Schumer has proposed congressional hearings on Microsoft’s new Windows XP operating system, scheduled for release in October. His colleague, New York attorney general Eliot Spitzer, has threatened a court order to stop the fall launch. Never mind the impact on more than 1,000 companies that are busily creating XP-based products. What concerns Schumer and Spitzer is hapless, New York-based AOL ($200 billion market value), which can’t resist using Microsoft’s browser even though Netscape, AOL’s wholly-owned subsidiary, offers a competitive product. AOL, Kodak, RealPlayer and other Microsoft rivals whine that XP is bundled with too many services. That’s bad for consumers, they say.
Nonsense. Windows XP offers a completely open environment, which is more than AOL can claim given its exclusive arrangements with Kodak and RealPlayer. PC makers are free to deliver any third-party software with XP. Rival products are welcome - including Kodak and RealPlayer. In fact, AOL has offered to pay PC makers to give AOL products greater exposure on the XP desktop. What’s the gripe? Consider the Washington Post, with a near-monopoly in the D.C. newspaper market. The Post bundles its business section with the rest of the paper. To get the Post, you must also buy the business section. But the Post doesn’t insist that its subscribers not buy competitive business publications. Imagine the reaction at the Post if it were forced by Schumer and his cronies to unbundle the business section from the rest of the paper.
Just as consumers want an integrated newspaper, they also want an integrated operating system. Microsoft has every right to offer bundled products on a non-exclusionary basis. As a legal matter, the company is complying fully, not only with the recent Court of Appeals decision, but also with Judge Thomas Penfield Jackson’s discredited critique. First, the bundling of XP and Microsoft’s Media Player doesn’t qualify as an illegal tying arrangement even under the standard that Jackson would have applied. Yes, customers have to buy XP if they want to get Windows Media Player 8; but tying is per se illegal only if the company has market power in the tying product. In this instance, Media Player, not XP, is the tying product, and Microsoft has no monopoly power in that market. RealPlayer is the dominant product.
Second, the single charge on which Jackson was affirmed involved Microsoft’s supposed anticompetitive acts to maintain its operating system monopoly. Those acts stifled “middleware” products such as Netscape’s browser and Sun’s Java, which expose “APIs” that facilitate software development and therefore, Jackson asserted, compete against Windows. But the new Windows XP bundles different products, like Media Player and instant messaging. Microsoft’s rivals in those markets do not expose APIs, are not middleware, do not compete against Windows and, consequently, are not part of any scheme to maintain a monopoly in operating systems.
Indeed, the notion that Microsoft is about to embark on a campaign to maintain a Windows XP monopoly is bizarre. XP has precisely zero percent of the market. If Microsoft were to go out of business today, its already-installed programs would continue to function indefinitely. That means the major competitors for XP are prior versions of Microsoft’s own systems - Windows 2000, 98, 95, even 3.1. To sell a new product like XP, Microsoft must convince customers to pay more money, learn the new system, and run the risk that existing applications won’t be compatible. That imposes a powerful discipline on Microsoft’s behavior. Quite simply, Microsoft cannot afford to alienate the customers it must rely on for new sales. After all, any user who doesn’t like XP has an easy alternative: He can elect not to give Microsoft a dime and stay with the system he already has.
This case is advancing through the judicial system, as it should. Microsoft has petitioned the Court of Appeals for a rehearing on the complex issue of commingled code. The company can, if it chooses, ask the Supreme Court to review the appellate decision. Ultimately, the litigation will go back to the trial court, with a different judge in charge, to resolve the tying question and determine appropriate remedies. At this stage, the last thing we need is a grandstanding senator, kowtowing to home-state mega-corporations that can’t seem to compete without a helping hand from government.