Computers and Competition: A Primer for Congress

With a new Microsoft hearing in the Senate on Thursday, legislators should keep in mind some crucial facts that argue against interference in the computer market:

Everybody bundles. Microsoft’s bundling of the operating system with a web browser differs little from Netscape’s own bundling of e-mail and “plugs-ins,” behavior it started while still a “monopoly” web browser. Netscape’s bundling of e-mail to its browser was a real blow to Eudora and other stand-alone email programs. But this is unobjectionable. Consumers benefit from a seamless integration of operating system, Internet and browser software. Of course, just because products are bundled doesn’t guarantee success for any producer. For example, the Microsoft Network online service, bundled with the Windows operating system and once feared by America Online, was a flop. Microsoft Money, bundled with many new Windows computers for years now, boasts only a 14% share compared to market-leader Quicken’s 82%. And does anyone even remember the Microsoft operating system called “Bob”? Microsoft doesn’t operate in a vacuum. Consumers, rivals, and even Microsoft’s partners can and do police its activities.

Honest competitors fundamentally do not need Microsoft. Alarm at Microsoft’s dominant market share overlooks the fact that and fewer than half of American households own computers, and around 70% do not yet have Web access. Nothing stops Microsoft’s competitors from serving the vast, non-wired, non-computing majority. Microsoft isn’t there. In addition, the possibility of a Netscape/Sun “Java” alliance toppling the Windows paradigm altogether is a constant refrain of Microsoft’s competition. Moreover, Apple computers with the Macintosh operating system (OS) can be selected and ordered by catalog and online (www.apple.com), as can state-of the-art Intel systems running the Linux operating system (see www.linux.org/vendors/systems.html). In addition, Windows and Apple users are flocking to the intuitive, uncluttered and stable BeOS (www.be.com), which runs on the PowerPC and now, Intel platforms. In short, there are lots of people who still need computers, and lots of contenders for the business of new and current users.

Microsoft needs its partners as much as they need it. Computer industry skirmishes are contests among equals who don’t need antitrust to police one another’s behavior. Computer makers like Compaq, Dell and Gateway – whose combined revenues vastly exceed Microsoft’s -license Windows and Explorer voluntarily. If either of these titans regard Microsoft’s “bundling” as a threat to their own profitability – which they will if Microsoft truly stifles innovation – nothing prevents them from securing better terms or dealing with other OS vendors. The Windows operating system will not run in its shrink-wrapped cardboard box.

Regulatory policy should benefit competition, not competitors. The Justice Department hopes to force Microsoft to promote the Netscape browser, despite the fact that Netscape enjoys roughly a 50%-plus market share. But as only one among several browsers, Netscape deserves no windfall profits or special treatment from antitrust restraint against Microsoft. If Netscape were truly engaged in this antitrust battle to protect the “public good” rather than its own profits, it would volunteer to freeze its sales and pass new business and preferential placement to smaller web browsers, like Opera (www.operasoftware.com). Such selflessness is unlikely.

Congress must aggressively examine the degree to which the inquisition against Microsoft benefits special interests, not consumers, and serves the private rather than public motives of Microsoft’s competitors. They will likely uncover serious moral, economic, and practical arguments against this antitrust action.

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Clyde Wayne Crews, Jr. ([email protected]) is Director of Competition and Regulation Policy at the Competitive Enterprise Institute.