Microsoft's Desktop Monopoly Isn't Worth All This Fuss
Business Week Online
Commentary by Stephen H. Wildstrom
Why? Because computing is increasingly moving to areas where the company is anything but dominant.
An extraordinary amount of time in the Microsoft antitrust trial has been devoted to a silly question: Does Windows hold a monopoly on desktop operating systems? Microsoft's monopoly is so obvious that no one but a lawyer could possibly doubt it.
The question is also shortsighted. Focusing on Microsoft Corp.'s desktop monopoly fails to recognize that there's a lot more to the computer business -- and that Microsoft has found it surprisingly difficult to build on its existing success in new markets. That's something the Justice Dept. probably should have taken into account before it even filed the suit. Now that the case is under way, it's a consideration that should certainly make U.S. District Judge Thomas Penfield Jackson think twice before slapping any serious restrictions on the company's business practices.
Despite its current prominence, desktop computing is likely to become increasingly less important to Microsoft as time goes on. In the U.S., about half of all households own computers, a percentage that barely budged last year despite a dramatic plunge in prices. Increasingly, the PC market relies on replacements rather than new sales in both homes and businesses. That means the end is near for the explosive growth that has propelled the PC business.
So where will the growth in demand for Microsoft's software come from? Three segments loom large: servers, the computers that run business networks; information appliances, such as the PalmPilot; and finally, the embedded software systems that run microwave ovens and myriad other invisibly computerized household devices. All of these markets are problematic for Microsoft.
TOO WIMPY. In the near term, servers will be the most critical market. Just a year ago, the conventional wisdom was that Microsoft would have little trouble conquering this segment. But in technology, things can change fast. While Microsoft is doing well selling Windows NT for the relatively small servers that run local-area networks for large and midsize businesses, it has had a hard time convincing corporations that NT is up to the job of running their huge databases and big Web commerce sites -- a market dominated by IBM, Hewlett-Packard, and Sun Microsystems. "NT is found mainly in entry-level servers," says International Data Corp. analyst Jean S. Bozman. "There's very little NT in the midrange," which IDC defines as those priced between $100,000 and $1 million.
Microsoft promises that the next version of NT, now dubbed Windows 2000, will be able to handle the biggest chores, but the product is horrendously behind schedule and is unlikely to ship for another year -- allowing Microsoft's competitors to make the most of the delay. For example, Novell, which not many months ago seemed to face doom from the NT juggernaut, has won acclaim for its NetWare 5.0 operating system and is poised to gain share.
In another important part of the server market, a free version of Unix called Linux is moving into corporations to run moderate-size Web sites, databases, and E-mail post offices. According to IDC, Linux and other types of Unix accounted for bit over one-third of the server operating systems sold last year -- while Microsoft's share declined slightly. Linux' zero cost is an obvious attraction, but its reputation for trouble-free operation may be an even bigger plus. Makers of server software such as Oracle and Sybase, and computer makers Dell and Compaq are supporting Linux, and HP plans to bring out Linux-based "server appliances" for Internet service providers. Add it all up, and there's no other conclusion: Microsoft is struggling in the server market.
At the other end of the computer business, Microsoft has tried hard to make its Windows CE operating system the standard for handheld computers, but it doesn't have a lot to show for its efforts. Of the 3 million or so handheld devices that have been sold in the past three years, about 60% have been built around 3Com Corp.'s PalmOS. Meanwhile, Ericsson, Motorola, Nokia, and Philips have joined in a consortium called to build smart mobile phones using the EPOC operating system from London-based Psion PLC.
MINUSCULE FEES. Microsoft is also trying to promote CE to run the tiny computers used in cars, cameras, and household appliances. This market for embedded systems is dominated by inexpensive, small, speedy programs called real-time operating systems, such as Microware Systems Inc.'s OS-9. Microsoft has yet to ship a product, and it faces a tough time convincing the industry it can play in a league in which program size is measured in kilobytes and license fees in pennies per copy.
If Justice lawyers succeed in convicing Judge Jackson that Microsoft has abused its desktop monopoly, they should seek a remedy that requires the company to toe the line in the future. The importance of the desktop may be declining relative to other segments, but it will remain the largest segment of the computer market for the forseeable future.
In the newer and faster growing, markets Microsoft has targeted, though, it faces established, smart rivals -- something that was always scarce in the desktop arena. That will ensure that Microsoft has to fight furiously for every point of market share -- even without the Justice Dept. breathing down its neck. The discipline of competing in the marketplace, in and of itself, should be enough to ensure that prices fall, while quality, choice, and innovation flower. That's just what the government is looking for, isn't it?
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