It Ain't Over Til It's Over.

Uncle Bill vs. Uncle Sam

To no one's great surprise, Judge Thomas Penfield Jackson's findings of fact against Microsoft Corp. caused jubilation among many in the technology sector--at least among those who don't own Microsoft stock. But as Bill Gates' personal fortune plummets to a mere $75 billion or so, it's worth examining what a potential defeat may mean for the industry.

First, a few facts. For those who still doubted Microsoft's guilt, the text of the judge's findings was a tremendous wake-up call. Redmond clearly tried every dirty trick in the book to prevent technologies that competed with Windows from making market inroads. In particular, Microsoft spent perhaps hundreds of millions of dollars--and gave up potentially huge revenues when it gave away Internet Explorer--to keep Navigator out of the hands of consumers. It did this not simply by creating an as-good or better browser (which IE clearly is), but by enticing, bullying, and threatening OEMs and ISPs into adopting IE technology at the expense of Navigator.

Abusing Monopoly Power

How did Microsoft accomplish this? For one thing, it threatened almost every big PC OEM (including Compaq, IBM, and Gateway) with higher prices for Windows; with restricted access to Windows technologies; and with curtailed marketing dollars unless they abandoned Netscape and adopted IE. Thus, the company used its monopoly in the operating system market to control the market for Web browsers. For those of you keeping track of the legal ramifications: having a monopoly is not illegal in itself. However, using a monopoly to control related markets is.

Further, Microsoft's own (damaging) internal emails reveal that company officials knew from day one that without leveraging the Windows market share, IE would never overtake Navigator in terms of user base (see Figs 1 and 2). Contrary to what Gates and Co. have said in testimony, the integration of IE and Windows was never about helping consumers or creating a "better browsing experience." Integration was the method by which Microsoft could both force OEMs to distribute IE and at the same time limit Navigator's market penetration. As the pie charts illustrate, this strategy was hugely successful.

While Microsoft's strong-arm tactics with PC OEMs were despicable, its treatment of AOL was almost worse. Microsoft officials have pointed to the AOL-Sun-Netscape deal as evidence that healthy competition in the browser space exists. In fact, AOL bought Netscape precisely because it wanted to be certain that it would have access to alternate browsing technology should Microsoft decide to limit AOL's access to IE and related technologies.

Using Windows And Applications As Threats

Why did AOL believe that this was a possibility? Judge Jackson found that Microsoft officials threatened to remove AOL from Windows' "online services" folder if AOL continued to distribute and support Navigator instead of IE. This folder was responsible for hundreds of thousands of new AOL subscribers per year, and AOL was loathe to give up such an important revenue source. So it capitulated. (Interestingly, AOL-based IE users account for fully one-third of all IE users, an indication of the importance of this user group to Microsoft's Internet strategies.)

Microsoft made similar threats to Apple using Mac Office as its stick. Unless Apple adopted IE instead of Navigator, Microsoft would kill the new version of Mac Office, which at the time (1997) would have been a death blow to Cupertino. Apple also capitulated.

Now that a Microsoft defeat--or at the very least a conciliatory settlement--seems likely, what might the industry look like a year from now? For one thing, a ruling against Microsoft and any remedies imposed to level the OS market would be a huge boost to Linux and any other non Windows operating systems for the Intel platform. For OEMs, the danger of losing their Windows licenses if they chose to ship machines with another OS would presumably be eliminated. This in itself would likely have a huge impact on the market share (or at least the potential) of competing operating systems.

Further, developers would have a greater incentive to write apps for other platforms, secure in the knowledge that it would be the market, and not Microsoft, that would determine their ultimate success or failure. In more general terms, technology innovation would not be controlled and curtailed by the belief--mostly accurate, it turns out--that any technology that Microsoft doesn't like has little chance of making it into the hands of consumers.

Windows: A Necessary Evil?

All this being said, I still personally believe that much of the success of the computer industry can be attributed to the interoperability of programs and file types and the nearly universal presence of Windows. Businesses standardize on one OS for a very good reason: Imagine a world where everyone you knew used a different OS with different attendant file types. The easy exchange of information would be very difficult, if not impossible. As I have written in this space in the past, the computer industry is unlike other industries in that the value of a product is directly and proportionally related to the number of people who use it. Without inter-operability, information technology is useless.

What does the future hold for Microsoft? For one thing, Redmond isn't nearly out of the juristic woods yet. Numerous states' attorneys general have indicated that they will proceed with their suits against the software giant regardless of a settlement or ruling in the antitrust case. Further, assuming Microsoft loses the DOJ case, it will likely face civil suits from many quarters, primarily from those (like Sun) who feel that they were harmed financially by Microsoft's malfeasance.

But the fact remains that Windows is here to stay. Sure, a ruling against Microsoft will open up the OS (and perhaps applications) market and provide more competition. But the dominance of the Web and the move away from a PC-centric universe have already put the writing on the wall for Redmond. This is why the company has been investing furiously in key companies with technology in emerging markets. As the Web goes wireless, Microsoft's market dominance is likely to fade; courtroom defeats may simply accelerate the process. Still, Microsoft has shown remarkable resiliency: the company has evolved as the industry has changed, and I see no reason for an end to this trend.

Open Windows

The government appears to be considering several remedies to eliminate or otherwise mitigate the Microsoft monopoly. These include splitting the company into three "Baby Bills"; altering the company's organizational structure so its divisions would be in competition; giving the Windows source code away, or auctioning it off to Microsoft competitors.

Of these, giving away the Windows source code seems unlikely. Windows is Microsoft's key piece of intellectual property, and forcing the company to give up its IP for nothing in return seem unduly harsh, not to mention possibly illegal. While forcibly splitting the company or putting its divisions into competition may seem appealing, this would do little to eliminate the company's OS monopoly.

In my opinion, auctioning the Windows source code or--perhaps more realistically--forcing Microsoft to license its code to competitors makes the most sense. It would give Microsoft revenue, but would put competing yet compatible versions of Windows on the market. Developers would then have the option of creating applications for Windows A, B, or C, which would presumably still run on all versions of the OS.

This solution has numerous benefits. First, it would give OEMs a choice in the operating system they installed on their machines. In theory, this should lower prices for consumers. Second, developers unsatisfied with Microsoft's restrictions could write for one of the competing versions of Windows. Third, Microsoft would not be able to use the Windows OS as a stick to compel other companies to support its own technologies--or to abandon others. Finally, Microsoft would not control the industry's upgrade cycles with an iron fist, as it does today. This should encourage innovation.

Unfortunately, what many observers don't realize is that, for better or worse, we need Windows--or a Windows replacement--whether we like it or not. I'm all in favor of competing operating systems, but only to spur innovation (particularly innovation in Redmond), not to fragment the market.

Still, a Microsoft defeat will have one very, very important benefit that everyone in the technology business should applaud: a level playing field in which consumers, not Microsoft officials, decide which technologies are introduced, and which succeed. True competition is all anyone in the computer industry has ever wanted. Today, it sure seems a lot closer to reality, and this is real reason to celebrate.

                              PRIMARY BROWSER
          "Which browser do you personally use the most at work?"
                                   1996
Navigator         83%
Internet Explorer  8%
NCSA Mosaic        6%
Other              3%
N=152 Respondents
Zona Research Inc. August 1996
                                   1999
Netscape Navigator 5.x            --
Mircrosoft Internet Explorer 3.x  1%
Netscape Communicator 5.x         5%
Netscape Navigator 4.x           12%
Netscape Communicator 4.x        17%
Microsoft Internet Explorer 4.x  20%
Microsoft Internet Explorer 5.x  44%
N=172 Respondents
Zona Research Inc. November 1999

Going, going, gone. According to Zona Research, the browser war is now history. Figure 1 shows the percentages of corporate Internet Explorer and Navigator users in August, 1996, when the Microsoft browser was a year old and not yet integrated with the Windows OS. Figure 2 shows the same percentages as of November 1999. Judge Jackson's findings of fact indicate that this increased market share was obtained through Microsoft's OS monopoly, which is illegal.