Rewriting the Rules for High-tech Antitrust

Welcome to the post-modern world of high-tech antitrust, where big is once again bad, lofty profit margins are a wake-up call to government regulators, executives are brought to heel for aggressively worded e-mails, pricing too high is monopolistic, pricing too low is predatory, propping up politically wired competitors is the surreptitious aim, bundling products that consumers want is illegal, and successful companies are rewarded by dismemberment. That’s the Orwellian world in which Microsoft finds itself, a year into probably the most important and manifestly the least justified antitrust crusade of our generation.

In the new Internet world, traditional application software developers are morphing into “applications service providers,” or ASPs for short. They are rewriting popular software packages and creating new packages to run on Web-based servers. Thus, corporate users don’t have to install and update large applications programs on each PC, nor rely on their own networks and servers. Instead, PCs will tap into the Internet to access customized corporate applications as well as standard programs such as word processing, spreadsheets and presentation software.

“In the past six months, we have not seen a business plan for a conventional packaged software application,” says James Breyer, a venture capitalist at Accel Partners. “It’s the first time in our history I could say that.”

For Microsoft, that means its putative “applications barrier to entry” - i.e., the array of software programs written for Windows that might not be available to users of an upstart would-be Windows competitor - if it ever really kept rivals at bay, is unlikely to afford much protection in the future. The vaunted power of Windows is no more.

To cite just one example of this new paradigm, on Aug. 31, Sun Microsystems announced its acquisition of Star Division Corp., a company that makes StarOffice, a suite of software very similar to Microsoft Office. Sun insists, however, that it has no plans to go head-to-head against Microsoft. Rather, Sun will convert StarOffice into a free Internet-based service that can be run directly by any user with any Web browser.

Sun CEO Scott McNealy writes that “a few years from now, savvy managers won’t be buying many, if any, computers. They won’t buy or build anywhere near as much software either. They’ll just rent resources from a service provider.”

McNealy, who may be Microsoft’s most vitriolic critic, predicts that fewer than 50 percent of the devices accessing the Internet will be Windows-equipped PCs by the year 2002, just 2 1/3 years from now. That forecast comes from the same antagonist who complains that “Microsoft operates beyond the constraints of market discipline.”

The antitrust implications are crystal clear, especially to McNealy if not to his collaborators at the Department of Justice. Microsoft has zero leverage in a world where applications are written so that any browser can run them and any operating system can access them. Whether a user has MacOS, Unix, Linux or any other system, as long as he is running a Web browser he has much the same capabilities as a Windows user. That exciting development is here today; it’s not a “could happen in the future” item.

There’s a good reason only a few companies are clamoring to compete against Microsoft in the PC operating system market: It isn’t a growth market anymore. That opportunity has passed. The future is elsewhere.

Microsoft neither has the leverage it is said to have nor did the damage it is said to have done. Instead, lawyers with marginal understanding of how businesses talk and operate, and even less understanding of the technical subject matter, were bamboozled into bringing this case by rent-seeking executives, who knew then and know now that software markets are intensely competitive. Disgruntled rivals played on the naivete and power lust of government officials and persuaded them that Microsoft’s aggressiveness could be scripted into an antitrust suit.

No doubt, McNealy and former Netscape CEO Jim Barksdale are privately clucking because they see the fatuity of this lawsuit better than anyone. Yet, they have succeeded in getting the government, at taxpayer expense, to do their competitive dirty work and, to boot, humiliate a rival whom they envy and despise.

The government needs to re-think its entire approach to high-tech antitrust. What exactly will be accomplished by any of the proposed remedies? If the objective is to take away the “leverage” of Windows so that the industry isn’t “forced” to live in a Windows world, the market has already attained that goal, without any “help” from DOJ. Yes, it will take a few years for the impact fully to play out, but that would be the case even if DOJ were to win its lawsuit. Years could elapse before a final disposition, and millions of users are not going to abandon Windows overnight.

Even assuming that DOJ had been correct on every point it has raised, the real-world case is over. What the government says it wants has already happened.

Thus, the ineluctable conclusion must be that the whole concept of antitrust is flawed to the core. The market moves faster than antitrust could ever move. The assumption of would-be regulators - that inefficiencies, especially in high-tech markets, can lock a company into a position from which it can’t be unseated - is a complete myth. Consumers rule, not producers. And consumers can unseat any product and any company no matter how “powerful.” Antitrust, if it were ever needed, is as obsolete as Windows will soon be.

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute.