Opinion - The Microsoft Case

Everybody loves to hate Microsoft but are we killing the goose that laid the golden egg?  Here's why sanctions could hurt you and me:

It all started in the prehistoric past of the computer age when IBM decided to develop the IBM-PC with open standards. This decision, which they have no doubt regretted nearly every day since then, began an era of fierce, even cut-throat, competition among hundreds of hardware and software companies and led to unprecedented innovation, low prices, and increased choices for consumers.  It also resulted in a chaotic situation in which every software vendor had to develop and test his products with a  large number of video cards, printers, sound boards, and other hardware, and every hardware vendor had to worry about compatibility with many software products.  Installation, and compatibility problems abounded.  If you wanted user friendly, you bought an Apple.

Windows changed all that by providing a common denominator "Applications Programming Interface" (API).  Software products now interface to Windows rather than directly to the hardware which dramatically reduces their development and test effort and significantly increases the probability of the product working on your system.  Windows also helps the user by providing a standard user interface for common functions such as opening and saving files, printing, etc.  This reduces user learning curve when adopting new software and further reduces software vendor effort.  No longer does each programmer have to write a "file open routine" because Windows performs the common functions.  It hasn't been easy and there is still work to be done but Windows and Microsoft have enabled an industry where huge competition and innovation exist and the resulting hardware and software systems are reasonably user friendly.  Microsoft supports the Plug-n-Play activities and expends a lot of effort in working with vendors to enhance the "common denominator" role.  This doesn't sound like they are "damaging the consumer" to me.

My brother dumped Apple and switched to "IBM" years ago when Apple came out with a new model which was incompatible with the software he was running in his older Apple.  Intel and Microsoft, in contrast, have gone to extreme lengths to maintain software "backwards compatibility" with older systems.  You can still run software that was developed when PCs were about 1000 times slower than they are now.  Microsoft didn't have to do this.  They could have switched to 32 bit Windows years ago and saved themselves a lot of trouble.  It would have forced a lot of people to buy and learn new applications software which Microsoft and others would have been happy to sell them.  Is Microsoft "damaging the consumer" by letting them run legacy software?  I think not.

Even the central "browser wars" issue seems phony to me.  The government could claim that Microsoft might at some future time damage the consumer by bundling browser software with Windows, driving the competition out of business, and then subsequently raising prices.  It is hard to see how the government has a sustainable case in showing that Microsoft has damaged the consumer by giving away free software.  More important, in the Internet world, the browser supplies functions similar to an "Operating System" and has an "Applications Programming Interface" to allow third party development of applications programs in the form of "plug-ins", scripts, or Java code.  Properly executed this could be a legitimate Windows Operating System function.  In any case, Netscape just announced a new and improved browser as well as new internet appliance initiatives based on their browser and Linux.  Is Netscape "damaged"?  Apparently not yet.

When considered on the basis of unit cost per million lines of code, Microsoft Windows is probably the cheapest program in the history of computing.  (Even "free" Linux is probably more expensive if you get it on a CD with a manual.)  Is this "damaging the consumer"?

Some of the proposed "remedies" to the alleged monopolistic behavior of Microsoft would be incredibly damaging to consumers, the computer industry, and the economy.  For example, in the "Baby Bills" approach, which according to rumor is "favored by the Judge", Microsoft would be broken into three new companies, each of which would continue to sell Windows as well as applications software.  This approach worked well in the 1920s.  For example, a coal mining company, judged monopolistic, could be broken into three smaller companies.  The combined operating costs (sales, miner labor, land leases, mining equipment) of the three companies would be slightly higher than the costs of the original company because of loss of economies of scale but the cost to the consumer might well be expected to  be lower because of increased competition.

But Microsoft is a software company in the 2000s.  Raw material and equipment costs are insignificant.  The major expense is "Research and Development".  If Microsoft were split into three companies, the R & D costs of each company would be the same as the R & D costs of the present company assuming equivalent output in the form of new products, features, etc.  The total costs across all three companies of producing product could reasonably be expected to more than double relative to current costs since all the R & D work would be done three times by three different sets of people.  Do you really believe that "increased competition" would overcome the huge cost increase?  I don't.  The consumer would lose - big time.

It gets worse.  The Windows products produced by the three companies would necessarily diverge because cooperation in this area would presumably constitute antitrust "conspiracy".  New features and new hardware support would lead to different and incompatible Applications Programming Interfaces.  Vendors producing software and hardware for use with Windows would now have to produce, test, and debug three versions of their products.  Consumers, industry, and economy would suffer. 

What about the current plan to split Microsoft into a Windows operating system company (OSCO) which would still be a near monopoly and an applications company (APCO) which would also still be a near monopoly?  OSCO would now have dramatically reduced incentive to develop good new APIs which would now mainly benefit APCO and other applications developers.  Instead, OSCO could reasonably be expected to spend most of its effort developing improvements, and additional bundled items  for Windows, thus increasing its value and cost and increasing OSCO's profits.  The cost of Windows might go from $89 to $188 but people would be getting more with their operating system - whether they want it or not!  Does this help consumers?  Does this help applications developers?  No, and No.

Some say a split is the only way to insure that non-Microsoft applications developers would have equal timely access to Windows APIs and that Windows has "secret" APIs that only Microsoft applications programmers can use.  Microsoft should certainly be ordered to release any secret APIs and to release new Windows APIs to developers simultaneously with release to Microsoft applications people.  Some say they would ignore such an order.  Would a split help this problem?    One difficulty is that the applications programmers at APCO presumably already know any current secret APIs.  Also, apparently, current Microsoft employees (now to be employees of either OSCO or APCO) owning less that 5 percent of Microsoft will be allowed to own stock in both companies.  So, employees might be inclined to leak new secret APIs between OSCO and APCO.   Would employees be less likely to break the law in the split case than in the non-split case?  Why?  In other words, even if you believe the worst about Microsoft, a split doesn't seem to help with the API problem and in fact makes it worse.

Wired Magazine (November) has an excellent article about the Microsoft case.  The article conveys that Gates acted as his own lawyer and was so completely unrepentant and uncooperative that the judge felt he had to do something drastic.  My take is that we are now in a situation that none of the parties ever wanted.  Microsoft's stock price and image have been hammered, the judge's breakup plan has holes you could drive a Mack truck through and is certain to be severely handled on appeal, and the Justice Department is going to get a lot of heat from a new Republican administration. 

What is that Chinese curse "May you live in interesting times" -- it is going to be interesting to see how all this gets resolved. 

- Ted Goldsmith
President, SeekOn Search Systems

Our email is running about evenly split for/against a breakup.

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