From Rehan Latif, my University assignment on MSFT ... I hope the thread and friends of my father would enjoy this. Please let me know if any additions or amendments are required...
Microsoft past present and its future.
Rehan Latif
IBM once predicted in 70's that the world demand for computers was four, unless Ford bought one in which case it was five. Luckily for Bill Gates and his Microsoft Empire, IBM prediction was out by odd 100 million or so. Microsoft is one the most easily recognised names in today?s world. Since its inception in 1975, it has become the undisputed leader in software for personal and business computing. Microsoft?s early vision of a computer on every desk and in every home is coupled today with a strong commitment to Internet- related technologies that expand the power and reach of the PC and its user. Its value is close to $600 billion making it the worlds most valuable company and its net revenue for the fiscal year of 1999 was $7.89 billion. Microsoft has the world?s dominant operating system, Windows, which is installed in nine out of ten new computers. It has integrated Windows with its own net-surfing software, Internet Explorer, thus controlling the gate to cyberspace while excluding its main rival Netscape Navigator now gobbled by AOL.
If computer makers want Windows, and they have no choice, Microsoft bans them from removing Explorer. A classic monopoly in many people?s eyes and this has led to the current lawsuit brought against Microsoft by the US Department of Justice and 19 US states. This weekend the dim ray of a settlement faded probably the judge is going to issue a ruling soon on future of Microsoft.
The greatest card for Microsoft proved to be Windows 1995. It was a fully integrated 32-bit operating system that replaced Windows 3.11, Windows for Workgroups 3.11 and MS-DOS as mainstream desktop operating systems. Bundled along with Windows 1995, would be Microsoft?s very own Internet browser Internet Explorer. This was primarily in retaliation to Netscape?s very own Navigator, which was free to anyone who wanted to download it off the Internet. Microsoft was finally starting to awaken to the Internet spring, like a bear coming out of hibernation and realised what quickly became apparent to everyone, that the Internet had placed limits on Microsoft?s power by making Windows less important. Since the emergence of the World Wide Web and Web browsing software in the mid 90s the balance of technology power and focus of innovation has been moving towards the network and away from the desktop where Windows rules. Also it proved to be an opportunity to maintain their spectacular growth and if Microsoft missed the boat they risked losing their dominance just as suddenly as IBM had a decade before. Indeed Microsoft realised the potential threat from Netscape, set out to crush the unwanted competition, legal or otherwise, and dominate the Net for themselves. They had the perfect marketing tool, by integrating Internet software with Windows; consumers would adopt the whole package. Through this, Microsoft has won the browser battle snagging 64% of the market but has raised question such as, was this unfair exploitation of a monopoly position and stifling of innovative rivals- or simply tough on the loser in a highly competitive market. This was the core question the Justice Department anti trust case was designed to settle. In a first of two-part judgement this November, a US judge Thomas Jackson delivered a critical blow to Microsoft, saying that a series of innovation would ?never occur for the sole reason that they would not coincide with Microsoft?s self interest.? He also said that consumers were harmed by Microsoft?s actions and Netscape did pose a real threat to Microsoft operating system and that therefore the browser integration in Windows was done to thwart such competition.
Microsoft?s defence is that Explorer and Windows are parts of a single product, which technically cannot be separated. It is also a product which, it says, customers want, so to tamper with it is not in public interest. Indeed the Internet is a core feature in their last two Windows release (Windows 98 and 2000). For example on Windows 98, Internet Explorer 4.0 is installed on your machine whether you like it or not. The entire operating system or the computers nervous system- is built around Microsoft?s Internet Explorer. In defence of Microsoft as well, it can be said that Microsoft gave away the browser while before Microsoft pursued this policy Netscape was a monopolist in the browser market charging $40-50 per unit. Consumers have directly saved $2 billion by Microsoft free browser distribution policy that the judge found anti competitive! Moreover, consumers have directly benefited from the relatively low price of Windows ($50-60 to computer manufacturers) compared to historical prices of operating systems and current prices of other operating systems. For example, IBM was selling OS/2(which ran far fewer applications than Windows) for hundreds of dollars. If Microsoft could have all this monopoly power as the judge finds, why is Microsoft so benevolent and does not charge more. There is also doubt as to whether Netscape was ever a serious threat to Windows. They had not even taken rudimentary steps to create an operating system that would run on top of its browser.
Another side to look at it is that pricing is not necessarily an important issue in Microsoft?s case rather innovation is, in this fast moving sophisticated computer industry. Thus the main charge on Microsoft is that it stifles innovation by undermining competition, depriving the public of better products. Few also object to Microsoft dominance on software (which they actually bought from someone else) since a single operating system is clearly simpler for manufacturers and customers. What is worrisome is Microsoft?s use of the Windows monopoly to market a range of other products at the expense of rivals. The argument by Microsoft that Explorer and Windows are one product appears shaky. It seems Explorer can be separated from Windows and no one knows how much the public like the integrated product since it has few alternatives. The decision of Microsoft to integrate Internet Explorer with future Windows has also been slammed. In the words of Judge Jackson, ?Microsoft has forced Windows users uninterested in browsing to carry software that while providing them no benefits, brings with it all the cost associated with carrying additional software on a system.? There have also been allegations of rough play from Microsoft; forcing computer makers to load only Microsoft software on computers, internal memos that shows Microsoft deliberately set out to destroy rivals and also illegally trying to co-opt Netscape into carving up the browser market between them. Most other competitors as well don?t have flattering stories to tell about Microsoft. For example IBM charge that Microsoft used its control of the most popular operating system on the planet as leverage against software efforts by IBM. Microsoft repeatedly delayed licensing negotiations with IBM because of its insistence on developing OS/2 Warp, a competing operating system, and because it was bundling competing office productivity software with its computers. It was also noted in the anti trust trial that Microsoft threatened to withdraw support for new Pentium processors if Intel did not stop developing software for enhanced graphics.
The question now is what are the solutions to this problem and what will be the most beneficial to consumers. In defining remedies, the following criteria should apply. First remedies must be consistent with a strategy that prevents Microsoft from repeating whatever activities is found to be illegal and secondly and most importantly, remedies have to be in public interest and should help rather than harm consumers. In other words, the treatment should heal rather than kill the patient. Microsoft is an entrepreneurial company that is run by very few top executives (about twenty). This makes it flexible and efficient, qualities that the Department of Justice should try to preserve, although Microsoft's competitors would probably like to extinguish. The obvious solution breaking Microsoft up into three companies (one with operating systems, another with applications software and a third with Microsoft Internet) is itself problematic. Separating operating and applications companies would end the competitive edge Microsoft?s applications group now enjoys over rivals. But it would still leave Microsoft with a monopoly in operating systems, which is at the heart of the actions. There is also nothing to stop new operating systems company from repeating in the future what Microsoft has been accused of doing today. Another idea of breaking Microsoft into three with each getting a third of assets in every line of business does sound tempting but is rife with problems. It threatens to put up incompatible versions of Windows on the market, splitting the standard for the global PC world. The hardest part would be in deciding how to divvy up Microsoft and its employers into three equal companies. The most favourable solution would be to make the source code underlying Microsoft?s Windows operating system available to others. It is probably the most efficient way of mitigating the effect of Microsoft?s monopoly on operating systems. Its keeps government interference to a minimum and requires no continuous oversight. Licensing the code would allow other companies to develop competing applications that would work as well as Microsoft?s own applications. If they use the code in a product, they would pay a fee. The unfair linkage between Microsoft?s two monopolies would be broken.
There can be no doubt that Microsoft has used their monopoly powers unfairly to quash their rivals and stifle innovation. They have hurt their consumers as well through forcing lack of choice. While the legal battle will continue for years to come, the technological landscape is changing at breathtaking speed. Before, the high-tech economy consisted of a world dominated by Microsoft and Intel. PC makers were captives of Microsoft operating systems and applications software. Innovation was subdued and PCs were getting boring. Today as Microsoft?s iron clad grip is slowly being removed, there is much more innovation and ferment. New markets and opportunities are opening up. Wireless phones and Palm Pilots pull down data from the Net over non-Windows software. On the Web, companies are not as firmly under Microsoft?s thumb. Any remedy to Microsoft?s monopoly should also be seen in the context of the Web not just the PC. Opening the source book is a solution that fits future, not just the past. The markets are beginning to erode Microsoft?s monopoly but Justice must still act and the best way to do so is to open the source code. Otherwise there is always a chance that Microsoft will turn its huge cash flow and enormous leverage on these new markets. To any society built on competition it is simply not acceptable |
