Here a Linux / Windows article....
Microsoft: Linux poses threat to Windows
By Will Rodger, Inter@ctive Week
November 20, 1998 9:59 AM ET
WASHINGTON -- Microsoft Corp.
(MSFT) lawyers sparred with a government
economist in court Thursday, arguing that
Linux, a fast-growing but notoriously
difficult-to-install operating system, poses a
real threat to the company's hegemony over
PC operating systems.
Microsoft attorney Michael Lacovara made
the assertion in the ongoing antitrust trial
here to counter arguments by government
witness and former Department of Justice
economist Frederick Warren-Boulton that
Microsoft's 95 percent share of the market
for PC operating systems presents a nearly
insurmountable barrier for would-be
competitors to the dominant Windows
operating system.
Interestingly, internal Microsoft documents
dismissed Linux as a competitor to desktop
operating systems only this past summer,
although they did say it posed a serious
threat to the company's server software
efforts. The current trial deals only with
desktop software.
In written testimony Wednesday,
Warren-Boulton laid out a series of
economic arguments that echoed critics'
views of Microsoft business practices. As he
explained it, Microsoft has effectively killed
the market for new operating systems by
obtaining economies of scale sufficient to
outspend almost any company that dares to
challenge it.
In addition, he said, the Redmond, Wash.,
company has reinforced those barriers
through restrictive licensing agreements with
computer makers, Internet service providers
and Internet content providers. In the case of computer makers, he
wrote, contracts force companies to promote Microsoft products
exclusively or lose their chance to license Windows in a timely fashion.
Microsoft focuses on Linux army
Lacovara focused on the estimated 7 million to 10 million copies of
Linux that have been distributed since 1991 -- in most cases free of
charge or for a nominal fee, since thousands of volunteer programmers
have worked on the "open" software project since it began. Microsoft
operating systems, by contrast, have an estimated 140 million to 200
million users. Lacovara presented several news stories detailing plans by
major software makers such as Netscape Communications Corp.,
Oracle Corp. and IBM to write programs and provide technical services
for users of the operating system. He asked Warren-Boulton if he didn't
think these companies posed a threat to Microsoft.
"Linux is certainly at this point a niche product," Warren-Boulton
replied. "Its success has largely been in the server area."
But wasn't this competition nonetheless? Lacovara wanted to know.
"I wouldn't regard it [as competition] at least at this point,"
Warren-Boulton said. "It's certainly not a restraint on Windows pricing."
Under traditional antitrust theory, prices charged by monopolies are
relatively "unrestrained" -- that is, higher than what would be charged in
a competitive market.
Linux as mainstream threat?
Lacovara, eager to prove that his client is not a monopoly, pressed
further. On screens and computer monitors located throughout the
courtroom, he presented images of packaging from the latest version of
Red Hat, one of several popular versions of Linux. Text on the box said
it included versions of WordPerfect, a once common word processor
that now accounts for less than 5 percent of the world market;
RealAudio software for receiving audio and video over the Internet; the
Netscape Navigator browser; and more than 20 other software
packages restricted to the Linux market.
Didn't that prove that computer users had a real choice?
No, Warren-Boulton said, and the financial markets proved it. Despite
the recent press devoted to Linux, investors kept Microsoft's
price-to-earnings ration at more than 50 times earnings.
"What financial markets are saying is we don't just expect Microsoft's
profits to grow, but grow at a rate more than twice that of the market,"
he said.
But weren't companies like Corel Inc., Oracle, Intel Corp. and
Netscape betting on Linux?
"No, that's a different bet," the economist shot back. Those companies
were betting they could make a profit from producing software for
Linux, not that it would somehow overtake Microsoft. Lacovara should
check something else instead, he said.
"I don't know who's shorting Microsoft stock, but that traditionally has
not been a good bet," a seemingly irritated Warren-Boulton said. "If you
seriously believe this product is going to constrain Microsoft's profits,
run, don't walk, to your broker and short Microsoft," he said to peals of
laughter in the courtroom.
The 'quiet life' of a monopolist
Lacovara earlier had pressed Warren-Boulton on what he thought
Microsoft had done to stay current with the market. In opening
arguments, states attorney Stephen Houck had referred to the "quiet life"
of the monopolist, an apparent reference to a phrase economists use to
describe the lack of competition faced by utilities and other monopolies.
Warren-Boulton replied that Microsoft clearly hadn't sat on its laurels.
Instead, he said the company had added features and functions
necessary to avoid being supplanted in the market.
The Microsoft lawyer moved in quickly. "So this is a monopoly under
which a company has to innovate and always has to be paranoid it's
falling behind?" he asked.
Warren-Boulton wouldn't go that far. Since consumers and others
would bear serious costs in trying to switch to another operating system,
they would stick around as long as the operating system was reasonably
good. That hardly meant, though, that Microsoft was on the same shaky
ground other software producers inhabit. In any case, he said, "there's
nothing in economic theory that tells you a monopolist won't innovate."
Moreover, he said, "drawing an analogy between Microsoft and a
sleepy English utility is not going to be very appropriate."
Lacovara sought to get Warren-Boulton's approval for Microsoft's
bundling of its browser and operating system, but the economist didn't
give an inch.
"I don't think we're talking about innovation. We're just talking about
bundling," he said.
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