applauded the
states for not allowing Redmond to control it.

"Just consider, Microsoft can make an operating system, such as Windows XP,
and sell 200 million copies, but each one of those copies is going to need
at least five patches to fix security holes, so that's 1 billion patches,"
said Gartner Group analyst Mitch Fershing. "That is an enormous, undeveloped
market."

Microsoft employees seem to agree, as sources in Redmond described a "mad
scramble" among staffers to position themselves for spots at the new
company, called Patchsoft. Asked why people would want to leave Microsoft
for a startup, the source said the answer was "really quite simple."

"Everyone here is asking themselves, 'Do I want to be part of the problem,
or part of the solution?'" he said.

But J.P. Morgan analyst Sherill Walk suspects another motive. "Considering
the sheer number of patches we're talking about, I think the new company
will become another monopoly, and I believe the people who've jumped ship
very well know that."

"Nonsense. It's really all about consumer choice," responded Patchsoft's new
co-CEOs, Bill Gates and Steve Ballmer.

But how will Patchsoft make money? Currently, Microsoft issues free patches
for problems in Windows XP, SQL Server, Internet Explorer, Outlook, Windows
2000, Flight Simulator, Front Page, Windows Me, Media Player, Passport, NT
Server, Windows 98, LAN Manager (for a complete list of MS software needing
patches, see www.support.microsoft.com). Under the agreement, Microsoft will
no longer issue patches, which Gates said explains the recent five-day
outage at Microsoft's upgrade site. "That was planned," he said. "It was a
test of the Microsoft No Patch Access system. Went perfectly. No one was
able to download anything."

At a press conference to outline the settlement, Connecticut Attorney
General Richard Blumenthal pledged to keep a close eye on Patchsoft to
ensure it would not overcharge for its services. He also expressed hope that
other firms would soon become Certified Microsoft Patch Developers (CMPDs)
and challenge the spin-off. Asked if Patchsoft, with so many former
Microsoft employees, will have an advantage over potential competitors in
the Microsoft patch market, Blumenthal said the settlement prohibits
collaboration.

"Patchsoft developers will not have any foreknowledge of bugs or security
holes before software is released. They'll just have to be surprised," he
said.  "So it will be just like it was when they were at Microsoft," he
added.

One Reuters reporter, meanwhile, questioned the long-term viability of
Patchsoft. "This seems like a logical split right now, but what if
Microsoft's products improve to the extent that patches are needed less
frequently, or perhaps not at all?" she asked.

"I'm sorry, I can only respond to serious questions," Blumenthal answered.


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