Nathan Newman finds and comments on a couple of thoughtful Economist pieces on the Microsoft trial:
NathanNewman.org - News and Views: Economist on Microsoft Trial: I haven't written anything since the court upheld the weak-ass Justice Department settlement with Microsoft, partly because I have written so much over the years-- see my Tech page with my work from NetAction.
My basic reaction was in my article written after the Appeals Court overturned the original Microsoft sanctions.
But I think The Economist surprisingly pretty much captures my views this week in their article Was the big antitrust trial a waste of time? The answer was no:
But even if the settlement proves toothless, the trial has had several benefits. As with IBM's long-running antitrust case, which ended 20 years ago, its greatest impact may be felt in how the market reacted as it went on... By shining a spotlight on Microsoft's practices, the courtroom proceedings emboldened its competitors in its main market, alerted potential rivals in other markets, and forced the software company to restrain its normal behaviour towards customers and competitors alike.
Thus even without the settlement, restrictive contracts with PC makers have been dropped. Consumer mistrust has forced Microsoft to drop ambitious plans to set up a central repository of Internet users' personal information. Wariness of Microsoft's practices has boosted the fortunes of open-source software such as Linux. And Microsoft has, in effect, been frozen out of entire new industries, as its software for smart phones and television set-top boxes has been shunned.
And for those who doubted the whole argument about the harms from Microsoft's monopoly, the article makes this slam-dunk point:
What is striking is how little innovation there has been in the bits of the market that Microsoft dominates, and how much where it has little influence. Operating systems, web browsers and word-processing software all look much as they did five years ago. But not many people are using five-year-old mobile phones, handheld computers or music-sharing software.
Opponents of the case always argued that there was no evidence that Microsoft's monopoly was doing any harm. But the harm lay in the (necessarily invisible) innovation that did not occur. Conversely, much of the innovation going on in other parts of the technology industry owes a lot to Microsoft's absence.
What the whole Microsoft trial accomplished was a national debate, in the political world, in economics and in the tech world, on what we need socially from technology policy. While there was no specific agreement, the very fact that these issues became debateable was a gain from the cyberlibertarian screaming about any interference with the "free market".
Microsoft
The long shadow of Big Blue
From The Economist print edition
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Can Microsoft now hold on to its dominant position—or might it go the way of IBM in the 1980s?
WHEN the American government dropped its antitrust case against IBM in 1982, after 13 years of litigation, most observers—including this newspaper—thought the computer giant was unstoppable. “IBM may succeed in almost any application of computing it chooses to enter, as it has already demonstrated in word processors and satellite communications,” we declared. But soon Big Blue's core business, mainframe computers, was under attack from more nimble competitors selling cheap PCs. A decade later, IBM almost ran out of cash, before successfully refocusing on software and services.
Nobody is suggesting that Microsoft, having emerged essentially unscathed from its five-year antitrust lawsuit after a federal court's final judgment on November 1st, will now go through a similar near-death experience. On the contrary, its Windows monopoly seems more entrenched than ever, sparing the firm much of the pain of the technology recession. In the past quarter it exceeded its own earnings expectations, mainly thanks to new licensing schemes which raise prices for many customers. Yet, like Big Blue at the end of its battle, the software giant may prove less victorious than it now appears.
Microsoft has been declared a monopoly, found to have repeatedly abused its market power and ordered to follow a set of rules. Last week's judgment in effect endorses the settlement that Microsoft, the Department of Justice and nine states negotiated a year ago, with one significant difference: enforcement. At least three members of the Microsoft board, who must not be current or former employees, must form a compliance committee. Judge Colleen Kollar-Kotelly also gave herself broad powers to oversee the judgment.
On top of this, there are private antitrust lawsuits and, most importantly, the European Commission's investigation. In a preliminary ruling due later this year, Brussels is likely to try to strengthen parts of Judge Kollar-Kotelly's ruling, in particular the requirement that Microsoft license the communication protocols used by a Windows PC to talk across a network to server computers that are also running Windows. This would ensure that competitors such as Sun Microsystems could write server software that works as smoothly with Windows as Microsoft's own products. This sounds arcane, but it may make headlines, because it is the legal corollary to the first of Microsoft's three competitive challenges.
Just like IBM with its mainframes in the early 1980s, Microsoft now controls, with Windows, what has long been the centre of the computing universe. But, again like Big Blue before it, Microsoft also risks being undermined by a cheaper, more open approach to computing. The rise of the Internet, which no single firm controls, makes it harder for Microsoft to create proprietary links between PCs and servers, even without the judge's requirement to license the communication protocols.
The Internet's open standards (and the fact that it allows volunteer programmers to communicate at almost no cost) have also given rise to Linux, a free, open-source operating system. Linux poses little danger to Windows on PCs, but it has limited the progress of Windows in the server market, as governments and big firms have found Linux to be not only less costly but more flexible and more secure.
To prevent open standards and Linux from dethroning Microsoft in the way that the PC and Microsoft toppled IBM, the firm is trying to develop other strongholds. One attempt is the .NET platform and its related web-based information services, which have failed to take off so far. Another could be anti-piracy technology (which is why Palladium, the firm's secure-PC initiative, has caused such a stir). A third could be Yukon, a new database technology.
There are thus big hurdles to Microsoft's extending its monopoly in the markets in which it already operates. If it is to keep growing fast, a tall order for a firm with yearly revenues of $30 billion, Microsoft must meet a second challenge: expanding beyond its traditional markets. One new area is high-end enterprise software. More importantly, it has also moved into several non-PC markets, including handheld computers, interactive television, games consoles and, most importantly, “smart” mobile phones. But in each case, so far, it has failed.
In part, this is because its Windows monopoly is not much help outside the PC, server and enterprise-software markets. But Microsoft's failure can also be attributed in part to the antitrust trial. Its rivals in other industries have been alerted to its tactics: having seen PC makers reduced to mere box-shifters while Microsoft makes a fortune, they do not want the same to happen to them. Microsoft has thus been unable to make much progress.
It has, in particular, been shunned by the world's leading mobile-phone makers, which have set up their own software consortium, Symbian, rather than use Microsoft's software. In the gaming business, Microsoft is no match for Sony, the market leader. It has had little success in interactive television. And, although Microsoft's share of the market for handheld-computer software is growing, that market is a tiny niche. The Tablet PC, an attempt to create a whole new market, is clever, but seems unlikely to be much of a money-spinner (see article).
Microsoft's ability to adapt and prosper hinges on meeting a third main challenge: creating trust. Even more than IBM in the 1980s, the firm must rebuild its reputation. And not just because of the antitrust trial: hardly a week passes without headlines about another security flaw discovered in one of Microsoft's products.
Consumers, software developers and businesses will be wary of using Microsoft's products if they feel that the firm leaks their data, locks them in or hijacks their customer relationships. Such fears were the main reason Microsoft had to abandon, earlier this year, an initiative called MyServices. The idea was to let users store personal information—payment details, contact lists and diaries—on Microsoft servers, to avoid having to type such data repeatedly into other firms' websites.
Hence Microsoft's “trustworthy computing” initiative, launched in January. As well as making the firm's software more secure and reliable, it is also about building trust in its technology. If computing is to become ubiquitous, says Craig Mundie, Microsoft's chief diplomat, technology firms must be seen to behave responsibly. This is especially true for Microsoft.
Turning an aggressive software giant into a “responsible industry leader”, which is how Microsoft sees its future role, will be a wrenching cultural change. Such changes are the hardest to manage, as Lou Gerstner, who led IBM through its comeback, attests in “Who says Elephants Can't Dance?”, his new book, which will be published on November 12th (HarperBusiness). “At times I thought it couldn't be done,” he writes. Despite the difficulties from without, Microsoft's greatest challenge, like IBM's before it, could be internal: how to transform itself.
Microsoft
Giving the invisible hand a helping hand
From The Economist print edition
Was the big antitrust trial a waste of time?
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THE end, it seems, is finally nigh in Microsoft's lengthy battle with America's antitrust enforcers. Having been found guilty, in April 2000, of abusing its monopoly, the software giant was ordered to be broken in two. This punishment, but not the guilty verdict, was overturned on appeal last year, after which Microsoft accepted a less painful sanction: a bundle of restrictions on its conduct agreed with the Department of Justice and nine of the 18 states that were co-plaintiffs in the case. A judge has now ruled that this settlement was adequate, with one or two tweaks. A number of private lawsuits are outstanding, and the European Commission is about to rule on its own investigation into the company's practices. But Microsoft's biggest and longest-running legal battle may be over—and with its monopoly intact, not much seems to have changed. So was it wrong to bring the case?
The answer is No. It is true that the world has changed a lot, both within the computer industry and without, since the case was launched in 1997. Now that the Internet bubble has burst, the PC industry is stagnant, and technology firms are in the depths of a recession, the case's arcane arguments about middleware and bundling do, it must be admitted, seem other-worldly. And it is too early to say if the feeble-looking restrictions on Microsoft's behaviour will make much real difference, since the firm is skilled at avoiding such measures.
But even if the settlement proves toothless, the trial has had several benefits. As with IBM's long-running antitrust case, which ended 20 years ago, its greatest impact may be felt in how the market reacted as it went on (see article). The invisible hand of market forces will probably administer the most effective punishment. But market forces could not have been left to deal with Microsoft on their own. Markets thrive on information, and the trial provided plenty about Microsoft's misdeeds. By shining a spotlight on Microsoft's practices, the courtroom proceedings emboldened its competitors in its main market, alerted potential rivals in other markets, and forced the software company to restrain its normal behaviour towards customers and competitors alike.
Thus even without the settlement, restrictive contracts with PC makers have been dropped. Consumer mistrust has forced Microsoft to drop ambitious plans to set up a central repository of Internet users' personal information. Wariness of Microsoft's practices has boosted the fortunes of open-source software such as Linux. And Microsoft has, in effect, been frozen out of entire new industries, as its software for smart phones and television set-top boxes has been shunned. The world's mobile-phone makers went to the trouble of setting up their own software consortium, rather than license Microsoft's software and risk the same fate as PC makers.
Has any of this really made a difference, even so? What is striking is how little innovation there has been in the bits of the market that Microsoft dominates, and how much where it has little influence. Operating systems, web browsers and word-processing software all look much as they did five years ago. But not many people are using five-year-old mobile phones, handheld computers or music-sharing software.
Opponents of the case always argued that there was no evidence that Microsoft's monopoly was doing any harm. But the harm lay in the (necessarily invisible) innovation that did not occur. Conversely, much of the innovation going on in other parts of the technology industry owes a lot to Microsoft's absence. And that absence can be attributed, at least in part, to the trial, which lifted the lid on Microsoft's behaviour.
Microsoft has not emerged unscathed, in short, and it still faces a number of further challenges. The European Commission may have better luck in devising a punishment to fit Microsoft's crimes. Just as the damage done by Microsoft's monopoly is hard to quantify, so too are the benefits of taking it to court. But benefits there certainly have been.
Posted by DeLong at November 13, 2002 09:46 AM | Trackback