What is 'Baby Bills'

Baby Bills is a hypothetical nickname for the smaller companies that would have been formed if Microsoft had been broken up for violation of antitrust rules in 2000. Baby Bills stood a real chance of having actually been formed since the U.S. government did call for the company's breakup, but the decision was reversed the following year so Microsoft instead was permitted to keep operating as one company. The name Bill was a reference to founder and CEO Bill Gates.

BREAKING DOWN 'Baby Bills'

Baby Bills was also a clever reference to the term Baby Bells, born of the 1982 breakup of the Bell telephone system. The situation came out of an antitrust suit that was brought against Microsoft in 1993 after an investigation of possible collusion between Microsoft and IBM hit a dead end. The Justice Department settled with Microsoft in 1994 after documents signed by the company forced them to agree not to "squelch" competition by creating operating system dominance. In 1997, the Justice Department filed a complaint that Microsoft had violated the decree by demanding that Internet Explorer be bundled with PCs in order to get a Windows 95 license. After years of trials and appeals, they were finally able to come to an agreement in 2001.

During the government’s antitrust suit against Microsoft, a report by the Software and Information Industry Association was presented to the Justice Department, which recommended a breakup of Microsoft into three companies. The first of the three stand-alone companies would have gotten Microsoft's operating systems business, including Windows, Windows CE and Windows NT. The second would have gotten its software applications, which included its Word, Excel and Powerpoint productivity programs. And the third would have gotten the Internet media and commerce businesses.

Pros & Cons of ‘Baby Bills’

Some have argued that if Microsoft had been forced to split into Baby Bills, it would have accelerated the pace of innovation at those resulting companies and they would have been collectively in better shape than the single company is today, in part because of the need to compete with one another in the open market. They point to the splitting of the Bell telephone system and how that led to the development of cellular phones, and some believe that one of the Baby Bills could have pushed into search technology or tablet computing at a much earlier time. Others claim that the creation of the Baby Bills wouldn’t have added much value, believing that it would have been impossible for the resulting companies to escape the reputation that Microsoft had created in the marketplace.

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