Microsoft: where do we go from here?

Cheaper PCs? More software packages for consumers to choose from? Whatever the implications of the Microsoft ruling, one thing is clear - companies will now have to watch their step.
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So the Microsoft judgement is out. So what? The case was cast in terms of consumer benefits, but it is very hard to spell out exactly what it could mean directly to those who buy software.

"Microsoft placed an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance in the relevant market [for operating systems]", wrote Judge Thomas Penfield Jackson in his legal findings last week. "More broadly, Microsoft's anticompetitive actions trammelled the competitive process through which the computer software industry generally stimulates innovation and conduces to the optimum benefit of consumers."

In general, that meant Microsoft's competitors - companies such as Netscape - lost out. But, he also emphasised, "the evidence does not prove that they would have succeeded absent Microsoft's actions".

In very general terms, there are 10 conclusions that can be drawn about the case. Some of them are contradictory: the real defining factor for the software market will be how quickly Microsoft's competitors can take advantage of what could be a changed market, and shift their behaviour.

1. It may take time before there is any direct impact. The case hasn't finished yet - it still has to be decided what penalties will be imposed on Microsoft. After that, the company will almost certainly appeal the decision, so it could be two years before anything changes.

2. The price of Windows may come down. The company's key aim, according to the judge, was to safeguard its monopoly in operating systems. If the US Government decides to make Microsoft release the details of the software, or splits up the company and creates several groups, then there should be more competition in the market for operating systems.

It may not be packaged with a browser. "The fact that Microsoft ostensibly priced Internet Explorer at zero does not detract from the conclusion that consumers were forced to pay, one way or another, for the browser along with Windows," wrote Judge Jackson.

3. The price of other applications may come down. Microsoft kept tight hold of the specifications of Windows so that others couldn't easily make products that worked with it - or not without Microsoft's permission. One possible outcome of the case is that Microsoft has to release the source code of Windows to other programmers. There might be more, and cheaper, applications if anyone could go into the market.

4. The price of some software could go up. If there is more variety of software, and more creativity, then it may be that it costs more - if it's better. Microsoft also sought to keep the prices of some products low, to encourage PC users to use them, according to the judge, and could afford to do this because it had no effective competition.

"Microsoft licensed Internet Explorer and the Internet Explorer Access Kit to hundreds of [internet service providers] for no charge," he points out. Competition doesn't automatically mean lower prices, even for market economists: it just means that the overall level of economic benefit for the economy is higher. After all, according to Judge Jackson, Microsoft actually hurt itself by squeezing out competition, and may have lost money in the short term through its attempts to secure its long-run position.

5. The price of personal computers could come down. After all, most people buy most of their software with the computer. "Despite Microsoft's assertion that the Internet Explorer technologies are not 'purchased' since they are included in a single royalty price paid by [computer manufacturers] for Windows 98," wrote Judge Jackson, "it is nevertheless clear that licensees, including consumers, are forced to take, and pay for, the entire package of software and that any value to be ascribed to Internet Explorer is built into this single price." On the other hand, PC prices have already plunged.

6. Software may be sold in simpler packages. Microsoft tied Windows and Internet Explorer together, and most purchasers buy a computer already loaded up with a bundle of programs. It may be easier to buy simple products that do simple things, rather than a lot of bells and whistles that the consumer doesn't necessarily want. Something which Microsoft is notorious for, as anyone who has used, for example, Microsoft Word, will attest to.

7. There could be more variety of software. "Microsoft's campaign succeeded in preventing - for several years, and perhaps permanently - Navigator and Java from fulfiling their potential to open the market for Intel-compatible PC operating systems to competition on the merits," said the judge. It squeezed out new applications.

In theory, whatever remedy the judge imposes will aim at increasing the possibility of new applications. Some will be better and higher quality than what's available. After all, a central finding was that Microsoft had argued that its web browser was the best. "Internet Explorer is not demonstrably the current 'best of breed' web browser, nor is it likely to be so at any time in the immediate future," said the judge.

8. It may become more difficult to decide what software to buy. The old adage said that "no one ever got sacked for buying IBM", and the same goes for Microsoft. If there is a profusion of new software, it will be great for the magazines which review and test it, but consumers may be more puzzled, though better served in the long run.

They may also be faced with the choice of competing systems that don't work with each other, as happened in the great video standard war. Microsoft imposed its own standards - it may be less able to do that, because of the judge and because of the way the market is shaping up. Even if it wants to, Microsoft will have to be more careful about how it does so.

9. In many areas it won't necessarily make any difference at all. In some of the markets for newer products, Microsoft has a far from dominant position anyway - such as in handheld PCs, computer games, streaming software or web-capable mobile phones.

10. Someone else may be next. It seems highly unlikely (assuming that the Democrats are re-elected this year) that the US Justice Department has run the case this far just to let its newfound activism peter out. All companies will watch their behaviour. The longer-term benefit should be that no one tries to monopolise the market; that, of course, is a very fanciful hope.