<nettime> Info-Policy-Notes: Microsoft's Ambitions and Antitrust Policy

[James Love <love@cptech.org>]

[Original to INFO-POLICY-NOTES list; info �bout the list is at the end.-T] 

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Info-Policy-Notes | News from Consumer Project on Technology
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April 20, 1998


              Microsoft's Ambitions and Antitrust Policy

                   Ralph Nader and James Love

             Remarks at the Cato Institution Policy Forum 
                   on Antitrust and Microsoft
                         April 20, 1998 
         (http://www.essential.org/antitrust/ms/catoapril20.html)
 
1.      What is at stake?

In his day, John D. Rockefeller tried to monopolize oil production,
refining and distribution.  Alcoa sought to protect its monopoly in
manufacturing aluminum.  AT&T tried to monopolize local and long
distance transmission of telephone calls and the manufacturing and sale
of telephone handsets or devices that would connect to telephone lines.
For decades IBM dominated the computer mainframe software and hardware
market.  Intel is trying to monopolize the manufacturing of hardware
used to run personal computers.

Microsoft is more ambitious, and the implications of its global strategy
are far more far important.  Microsoft wants to use a core monopoly in
software operating systems to dominate an enormous range of new and
important areas of electronic commerce, and Microsoft wants to
monopolize the software used to navigate the Internet and to navigate
the next generation of television and multimedia programs.

If Microsoft were to succeed in every area it is active, it would have
the most important control over commerce and worldwide information flows
of any firm, ever.

Increasingly, we are talking about technology that is used as a gateway
for many businesses, publishing ventures and civic communications, and
Microsoft wants to dominate, influence or control the content itself,
not just the transmission.

This elevates the disputes over Microsoft use of its Operating System as
a matter of public policy.

2.      How is this done?

In the software area, Microsoft engages in a very wide range of
anticompetitive acts --- many of them are very similar to techniques
used by Standard Oil, AT&T or IBM, before each of these companies faced
antitrust action.

One strategy of a monopolist is to deter entry or investment by rivals
by engaging in predatory pricing.  Standard Oil used cross subsidies to
selectively cut prices, so it could bankrupt its rivals.  AT&T used
cross subsidies to selectively cut prices, and drive rivals out of
business. IBM used cross subsidies to selectively cut prices, and drive
rivals out of business.  Microsoft does this too.

Microsoft can take a rival's core product, and spend countless millions
in R&D or acquisitions, and then offer a competing product for free, or
bundle it with Windows or with Microsoft Office --- the suite of office
productivity applications which are nearly as ubiquitous as the
operating system.

For example, faced with Microsoft's decision to spend hundreds of
millions of dollars on a free alternative, Netscape is unlikely to
justify continued R&D spending on its browser.  And when Microsoft
announced that it would include copies of its Outlook  product in
Microsoft Office, Netmanage announced it would discontinue further
development of Ecco Pro (http://www.netmanage.com/products/eccopro/).

Microsoft benefits from predatory pricing in two ways:

-       once the threat of competition is less, it can later
        raise prices,

-       Microsoft's tough reputation scares off other new
        entrants.

But there are also technological strategies for predation, such as those
concerned with Interoperability.  These too have many parallels with
other monopolies.

In high tech markets, it is often the case that products must
interoperate with each other.  AT&T tried to limit the ability of
competitors products to interoperate with the AT&T telephone network, by
withholding technical information, using proprietary technologies, or by
changing standards to create incompatibilities of rivals products. IBM
did this.  Intel is doing this now.  Microsoft has done this for a long
time, going back to the days when programmers coined the phrase, "DOS
isn't done until Lotus won't run," referring to Microsoft's introduction
of minor changes in DOS that created problems with Lotus 123, the
spreadsheet program that is a competitor to Microsoft's Excel.   If
Microsoft can't make its own products look better by taking advantage of
technical back doors, it can make a rivals products perform badly, or it
can make its own products technically essential, as it is trying to do
with the browser.

When you combine both predatory pricing and technological predation,
firms and investors decide on their own to keep out of Microsoft's way. 
Consider the following quote from an April 18 story by Lisa Bowen in
Ziff Davis's ZDNET web site:
(http://www.zdnet.com/zdnn/content/zdnn/0418/308142.html)

        A further challenge for the DOJ is showing that 
        Microsoft is actually  stifling innovation because 
        it's hard to measure Microsoft's products against 
        those that never make it to market. 

        There's no question that many developers are shying 
        away from independent projects in areas that Microsoft 
        might consider. At Microsoft's Windows CE development 
        conference, developers lined up during a 
        question-and-answer session to ask the software behemoth 
        which products it doesn't plan to develop, as if they 
        were looking for crumbs.

        Other software makers said they attended the conference 
        to check out Microsoft's plans to make sure they stay out 
        of the company's road.

        A new area of predation for Microsoft concerns Internet
navigation. 
One of the major reasons that Microsoft wants to have a monopoly on
Internet Browsers, is so that Microsoft can design the Windows operating
system to have as much control as possible on navigation itself.   There
are several aspects of this.

        Microsoft wants to write the default bookmarks and menu options
for
content based upon current and new Internet technologies.  The
unsuccessful experiments with so called "push" channel technologies was
one attempt.  The new Microsoft "Start" page project is a more elaborate
version. Microsoft has also designed its Browser so it can periodically
check in with Microsoft to reset bookmarks, menus and other items with
ones Microsoft's suggests, gently but ever so steadily taking consumers
"where Microsoft wants them to go today."  Microsoft is developing its
own search engine, which it hopes will replace Yahoo and other popular
search sites.

        This is a "path of least resistance" strategy, based upon the
idea that
time and attention are the ultimate scarce resource in the information
age.

        Will it work?  Consider commercial airline reservation systems. 
One
study indicated that professional air travel agents using online
reservation systems would pick the first fare they saw 53 percent of the
time, and a fare from the 1st screen 93 percent of the time.

        When Microsoft bought Web TV, it changed the travel menu so that
Expedia, the Microsoft travel service, appeared first in the travel
menu.  Sabre told us their Travelocity web site lost is prominent menu
location, and was moved to page 6, next to Tom's Travel, in an
alphabetical listing. How many people in the audience ever look at page
6 when you use an Internet search engine?

What will happen if Microsoft succeeds in its wildest dreams and
determines which flower shop, which citizen group, and which car dealer
appears on page 1 and which one appears on page 6?  What if Microsoft
could determine what information appears on page 1 when a person
searches for information about Representative Rick White or legislation
concerning digital copyright?

3.      What Should Be Done.

        In 1997, we organized a conference to Appraise Microsoft's
Global
Strategy.  I believe we now have a fairly good idea of where some of the
problems are.  It is time to shift the debate to the issue of remedies. 
What can and what should be done about the Microsoft Monopoly?  This
will be the focus of our next Microsoft conference.

        The current DOJ litigation deals with narrow issues concerning
restrictive contracts and product bundling.  The easiest remedies would
limit the use of restrictive contracts, such as contracts that prevent
Internet Service Providers or OEMs from giving consumers the opportunity
to choose non-Microsoft products.  Practical rules regarding product
bundling are more difficult, as is the issue of predatory pricing, which
DOJ and the EC have ignored.  But there are several other types of
remedies which may be more useful.

Issues regarding interoperability are very important. The European
Community's 1984 undertaking with IBM was mostly about interoperability
issues. (http://www.essential.org/antitrust/ms/1984ibmeu.html). There
has been much antitrust work on interoperability that relates to
telephone monopolies.  In recent years, the Federal Trade Commission has
negotiated agreements with several other software companies to open user
interfaces, such as the FTC's 1995 agreement with Silicon Graphics, Inc
(Docket No. C-3626), which required SGI to "establish and maintain an
open architecture, and publish Application Program Interfaces ("APIs"),
for . . . computers and operating systems in such manner that [third
party] software developers and producers may develop and sell  . . .
software, for use on [SGIs] computers, in competition with [SGI]."

        More relevant is last week's landmark ruling in the Intergraph
v. Intel
case, where a federal judge ruled that Intel's CPU platform is an
essential facility - and ordered Intel to provide non-discriminatory
access to technical data needed to develop products which interoperate
with the Intel CPU.  (http://www.intergraph.com/intel/highlights.stm ).
Now that the "tel" half of Wintel is considered an essential facility,
what about the "Win" half? Biases of Internet navigation and related
areas are very important, particularly if Microsoft succeeds in
monopolizing the browser market, dominating the search engine market,
and becoming the front end for new video set top boxes.  Policy makers
and the public need to debate conduct rules which would prevent a
dominant OS vendor, like Microsoft, from exercising undue influence over
Internet information searching and navigation technologies.

        There are also other remedies that challenge Microsoft on a more
basic
level.  We are asking OEMs to offer consumers the opportunity to
purchase alternative operating systems, not owned by Microsoft.
(http://www.essential.org/antitrust/ms/ipnmarch91998.html) These include
both commercial competitors, like Rhapsody, BeOS or OS2,  and a new
generation of powerful free operating systems, such as Linux or FreeBSD,
which are rapidity maturing as alternatives.

        We believe there are factors which make it more feasible for a
new OS
to succeed.   Larger and cheaper hard disks and computer memory make it
possible to run multiple operating systems on the same computer.  We do
this now at our offices.  Secondly, the Internet and new Internet
standards bodies make it easier to share data across OS platforms.  
Third, new software development tools make it easier to port software
applications across platforms.

        There remain barriers for new OS platforms, however. The most
important
of which concern device drivers, which are still scarce for Windows
alternatives.  Making matters more difficult would be efforts by
Microsoft and Intel to control the architecture of a new generation of
high performance device drivers.

        Leading Original Equipment Manufactures (OEMs) for personal
computers,
like Dell, Micron, Gateway 2000, Packard Bell, Compaq and others need to
be free from retaliation by Microsoft if the OEMs offer non-Microsoft
products, including choices of software operating systems. This may be
difficult in practice if Microsoft can discriminate in its pricing of
the software OEMs need for the current corporate and consumer market. 
If Microsoft were required to use non-discriminatory licensing of
Windows and Microsoft Office, OEMs would be free to offer consumers
additional choices. 

        Essential Information has created an Internet email list to
discuss these issues.  You can participate by sending a note to
listproc@essential.org with the message "sub am-info yourfirstname
yourlastname."  Archives of this list are available on the Internet at
http://www.essential.org/listproc/am-info/ (no period). The Consumer
Project on Technology also maintains a web page on Microsoft antitrust
issues at  http://www.essential.org/antitrust/microsoft/microsoft.html
(no period).

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