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But Did Microsoft Actually Hurt Consumers?

By Robert J. Samuelson

Wednesday, November 17, 1999; Page A31

Ever since 1890, when Congress passed the Sherman Act, the antitrust laws have sought to protect consumers and prevent the evils of concentrated economic power. No company seems to pose those dangers so starkly today as Microsoft. Yet, the case against Microsoft still isn't made, even after Judge Thomas Penfield Jackson's denunciation of the company. The trouble is that Jackson's opinion doesn't show how Microsoft's brutal competitive behavior has hurt consumers.

Companies compete, after all, to defeat their rivals. The social harm arises only if consumers suffer from excess economic power. Despite months of bad trial publicity and Jackson's scathing decision, most Americans still doubt the government's antitrust case. A Gallup poll taken after the ruling found that, by a 67 to 16 percent margin, people have a favorable view of Microsoft. Asked whether the company should be broken up, respondents objected by 54 to 35 percent.

Popular skepticism isn't just ignorance. "In many ways, [Microsoft] is a weaker company now than several years ago," says Michael Gartenberg of the GartnerGroup, a computer research firm. "It dominates the desktop, but it doesn't dominate every market it enters." Predictions that Microsoft would rule on-line Internet services and e-commerce haven't materialized.

The explosion of cyber start-up companies (for software and new Internet services) rebuts the notion that fear of Microsoft is stifling competition. Microsoft itself spends about $3 billion a year on research and development, and even Jackson says that the company must improve its products to prosper. Unlike the old phone monopoly--which made money every time people placed calls--Microsoft collects only if there are new computer customers or if old ones upgrade to new software.

Everyone knows this is happening. Between 1995 and 1999, the share of U.S. households with personal computers rose from 27 to 55 percent, says the market-research firm Dataquest. The number of homes and businesses in the United States and Canada with Internet connections jumped from 26 million in 1996 to 72 million in 1999.

Of course, it's hard to sympathize with a company as rich and relentless as Microsoft. It's correctly accused of using its huge market power to cripple "Navigator," the Internet browser from Netscape. Windows (and its cousins) control 97 percent of the market for PC operating system software. (An operating system performs basic computer functions; a browser locates Internet sites.) Because computer makers--the Dells and IBMs--couldn't sell PCs without Windows, Microsoft forced them to favor its browser, Explorer, over Navigator.

This was unfair. Computer-makers that cooperated got price discounts on Windows. Those that balked paid higher prices and got technical information later. But were consumers harmed?

Not much. Microsoft gave away Explorer. Netscape had to follow suit. The initial version of Explorer in July 1995 was technically inferior to Navigator. By late 1996, Explorer was almost equal. Even Jackson concedes that Navigator's loss of technical superiority was critical to Microsoft's success. Netscape still had ways to distribute Navigator, but customers had less reason to want it. By late summer 1998, Navigator's market share had dropped to about 50 percent. It may be lower now, and Netscape has merged into America OnLine.

But Microsoft alone didn't doom Netscape. Its blunders, born partly of arrogance, also contributed. Here's a suggestive comment from co-founder Marc Andreessen. "When there's a battle between a bear and an alligator, what determines the victor is the terrain. Microsoft has just moved onto our terrain," he confidently told Time magazine in early 1996.

What other damage did consumers suffer? A reading of Jackson's ruling reveals little. He says that Microsoft hurt consumers "in ways that are immediately and easily discernible"--but provides few examples. He complains that the bundling of Explorer and Windows degrades PC performance for customers who don't want a browser. There's more risk of "incompatibilities" and "bugs." However, he adds that "many--if not most--consumers can be said to benefit," because they want a browser and get one free.

Although Jackson says that Windows' price is much higher than "would be charged in a competitive market," he admits that the effect on computer prices is "trivial." The reason is simple. The average price for Windows 98 is $45, says Fred Hickey, publisher of The High-Tech Strategist newsletter. Jackson cites a figure of $89. Either way, it's a tiny part of the average PC price of $1,500, as reckoned by Dataquest. Also inconvenient is the fact that two other operating systems (IBM's OS-2 and Apple's Macintosh) have higher prices than Windows. Exactly what price would a "competitive market" charge?

As Jackson notes, Microsoft's main aim is to preserve Windows as the platform for which most "applications software"--from word processing to inventory control--is written. The world might be better off if there were a universal computer language that allowed applications software to run on any machine. Microsoft's rivals are pursuing such a solution. If they succeed, Windows' position will decline. Until then, standardization around Windows creates benefits. Software writers don't have to splinter their efforts among many computer languages. Roughly 70,000 applications are written for Windows compared with 12,000 for Macintosh.

Microsoft is unlovable. It wants to get its tentacles into everything. Still, there is more rhetoric than reason to Jackson's opinion. He doesn't balance any good from Microsoft with the bad. He barely discusses how the Internet weakens Microsoft by creating a new distribution channel for software and information. He dismisses technical threats to Microsoft because they might not occur for a "few years." Perhaps Jackson will address these lapses in his "conclusions of law," due next year. This ruling was simply a "findings of fact."

Or perhaps not. What needs to be recalled is that Microsoft's competitors pushed the government for this antitrust suit. They will gain if Microsoft loses. But there is a distinction between protecting consumers and protecting competitors. The record so far suggests that it's being lost.

© Copyright 1999 The Washington Post Company

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