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October 31, 1995
Big ol’ Microsoft evokes strong emotions these days. But even hating Microsoft does not justify calling upon government to restrain it, as many competitors and others are urging the U.S. Justice Department to do. Hobbling Microsoft will also hobble computer users. Indeed, more than anything, the Microsoft saga helps demonstrate how the real function of antitrust law is not to help consumers, but to benefit competitors.
Earlier this year, the federal government secured a consent decree regarding Microsoft’s licensing of its DOS and Windows operating systems. Under the agreement Microsoft will no longer earn royalties from manufacturers on a per-processor basis for each computer shipped. Competitors argued that the old arrangement precluded shipment of alternative operating systems, such as IBM’s OS/2, because manufacturers had to pay Microsoft for each machine, regardless of whether it featured Windows. Yet the per-processor royalties simply amounted to a volume discount to computer manufacturers that helped computers proliferate. Ending it will hurt consumers.
The Justice Department also pressured Microsoft to forego a merger with Intuit, the maker of the popular financial software Quicken and, more recently, caused the entire computer industry to hold its breath wondering whether Microsoft would be prevented from offering Internet access services as part of Windows 95. While the offering was not halted, the Department has yet to assure Microsoft that the ordeal is over.
Preventing Microsoft from offering online access service would have hurt consumers even more. Consider: tens of millions of people use Windows 3.1, but only 4.7 million subscribe to existing Internet access services like America Online and CompuServe, a surprisingly low number.
By easing Internet access for those familiar with Windows, Microsoft may introduce the Internet to millions. That’s an argument in favor of the company’s moving ahead. In fact, while the phrase has become too much of a cliche, Microsoft in particular is helping provide perhaps the largest “on-ramp to the information superhighway,” precisely what many — including the administration now targeting the company — have been calling for.
Real monopolies, unlike Microsoft, are created and sustained by governmental barriers to entry, like licensing and the barring of competitors. Examples are the Postal Service and the tight monopoly that lawyers hold over even routine services such as wills, bankruptcies, and divorces. Where there’s monopoly, there are no alternatives.
Yet rival operating systems include Apple’s OS, IBM’s OS/2, and others. Users may switch to these competitors anytime. Big businesses especially, who would have the most to gain by switching to a more efficient operating system, could lead the way if the gains were actually there.
One notable effort to shake Microsoft’s dominance is that of Apple, IBM, and Motorola, who’ve joined forces to create a common hardware platform to support a processor called the PowerPC. PowerPCs would compete with the Pentium “brain” that underlies Windows.
Why should Microsoft worry? Future PowerPC-based machines will run software developed for many different operating systems — meaning using Windows will not preclude using its competitors. If any competing offering is superior, it’ll be a simple matter to shift environments, on the same computer.
This, not running to Washington, is the proper way to compete with Microsoft.
There are still more competitive threats, even if the Justice Department leaves Microsoft well enough alone. Some argue that desktop operating systems themselves will be overshadowed by network-based operating systems to be had at the press of a few buttons. Instead of relying upon machine-based operating systems and applications software, Internet-based versions will spread.
Such innovations put Microsoft’s purported dominance in a new, more vulnerable, perspective. Early choice of the Windows standard can’t suck users in if it is inefficient. Should Windows remain the “standard,” it will do so because customers like it, not because there aren’t alternatives. In this light, antitrust action appears either naive on the part of enforcers, or worse, a blatant attempt by competitors to capture Microsoft customers.
Microsoft phobia is one symptom of a broader effort by trustbusters to target what they consider to be inefficiencies in networks (such as telephone networks). Generally, a “network” is any system in which benefits increase with membership. According to the theory, the market fails if people join an inferior network simply because others did earlier. While the theoretical questions are amusing, they have no real world significance as competitive threats to Microsoft illustrate. Inefficiencies create profit opportunities.
Like all central planners, enforcers at the Justice Department and the Federal Trade Commission regard their ideas as superior to an evolving marketplace, superior enough to warrant imposing by law. Before others are harassed like Microsoft, Congress should conduct hearings designed to reexamine antitrust, with a critical eye toward the notion that it benefits consumers.