Stained windows show us the murky business of monopoly
Microsoft's tactics, say the US Department of Justice, represent the ultimate in dirty tricks
Andreas Whittam Smith
Andreas Whittam Smith, CBE, was a financial journalist until 1985 when he led the team that founded The Independent. The paper’s first editor (1986-1994), he has subsequently been the president of the British Board of Film Classification (1998-2002) and chairman of the Financial Ombudsman Service (1998-2003). He is currently First Church Estates Commissioner responsible for £5bn of the Church's investments, and chairman of the Children's Mutual. He continues to write for all Independent titles.
Monday 26 October 1998
This primary truth about business activity has always been better understood in the United States than here. Whereas US anti-trust law is comprehensive and is vigorously enforced by the Department of Justice, here it is anaemic and permissive. The opening exchanges in the Microsoft action have the feel of history. Just as Rockefeller's oil monopoly in the United States was broken up 100 years ago, and Morgan's banking empire was dismantled in the early part of this century, so the dominant entrepreneur of the late 20th century, William Gates, is getting the same treatment. Or at least, the attempt is being made. The outcome is by no means clear.
The charge is this: Microsoft evidently has a monopoly in supplying the system which makes personal computers do what the user wants them to do, the famous Windows operating system. Microsoft is now employing this market dominance, it is alleged, to bully Netscape, the leading supplier of devices which allow computer users to read information on the Internet - the so- called browsers. Microsoft argues that browsers are an integral part of an operating system just as a steering-wheel is an integral part of a motor car. No, says Netscape - it is an application, more like a car heater or a wing mirror.
At a meeting in June 1995, between Microsoft and Netscape, of which a number of accounts exist, it is said that Netscape was told that, if it didn't agree to leave a large part of the market clear for Microsoft's own browser, called Internet Explorer, it would be "crushed".
There we are. Subdue the market, eliminate the risk, raise the profits: a perfect example of business as business people would like it to be.
However, Microsoft rejects the very notion that it has a monopoly in operating systems, even though Windows, in its various versions, is ubiquitous. It says, in the hurt tones that all new monopolists invariably use, that it has attained its enviable position only by consistently producing better products than its rivals, by sensing earlier than them what consumers want, and by investing heavily in research and development. Why should it suddenly be classified as hostile to the public interest?
Moreover, Windows is a piece of intellectual property that can be licensed by anybody. Any strong position in a high technology industry can be destroyed overnight if a rival creates a better product. That is why Windows is priced so cheaply, the argument goes.
To all of which I reply, "Yes, but..." Yes, Microsoft is a brilliant business enterprise, but it has the power to harm as well as to help. Yes, a computer operating system is an intellectual construct, but so was the first steam engine. The one is worked out in terms of tubes, pistons, valves; the other in terms of code. Yes, rivals can emerge, especially in such a young industry, where the financial rewards for success are high, but how you respond is what matters. Microsoft's policy towards Netscape is a perfectly fair test case.
Microsoft's tactics, as described by the Department of Justice, represent the ultimate in dirty tricks. For starters, it made public its plan to do battle with Netscape so as to undermine its rival's stock-market rating. This made it more difficult for Netscape to raise fresh capital. Then Microsoft, so it is alleged, systematically undermined the ways in which Netscape makes sales. For instance, it pressurised computer manufacturers, such as Compaq and Hewlett-Packard, to feature Internet Explorer more prominently than Netscape's browser, by threatening to withhold crucial licences. It likewise arm-twisted Internet service providers to do the same.
Microsoft's next step was to destroy its rival's revenues by distributing its own browser free of charge (losing hundreds of millions of dollars of revenue as a result). Netscape had no alternative but to follow suit. Finally, as a knock-out blow, it sought to eliminate its rival entirely by seamlessly tying its own browser into new versions of Windows, so that it never occurs to customers that they could or should specify a Netscape product.
As the trial progresses, we will find out whether this account of Microsoft's actions is largely correct or not. Meanwhile, a number of aspects of the case are worthy of note. Netscape itself is an apprentice monopolist. In its early days, it controlled 90 per cent of the browser market. Even now its share is between 40 and 50 per cent.
This summer, consumers downloaded more than 12 million copies of Netscape's browser from its website. As a result, Microsoft's attorney was able to characterise the US Government as thinking, "Netscape had a monopoly on the browser market, until the great Satan, Microsoft, came along".
Netscape has also allowed the quality of its browser to fall behind Microsoft's. In technical journals where detailed reviews are published comparing the two, Netscape almost always comes out the loser.
At the same time, though, it looks as though Bill Gates has made a serious mistake in the presentation of his case. In court last week, the pre-trial testimony of Mr Gates, of which videotaped excerpts were shown, was compared with what a trawl of the company's documents and e-mails has revealed. It turns out that the latter often contradict Mr Gates's statement. So the Government attorney was able to call into question Mr Gates's honesty.
The anti-trust trial in Washington will tell us not only whether Microsoft's desire to control markets leads it to behave as a vicious monopolist, but also whether its chairman and founding genius, Bill Gates, has been, as was once said of a British civil servant found in a tight corner, economical with the truth.
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