Commentary

Why Microsoft Should Have Won

This article appeared in the Washington Times on November 8, 1999.
Here’s the lesson that high-tech companies can glean from Judge Thomas Penfield Jackson’s findings in the Microsoft case: If you’re sufficiently ambitious, competent, and hard-working; if you’re willing to risk your time and fortune; if you succeed at rising above your competition by serving customers with better products; then watch out, because our government will come down on your neck with the force and effect of a guillotine. Jackson’s knee-jerk recitation of the Justice Department’s line is a mockery of objectivity, scornful of the facts, and congenial only to those who prefer a sterile marketplace in which vigorous competition becomes legally actionable.

Let’s start with the judge’s big picture: an industry crippled because Microsoft’s competitors are unable to innovate. Yet how to explain Netscape’s $10 billion price tag, or continued market leadership by Microsoft arch-rivals Oracle, Intuit, AOL, Sun Microsystems, and RealNetworks? How to explain Apple’s growth in both sales and profits? Sun’s CEO, Scott McNealy, recently crowed that “Windows is dead” when it comes to new software applications. McNealy may be right. Despite Judge Jackson’s snapshot view of the software market, the Internet has profoundly and permanently altered the dynamics. Will Microsoft lose out to consumer electronics products? McNealy doesn’t know, and neither does Jackson. But those products are out there, they’re selling well, and they are competition.

What about Web-based software — probably the most formidable threat to Microsoft’s dominance? Instead of buying and selling applications like word processors and spreadsheets, users can rent the same functions from Internet services — or get them free if they sit through advertising. The only essential user program is a Web browser. As the Wall Street Journal put it: “If users don’t need PCs with Microsoft’s Windows operating system or Intel chips … the vaunted market power of the duo called Wintel doesn’t seem so unshakable.”

The important point is this: Many desktop machines that access Web-based servers are “Windows-less” products, and Microsoft’s major OEM customers are climbing on the bandwagon. Gateway is building a line with no Microsoft software at all, and may jointly market it with AOL, which is a major Gateway investor. Dell also plans to bring out a line of Internet computers, some without Microsoft software. Compaq’s chief executive observes that its new generation of products will “redefine Internet access.” Another industry executive stated that “the Internet gives people a platform to do most of the things they need to do on a PC without a cumbersome and expensive operating system.”

Judge Jackson, infinitely wiser about such matters now that he knows how to use his computer, has an astonishing twofold response to the emergence of Web-based servers. First, he contends that “Windows has retarded, and perhaps altogether extinguished” the server threat. That contention has a surreal quality: Jackson describes an event that never actually happened but, if it had happened, it would have crippled competition. The same dialectic creeps into his hearsay-laced chronicle of Microsoft’s persecution of Intel, Apple, and Compaq, as well as Microsoft’s supposed market-splitting with Netscape. “OK, so this thing Microsoft tried to do never did materialize. The other guy never agreed to it and ultimately he did what he wanted. But what a hobbling impact on innovation if things had gone otherwise.”

Jackson’s second justification for discounting Web-based servers is even stranger. He claims that viable competition from server-based applications “is not imminent for at least the next few years.” His projection is surely too conservative. Venture capitalists report that they haven’t seen a business plan for conventional packaged software in more than six months. Scott McNealy 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.

But more important, Jackson’s “not imminent for a few years” forecast has to be placed in context. He plans on issuing his conclusions of law in this case early next year. Then a hearing on remedies in the spring, with a possible summer decision. Then we can expect a year or so before the United States Court of Appeal finishes its review. Then another year for the Supreme Court’s deliberations. Finally, even if Microsoft loses at each stage and remedies are imposed, they will not be effective overnight. In other words, the market will certainly have obviated any remedies before they can have an impact.

Meanwhile, Microsoft behaves not like a monopolist but like a company whose very survival is at stake. Its prices are down and its technology is struggling to keep pace with an explosion of fresh software products. Facing competition from new operating systems, consumer electronics, and Web-based servers, Microsoft now operates in a world where anyone running a browser will soon have the same capabilities as today’s Windows user. Hands off!

Robert A. Levy is a Senior Fellow in Constitutional Studies at the Cato Institute.