Predator on the Information Highway

Microsoft Corporation, owned by the information technology baron Bill Gates, has decided to release modified versions of its Windows 98 operating system and other software to comply with a recent court order. A Washington Court ordered Microsoft to make changes in its Java technology, ruling that Sun Microsystems Inc. was likely to prevail in a lawsuit that charges Microsoft of illegally altering the Sun-created programming language called Java.

The creator of the Java programming language held in its lawsuit that Microsoft rewrote Java to neuter its ability to work on non-Microsoft computers. By changing Java, Microsoft sought to eliminate Java’s key purpose: to make it easier for software developers to write new programs that could run on computer software made by either Microsoft or any of its competitors. The U.S. Department of Justice and 20 states allege that the changes Microsoft made in Java were part of a deliberate plan to protect a monopoly in personal-computer operating systems.

Java allows developers to write a program once rather than multiple times for different computer operating systems. Most developers write software programs primarily for Microsoft’s Windows, which is used on eight of 10 computers in the world. That, in turn, causes most computer users to prefer computers which run on systems owned by Microsoft, because that’s where they find most of the programs they want. Java threatened that cycle and Microsoft’s dominant Windows operating system, because developers could write programs for any operating system.

Creating Monopolies

U.S. Courts are also currently grappling with the dispute : can Microsoft force computer manufacturers to install Microsoft’s Internet Explorer (IE) software (a software used to gain access to and to browse the world wide web or the “internet”) every time they want to license Windows 98? The “tying” of a competitive product to a monopoly product has long been considered illegal under antitrust laws.

Microsoft has a multi-pronged strategy to force consumers to “choose” its Internet browser. It has redesigned its software so that important information required to run many programmes on the personal computer files have “migrated” to IE, forcing consumers to install IE to get updates of existing software.. Third-party software developers who license important software programmes are forced to distribute and install IE, plus deploy technologies Microsoft owns on web pages that work only with IE. Many new Microsoft software applications and tools will not work unless IE is installed. And Microsoft rewrote Windows 98, to make it impossible to uninstall IE.

Microsoft also wants to redefine Windows as the “Windows Experience,” with desktop links to partners and subsidiaries in electronic commerce. Microsoft constantly changes Windows operating files, adding undocumented features. Microsoft’s applications programmers see these files long before everyone else, are permitted to distribute them first, and are the only ones who know what the code does and how it will change over time. It is thus no accident that Microsoft’s competitors have trouble offering products which are both compatible and good performers. Software is no longer about spreadsheets (programs for data processing and calculations) and word processors (programs for composing text) only. It is increasingly about commerce and communications. In essence, Microsoft is trying to control the architecture for the information highway.

Microsoft’s aggressive promotion of Internet Explorer reveals how Microsoft views Netscape’s Web browser as a serious threat to its position as the world’s dominant maker of computer operating systems. Microsoft’s battle is not really about who makes the best browser to cruise the Internet. Instead, it relates to future control of the operating systems that run everyone’s personal computers. The Windows system is now used on 80 percent of all personal computers. But Microsoft fears that browsers could become both alternative platforms on which various software programs can run, in other words an alternative to existing operating systems like DOS and Windows. Netscape, Sun Microsystems and other companies are already working on simpler software and hardware that would permit users to bypass Windows. In an attempt to block that danger, Microsoft is attempting to make its Explorer browser an integral part of its Windows system.

The Microsoft trial revealed the darker side of Bill Gates — a schemer who will go to almost any length to crush his competition. Flashing back and forth between snippets of Gates’ videotaped deposition and e-mail messages he had sent that contradicted his testimony, the government sought to establish a pattern of threats and offers of payments by the Microsoft chairman. Evidence placed before the Court showed Gates as an obsessed man who feared the tiny Netscape Communications Corp. and its potential threat to his domination of the market for Internet browsers. According to a document presented at the trial, for example, Gates asked America Online executives in 1996: “How much do we need to pay you” to damage Netscape? “This is your lucky day.”

 Controlling the Information Highway

Microsoft is the world’s most important information services company. This is not a result of its size – many firms are larger in gross revenue. In 1996 Microsoft’s sales ($11.3 billion) were only a fraction of Mitsubishi’s ($752 billion). Nor is it a consequence of its products – there are many firms that are more innovative. Microsoft is the most important information services company simply because it controls the software foundations for nearly all programs that run on personal computers today, and because Microsoft is using this control to launch a dizzying assault on mass market software applications, information services, electronic commerce and publishing ventures.

Bill Gates, 41, founded Microsoft in 1975 and still owns 22.3% of its shares. This stake (worth $36 billion in December 1996) makes him “the richest man in America”. Today, experts estimate that Microsoft controls in excess of 80% of the market for the operating system software (OS) which is used to run personal computers. Moreover, Microsoft controls nearly the same 80% market share for popular applications such as Word Processors, spreadsheets, graphic programs and database applications.

Bill Gates: Innovator or Predator?

Interestingly, Microsoft has rarely been the innovator in any of these areas. It purchased MS-DOS, the PC’s first operating system, from another firm. The graphic user interface Windows was based on the Apple Macintosh, which Apple itself had imitated from an early computer by Xerox. Excel, the Microsoft spreadsheet, is an imitation of Lotus 123, which was in turn an imitation of VisiCalc. Microsoft Word was introduced into the market long after several other popular word processors. Microsoft’s Power Point imitated programs such as Harvard Graphics or Freelance. Today, Microsoft so completely dominates each of these markets that few venture capitalists would even consider funding new programs that would seek to dislodge it.

The springboard for Microsoft’s dominance of the market for software was IBM’s 1980 selection of Microsoft DOS as the operating system for IBM’s popular line of personal computers (PCs). A computer’s operating system is the basic set of instructions it follows. It acts as the go-between that makes the machine (or “hardware”) interact productively with the programs (or “software”) that instruct a PC to perform such tasks as word processing, data analysis, electronic communications or computerised games. By licensing DOS to IBM and dozens of manufacturers of cheap IBM clones, Microsoft gained entry in to more than 120 million PCs around the world.

Once Microsoft’s operating systems became the industry standard, many consumers were reluctant to invest the time and frustration needed to master a new operating system. Consumers also shopped for computer products that were compatible with DOS and its more user-friendly offspring, Windows. Since demand was limited for PCs that lacked Microsoft operating systems, PC manufacturers felt compelled to license this technology on terms dictated by Microsoft.

Similarly, Microsoft operating systems were the means through which most software interacted with a PC, which gave Microsoft significant control over software production. To be a relevant player in the PC market, most software engineers must design programs to work with the operating systems that Microsoft is continually updating.

Software developed by engineers with incomplete information about an operating system is likely to contain serious flaws. Obviously, the company with the most up-to-date information about Microsoft operating systems is Microsoft. This is an increasingly decisive advantage, as Microsoft aggressively seeks to acquire rival software companies and expand its offerings of in-house software and other spin-off products. Another advantage Microsoft enjoys is that many software companies submit prototypes of their newest products to ensure that they will be compatible with next-generation versions of Microsoft operating systems, a practice that gives Microsoft an opportunity to preview competitors’ new software.

Microsoft has done so well, to a large extent, because it aggressively engaged in predatory practices — such as the continual manipulation of its operating system to undermine rival’s products, selective dissemination of information regarding the operating system’s current and future features, the bundling of weak products with essential products, pre-announcements of non-existent products to discourage consumer purchases of rival goods (referred to as “vaporware”), raids on key company staff from other companies, etc. Added to this was an advertising strike force which targets specialised media and predatory pricing of products to deprive rivals of revenue. Microsoft’s power and its reputation for ruthless anticompetitive actions has demoralised most of its rivals.

 Targeting the Internet

Now, after Microsoft has defeated a large number of creative and innovative firms to reign supreme in the entire range of desktop applications, it is turning its attention to the Internet – another area where Microsoft made a late entrance. It is doing this by spending mega dollars on the development of the Internet Explorer, which it distributes as a free product (now included in the Microsoft basic operating system) in competition with Netscape (which incidentally, has recently merged itself with the internet giant – America Online), the only firm which is still trying to compete with Microsoft in the Internet browser market. If Microsoft succeeds in driving Netscape and other companies from this market, it will be in a position to use its monopoly to control future standards which are essential for Internet-based publishing, information services and electronic commerce. Microsoft is thus poised to transform the Internet into a much more closed and proprietary system – owned by Microsoft.

Is Microsoft’s monopoly in the public interest? Some say Microsoft is a blessing because it has given us inexpensive software and made it easier for consumers to share and exchange documents and data. However, we should recall that low-priced consumer software was pioneered by Borland and other software companies, and that the Internet has vastly enhanced the sharing of data on a system that was designed to be open and competitive. But in every field where Microsoft has gained overwhelming dominance, there has been a dramatic decline in innovation. Venture capital has dried up for software products that compete with Microsoft, and venture capital is drying up for products that may in the future become targets of Microsoft. The company will soon be in a position to close the open system upon which the Internet has flourished as a platform for new innovation. If Microsoft monopolises the user interface for the Internet, it can bias the selection of content and services available through the Internet. It will create new opportunities for Microsoft to tie up with various industry sectors, while converting the Internet into another monopoly enterprise — quite the reverse of what the internet was designed to be.

Microsoft’s Enviable Market Shares

PC Operating Systems
DOS, Windows

PC Word Processing
Word for Windows

Macintosh Word Processing
MS Word

PC Spreadsheets
Excel for Windows

Macintosh Spreadsheets

Source: Fortune magazine