Dominique Nora: Microsoft has a quasi-monopoly in some information technology sectors, such as operating systems and application software, but its sales only represent 2% of total hardware and software sales in the world. If this is the case, why should we be worried about its domination, as you are suggesting all throughout this book?
Roberto Di Cosmo: This figure of 2% is not the correct number to examine. It gives a false impression that Microsoft, as a software publishing company, is just a minor player in the computer business, because it is mixed in with companies whose activities have nothing to do with what it does, in sectors that go from manufacturing computers to making ATM machines (hardware, software, services and semi-conductors).
Examining other statistics can give a better view of Microsoft's power: if you look at the profits of the ten leading software companies in the world, Microsoft alone accounts for 41% of these profits. Also, Microsoft operating systems are used on more than 85% of personal computers sold around the world. In any case, these figures are not the best indicator to understand the phenomenon that I am denouncing: to control an industry with a scope as wide as the computer industry, a company does not necessarily need to control 90% of its sales. Take an example from revolutions: to overthrow a government, do rebel forces try to secure control of the entire territory of a country? No, they only need to conquer the 0.1% of the country's activities that are considered as strategic: radio stations, television stations, the telephone network and a few key institutions, such as the army or the central bank. For economic activities, it's the same thing: some strategic elements that are more important than others.
The term currently used, "information society", gives a good indication of what is at stake: it is difficult to find a more important product in today's economy than information, or services more strategic than those dealing with its creation, transmission and manipulation. If one company alone (such as Microsoft) manages to obtain a quasi-monopoly over the worldwide information and communication chain, as they are attempting to do, this could be a danger for democracy. Information systems are more strategic now than oil and its pipelines were in the recent past. They have fully penetrated our daily life, not only for businesses, but for the general public as well. Computers are already beginning to shape the way we learn, the way we work, the way we entertain ourselves, the way we heal ourselves, the way we consume, and also the way we formulate our opinions.
But Microsoft is not the only powerful player in this sector. Isn't the chipmaker Intel in a very similar position?
It is true that Intel, the world's leading microprocessor company, has adopted a similar strategy of conquest, that has also attracted the attention of the Antitrust Division of the US Department of Justice. Microsoft and Intel work together very closely: Intel designs new, faster chips, to run Microsoft programs which are larger and require more resources, that then make it necessary for you to purchase a new computer that runs more quickly. Because of this, these two companies are getting more and more of your money. People speak of the "Wintel" standard –a contraction of Windows and Intel–, and this standard now accounts for 90% of the personal computer market. But chips are less strategic than software: it is much easier to clone a chip than it is to copy a complex program. And it is also relatively simple to port an operating system from one chip to another, even if the chip manufacturer attempts to prevent this operation, using all the means at its disposal, be they legal or not (note 1). For example, AMD, Cyrix and IBM all make chips that can run Windows just as well as Intel, and that cost much less.
This makes it difficult to control the information chain starting with the chip, even though Intel has tried to do so by offering money to content providers who accept that their Web sites be "optimized" for Intel chips; this means they cannot be used by someone running a computer with a competitor's chip in it (note 2).
Let's come back to Microsoft. Is it really relevant to make a comparison with Orwell's idea of "Big Brother"?
The current threat is far worse! In 1984, Big Brother used cameras to watch over people, but these people were still free to hide their thoughts. Above all, they knew that they were being watched, and were always on their guard, ready to fight to get their freedom back. But in today's world of computers, people have total trust in the information technologies they use to exchange e-mail, talk on mobile telephones, make travel plans, write memos, manage their money and their investments, buy things –this covers almost all the private and social activities that people are involved in. Companies trust all their strategic secrets to computer networks. It is technically possible to find traces of all this information, without your knowledge and without using cameras that are easily seen. For example, it is easy to find out who Dominique Nora called on her cell phone at 3 o'clock in the morning last night, where she was, what she typed on her computer, and what she said to someone in an e-mail message. You can see that this information concerns your privacy much more than merely watching over you with a camera, which could be easily spotted. Especially if all this information falls into the hands of one company. Compared to that, believe me, Orwell's Big Brother is just a choirboy.
Do you mean that Microsoft has a diabolical plan to control our lives?
No, don't worry, I'm not so paranoid as to think there is a conspiracy. What motivates Microsoft is its dread of loosing its dominant position. But if you consider its motto, which is "Embrace and extend", and the objective that it announces, which involves taking control of the entire information and communication chain (in the short term this means controlling the Internet), Microsoft is currently creating a technological instrument that may effectively be used to control our lives. Once this instrument exists, there will be someone –even if it is not Microsoft– who will use it for that purpose! There is an interesting precedent concerning viruses: Microsoft systems contain many security loopholes, that hundreds of virus programmers have taken advantage of, to the great displeasure of many computer users (see chapter 2).
But if Microsoft does effectively manage to dominate operating systems for personal computers, communication networks, web browsers and the brains for servers used to make up the Internet, the corporation would be in a position with much more control than a company, in the past, that would have owned all of the world's printing presses! It would actually have the power to make insidious decisions as to who would have access to information, and which information you could access. Have you ever noticed that when you surf the Web using Microsoft's competitor's browser, Netscape Navigator, or Netscape Communicator, there are some sites that it does not read very well because the content is "optimized" for Internet Explorer? Why? Because Microsoft has managed to convince content providers that its browser, Internet Explorer, has become the standard, and that it is in their interest to adapt their Web site for that browser alone.
But this is just a beginning: Microsoft's hegemony over operating systems, browsers, and servers could enable it to take control of all network standards. It is important to point out that the Internet today operates because of open standards, languages, protocols and interfaces that are public and well-documented: the HTML language that is used to make Web pages, the TCP/IP protocol used to transmit data, the Berkeley Internet Name Daemon (that makes it possible for you to type "dmi.ens.fr" rather than "129.199.96.11"), the Perl programming language used by most Web servers; these are just a few examples. If you were to remove all these components based on open standards and open source software from the Internet, you would simply have no more Internet! Open and public interfaces, and properly documented procedures developed without restrictions from commercial considerations, have been the cornerstones that have allowed this network of networks to develop. Because of these elements, any computer user can freely exchange information with anyone else, whether they use a Macintosh, a PC, a Sun, HP, Digital, IBM or NeXT workstation, an Atari, an Amiga, or an old terminal.
If, one day, there are only Windows NT servers, and Windows 98 computers using Internet Explorer, who can guarantee that these machines would not speak to each other exclusively in "Microsoftese"? If this occurred there would be two types of consequences. First, this would undermine interoperability, which is the compatibility among different components: no competitor could try to sell products that would function harmoniously with Microsoft products without having access to a "Microsoftese" dictionary, and that may not be so easy to obtain.
Second, without this dictionary, no one would be able to understand or verify what these computers are saying to each other! This could bring up many freedom and privacy questions. For example, imagine that you are quietly reading a Web page, and your personal computer, without your knowledge, is giving the server you are consulting your address, age, telephone number, the type of computer you have, how much money you have in the bank, and the contents of your entire hard disk...
Why would it want to do that?
Because, in an ultra-competitive globalized economy, your consumer profile is worth its weight in gold. If someone knows what your cultural interests are, what cities you would like to visit, what products interest you and what toys your children like, they will be able to propose goods and services that correspond exactly to your tastes. There already are, in fact, examples of this on the Web, with files that are called cookies, that allow servers to discover which sites you have visited on the Web without your knowing (note 3). These practices have been discovered and denounced, because these technologies are currently based on open standards, which is an essential condition to ensure that cookies can be accepted by Netscape's browser as well as Internet Explorer, Opera, Lynx, and all the other browsers that exist. But if this information is coded in a proprietary language, no one will be able to know what their computer is "saying" to the network. The companies that gather this data tell us that it is for our own good: to be a step ahead of our desires. But do we really want to give up our free will in the name of commercial "do-gooders"?
People in Europe tend to be a bit shy about saying these things. Microsoft is criticized because people here are afraid of American cultural imperialism, or because they're afraid of globalization, and Bill Gates is an emblem for this, or simply because they're scared to death by technology...
My reasons for criticizing Microsoft are much more basic, and, I think, less subjective than that. I have a deep love for technology, and it is exactly for this reason that I cannot accept seeing it corrupted by a company that designs bad products, which are sold too expensively to consumers who are subjugated by them, a company that –we will see how later– has contempt for its customers, does not play fairly with its competitors, and stifles innovation. Like many others, I cherish a dream of technological progress leading to a better world, a world that is freer and has more solidarity. But I can ensure you that such a world looks nothing like the world that Bill Gates dreams of.
You may recall the futuristic video that Microsoft made for his Lakeside High School anniversary in February 1995 that was later aired on TV. It showed our technological future as a negative world, a narrow-minded, highly commercial police state, that looks nothing like a dream, but rather like a nightmare to me.
Let's take stock of the markets that Microsoft dominates today, and those it hopes to conquer. In other words, how much of the disaster scenario you describe is objective reality and how much is pessimistic prediction?
The situation is clear: the world of PC software is almost entirely owned by Microsoft. With Windows 98, this company will probably dominate 90% to 95% of operating systems and office software within the next year. Already, an overwhelming majority of the general public use Word as their word processing software and Excel as their spreadsheet. Microsoft is also one of the leading edutainment software publishers, with more than fifty titles including the Encarta encyclopedia and Flight Simulator.
Using this incredible fortress as a base, Microsoft is trying, using questionable methods, to export its monopoly in three major directions. First, the corporate computer market. With the incredible increase in computer calculating power, tasks that were once only handled by mainframes can now be accomplished by personal computers linked across a network. Microsoft offers companies a "digital nervous system" based on its Windows NT (New Technology) operating system. The company is attempting to get a foothold in a market that has been traditionally dominated by IBM, Digital, Sun, Hewlett Packard and others. The second area they wish to conquer is the Internet. While Microsoft originally paid no attention to the Internet, in 1995 it abruptly became their main sphere of development. In addition to fighting to obtain Web browser market share, Microsoft is trying to sell its software for Web servers, and designing programs for developing Web content. The Microsoft Network, or MSN, its online service, never really took off as a service provider, but it is being redesigned as a portal called msn.com (note 4): this is an entry point to the Internet, which funnels Web surfers and sells their presence to advertisers, or sends them on to partner sites. Microsoft already runs more than a dozen Web sites that provide content and services: MSNBC (in a partnership with the NBC television network) and the electronic newsletter Slate give news and information, Sidewalk is an arts and entertainment guide for several major American cities, CarPoint sells cars, Expedia sells travel services, Investor gives financial advice and HomeAdvisor sells mortgages.
While everyone is only looking at today's markets, Microsoft is also trying to invent the future: the television of tomorrow, for example...
The company's third sphere of development involves prefiguring (and not inventing, something Microsoft has never been able to do) the media of tomorrow. Bill Gates knows perfectly well, and this is his main worry, that personal computers will not be the only tool for using the Internet for much longer. Means of access to the Internet will diversify. This is leading Microsoft to try and impose its solutions and standards on all the emerging niches: Microsoft is trying to impose Windows CE as the standard operating system for PDAs (Personal Digital Assistants), even if, as usual, the best products of this type (such as the PalmPilot or the Psion) do not use it.
Microsoft is hoping that, in the near future, Windows CE will be at the heart of interactive television set top boxes, next-generation video game consoles, such as Sega's Dreamcast, Internet telephones, smart cards and on-board automobile computers.
To better follow the evolution of the television market, Microsoft invested in the American cable television company Comcast, and more recently in the French television manufacturer Thomson Multimedia (maker of the General Electric and Proscan television brands). Microsoft can now offer a full settop box, developed using the Web TV technology that they purchased. Large quantities of these devices have already been ordered by the leading American cable TV company TCI.
Microsoft also purchased, together with Compaq, 20% of a company called RoadRunner, a subsidiary of Time Warner specialized in cable Internet access.
If the brains of the digital machines that we use were "Microsoftened", each of us would have to pay the "Microsoft tax" many times: when we turn on our television or computer, when we make a phone call, when we go shopping on the Internet, when we work, or when we drive...
Bill Gates has also invested part of his personal fortune in information technologies.
Up until now, I have been talking about Microsoft, and rarely about Bill Gates himself. Gates is the cofounder of Microsoft, and owner of 20% of the company's stock; his net worth is approximately $72 billion (as of Decembre 1998). I find it unhealthy that the medias pay so much attention to the person who has become the richest entrepreneur in the world. For some people, his wealth is a reason to be fascinated; for others it is a cause for jealousy, and can even lead them to demonize him. This personalization may actually cause the main issue to be hidden: the reprehensible conduct of Microsoft, that is managed not by just one man, but by a team of managers, the three most important of whom are Steve Ballmer, President, Bob Herbold, Executive Vice President and Chief Operating Officer, and Nathan Myrvold, Chief Technology Officer.
It is true that Bill Gates has invested some of his personal wealth in two sectors of this industry that are both strategic and highly complementary to Microsoft's activities. These investments show, if need be, that Gates is a shrewd businessman. One of these investments, Corbis, a company wholly owned by Bill Gates, has, over recent years, inexpensively acquired electronic reproduction rights for some 20 million paintings belonging to the world's great museums (the Hermitage in Saint-Petersburg, the National Gallery in London) or historic photographs such as those from the Bettman Archives in New York. It is rare today that magazines such as Newsweek and Time publish an issue without at least one Corbis photo. At first, the people in charge of these archives and museums had no idea of the real value of digital reproduction rights for works of art. Electronic media did not yet exist, and they could not imagine what use could be made of these images. It was for this reason that Gates almost managed to purchase reproduction rights for the masterpieces in the Louvre Museum for a song...
The other major investment, the company Teledesic, cofounded by Bill Gates with the American entrepreneur Craig McCaw (who made his fortune with cellular telephony), is developing a project to build a sort of Internet in the sky, by launching two hundred and eighty-eight low-orbit communication satellites. This infrastructure, designed to transmit voice and data at a very high bandwidth, could begin competing with land-based networks and classical telecommunication operators in 2003. Motorola, who was working on a competing project until May 1998, recently joined this multi-billion dollar experiment... The only remaining competitor is the Skybridge project, a joint venture between the American company Loral and the French Alcatel.
It seems incredible that it has taken so long to discover the Microsoft "problem". How did this Redmond start-up manage to build a global operating system monopoly in the past twenty-three years?
Well, let's begin by separating the true history of Microsoft from its surrounding layers of myths. Bill Gates and his schoolmate Paul Allen did not, as is often mentioned, "invent" the Basic programming language, which was written by John Kemeny and Thomas Kurtz (Dartmouth College, 1964). They simply created an "interpreter" for Basic, which was used by the early Altair personal computers. Let's look back at the context of the nineteen-seventies. Other than organizations like the CIA, NASA or large corporations like the Bank of America, computers were totally inaccessible. Only governments, large corporations or banks could afford these huge computers that took up an incredible amount of space. Also, IBM did not sell its computers, but rented them and sold its customers maintenance contracts. IBM guaranteed the quality of its products and handled all repairs. This is how it developed such prestige among its customers, and also how it made such huge profits. But, to send men to the moon, it was necessary to design smaller, lighter computers that would fit in space capsules. American taxpayers' money was used to develop the earliest integrated circuits, silicon chips that progressively became cheaper. Small companies were set up to assemble these electronic components that were now available on the open market. This entrepreneurial melting pot led to the invention of the first personal computers, such as the Apple II in California or the Micral in France. It should be mentioned that in the beginning PC was a generic term that meant personal computer. Only recently has this term been used to designate only "IBMcompatible" computers, that is, those that use Intel chips.
In any case, at the beginning, PCs were just for hobbyists. They were not at all user-friendly and it took a whole lot of complicated maneuvers just to add 2 + 2! There was nothing yet to worry IBM. It was near the end of the 1970s, when programs such as Visicalc were developed, that small companies and stores started using personal computers for their accounting. Complex statistical and financial simulations, which had previously required forty accountants writing numbers on huge blackboards, were suddenly accessible, and at a reasonable cost.
So, when the first Apple and Commodore computers were manufactured, a real business started developing. IBM was worried about maintaining its quasi-monopoly on the computer industry, and it wanted to cut off the flourishing growth of these tiny competitors. It needed to quickly come up with a product bearing the IBM name... even though it did not really believe in the future of the PC. There is one telling example of how little faith IBM had in the future of personal computers: while all its mainframe computers were entirely made up of IBM parts, even down to the screws used to keep the covers on, the only IBM parts in the first IBM PCs were the keyboards. The rest of them were made of parts that were bought on the open market: Intel supplied the 8088 processor, and Microsoft, a start-up created in 1975, was called on to supply the operating system.
Why Microsoft? There is no rational reason behind this choice, since Allen and Gates were not at all working on this type of product at the time, and there were other well-designed and efficient operating systems that could be used for PCs, such as Digital Research's CP-M. This didn't bother them. IBM did not know very much about this part of the market, and Microsoft, seeing that opportunity was knocking, bought (and did not invent, as the legend says) the Q-DOS operating system from a small business called Seattle Computer for $50,000. Q-DOS is an acronym which means Quick and Dirty Operating System.
Microsoft used this to make MS-DOS, and IBM purchased a license to use it on its computers. IBM-PCs were of much lower quality than the Apple II, but IBM's sales force and service made the difference. IBM salesmen basically said to its customers: "Buy our PCs. If they break down, we'll fix them or exchange them within forty-eight hours". As for the Apple II, it was sold by guys who sold stereos!
But IBM never took PCs very seriously: this huge company never bothered to purchase MS-DOS, it never even ensured that it would have an exclusivity. The result was that Microsoft was able to sell MS-DOS, and then its successor Windows, to all of Big Blue's competitors. At this time, computer manufacturers dominated the industry. No one thought that the standardization around Intel and Microsoft products, and the appearance of Asian clones, would make it such that all the profits, and power, of the computer industry would be concentrated in chips and operating systems. The rest is history.
But Microsoft's incredible success cannot be reduced to a series of lucky strokes. What qualities do Bill Gates and his management team have that have helped them succeed?
We have already seen, when talking about IBM, that the founders of Microsoft were very pragmatic businessmen, rather than technological visionaries. They had a remarkable flair for spotting opportunities, and filling a need before others, although they did this with mediocre products. But they have done this so well over the past ten years, that Microsoft has an annual growth in sales of 42%, and its profits increase annually on an average of 48%. For the year ending June 1998, Microsoft had $4.5 billion in net profits on sales of $14.48 billion. Since the company does not know what to do with all its cash, which exceeds $60 billion, it is massively buying back its own shares of stock.
We must recognize that Microsoft does have a special talent for finding exactly what the market needs, which, unfortunately, has nothing to do with the quality of its products. Its reactivity to the rising phenomenon of the Internet, for example, was spectacular. Microsoft did not really understand the potential of this worldwide network until it saw the growing popularity of Netscape's browser. In 1995, this huge company, with 25,000 employees, needed only a few months to make an about-face and decide that the Internet would be its key sphere of development. It knew very little about computer networking. The earliest versions of its spreadsheet, Excel, did not even have the possibility for users from different countries to exchange spreadsheet documents. Its macro language (a simple programming language used to manipulate data in spreadsheets) was written in the language of the country where the product was distributed, which meant that the similar versions of Excel sold, say, in France and in the United States, could not understand each other. Even a first-year computer science student would know what to do so they could communicate correctly!
But, over the years, Microsoft has acquired a remarkable ability to convert its technical failures into commercial successes. While its new programs are often disastrous, the big guns in its marketing department manage to sell them anyway, convincing people to wait for the future versions which slowly correct their bugs to make them more stable, or sometimes by buying or copying the often better programs sold by its competitors. Microsoft has managed to make people think that the problems with its programs are normal, and that corrections to these problems are technological breakthroughs. Even better –it is the consumer who pays for improving its products!
The company is now so rich that it can afford to go ahead by trial and error, investing a few hundred million dollars here and a few hundred million dollars there, just to see what happens. If a project is not a success, it changes it until it works. This is exactly what happened with its online service MSN. In 1994, Microsoft thought that all it needed to do was create a proprietary online service, with an icon on the Windows desktop for users to access it. It felt that it could compete with the leaders in this field, such as America Online. But in mid-1998, MSN had reached a peak of only 2 million subscribers, versus 13 million for AOL. The French version of MSN was merged with France Telecom's Wanadoo; the German version was simply closed down. So, once again, when Microsoft can't get what it wants using its own qualities, it just buys it: the company recently bought the HotMail free e-mail service, which had, at the time, 9 million subscribers (as of November 30, 1998, Hotmail had 30 million subscribers).
In spite of its spectacular success, Microsoft is kept in a permanent state of paranoia by its leaders. "Only paranoids survive", says Andy Grove, the co-founder of Intel. Microsoft's leaders are motivated by this feeling of vulnerability; and by their stock-options. Since the company went public, in 1986, the value of these shares has grown by more than 25,000%
Do the offensives made by Microsoft and Bill Gates succeed in all areas?
If you look at the history of Microsoft products, you can realize that this "risk" is real. The first versions of the Excel spreadsheet program had so many design flaws that I would have given an F to any of my students who had written it. But Excel today has 50% market share in the world, for sales as a separate application, and Office, that includes Excel, has 93% market share. The Windows 3.0 operating system was at least ten years behind Apple's Mac OS; its successors, Windows 95 and Windows 98, today have a 90% share of the world market, in terms of current sales, compared to less than 4% for Apple. You can also look at what is happening for enterprise servers: Microsoft's Windows NT operating system has, in two years, already taken 36% of the market for new servers (Unix still dominates this market, because of its installed base). The same thing has occurred with the Internet Explorer browser, which has managed to take 55% of the market in less than four years. In all of these situations, Microsoft's products were, originally, greatly inferior to those of its competitors, and in some cases they remain so even today.
This long series of precedents shows that we need to be vigilant. It is quite easy to impose a mediocre product if its sale is linked with a product where you have a monopoly. If Microsoft had conquered these markets loyally, with good programs written correctly, and if the company's strength only came from the quality of its products, no one would have any complaints. But the Justice Department opened an antitrust investigation against Microsoft as early as 1993. It was the largest investigation of its type carried out in two decades, and follows the famous example of other antitrust cases with Standard Oil company (1911) (note 5), IBM (1984, led by the EEC) and AT&T (1988). Why would a government that believes so strongly in a free market, and considers the success of its entrepreneurs so important, want to clip the wings of one of its leading companies, if there were nothing seriously reprehensible about Microsoft's practices?
Let's examine the Justice Department's case against Microsoft. What exactly is the company accused of?
The antitrust case against Microsoft is complex, and it is important to distinguish the federal government's suit from those made by the different states, as well as those of its many competitors and partners that consider that they have been cheated. We will see later that some of these companies accuse Microsoft of modifying its programs so its competitors' products will not function correctly. Twenty American states filed a class action suit to investigate accusations that Microsoft has abused its dominant position in the software market, especially concerning its Office suite. As for the federal government, let's first look at the history of its different investigations. The Justice Department began investigating Microsoft in 1993. But after two long years of investigation, the only result was a relatively limited Consent Decree, in 1995. The Antitrust Division of the Justice Department today considers that Microsoft did not respect the terms of this decree. This is why they filed new suits in May 1997. This is also why they have increased the scope of their investigation to include Microsoft's commercial practices.
To sum up years of complex legal procedures and documents, the Justice Department accuses Microsoft of three types of activities: first, the fact that it imposes inequitable exclusive contracts on its partners or hardware manufacturers. Companies like Dell, Compaq and IBM apparently do not have the right, if they wish to purchase software at competitive prices, to sell their computers without Windows, or with an Internet browser other than Internet Explorer. This deprives the end user of their right to choose (see more about this in chapter 3).
This part of the suit seems to be the least difficult to prove. It is said that Microsoft's partners would be delighted to have a bit more flexibility with respect to the software giant. But they are very worried about retaliation. The hardware market, unlike the software market, has very low profit margins, and no company can run the risk of losing its advantageous Microsoft license. Each hardware manufacturer is waiting for someone else to throw the first stone at Microsoft.
The second of the Justice Department's criticisms of Microsoft involves its linking new programs with the Windows operating system, which is a sector where the company has a quasi-monopoly. This means that for each of the products linked to Windows –yesterday it was the Office suite, today the Internet Explorer browser or Outlook PIM; tomorrow who knows, perhaps a voice recognition program– none of its competitors can compete with Microsoft, even if they have high quality products. Finally, antitrust investigators are examining a whole set of coercive practices that Microsoft has used toward Intel, IBM, Apple, as well as Internet service providers, World Wide Web content providers, and the designers of some Internet audio and video transmission programs.
But the Justice Department is on thin ice with these accusations because there is very little jurisprudence for this sort of technology. Microsoft takes advantage of this by saying that these evolutions of the Windows operating system are innovations that are in the consumer's best interest. This may work out in its favor because the US Supreme Court has already decided that it is not up to the justice system to define which functions a computer operating system may contain. The problem is that all this legal quibbling is hiding the real stakes of monopolistic control of information.
What do you hope will come out of this trial?
Let me first say how surprised I am that when companies are found guilty of illegal actions in cases like this, they often do not have to pay any substantial punitive damages. This is exactly what happened in 1995.
Instead of Microsoft paying a fine, it only had to sign a Consent Decree, promising that it would behave better. It was later able to circumvent this Consent Decree because it was so imprecisely drafted. It was as if a court were judging someone who had stolen a Mercedes and was caught red-handed, and, when sentenced, he was told he could keep the car, as long as he never stole the same type of car again exactly in the same way!
Coming back to the main issue, the most efficient decision –one that consumer advocate Ralph Nader is calling for– would be to divide Microsoft into several divisions. We could imagine that there would be several subsidiaries, each specialized in one sector: the first would be for operating systems; the second for applications; and the third for Internet activities. After all, Standard Oil was divided into 33 subsidiaries! This type of restructuring would in fact be good for the company: this would force its programmers to design, publish and use clear APIs among all of its programs. This means they would have to write better programs. This would also, obviously, force each of these products to develop market share based on its own merits, and not with the leverage of Windows.
Do you really think the courts will break Microsoft apart?
They don't need to split Microsoft into separate companies. Different divisions could have common stockholders, as long as they have separate management and especially as long as they don't exchange privileged information among them. This is what happened with IBM: at the time, Big Blue was supplying mainframe computers, along with its operating systems and applications. Competitors, such as Amdhal, were trying to sell the same type of machines to companies, but were selling them cheaper. IBM then modified its applications so they would not run on Amdhal computers. It was simple, since the interface between the program and the machine was secret. The 1985 ruling required IBM to separate its hardware, operating systems and software activities, to maintain open interfaces among the three entities, and to give the same information to its competitors as to its own subsidiaries. This was applied to the letter (note 6).
More generally, should the justice system be able to control technological sectors that are evolving at the speed of light?
Speed is a critical factor. In the computer industry, time is a question of life and death: it only takes six months to build a monopoly or kill off your competitors. If the justice system acts too late, some options are no longer available. It would be impossible, for example, to say that Windows 98 is illegal when it is installed on half of the personal computers in the world! This is why the Justice Department is trying to move ahead very quickly. They insisted that the trial begin in October 1998.
Microsoft, on the contrary, continued to request postponements, saying that it needed them to prepare for the trial, but it requested this to sell as many copies of Windows 98, with Internet Explorer, as possible before any rulings were made by the court. Even if the courts rule against Microsoft, it will be able to appeal before the Court of Appeals of the District of Columbia, which would probably not give its ruling before the spring of 1999. Then may come an appeal before the Supreme Court, which would decide sometime in 2000. By then, Microsoft will have already released Windows 2000, and any ruling that would be made would have the same insignificant effect as the 1995 Consent Decree!
Do you think that the European Commission should be involved in this question?
Yes, I do. It is easy to understand that American courts may be lenient with a company that brings a great deal of money into the United States. But Europe should act more independently and much more vigorously. While Microsoft makes 58% of its sales outside of the United States, most of the added value produced by the company returns there. In 1995, the European authorities that had carried out their own investigation merely reprimanded Microsoft for its behavior, without imposing any fines. Even worse: they merely copied the terms of the American Consent Decree, even down to the legal loopholes which allowed Microsoft to get around it. It seems that the European Commission has come to its senses since then, and is carrying out a large-scale investigation into Microsoft's questionable practices. But everything here also depends on how fast the investigation goes, and powerful Microsoft's lobbyists are.
There is a proverb that says, "The trees don't reach the sky". Won't Microsoft's empire eventually crumble under its own weight, just like the Roman Empire did two thousand years ago, or more recently IBM?
I doubt it. It would be a mistake to say that giant companies like IBM, AT&T or Standard Oil lost power all on their own. The huge antitrust battles weakened these corporations. Microsoft uses methods that are very similar to those used by Standard Oil; this company constructed pipelines copying those made by its competitor, Tidewater, and then dropped its prices considerably to kill it off (note 7). I do not know of any example of a monopolistic company whose power eroded on its own.
But there is another important element: Microsoft's entire strategy is geared toward conquering its markets. Its goal is not to make good programs, but to make as much profit as possible and to control all the markets it is involved in: first, operating systems, then the applications used on them, then the Internet, then transactions over the Internet, then interactive television, etc. Microsoft's culture is entirely based on eradicating its competitors and maintaining its monopoly. Its product development is not dictated by a desire to anticipate the needs of consumers, but by financial logic: when should the next version of Windows be released to ensure a maximal amount of profit? Which market niche should they occupy to prevent Netscape or Sun Microsystems to find a weakness in their armor? IBM never shortened the development time necessary for any of its products merely to get them to market before a given deadline.
Do you not believe then in self-regulating market forces that suggest that competition in the marketplace will naturally bring about the best products at the best price?
No, because that does not correspond to reality. First, market economies do not encourage the development of the best products (see chapter 2). Second, competition is only efficient when the players are small and they all have limited power, that is, when there are no monopolies. Even the staunchest free market advocates are aware of this, and because of this, you find antimonopoly laws, such as the Sherman Act, even in the paradise of capitalism. But the champions of the free-market model, the big American corporations, are the first to break the rules of the market when they dominate a sector, and they have the means to capture consumers. They are aware that competition can be dangerous to their superiority and their ability to levy a monopolistic tax. In fact, it seems that Microsoft's objective is to be in a position to collect this tax, without even having to just sell products: to change from a business model where software is sold by the unit, to one where a levy is paid on the flow of information!
Isn't this mad race of the computer industry, where markets and trends are made and unmade in a couple of months, the best guarantee that an unexpected competitor may be able to destabilize Microsoft? Microsoft's advocates cite the recent buyout of Netscape by AOL, together with their alliance with Sun, as a proof competition is vibrant in this industry...
Microsoft's argument, which says that "we are not a monopoly because Netscape was able to develop as much as they were", is totally ridiculous. Netscape's browser is not at all positioned in the same market as Windows, and it was therefore never a direct competitor to Microsoft. It was Microsoft who decided to become Netscape's competitor by buying the rights to the Mosaic browser from Spyglass, purchasing a program that later became Internet Explorer. This argument used by Microsoft is a good example of the company's real objectives: to have a monopoly, not only for operating systems for personal computers, or for applications, but over the entire world of information technology down to the tiniest niche.
Yes, it is true that this world moves very quickly. But Microsoft has often shown that it is able to follow these rhythms closely and redefine its strategy at each major change, taking advantage of every opportunity to extend its monopoly to new fields. So, no one can seriously predict if or how Microsoft will be overtaken by one of its competitors. Even more so, because, if it manages to dominate the Internet, it will have an unprecedented arsenal: a real "nuclear arsenal". We would then be entering a new world, whose economic laws have not yet been written. And Bill Gates is counting on both writing the rules and raking in the cash.