Which Will You Choose?

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On November 5, 1999, the Findings of Fact in the MS vs. DOJ case were issued by Judge Thomas Jackson. The official government report can be found at What did the world find out about Microsoft during this trial, and what impact will these finding have on Microsoft and its claims of innovation and prosperity? Will consumers be helped or harmed by the outcome of this trial?

Microsoft has always attempted to paint the trial as a narrow-minded attempt by government agents, under the misleading goading of bitter PC-industry competitors, to stifle a great American company by the misapplication of U.S. law. On the other hand, numerous commentators, witnesses, and -- most importantly -- users of personal computers have looked forward to the exposing of Microsoft as not merely a clever, ruthless corporation pushing the envelope of the legal system, but rather a corrupt, dishonest, and ultimately destructive cabal intent on obliterating alternatives and free choice from any market it touches. Which of these two pictures more accurately describes the essence of Microsoft Corporation?


Before a fair decision can be rendered, the judge or jury in a legal case must have a clear, precise, and accurate understanding of the facts. This means not only the facts of law, but the facts of the case itself. In the case of Microsoft and its hammerlock on the PC software marketplace, these facts include the following:

1. Microsoft's market share for PC operating systems on the Intel platform, and for related office applications, have risen steadily, year after year, for the past five years uninterrupted, and now exceed 90%.

2. The key ingredient to Microsoft's success has been the ability to control the software development process through the use of closed, proprietary APIs on Windows that are nearly impossible to duplicate in a reliable, compatible manner due to their obscurity and complexity.

3. Attempts to provide alternative development platforms other than Windows have been met with rapid opposition by Microsoft, both in terms of marketing, FUD, and media manipulation, as well as "active measures" including intimidation, coercion, financial inducements (payola), or software changes designed to prevent cooperation by potential software competitors.

4. Due to the effects of both item #2 and item #3 above, the condition of item #1 above does not appear likely to change significantly for at least three to five years, and perhaps longer.

This analysis, while somewhat simplistic, is fundamentally sound and accurate. The reason people buy operating systems is because they want or need particular application software, not because they like or dislike a particular OS. (Fan clubs, supporters, or developers of a particular platform are of course exceptions to this condition.) The only way a software developer can write applications for alternative platforms and make enough money to prosper is to develop software that runs on Windows, and use the proceeds from this endeavor to fund development for alternative platforms. However, if the developers do not see a realistic, long-term alternative to Windows APIs, they cannot and will not risk their resources on developing for another platform, no matter how much easier or technologically superior that platform is.


As with ownership of handguns and other weapons, in America there is nothing wrong legally with owning a monopoly on a product or service. However, there are certain laws against USING that gun -- or that monopoly -- against other parties. The laws regarding what constitutes an illegal use of monopoly have been developed over the past 100 years, and include the following basic principles:

1. A monopoly consists of any company that can significantly raise the barriers to entry within the relevant market. (U.S. vs. DuPont Corporation, 1956) Any change in the market which is willfully caused by the monopolist, that has the intended effect of discouraging new entrants into the "relevant market" (in this case, desktop PC operating systems for Intel-compatible PCs), is absolutely illegal.

2. It is illegal to use the leverage of a monopoly to discourage the rise of competing products. This violation is known as "monopoly maintenance". The willful use of such monopoly power to acquire or maintain power, as opposed to the possession of a superior product or superior business ability -- or a mere "accident" -- is therefore illegal. (U.S. vs. Grinnell Corporation, 1966) The fact that there exist superior operating systems for PCs (such as IBM OS/2 Warp) that have not established themselves in the desktop PC market makes Microsoft's position extremely suspect.

3. It is illegal to use product "bundling" or "tying" to extend or maintain monopoly power. (Clayton Antitrust Act of 1914) Requiring the inclusion of one product along with another product that already has monopoly market share (such as requiring MSIE browser to be included with Windows98) is therefore illegal.

4. Any person or persons who engage in monopolization of commerce, or who even attempt to do so, are deemed guilty of a felony. (Sherman Antitrust Act of 1890) Since the Judge has ruled that Microsoft has monopolized the PC software market illegally, the next round is expected to formalize the conclusion that Mr. Gates and his accomplices are now de-facto convicted felons. (Yes, that means you will then be able to officially call Mr. Gates a "crook".)


Item #1, definition of a monopoly, shows that the mere possession of the ability to raise barriers to entry is not in itself a crime. If I own a string of gas stations in a small, isolated town, and I also own almost all viable commercial real estate in that town, that is not a crime. However, if I decide to charge an exorbitant lease rate for prime commercial land to an incoming oil company in order to prevent them from establishing their own competing gas stations in this town, then I am committing an illegal act of monopoly maintenance -- using the price of land as a barrier to entry into the retail gasoline market. "Barrier to entry" does not mean that I have made it *impossible* to market gasoline in a competitive arrangement; I have simply made it *unprofitable* to do so, using monopoly leverage.

Yes, IBM could be selling OS/2 right now in the retail PC market. But Microsoft has used restrictive preload agreements, exorbitant licensing fees, and restrictive clauses upon software developers who might consider the OS/2 platform in addition to their current Windows offerings. Therefore, IBM could not sell OS/2 *profitably* in the retail PC market at this time. This is why IBM exited this market and focused on select segments of the business market with its superb, reliable OS/2 operating system. And in these markets, where Microsoft does not have monopoly power, OS/2 is a success.

In addition to specific acts aimed at preventing the rise of alternative operating systems, Microsoft recognized that software development APIs that could migrate across multiple OS platforms were also a threat to their monopoly status. In other words, even if OS/2 did not exist at present, if Netscape Navigator or Sun Java became application development platforms with tens of thousands of applications, it would only be a matter of time before Netscape-on-OS/2 or Java-on-OS/2 (or, on some other quality platform such as Linux) would come to exist via some "new entrant" into the PC marketplace. This new product would embody these same non-Microsoft APIs and provide an "escape valve" for PC buyers who no longer were satisfied with Microsoft's unwieldy, bug-riddled products. The Judge correctly notes that the presence of tens of thousands of software applications that were native to any non-Microsoft platform would constitute sufficient "critical mass" to encourage wholesale migration away from Windows to such a non-MS platform.

This is indeed why Microsoft undertook the efforts to taint Java and to negate the profitability of Netscape Navigator. Since Microsoft could not drive Sun out of business directly (due to Sun's huge hardware income), MS had to license Java and then try to ruin it from a compatibility and cross-platform standpoint. However, Netscape had no such supporting cash-flow channel that was outside of Microsoft's reach; this is why MS did not even try to license Navigator's source code. They merely made it unprofitable to distribute, forcing Netscape off the information highway. Microsoft accomplished this by illegally bundling -- and then later tying -- MSIE with the monopoly operating systems it already controlled.

Thus, Microsoft has apparently violated both the Sherman and Clayton Antitrust Acts, among others, and has thereby become a criminal organization run by felons -- provided the next round goes according to the line of thought expressed by the Judge's ruling.


Several features of Microsoft's current monopoly did not appear to be addressed by the trial or by the Judge's ruling. For example, Microsoft currently controls approximately 90% of the market for desktop office suites. The mechanism for maintaining this control is not APIs, as in its OS monopoly, but rather the proprietary, closed data file formats that its applications use.

However, the areas that *are* addressed by the Judge such as operating systems, software development APIs, Java, and Internet browsers, are probably going to be the areas in which the Court will attempt to apply remedial action to restore fairness and equity in the software market. In addition, we may see some punitive action. Hopefully, the Judge will have the foresight to recommend preventative regulations as well.

What are the likely remedies? Since so much of the Judge's analysis focuses on software APIs, I expect to see Microsoft intellectual property rights to exclusive possession of these APIs declared null and void. When a gun owner uses his weapon in the commission of a crime, and then becomes a convicted felon, he forfeits his right to possess that weapon. Microsoft will probably be required to publish its entire repertoire of software development APIs in a timely and fully-documented fashion, or at the very least, they will be required to license these APIs to any and all potential competitors, at a very attractive price. The only problem with this sort of remedy, however, is that it will take a significant amount of time and effort to re-engineer these complex, often cryptic codes to work correctly on alternative OS platforms. In parallel with this attempted catch-up period, Microsoft will likely introduce an entirely new, proprietary set of APIs that will -- of course -- be available only on "the next version of Windows".

The forced introduction of outside APIs into the Microsoft platform is also a remedy the Judge may apply. If Netscape, Sun Java, and even OS/2 Warp APIs were embedded into Microsoft platforms -- with appropriate supervision to prevent intentional Microsoft corruption and sabotage -- then the development of applications that are truly cross-platform could occur quite rapidly. However, the only way this remedy could provide a migration path to alternative platforms would be for manufacturers to be required to preload a minimum percentage of their PCs with non-MS platforms. It is doubtful that PC vendors would be willing to learn these new OS's, provide technical support for them, and establish marketing campaigns for them, unless Microsoft was required to pay for these services as part of a punitive settlement. Without such support, alternative OS's will likely remain merely alternative, instead of becoming mainstream.

The only remaining possibility appears to be in the breakup of Microsoft into multiple companies, each of which would be under different restrictions. For example, there may be an OS company that could not license its OS on exclusive terms, and could not bundle any applications or Web tools with its products, and also had to make its APIs public; an application company, that could not use any information from the MS OS company that had not been made public, that was required to publish all data file formats freely, and could not participate in any bundling deals with any other software or hardware vendor; and an Internet products company, that was required to use Netscape and Sun Java APIs in addition to its own proprietary Microsoft APIs, which would have to be published openly. This arrangement would likely result in a dramatic shift toward open standards by Microsoft, since it would nullify the proprietary nature of their products. However, given the egotistical attitude of Microsoft's upper management, these conditions would likely be rejected. Instead, Microsoft would probably abandon its U.S. base of operations and move its headquarters to mainland China or some other closed, "proprietary" regime that had similar tendencies toward the command-and-control mentality that Microsoft espouses.

On the other hand, Microsoft might indeed look forward to the "excuse" that such a forced reorganization would provide. An excuse for what? An excuse to spin off some of their overvalued stock, and to force their employees to trade their current MS stock options for risky options in the new, regulated "baby Bills". This would allow Microsoft's top would-be felons to craftily keep the bulk of their ill-gotten wealth, while gently pricking the huge "bubble" of speculative capital that now holds the Microsoft stock capitalization at its unnatural and unreasonably high value. This effect alone may prevent a massive economic catastrophe -- or it might even cause one. Trying to achieve a "soft landing" after superheating a stock price is a truly risky venture, for both business and government.

What punitive actions will the Judge recommend? Money means nothing to the Microsoft juggernaut, which seems to print it at will in its Wall Street "factory" run by stock analysts and mutual-fund managers. The best form of punishment would be to require a levy or fine on every MS product they ship, manufacture, or provide for download, on a per-unit basis, the proceeds of which would be used to fund development, distribution, support, and marketing for alternative OS's. This way, Microsoft's continued success would also enhance the success of alternative platforms, which would tend to counterbalance any clever Microsoft machinations.

Will the consumer benefit from any of this? It is quite difficult to determine the results at this point. One benefit that the consumer already has achieved, however, is that at long last THE MASK IS OFF. Buyers of Microsoft products can no longer delude themselves into thinking that they are dealing with a cute, harmless little nerd and a clever bunch of innovative schoolboys. The Microsoft "machine" is now openly exposed for all to see. If you get stuck in the gears, it is your own fault.


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Copyright © 1999, Tom Nadeau.
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