Microsoft's Battles

BY MARC SALTZMAN
The Economist
January 29, 2004

microsoft's battles
yeehaw
Deja Vu All Over Again

1990	The Federal Trade Commission launches a probe into possible collusion between Microsoft and IBM
1993	Frustrated by two Federal Trade Commission deadlocks, the Justice Department takes over, focusing on Microsoft's DOS marketing practices.
1994	Microsoft settles antitrust charges with the Justice Department, agreeing to stop using its operating system dominance to squelch competition.
1995	The Justice Department files suit to block a proposed merger between Microsoft and Intuit, claiming the marriage would quash competition in the finance software market. Microsoft scraps its merger plan.
1997	August: The Justice Department attempts to determine whether the Microsoft's $150 million investment in Apple Computer would squelch competition. October: The Justice Department files a complaint demanding a $1-million-a-day fine against Microsoft. The complaint claims Microsoft overstepped its bounds by demanding PC manufacturers bundle the Internet Explorer Web browser with their hardware products before being able to obtain Windows licenses.
1998	January: Facing a contempt citation, Microsoft signs an agreement giving computer makers freedom to install Windows without an Explorer. March: An appeals court rules that Microsoft can integrate whatever it wants into the OS as long as it benefits consumers. May: The U.S. Justice Department files an antitrust suit against Microsoft, charging the company with abusing its market power to thwart competition.
1999	Judge Thomas Penfield Jackson issues his initial findings of fact, finding that Microsoft held monopoly power and used it to harm consumers, rivals, and other companies. Mediation begins as both sides meet with Judge Richard Posner to see if they can settle the ongoing antitrust lawsuit.
2000	June: Judge Jackson rules that the software giant violated antitrust laws and consistently acted to hold onto its power over industry competitors; he orders the break up of Microsoft into two companies. Microsoft appeals the ruling immediately. September: A federal appeals court reverses the breakup order.
2001	June: The Supreme Court refuses to hear the case. September: U.S. Justice Department says it no longer seeks the breakup of Microsoft and proposes a quick settlement for the antitrust case.
2002	November: A judge rules that the proposed settlement serves the public's interest as required under the Tunney Act, which sets standards of review for antitrust settlements.
2003	August: A special European Union commission details the case against Microsoft in a confidential document known as the “Statement of Objections" which accuses Microsoft of behaving anti-competitively and recommends legal action be taken.

ANOTHER year, another antitrust showdown for Microsoft, the world's biggest software company. It all sounds horribly familiar. Once again, the company has fallen foul of regulators who accuse it of exploiting the monopoly of Windows, its desktop operating-system software, in order to dominate adjacent markets. Four years ago, American trustbusters argued that Microsoft had crushed makers of rival web-browsers by building its own browser into Windows, thus ensuring its ubiquity, since Windows is installed on over 95% of PCs. This time around, its opponent is the European Commission, which is soon expected to issue a ruling that Microsoft has done the same thing again with its media-player software, and is using the dominance of Windows to monopolize the market for software on bigger “server” computers as well. The victims and the investigating police force may be different, but the perpetrator, murder weapon (Windows) and modus operandi are identical. The European case is, in effect, a re-run of the American case in which Microsoft was found guilty four years ago.

Two conclusions can be drawn from this state of affairs. First, it is clear that the settlement agreed with America's trustbusters in 2002 has had little or no impact on the firm's conduct. Although Microsoft was found guilty of illegally “tying” its web-browser to Windows, and was initially ordered to be broken in two, the far more lenient settlement that was eventually agreed made no attempt to prevent similar tying in future. The European Commission has proposed two alternative remedies to address the problem of tying: one would force Microsoft to make a stripped-down version of Windows without various add-ons, and the other would require Microsoft to include rival firms' software with Windows. Both of these remedies, however, have serious drawbacks. In the end, Microsoft may well escape with just a fine and yet another bundle of ineffective restrictions on its behavior.

All of which leads to the second conclusion: that Microsoft's exploitation of its monopoly will continue as long as the monopoly itself does. A likely candidate as its next victim is Google, the company that dominates the internet-search business. Another possibility is Apple, current top-dog in the small but rapidly growing market for legal music downloads with its iTunes software. This week Microsoft launched a Google-like search “toolbar”, and has stated its plans to build internet-search features into Windows. Similarly, Microsoft plans to launch its own online-music store later this year, tied to its now-dominant media player. Expect the market share of iTunes, currently at 70%, to plummet.

Isn't this simply a matter of Microsoft competing vigorously? The strange thing is that its products invariably succeed in PC-based markets where the dominance of Windows provides an advantage: office productivity, web-browsing, media playback and servers. Yet in other markets that have nothing to do with PCs, such as mobile phones, set-top boxes and games consoles, the company is far less successful. Odd, that.

This newspaper has long argued, and still believes, that a break-up of Microsoft is the only remedy that would have any impact on its conduct, by removing its key weapon, Windows. At the moment that seems out of the question. How else might Microsoft be stopped from illegally exploiting its monopoly? By the long-awaited rise of open-source software such as Linux, maybe, though that seems unlikely. Perhaps the company will eventually conclude that the costs, in bad publicity and constant legal battles, of maintaining its monopoly exceed the benefits, and choose to divest or open up Windows itself. But that also seems implausible when there are large monopoly rents to be had. Some day a break-up of this too-mighty firm will again have to be considered.

PBS posts the judgment against Microsoft and its appeal.

Microsoft offers the text and video of Bill Gates's speech at Comdex in November 2003 and his speech at Davos in January 2004.

The Google toolbar and RealOne Player, the best-known competitor to Windows Media Player, are available to download.

Hewlett-Packard has issued a press release on its deal with Apple.

RealNetworks comments on its suit against Microsoft.

Also see the European Commission's competition policies.