BTW I speak for myself and not for Microsoft. I no longer work at Microsoft. So any whining is exclusively my own.
>It is completely good and moral for Microsoft to exercise its property rights. It is bad and immoral for Microsoft to exercise rights which it does not have. Under US law, it is illegal to tie two products together for the purpose of monopoly preservation and extension of a monopoly in one area to another. In this case, IE 4.0 and Windows 95 are being illegally tied.
The last sentence is purely your opinion; no court has yet made a final ruling that Microsoft has a monopoly in any area, or that any products are being illegally tied. The only thing that has occurred has been an injunction regarding the presence of IE icons in Win95 (which appears to have a good chance of being overturned on appeal). So I continue to maintain that, with the exception of anything covered by the injunction, Microsoft should be able to dictate licensing terms for its products to Compaq or anyone else.
As to whether the courts will eventually agree with your monopoly assessment, we shall certainly find out. I personally am quite glad that this case and its allegations have now been made explicit for a court to decide on. I also think that eventually Microsoft will prevail on most or all counts; as to why I think that way, and addressing your "monopoly" claim, I'll defer to what I consider to be a quite good exposition at microsoft.com.
Monopoly Power
(1) The Law - A necessary, though not sufficient, prerequisite for a violation of section 2 of the Sherman Act is a showing that the defendant has "monopoly power." The Supreme Court has defined such power as "the power to control market prices or exclude competition." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956). While a very large market share may raise an inference of monopoly power, "[w]hen there are better ways to estimate market power, the court should use them." Ball Memorial Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1336 (7th Cir. 1986). For example, a large market share is only indicative of monopoly power if it is durable and persistent. If there are low barriers to entry or to expansion by fringe firms or if the market is highly dynamic, then a firm's current market position is likely to be fragile and any hope of exercising market power will be futile. See, e.g., Los Angeles Land Co. v. Brunswick Corp., 6 F.3d 1422 (9th Cir. 1993) (holding that the defendant did not possess monopoly power despite the fact that it had a 100 percent share of the relevant market).
(2) Application to Microsoft - Microsoft's critics claim that, because Microsoft's operating systems are installed on a large percentage of the PCs being shipped today, Microsoft has monopoly power. That claim, however, is extremely misleading for several reasons.
First, a "market" limited to operating systems installed by computer manufacturers on Intel-compatible PCs is unduly circumscribed. Not only can a computer manufacturer choose among various PC operating systems, including IBM's OS/2, Solaris x86 from Sun Microsystems, UnixWare from Santa Cruz Operation, and Linux (the "open" operating system based on Unix), but consumers and businesses can choose systems other than a PC, such as an Apple Macintosh, a so-called Net Computer ("NC"), or even bigger systems such as mini-computers. In addition, any market definition that ignores the fact that Microsoft must compete against its own installed base fails to take account of an important competitive dynamic. Computer software does not wear out. A current computer owner will switch to a new operating system (whether Microsoft's or anyone else's) only if he or she perceives the incremental value of the new operating system to be worth its price. And, one cannot ignore so-called "middleware" layers, such as Netscape's browsing software or Lotus Notes, that provide independent software vendors or developers ("ISVs") with platforms complete with their own application programming interfaces ("APIs") that are being touted as substitutes for Windows. Indeed, powerful competitors such as IBM and Sun Microsystems are investing hundreds of millions of dollars to develop and market new technologies that they hope will replace Windows.
Second, the "market share" of a software product is much less significant than the typical market share possessed by a manufacturer of a producer of physical goods. Once written, a piece of software can be copied an infinite number of times at virtually zero marginal cost. In other words, the productive "capacity" of every piece of software, once written, is virtually infinite, even if its current sales are de minimis. If the owner of the "dominant" software tries to reduce output, the fringe firms can costlessly increase the output of their software, completely replace the output withheld by the dominant software publisher, and thus thwart any effort to raise price. Therefore, any effort by Microsoft to raise prices (without providing commensurate value) would be doomed to failure because consumers are able to switch to competing operating systems or simply continue using the operating system they currently own. The price Microsoft charges and the market share it achieves are nothing more than a reflection of the inherent value (or superior efficiency) of Microsoft's operating systems as compared to the available alternatives.
Third, because of the rapid change in technology in the computer market, there are always new opportunities for start-up firms or established players (such as IBM, Oracle, or Sun) to introduce new operating systems or to enhance existing ones. And, if those new or improved operating systems indeed represent the proverbial "better mousetrap," then they have a real chance to supplant the existing market leader. These opportunities are driven by changes, inter alia, in software, in hardware, in communications technology, and in consumer preferences. Microsoft has only succeeded by constantly bringing new technologies to consumers more efficiently, more attractively, and at lower prices than the competition.
Some of Microsoft's critics claim that, because of so-called "network externalities," it is virtually impossible for anyone to challenge Microsoft's "dominance" on the PC desktop. Certainly, Windows is very popular, in part, because it provides for literally thousands of ISVs a valuable platform that simplifies the task of creating compatible applications and because millions of consumers have become familiar with the "look and feel" of Windows and have assembled libraries of Windows applications. Nevertheless, the notion that these "externalities" insulate Microsoft from competition is simply wrong. The same "lock-in" story was being told just a few short years ago about Nintendo's "monopoly" position in video games. Yet, in the intervening years, Sega and now Sony have overtaken Nintendo. The same thing will happen to Microsoft if it does not continue to innovate at a rapid pace and continue to offer its operating system at competitive prices.
In short, notwithstanding the percentage of PCs currently being shipped with Windows, Microsoft has no power to suppress the changes that almost daily create opportunities for those hoping to supplant Microsoft. The company's only hope of sustaining its success is to continue to do the best, most efficient job of making each technological advance available to the consumer. That technological treadmill is hardly the quiet life and "deaden[ing] of initiative" experienced by a true monopolist. United States v. Aluminum Co. of America, 148 F.2d 416, 427 (2d Cir. 1945). |
