The Case For Breaking Up Microsoft’s ‘Monopoly’

Why we consumers would be better off if Microsoft Corp.’s ‘monopoly’ were broken up.

By Erik J. Heels

First published 10/1/1998; Student Lawyer magazine, “Online” column; publisher: American Bar Association

Where do you want to go today? Perhaps a better question is “Where do you want to be tomorrow?” The problem with the current round of antitrust complaints against Microsoft is that nobody on either side appears to be looking at Life After Litigation. In other words, what sort of punishment should or should not Microsoft get?

For last April Fools’ Day, I wrote a parody column for Online entitled “1997 In Review – Looking Back at the Year that Could Be.” In that column, I envisioned the AT&T-like breakup of Microsoft:

“The Justice Department ended Microsoft’s dominance of the computer software market by splitting the company into three businesses: Micro Inc., Soft Inc. and Network Etc. Inc. The department’s decision was based on a DOJ agent’s discovery that DOS, Windows, and NT operating systems were all made by Microsoft and that all three were so-called ‘operating systems.’ Micro Inc., will focus on operating systems products. Soft Inc. will produce application programs for various operating systems, including those produced by Micro Inc. And Network Etc. Inc. will focus on products and services that are neither operating systems nor application programs, such as The Network Etc. Network (formerly ‘The Microsoft Network’) and SoftNBC (formerly ‘MSNBC’). Network Etc. Inc. has licensed the term ‘Soft’ from Soft Inc. for SoftNBC, its cable-television-plus-Web-site product line. The DOJ promised to breakup Network Etc. Inc. into separate companies if it determines that Network Etc. has a monopoly in the booming cable-television-plus-Web-site market.”

Although I wrote the above as a parody, I believe that Microsoft should be broken up into three companies covering the markets described above, and that such a breakup would help competition and consumers, producing more products and lower prices for all of us.

The major argument of the anti-Microsoft forces is that Microsoft has gotten too big for its britches, that it produces substandard software that it beta tests on the public, that it does not innovate, and that it charges too much for its products and services.

The problem with saying that the AT&T breakup was good for consumers is that we don’t know what would have happened if AT&T were left intact. But what do you think is more likely: that without being broken up, AT&T would have come up with call waiting, call forwarding, 10 cents/minute rates, IP telephony, DSL, and video phones all by itself? Or that it would have continued to charge whatever it wanted for the same old boring dial tone, while leasing us telephones for home use? Do you use AT&T for long distance? If you don’t and can think of a reason why, than you’ve just discovered one reason why the DOJ acts to break up monopolies.

Remember Windows 1.0? FrontPage 1.0? NT 1.0? Even Microsoft enthusiasts will have to concede that they wait until at least version 1.x to buy, rather than beta testing the so-called 1.0 versions. And why after all of these years does Microsoft Word cost $300 dollars?! And innovation? For the record, Microsoft did not create either Internet Explorer or FrontPage. Internet Explorer was based on software code licensed from Spyglass, and FrontPage was written by a company called Vermeer, which was purchased by Microsoft.

Now imagine that Microsoft has been broken up. And that when the operating systems company part of The Monopoly Formerly Known As Microsoft (TMFKAM) announces Windows2005, all of your applications will work with version 1.0 of the new Windows2005, not just those from the applications company part of TMFKAM.

Why the DOJ Won’t Win

Unfortunately, the DOJ doesn’t have a good track record against Microsoft. The DOJ managed to render a 1996 consent decree worthless by limiting it to specific operating systems. And it also doesn’t seem to understand the difference between an operating system, an application, and the rest. Or why the applications and the rest might matter. Here’s a helpful chart for the DOJ.

Market Microsoft The Competition
1) Operating Systems DOS, Windows, NT MacintoshOS, Linux
2) Applications
Web Browsing MS Internet Explorer Netscape Navigator
Word Processing MS Word Corel WordPerfect
Spreadsheets MS Excel Lotus 1-2-3, Corel Quattro Pro
Web Authoring MS FrontPage Claris Front Page, Adobe PageMill
Banking MS Money Intuit Quicken
E-mail MS Outlook Qualcomm Eudora Pro
3) Networks
Web www.microsoft.com www.netscape.com, www.yahoo.com
Television WebTV, MSNBC WebFeat, WebPassport, CNN
Online Service MSN America Online

The DOJ’s 05/18/98 Complaint goes something like this. Microsoft has a monopoly in the Windows operating system. Netscape Navigator is like an operating system because Java applets can be written for it. Therefore, Netscape Navigator should be included with Microsoft’s operating system.

There are many flaws with the DOJ’s framing of the problem.

First, Netscape Navigator is an application. How can I tell? its filename is netscape.exe. That’s how. By the way, Internet Explorer is also an application. I’d tell you its filename, but I deleted it.

Second, even if Netscape were an operating system, it will never be competitive because Java is more of a toy than a serious programming language. For example, Java does not support unsigned integers (see http://ttis.thomtech.com/mmedia/interweb/internet/javaLang.htm and http://www.zdnet.com/pcmag/features/1511/java1.htm), and many of the Internet protocols rely on unsigned integers. You heard it here first. Until Sun decides to make Java real, it will never ever be anything more than a footnote in the history of internetworking.

Third, there is no Web browser market, because Web browsers applications designed to distribute other products. When you start the Internet Explorer application, it automatically takes you to a Microsoft-owned Web site. The more Microsoft browsers, the more traffic on Microsoft sites. Traffic = advertising revenue. In June 1998, the Internet’s number one Web site was Yahoo, with 29.5 million unique visitors (according to http://www.relevantknowledge.com/). But when you combine Microsoft’s sites from the top 25 (microsoft.com at 17.8 million, msn.com at 9.6 million, and msnbc.com at 4.3 million), Microsoft ends up in first place with 31.7 million unique visitors. Web browsers are not an end, they are a means to an end. Yet the DOJ still thinks there is a “Web browser market.” Memo to DOJ: go back to marketing school and study the four Ps so that you can learn the difference between a product and a distribution channel (a “place” in four-P marketing speak).

Why Reasonable People Hate Microsoft – And What The Real Problem Is

You know the anti-Microsoft sentiment is widespread when it has its own category in Yahoo (http://www.yahoo.com/…). The same cannot be said of the Berlin Air Lift! One anti-Microsoft (http://www.hum.auc.dk/~trekan/antims/Anti-MS_homepage.html) sums up the sentiment of these anti-Microsoft forces quite nicely: “These pages are designed especially for you, who can’t find the following things from Microsoft: fast applications, human users interfaces, innovation, stable software and media, what you need – when you need it.”

Here’s a summary of the real problem. Microsoft has a monopoly in operating systems, and it will most likely continue to maintain that monopoly as it invents new operating systems. Included with Microsoft’s operating systems are various demonstration and free applications, including, but not limited too, Web browsers, Web authoring tools, and online access software. (I’m predicting that in the future, Microsoft will distribute “demo” versions of popular applications such as MS Word, MS Excel, and the like. I further predict that these “demo” versions, which will be distributed at no charge, may be activated by purchasing a license from www.microsoft.com, www.msn.com, The Microsoft Network, by phone, or otherwise.) When Microsoft’s Web access software and/or online access software is activated, users are presented with advertisements and offers for MS applications products, MS services, and MS free and demo software (including MS Internet Explorer). The applications are designed to run on MS operating systems, which makes people purchase more MS operating systems, furthering this monopoly.

From an engineering standpoint, this is a “positive feedback loop.” Part of Microsoft’s success was due to innovation (and luck) of long ago, but most (if not all) is now due to how positive feedback effects of Microsoft’s monopoly. Circuit design, mechanics, economics – these systems can all be described by feedback loops, both positive and negative.

An example of a positive feedback loop in electronics is a person speaking into a microphone while standing in front of the speakers that are projecting the amplified sounds of the microphone. Part of the amplified speech is fed back into the microphone, which is then amplified, which is then fed back, etc. Until a high pitch screech makes the speaker take a couple of steps back.

An example of a negative feedback loop in mechanics is normal operation of an automobile. As soon as the car begins to cross over the line, the operator (human or otherwise) corrects to bring the car back between the lines. Positive feedback in the same situation would cause the car to go hurtling over the first cliff, or run head-on into the first approaching car.

Here’s one more example of positive feedback in action. Imaging two people in bed on a cold winter night with a two-zone electric blanket. Normal operation of the electric blanket involves negative feedback (feel cold, turn it warmer; feel hot, tun it cooler). Now imagine that the controls are switched. The warm person will turn the heat down. The cold one will turn the head up. But the cold one will only feel colder, so the colder person now cranks the heat full on. The hot person now feels hotter, and turns the blanket completely off. One person freezes, the other boils. That’s positive feedback.

Microsoft needs to take a step back, to stop talking, to give the controls back to its consumer partners who are freezing in the other side of the bed. And the DOJ should help.

Summary

Even the Committee for the Moral Defense of Microsoft’s Web site (http://www.moral-defense.org) was created on a Macintosh. Perhaps they were trying to take the high road by showing that they defend Microsoft on moral grounds, and they still use non-Microsoft products. More likely, their designer prefers to design on a Macintosh. Which is exactly the point. Consumers want choice.

Microsoft’s success is, at this point, more based on the dynamics of positive feedback than on merit. So let’s break up Microsoft into three companies. I’m happy with my options in the telecommunications market after AT&T, I know where I want to go today, and I know where I want to be tomorrow. But I’m sure the DOJ isn’t the one to take me there.

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