Microsoft Antitrust Essay, Research Paper

Microsoft Antitrust

Since 1990, a battle has raged in the United States courts between the United States government and the Microsoft Corporation out of Redmond, Washington, headed by Bill Gates. What is at stake is money. The federal government maintains that Microsoft’s monopolistic practices are harmful to United States citizens, creating higher prices and potentially downgrading software quality, and should therefore be stopped, while Microsoft and its supporters claim that they are not braking any laws, and are just practicing good business.

Microsoft’s antitrust problems began for them in the early months of 1900 (Check 1), when the Federal Trade Commission began investigating them for possible violations of the Sherman and Clayton Antitrust Acts, (Maldoom 1) which are designed to stop the formation of monopolies. The investigation continued on for the next three years without resolve, until Novell, maker of DR-DOS, a competitor of Microsoft’s MS-DOS, filed a complaint with the Competition Directorate of the European Commission in June of 1993. (Maldoom 1) Doing this stalled the investigations even more, until finally in August of 1993, (Check 1) the Federal Trade Commission decided to hand the case over to the Department of Justice. The Department of Justice moved quickly, with Anne K. Bingaman, head of the Antitrust Division of the Department of Justice, leading the way. (Check 1) The case was finally ended on July 15, 1994, with Microsoft signing a consent settlement (Check 1)

The settlement focused on Microsoft’s selling practices with computer manufacturers. Up until now, Microsoft would sell MS-DOS and Microsoft’s other operating systems to original equipment manufacturers (OEM’s) at a 60% discount if that OEM agreed to pay a royalty to Microsoft for every single computer that they sold regardless if it had a Microsoft operating system installed on it or not. After the settlement, Microsoft would be forced to sell their operating systems according to the number of computers shipped with a Microsoft operating system installed, and not for computers that ran other operating systems. (Check 2)

Another practice that the Justice Department accused Microsoft of was that Microsoft would specify a minimum number of operating systems that the retailer had to buy. This eliminated any chance for another operating system vendor to get their system installed until the retailer had installed all of the Microsoft operating systems that it had installed. (Maldoom 2) In addition to specifying a minimum number of operating systems that a vendor had to buy, Microsoft also would sign contracts with the vendors for long periods of time such as two or three years. In order for a new operating system to gain popularity, it would have to do so quickly, in order to show potential buys that it was worth something. With Microsoft signing long-term contracts, they eliminated the chance for a new operating system to gain the popularity needed. (Maldoom 2)

The second most controversial issue, besides the per processor agreement, was Microsoft’s practice of tying. Tying was a practice in which Microsoft would use their leverage in one market area, such as graphical user interfaces, to gain leverage in another market, such as operating systems, where they may have competition. (Maldoom 2) In the preceding example, Microsoft would use their graphical user interface, Windows, to sell their operating system, DOS, by offering discounts to manufacturers that purchased both MS-DOS and Windows, and threatening to not sell Windows to companies who did not also purchase MS-DOS.

In the end Microsoft decided sign the settlement agreement. In signing the agreement, Microsoft did not actually have to admit to any of the alleged charges, but were able to escape any type of formal punishment such as fines. This settlement that Microsoft agreed to prohibits it, for the next six and a half years from:

v Charging for its operating system on the basis of computers shipped rather than on copies of MS-DOS shipped;

v Imposing minimum quantity commitments on manufacturers;

v Signing contracts for greater than one year;

v Tying the sale of MS-Dos to the sale of other Microsoft products; (Maldoom 1)

Although these penalties look to put an end to all of Microsoft’s evil practices, some people think that they are not harsh enough and that Microsoft should have been split up to put a stop to any chance of them forming a true monopoly of the operating system market and of the entire software market.

On one side of the issue, there are the people who feel that Microsoft should be left alone, at least for the time being. I am one of these people, feeling that Microsoft does more good than bad, thus not necessitating their breakup. I feel this way for many reasons, and until Microsoft does something terribly wrong or illegal, my opinion will stay this way.

First and foremost, Microsoft sets standards for the rest of the industry to follow. Jesse Berst, editorial director of Windows Watcher newsletter out of Redmond, Washington, and the executive director of the Windows Solutions Conference, says it best with this statement: “To use a railroad analogy, Microsoft builds the tracks on which the rest of the industry ships its products.” (”Why Microsoft (Mostly) Shouldn’t be stopped.” 4) With Microsoft creating the standards for the rest of the computer industry, they are able to create better standards and build them much faster than if an outside organization or committee was to create them. With these standards set, other companies are able to create their applications and other products that much faster, and better, therefore, the customers receive that much better of a product.

For instance the current effort to develop the Digital Video Disc (DVD) standard. DVD’s are compact discs that are capable of storing 4900 megabytes of information as opposed to the 650 megabytes that can be stored on a CD-ROM disc now. For this reason, DVD’s have enormous possibilities in both the computer industry and in the movie industry. For about the last year, companies such as Sony, Mitsubishi, and other prominent electronics manufacturers have been trying to decide on a set of standards for the DVD format. Unfortunately, these standards meetings have gone nowhere, the subsequently, many of the companies have broken off in different directions, trying to develop their own standards. In the end, there won’t be one, definite standard, but instead, many standards, all of which are very different from one another. Consumers will be forced to make a decision on which standard to choose, and if they pick the wrong one they could be stuck down the with a DVD player that is worthless. Had only one company set the standards, much like Microsoft has done in the software business, there wouldn’t be the confusion that arose, and the consumers could sit back and relax, knowing that the DVD format is secure and won’t be changed.

Another conclusion that many anti-Microsoft people around the world jump to is that the moment that a company, such as Microsoft becomes very successful, they immediately think that there must be something wrong; they have to be doing something illegal or immoral to have become this immense. This is not the case.

Microsoft has not gained its enormous popularity through monopolistic and illegal measures, but instead through superior products. I feel that people do have brains, and therefore have the capacity to make rational decisions based on what they think is right. If people didn’t like the Microsoft operating systems, there are about a hundred other choices for operating systems, all of which have the ability to replace Microsoft if the people wanted them. But they don’t, the people for the part want Microsoft operating systems. For this reason, I don’t take the excuse that Microsoft has gained their popularity through illegal measures. They simply created products that the people like, and we as people buy them.

One of the largest proponents of government intervention into the Microsoft issue is Netscape Communications, base out of Mountain View, California. Netscape has filed lawsuits accusing Microsoft of tying again. (”Netscape’s Complaint Against Microsoft.” 2) This time, Microsoft is bundling their World Wide Web browser, Internet Explorer into their operating system, Windows. Netscape is the maker of Netscape Navigator, one of the most widely used Internet web browsers on the market. Netscape says that in addition to bundling the browser, Microsoft was offering Windows at a discount to original equipment manufacturers (OEM’s). (”Netscape’s Complaint Against Microsoft.” 2) They feature Internet Explorer on the desktop of the computers that they ship, which would then eliminate any competition for space on the desktop by rival companies such as Netscape.

If the OEM wants to give the consumer a fair and even choice of browsers by placing competitors’ browser icons in a comparable place on the desktop, Netscape has been informed that the OEM must pay $3 more for Windows than an OEM that takes the Windows bundle as is and agrees to make the competitors’ browsers far less accessible and useful to customers. (”Netscape’s Complaint against Microsoft.” 2) Another accusation that Netscape is making against Microsoft is that they are doing the same type of things with the large Internet service providers of the nation. They are offering the large internet providers of the nation, such as Netcom and AT&T, space on the Windows desktop, in return for the internet provider’s consent that they will not offer Netscape Navigator, or any other competing internet software to their customers. (”Netscape’s Complaint against Microsoft.” 3)

Other people might disagree with me, and there might be a lot of allegations floating around from different companies, but the fact of the matter is plain and simple. Microsoft has not been formerly charged and found guilty of any illegal practices pertaining to them being a monopoly. I believe that the government should stay out of the affairs of the computer industry, rather than get tangled up in a mess, and just end up deadlocked like the FTC did in 1990. And even if the government did get involved, due to the extremely fast paced nature of the computer industry, and the extremely slow nature of the government, there may not be any resolve for quite a while.

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