How Microsoft Prevents Innovation
November 1998

Despite its reputation among some consumers as an innovative company, Microsoft's number one goal is actually the opposite of innovation. Microsoft, like any other monopolist, can only succeed by *preventing* innovation. Here is a short summary of how they do it.

How can a company prevent innovation? You cannot actually prevent people from thinking, can you? Ah, but that's the point, isn't it? All the thinking in the world means nothing if a product cannot make it to market. Really, then, the prevention of innovation actually involves controlling either the *demand* for innovations, or the *supply* of innovations, or both. Thus, Microsoft seeks to control what software consumers demand, and what software programmers produce.

The control of the demand for a product involves controlling perceptions, which usually involves controlling advertising. If you build the world's best mousetrap, people will come to your door -- if they can find it! So the monopolist's duty in a high-tech industry will generally involve disinformation campaigns disguised as brilliant marketing. This is where Microsoft's favorite marketing practices come in, such as pre-announcing products long in advance, overstating their capabilities, and occasionally even announcing products they have no intention of shipping. However, these lies are only the beginning; Microsoft also uses an even dirtier trick of raising the entry cost for small companies into the marketing arena.

Let me give you an example. Around 1993, a software developer who produced a product for the OS/2 Warp platform wanted to advertise in a computer magazine. The developer was told that if he advertised a product for Microsoft's Windows NT, the cost would be $10,000 per page. If he chose to advertise his OS/2 product, the cost would be $60,000 per page. Why the difference? Because Microsoft would subsidize all Windows NT advertisements in that magazine, making them far cheaper in comparison. The net effect was to give the computer magazine a huge financial incentive to discriminate against non-Microsoft platforms, effectively censoring the information about superior products.

Another example is Microsoft's recent plan to buy the Internet company LinkExchange. LE makes available a free cross-marketing plan using embedded banners on members' webpages, which is a wonderful and free way to advertise for entry-level software companies. The Unix-like Linux operating system has many supporters who advertise using this feature. However, now that Linux has shown itself a threat to Microsoft's monopoly position, Microsoft will now censor the content of LE banners to suit its own tastes -- a point it openly admitted in their announcement. This once again effectively raises the financial entry barriers to exclude hot, new innovators from the advertising stream.

As far as controlling the supply of software is concerned, Microsoft had to once again avoid the perception of being a non-innovator. How can you prevent other companies from supplying software, and yet take on the appearance of an innovator? Controlling the supply of software is not *literally* possible, since it can be duplicated for a near-zero cost.

The answer involves using preloads and licensing agreements to exclude other companies' products from the delivery channel, combined with the practice of frequent releases of new versions of the monopolist's own products. If you build the world's best mousetrap, people will rush to your door -- unless they are too busy keeping their current mousetraps oiled and working. Yes, Microsoft releases new version numbers early and often, but these are not innovations. Their products do not make significant leaps in performance (often the reverse), and they do not make significant improvements in capabilities. However, the constant flood of new incremental versions keeps people so busy maintaining compatibility and keeping updated, they have no time or money left for investigating the alternatives.

In addition, the preloading of Micrsoft products gives people the distinct impression that they are free. Why would people rush to your door to buy the world's best mousetrap, when the Microsoft mousetrap is free and delivered to their doorstep already?

This push-pull arrangement of controlling the supply of software and also controlling the demand for software is highly effective. It is as if Microsoft keeps people on a constant treadmill, chasing updates to try to fix what they got for free. This keeps them out of the market for what really works, while denying capital to innovative competitors. In the long run, this practice actually prevents innovation by keeping money out of the hands of deep thinkers. Yes, Microsoft has found the way to stop innovation: they make it unprofitable.

Most recent revision: November 14, 1998
Copyright © 1998, Tom Nadeau
All Rights Reserved.