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 becauseMicrosoft's competitors are unable to innovate. Yet how to explainNetscape's $10 billion price tag, or continued market leadership byMicrosoft arch-rivals Oracle, Intuit, AOL, Sun Microsystems, andRealNetworks? How to explain Apple's growth in both sales and profits?Sun's CEO, Scott McNealy, recently crowed that "Windows is dead" when itcomes to new software applications. McNealy may be right. Despite JudgeJackson's snapshot view of the software market, the Internet has profoundlyand permanently altered the dynamics. Will Microsoft lose out to consumerelectronics products? McNealy doesn't know, and neither does Jackson. Butthose products are out there, they're selling well, and they arecompetition.

What about Web-based software -- probably the most formidable threat toMicrosoft's dominance? Instead of buying and selling applications like wordprocessors and spreadsheets, users can rent the same functions from Internetservices -- or get them free if they sit through advertising. The onlyessential 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 Intelchips … the vaunted market power of the duo called Wintel doesn't seem sounshakable."

The important point is this: Many desktop machines that access Web-basedservers are "Windows-less" products, and Microsoft's major OEM customers areclimbing on the bandwagon. Gateway is building a line with no Microsoftsoftware at all, and may jointly market it with AOL, which is a majorGateway investor. Dell also plans to bring out a line of Internetcomputers, some without Microsoft software. Compaq's chief executiveobserves that its new generation of products will "redefine Internetaccess." Another industry executive stated that "the Internet gives peoplea platform to do most of the things they need to do on a PC without acumbersome and expensive operating system."

Judge Jackson, infinitely wiser about such matters now that he knows how touse his computer, has an astonishing twofold response to the emergence ofWeb-based servers. First, he contends that "Windows has retarded, andperhaps altogether extinguished" the server threat. That contention has asurreal quality: Jackson describes an event that never actually happenedbut, if it had happened, it would have crippled competition. The samedialectic creeps into his hearsay-laced chronicle of Microsoft's persecutionof Intel, Apple, and Compaq, as well as Microsoft's supposedmarket-splitting with Netscape. "OK, so this thing Microsoft tried to donever did materialize. The other guy never agreed to it and ultimately hedid what he wanted. But what a hobbling impact on innovation if things hadgone otherwise."

Jackson's second justification for discounting Web-based servers is evenstranger. He claims that viable competition from server-based applications"is not imminent for at least the next few years." His projection is surelytoo conservative. Venture capitalists report that they haven't seen abusiness plan for conventional packaged software in more than six months.Scott McNealy predicts that fewer than 50 percent of the devices accessingthe Internet will be Windows-equipped PCs by the year 2002, just 2 1/3 yearsfrom now.

But more important, Jackson's "not imminent for a few years" forecast hasto be placed in context. He plans on issuing his conclusions of law in thiscase early next year. Then a hearing on remedies in the spring, with apossible summer decision. Then we can expect a year or so before the UnitedStates Court of Appeal finishes its review. Then another year for theSupreme Court's deliberations. Finally, even if Microsoft loses at eachstage and remedies are imposed, they will not be effective overnight. Inother words, the market will certainly have obviated any remedies beforethey can have an impact.

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