InformationWeek

Perspective On Microsoft, Its Competitors, And Their Antitrust Charges

By Stuart J. Johnston
November 4, 1996

Be ing a reporter is a lot like being a detective. It has as much raw excitement as it does bone-numbing boredom. Both jobs offer that moment of triumph when you stumble onto an important discovery after sorting through rumors and facts and get a picture of what's really going on.

"Stuart's the name, and I cover the waterfront."

Well, not exactly. Actually, my beat is a few miles inland from Seattle's waterfront--in Redmond, Wash., to be exact. Microsoft territory. And for nearly nine years, I have spent the majority of my waking hours trying to decipher the hidden meaning behind every announcement, leaked document, accusation, and success or failure.

So, in this column I want to share with you some of the perspectives I've gained from covering Microsoft longer than practically any other reporter.

What's hot right now? The latest probe by the U.S. Department of Justice (DOJ) and its foray into the Internet is the hot button right now. However, my experience--as well as long conversations with at torneys--tells me that if you're waiting for the DOJ to take Microsoft to task, don't hold your breath. Past history shows that the odds are against it.

Here's why: Conventional wisdom says that since Microsoft has been scrutinized by both the Federal Trade Commission and the DOJ for more than six years and those agencies haven't found anything illegal by now, they're not likely to find something illegal going on any time soon. Earlier probes, other than the one that resulted in a watered-down consent decree, did not yield any accusations of wrongdoing.

But there are more complex reasons. An attorney I know who worked in the antitrust division of Justice told me years ago to watch the news to see what the DOJ takes to trial. They sometimes block or try to block mergers, which they did in the case of Microsoft's attempt to buy competitor Intuit. But when it comes to violations of the law, you'll find that they almost never take anything but price-fixing cases to trial. The subject of money is a compell ing one that can be fairly easily explained to a jury.

I have one theory as to why that is true. Try it out yourself: If you are a technologist and your "significant other" is not, try explaining to her or him what an API is or what a proxy server is. You won't get far. In the same way, the DOJ would find it difficult to establish a case in front of a jury that isn't familiar with technology.

Now, anything is possible, and certainly we in the press have spilled a lot of ink in the past year or so covering complaints by Microsoft's competitors. However, despite all the allegations, my personal guess is that Microsoft will have a successful counter to every parry.

After talking with numerous attorneys and other sources, I've compiled a hot list of accusations and probable retorts from Microsoft's attorneys. These are not the definitive defenses for Microsoft by any means. In fact, they are not "my" defenses of Microsoft--my job requires that I not have an opinion about the outcome. They are, howeve r, among the most likely responses that Microsoft will offer for any such accusations.

Accusation: Microsoft is offering financial incentives to PC manufacturers and Internet service providers to thwart Netscape's browser and server products.

Retort: Microsoft vigorously denies this. Indeed, after weeks of calling PC vendors, our reporters have yet to find one who will say, even off the record, that Microsoft had offered them any incentives whatsoever. The company that Netscape attorney Gary Reback named in a letter to the DOJ denied it too.

Accusation: Microsoft is building the browser into the user interface, thus eliminating competition for all those third-party browser vendors.

Retort: Microsoft is liable to argue that it does not make good sense to have the user interface for the Web different be from the user interface for regular network communications and file access. Additionally, IBM was the first to build its browser into the user interface for OS/2, so there is already a precedent .

Accusation: Microsoft is giving away its browser, thus "dumping" its products in order to destroy Netscape's browser market.

Retort: Netscape got their 70% market share in the browser market by initially giving away Navigator. IBM is also giving away their browser with OS/2.

Accusation: Microsoft is bundling major commercial online service providers' automatic sign-up software on the Windows 95 desktop. In return, those providers agree to standardize on Microsoft's Internet Explorer as their preferred browser for those services, thus creating a monopoly on the desktop to force out competitors like Netscape Navigator.

Retort: Microsoft would likely point to a press release issued in early October by Netscape that states, unequivocally: "Recent independent studies conducted by Forrester Research, Inc. and Zona Research Inc. estimate Netscape's share of the Web server market at approximately 80%, which is close to the lead Netscape holds in the browser market." With this kind of market share, y ou wouldn 't think Netscape needs protection.

Accusation: Microsoft is giving away its Internet Information Server with Windows NT Server, thus "dumping" its products to destroy the market for third-party servers.

Retort: Today, Web servers come free with Sun machines. Additionally, Netscape's recent press release also states: "...a September 1996 report from Zona Research...found that on the UNIX platform Netscape holds an even greater percentage, with approximately 84% of all participants surveyed using Netscape Web server software. Overall, Netscape's nearest competitors among those surveyed are Microsoft IIS, with 11% market share, and public domain servers with 7%."

Accusation: Microsoft is leveraging its monopoly position in desktop operating systems and applications in an effort to monopolize the Internet.

Retort: Dé jà vu. This time last year, the commercial online industry was screaming that the Microsoft Network (MSN) would monopolize that industry. But today, America Online is bigger than ever and Microsoft has all but abandoned the commercial online market, changing MSN into an Internet service provider and a Web site. Gates said last year that the real competitor was the Internet, and that long-term, Microsoft would be just a tiny player in comparison to companies like AT&T, MCI, and other megaliths. With BT's decision to purchase MCI, Gates could turn out to be right.

Additionally, my antitrust attorney friend says that MSN's fate is a pretty solid legal argument that Adam Smith's "invisible hand" is working to keep the marketplace in equilibrium on its own, and that gives the DOJ yet another excuse not to intervene.

While this kind of "parry and counter" fencing with accusations makes for gripping reading, it doesn't get Microsoft any closer to a courtroom. Should I start reserving some time to work exclusively on a story about how the DOJ will soon take Microsoft to court? My instincts tell me not to bother. There is no pending action.

So the old adag e "If you want something done right, do it yourself" still holds true. All of those companies who are so frightened by or enraged by Microsoft's behaviors had better buck up and sue Microsoft themselves, because the government isn't likely to.

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