The Desktop and the DOJ

Mark Weller 

Much has been written of late with regard to the recent anti--trust charges laid against Microsoft Corporation by the US Department of Justice (DOJ). The discussion has ranged from analyses of Internet Explorer's features to explanations of the Sherman Act. What must not be lost in the discussion, however, is what affect all of this will have on the consumer.

It is important to realize that there have been significant benefits to the consumer brought about through this firm's innovations. Bill Gates' own net worth is a testimony to the confidence that consumers have expressed in his products. One does not have to be a devotee of Bill Gates or of Microsoft's product line to recognize that the recent action by the Department of Justice is an unprecedented and unwarranted intrusion by the state into the conduct of business.

On May 18, 1998 the US Department of Justice and 20 state Attorneys--General announced that they were filing charges under the Sherman Anti--Trust Act against Microsoft Corporation for alleged “anti--competitive” behaviour. Microsoft was charged with having used its dominance in one sector of the marketplace, operating systems, to eliminate competition in another sector, web browsers.

Responding to the charges, Mr. Gates suggested that the DOJ's proposed alternative, that Windows 98 be designed with the Netscape browser as a built--in option, “is like requiring Coca--Cola to include three cans of Pepsi in every six--pack it sells.” He is absolutely correct in this assessment. Despite DOJ assurances that they do not seek to favour any one competitor, this proposal rewards a single company, Netscape, at the expense of Microsoft. It should also be noted that, despite the supposed “predatory” tactics of Microsoft, Netscape still has the majority market share in web browsers. So the monopoly argument does not hold: there is, in fact, competition.

The alternate proposal, for Micro-- soft to remove the built--in functions of Internet Explorer from Windows 98, is also ridiculous. Software firms should be free to innovate without fear of government intervention or regulation. In order to stay competitive in a rapidly changing industry, software companies need to be constantly looking for ways to change their products to provide for greater functionality and ease of use. A few years ago, Microsoft had started down the wrong path with a massive investment in a user pay on--line service known as MSN. In fact, the first versions of Windows 95 had very few Internet functions, the strategy being that Microsoft should promote MSN as an alternative to the World Wide Web. When this strategy began to falter, however, Microsoft changed course and innovated by introducing Internet functions to its operating system and software applications. The reward for responding to the market through innovation? A series of anti--trust suits.

It is important to remember that a software company and its level of market penetration do not remain static. For example, if Intel were to stop developing newer and faster microchips, its share of the market would quickly diminish. Similarly, if Microsoft had not introduced Internet functions into its applications, it would have placed itself in a far less competitive position.

One should also remember that regulators are not good at analyzing market trends and making predictions, particularly in high tech. Twenty years ago, when IBM was being investigated for its so--called “monopoly” in mainframes, a revolution was developing that changed the entire marketplace. The development of the personal computer radically transformed the market, and resulted in mainframes being reduced to a much smaller portion of the computer business. Some analysts believe that a similar set of events is occurring today. While the DOJ is busy fussing about the domination of the desktop operating system market by Microsoft, they are failing to notice that the technology is changing. The development of the Java programming language, server driven applications, network computers and WebTV are all introducing new interfaces that will provide alternatives to the desktop interface. In the future, it is likely that interfaces will proliferate and as a result, so may operating systems. The fact is, the future development of computing technology is not predictable, and therefore governments should not be in the business of selecting winners or losers either through grants or through the punitive measures of the anti--trust provisions.

To bring this all closer to home, what is the effect of this sort of action on Canadians? Countries around the world are waiting to see what happens in this battle between the DOJ and Bill Gates. If Microsoft loses this battle, it will send a signal to governments that this sort of intervention is possible, and to companies that there are two ways to compete. A firm will then either choose to compete head on with Microsoft in the market, or instead will turn to government to intervene on their behalf. The problem for the consumer is, as countless studies have shown, the politicization of such activities through government intervention is always less efficient and more costly than is the market alternative. Greater litigation will lead to less product innovation and higher prices.

In fact, the consumer is already losing. As Microsoft is forced to spend more and more of its time focusing on legal cases, products are delayed and valuable resources are being misallocated. The chill placed on the entire sector by this heavy--handed suit also will tend to stifle the development of any product which even remotely could be seen as dominating the marketplace, however legitimately, at the expense of competition. And finally, the long--sought goal of the integrated desktop, where applications actually work together, is undermined since the very basis of the DOJ suit is that the Internet functions built into Windows 98 are against the law.

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