from the May 1, 1995 issue of MicroTimes magazine

by Paul Hoffman

It’s never any fun writing about the same subject two months in a row. However, the Microsoft stories have taken on a life of their own. Not as much of an unreal life as, say, the O.J. Simpson trial, but a life nonetheless. Last month’s news stories (about a federal judge overturning the consent decree between Microsoft and the Department of Justice, and Microsoft being sued by Apple) caused such a flurry of media coverage that Microsoft is now a story unto itself.

Maybe that’s a good thing. In any industry, it’s impossible to tell when a company goes from being “significant” to “huge” to “you must reckon with them all the time.” Every company is usually trying to create the impression that they’re in a higher category than they really are, at least until they get close to the “could be a monopoly” category. At that point (which is impossible to really see), smart companies start. saying, “Oh, there’s plenty of competition in this market. We’re competing as hard as we can.”

Microsoft is one such smart company. Bill Gates, son of a famous lawyer who was recently the president of the Washington state bar association, has always known that if his company grew too big, the rules would shift, and the public perception could shift with it. He’s been downplaying Microsoft’s role in the computer industry for years, knowing that the company’s growth and market share would bring it to the enviable but tough position it is in today: a monopoly of sorts.

The New IBM

Microsoft moved from being a huge player to being in a monopoly position about a year or two ago. That’s when the computer industry realized a few things:

• MS-DOS and Windows weren’t the best operating systems for the Intel platform, but everyone wanted them anyway.

• Microsoft’s major application software was about as good as its competition’s, but its marketing and name recognition was giving it a huge advantage.

• Bill Gates loved to compete hard, and had no compunction towards helping competitors for the greater good of the computer industry.

There is no precise legal definition of a monopoly, but a good working definition for the rest of us is: a company that owns so much of a particular market that competitors cannot take any significant market share away from the market leader. This definition applies to Microsoft only with respect to microcomputer operating systems; in all other of its major markets, Microsoft has plenty of real competition.

In this way, Microsoft resembles IBM of fifteen years ago. At that point, IBM essentially owned the mainframe and networking markets, which were the largest and most important parts of the entire computer market. Anyone around the business at the time remembers that there were certainly competitors in some markets, such as DEC in the minicomputer market. But these competitors could not grow their market share regardless of the quality and price of their products relative to IBM’s.

IBM’s monopoly was not enforced by any regulatory law. There were no legal barriers to IBM’s competitors, and many of them used every method they knew to gain market share. A few of them did quite well in niche markets; many others failed or just never went anywhere. About a decade ago, IBM lost its momentum, lost market share in important segments, and has now reverted back to simply being “huge.”

Where Microsoft and the old IBM are comparable is in marketing. Fifteen years ago, almost no one would dream of making a purchase without thinking about what IBM had to offer or how IBM might turn the market the next year. IBM’s mindshare of purchasers bordered on the amazing. Today, Microsoft has a similar amount of mindshare in many parts of the microcomputer market. Few people consider buying PC operating systems by anyone other than Microsoft; some (but still a small number) would consider buying a Windows word processor, spreadsheet, database, or presentation package without looking at Microsoft’s products.

Where Microsoft and the old IBM differ is on interoperability. Microsoft won’t let anyone else say what the programming interface for MS-DOS and Windows is, but it is quite open about letting other companies develop all levels of software for them. IBM would make it almost impossible for other hardware vendors to successfully connect with IBM hardware, and grew complacent because of itsenforced market prowess. Microsoft doesn’t care that much if other companies create great Windows programs, since Microsoft has enough good programmers to copy the best features of any package in any software segment it wants.

Microsoft disclaims the monopoly on its operating system. Bill Gates has been taking every opportunity in the last few months to point out that the Federal Trade Commission and the Department of Justice spent years investigating Microsoft, and only decided to push for changes in two areas of the way Microsoft did business. Gates claims that this shows that Microsoft is not a monopoly.

Of course, those two things are completely different. Microsoft’s lawyers wore down the federal lawyers, and Gates took advantage of the situation by agreeing to two small areas in exchange for letting the Department of Justice out of what would prove to be at least five years in court. That’s how smart monopolies work.

Why People Like Monopolies

It is important to look at who is complaining the loudest about Microsoft’s monopoly. It isn’t the consumers, who could easily pick one of the many better operating systems on the market. After having to navigate through a zillion decisions about what combination of hardware they want, most consumers appreciate not having to think too hard about what software to put in the system.

Five years ago, the choices were easy: MS-DOS, WordPerfect, and 1-2-3. Anything beyond that was for computer professionals, people who could understand the differences between similar programs and operating systems. Today, the operating system is still a “slam-dunk” choice for most people: Windows. Sure, IBM can sell lots of OS/2 Warp systems, but remember that Apple “sells” more copies of MacOS when it sells hardware than IBM sells copies of OS/2.

Microsoft understood the customers’ wish not to have to think about the abstract parts of their computer purchase over a decade ago. By making MS-DOS seem like the choice everyone else was making, not necessarily the best choice, Microsoft bought a huge amount of mindshare. It became one less worrisome thing to think about. As the saying goes, “Freedom of choice is what you’ve got, but freedom from choice is what you want.”

Esther Dyson, the popular industry futurist, says Microsoft “is like a government that was elected democratically some time ago, but the particular constitution under which it operates has no provision for another election.” Even if Microsoft tried to keep others away from its domains, it failed, and there are plenty of choices in every area in which Microsoft has a large share of the market.

Who’s Crying Now

Most of the statements about Microsoft being too much of a monopoly or being anti-competitive come not from customers, but from Microsoft’s competitors. These other companies claim that, unless Microsoft is reined in, there will be almost no room for competition in the market and the user will be hurt.

Buit thats true right now: there are better operating systems that are getting nowhere due to the Microsoft marketing juggernaut. Any user can go out and buy them today, but only a few have chosen to do so. The operating system market has congealed around Microsoft products for the same reasons the mainframe market never shied away from IBM: comfort.

Even if Microsoft uses unfair, monopolistic practices in selling its applications, you don’t hear many consumers complaining about it. Microsoft was able to take a huge hunk of the market for all-in-one suites by dropping its price very low and keeping it there, which is not the kind of action that usually elicits complaints from consumers. Many people think that the suites from Lotus and WordPerfect are better than Microsoft’s, and probably neither competitor is losing money on their suite sales. Microsoft has much less of a lock on the application market than it does on the operating system market, as evidenced by its numerous failures in many important segments.

Making Versus Buying: Intuit

Late last year, Microsoft announced that it wanted to buy Intuit, the maker of the wildly popular (if bug-ridden) Quicken and TurboTax lines of software. Microsoft’s competitor for Quicken, Microsoft Money, has a tiny share of the market, and nothing comes even close to Quicken for market share and ease of use. As soon as the proposed buyout was announced, many companies complained of the anti-trust implications.

That argument is somewhat spurious. Would those same companies have anything to complain about if Microsoft all of a sudden got more successful with Microsoft Money? Microsoft waited until it was perfectly clear that Quicken had no real competition, and then offered good money for it. Microsoft clearly wants to dominate that part of the applications market and move it forward in ways that even Intuit couldn’t, such as pervasive home banking connected through the forthcoming Microsoft Network.

It would clearly be a Bad Thing for the softindustry if Microsoft owned the market for all the major areas of software, Buying Intuit would give Microsoft an opportunity to almost completely take over yet another area. What would that mean for consumers (other than more of the same from Microsoft)? Probably not much in the short run. And it might not mean much in the long run either.

Anti-monopoly laws were designed to protect manufacturing industries that required a great deal of capital to get started; software isn’t that way. Five people in a garage can come up with a new, better software thingy much more easily than they could start a small manufacturing business.

The resilience of the thousands of small software companies to the likes of Microsoft (and Lotus and WordPerfect…) is testimony to this. It isn’t clear that we should start pulling in antitrust laws to help companies the size of Lotus, or even Borland, when smaller companies are growing under Microsoft’s tyranny just fine.

The Alternatives Are Pretty Ugly

Even if you think that Microsoft’s current monopolistic course should be curtailed by the government, the big question is, by whom? In the US, there are only two choices: a judge or the Department of Justice. In the past, both have acted to break up monopolies, but both have also bungled badly in major areas.

Do we really want a government that views cryptography as a munition, and prevents American companies from exporting software that is freely available everywhere else in the world, to be controlling the biggest manufacturer of operating systems? Do we really want a Department of Justice that was so threatened by Microsoft’s lawyers that they came out with the wimpy consent decree deciding what do to with the company?

For that matter, do we want someone who could easily have become a federal judge based more on lucky campaign contributions than on merit or business acumen to decide how best to split up Microsoft?

In a company as complex as Microsoft, sending in the lawyer equivalent of the Army Corps of Engineers could be a very big mistake. It would most likely help Microsoft’s competitors, but there is no assurance that the benefits would make it out to the users. This isn’t to say that they couldn’t; a smart and motivated Department of Justice could have clearly given Microsoft reason to start acting like a better corporate citizen years ago and defused the situation. Bill Gates knows that customer loyalty is not eternal, and being friendly with its competitors could make a difference if the public mood changes. But this Department of Justice isn’t going to do any of that.

The current state of affairs is not that, and the users aren’t demanding (or even asking for) any change that they couldn’t just as easily implement with his spending decisions. They want simplicity and are willing to put up with mediocrity and high marketing in order to get it. That could change at any moment, and a bullying Microsoft could be turned on by more than just the software community. But the current US government is probably not the group to best effect that change.