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7/18/2014
09:35 AM
Rob Preston
Rob Preston
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Microsoft Shows Tech 'Monopolies' Don't Last

As nature abhors a vacuum, innovators abhor a monopoly, especially in the fast-paced IT industry.

In handing down his landmark antitrust decision against Microsoft in 2000, US District Judge Thomas Penfield Jackson wrote: "There are currently no products -- and there are not likely to be any in the near future -- that a significant percentage of computer users worldwide could substitute for Intel-compatible PC operating systems without incurring substantial costs." At the time, Windows commanded about 90% of the desktop operating system market. The competition? Mostly Unix and MacOS and a handful of thin clients.

Today, Windows' share of the market for operating systems on all computing devices -- PCs, smartphones, tablets, and all manner of hybrids -- stands at about 14%, according to a new Gartner report. Who’d have thunk it back in 2000? And Microsoft's loosening grip over the years has had absolutely nothing to do with the government's antitrust proceedings more than a decade ago. Microsoft's announcement Thursday that it's cutting 18,000 jobs from its payroll, the largest such reduction in company history, shows just how vulnerable the world's biggest software company has become as competitors from Apple to Google to Amazon.com have eaten its lunch in mobile and other core businesses.

If nature abhors a vacuum, innovators abhor a monopoly, especially in the fast-paced IT industry.

[More challenges ahead for Windows Phone. Read Apple-IBM Deal: Trouble For Google, Microsoft.]

We've seen the free market knock down dominant tech providers before. The government's 13-year antitrust probe of IBM (yes, 13 years!) petered out in 1982, as the mainframe era ushered in the client-server era, and a wave of PC clone and then minicomputer makers flooded into the market to challenge Big Blue. Governments in the US, Europe, and Asia brought antitrust charges against Intel in the 1990s and 2000s, just as No. 2 microprocessor rival AMD was getting its second wind, and then the likes of ARM, Nvidia, Qualcomm, and even Samsung beat Intel to the mobile device revolution. 

(Source: Crispin Semmens)
(Source: Crispin Semmens)

EMC once dominated storage hardware, until lots of new players piled into the market hawking cheaper, less proprietary alternatives. Today, EMC is still the storage market leader, with a 30%-plus share of key sectors. And storage products and services still account for about 70% of EMC's revenue. But the company, which long ago saw the commoditization writing on the wall, was smart enough to start distinguishing its products based on software features while diversifying into the content management, security, virtualization, and big-data software sectors via its Documentum, RSA, VMware, Greenplum (and many other) acquisitions. The announcement on July 15 that cloud competitor Box is now giving its business customers unlimited storage as part of its base content management offering provides further evidence that raw storage capacity is going the way of voice communications.

Cisco once dominated the networking systems market -- heck, it still does, with close to 60% of the Ethernet switch market and 70% of the enterprise router market. But commoditization is coming in networking as well, as virtualization and software-defined systems promise to make it easier for customers to deploy cheaper white-box alternatives to Cisco's high-end products. Meantime, the Facebook-led Open Compute Project will share designs for low-cost network hardware that any number of third-party manufacturers can bring to market. No wonder that Cisco's market cap, which reflects future earnings potential more than current levels, is about a fourth of what it was at its tremendous peak ($540 billion) in 2000, despite the fact that Cisco's 60% gross profit margins are still the envy of enterprise IT.

Likewise, emerging competition has cut into HP's one-time dominance in printers, Oracle's in databases, VMware's in virtualization, Apple's in tablets. No IT "monopoly" can last for very long.

The Microsoft, IBM, Intel, and other examples are far different from what economists call "natural" monopolies, which occur in the telecom, railroad, electric utility, and other industries whose extensive infrastructure costs and real estate demands deter market entry. There, government intervention and regulation often are necessary to promote competition (sharing of infrastructure with competitors) and/or to keep prices in check.

Otherwise, the free market has a way of sorting things out -- faster than ever in this day and age. Government trustbusters work at a methodical, measured pace. While they're no longer taking 13 years to make a move, as was the case with IBM a few decades ago, they aren't always keeping up with or anticipating the dramatic fits and starts of the modern technology industry. Market shares can rise and fall in a heartbeat as product cycles shorten, the cloud makes it ever-easier for customers to switch providers, and rapid innovation dictates new winners and losers. Free enterprise is far from a perfect system, but in high-tech it's producing wonders.

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Rob Preston currently serves as VP and editor in chief of InformationWeek, where he oversees the editorial content and direction of its various website, digital magazine, Webcast, live and virtual event, and other products. Rob has 25 years of experience in high-tech ... View Full Bio
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jries921
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jries921,
User Rank: Ninja
7/18/2014 | 2:45:37 PM
Re: Absolutely nothing?
I forgot to mention Palm, which in many ways originated the existing mobile market.  MS quickly responded to a perceived threat by introducing the Pocket PC and encouraging its OEM partners to make it; but I think would have acted much more aggressively had it prevailed in the DOJ case.  Thus, I think chances are good that MS would own that market today if it hadn't been for the trustbusters.

 
jries921
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jries921,
User Rank: Ninja
7/18/2014 | 2:39:45 PM
Re: Absolutely nothing?
MS long ago identified Google as its primary competitor at a time when most of us thought it irrational to do so.  I humbly submit to you that had MS won its case (or if the DOJ had never brought it) Google would no longer exist in its current form because MS would have strangled it using methods similar to those used against Netscape.  And while Netscape died, the Mozilla project it spawned survives to the present day and provided the initial meaningful competition in the browser market that was needed to stop MS from exercising de facto control over WWW protocols.  MS won the battle by destroying Netscape and then defeating the breakup order, but ultimately lost the Browser Wars.  Again, if MS had won the case, I doubt very much that either Firefox or Chrome would exist today; likewise, I don't think Android would exist and Linux would probably be restricted almost entirely to college campuses.  It's not even clear that Apple would still exist were it not for MS' rescue effort, which appears to have been a defensive move designed to weaken the DOJ's case against it (no Apple; no OSX and no iOS).

 
jries921
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jries921,
User Rank: Ninja
7/18/2014 | 2:10:14 PM
Yes and no
Yes, markets abhor a monopoly and will work to break it (unless the monopolist resorts to patronage policies ala Rockefeller or Gates to insure that as many potential competitors have a stake in the status quo as possible) and yes, monopolistic vendors tend to stagnate over time; but they also tend to use their political influence to perpetuate themselves (that's part of what lobbyists are for), they'll fight on their own to maintain their privileged positions using whatever tools seem to be convenient (what Steve Ballmer spent most of his tenure as MS-CEO doing), and it may take many years for them to decline enough to make real competition feasible (and then, the result might be the replacement of one dominant vendor with another). So, no I don't think waiting for monopolistic firms to die on their own is a viable strategy for insuring free markets (look at how long IBM's dominance lasted).


Also, while I might have missed something , you appear to be discounting the likelihood (I think it a certainty) that the MS antitrust case gave competing firms and developers (MS' destruction of much of the proprietary software industry was a golden opportunity for open source projects) a much greater ability to compete with MS without having their "air supplies cut off"; and helped provide trustbusters in other countries the evidence they needed to proceed with their own efforts.  It certainly hastened Bill Gates' retirement, which meant a much less talented manipulator ended up at the helm (which in itself helped to open up the software market).

 
RobPreston
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RobPreston,
User Rank: Author
7/18/2014 | 1:58:05 PM
Re: Absolutely nothing?
Tom, well argued, young man!
anon6635912771
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anon6635912771,
User Rank: Apprentice
7/18/2014 | 1:46:42 PM
AMD
==-

>AMD might have given Intel a run for its money in the desktop market during the early 64bit dual core era


It still does, if money has value to you. Intel is only the right choice if you MUST have the highest horsepower processor at any cost. Other than that, the only reason an IT manager would choose Intel (partcularly for workstations) is if he doesn't care that he's spending someone else's money and he's dumb ("Well, no one ever got fired for buying Intel").

Sadly, the fact that Intel is as evil as Microsoft has no relevance in business decisions.

-faye kane ♀ girl brain
Thomas Claburn
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Thomas Claburn,
User Rank: Author
7/18/2014 | 1:37:46 PM
Re: Absolutely nothing?
I think it's hard to separate antitrust enforcement from that happened to Microsoft. Technology changed but Microsoft's ability and preparedness to react to that change was weighed down by antitrust compliance burdens. If you go back to the judge's finding of facts (http://www.justice.gov/atr/cases/f3800/msjudgex.htm), it's clear there's more to the case than Netscape Navigator. Microsoft was also trying to kill Java. Had Microsoft been left to do as it wished, the technology world would be very different today.

Some consequences of the ruling: Microsoft was not allowed to acquire Intuit; Microsoft propped  Apple up by investing in the company when it was almost broke and by not withholding Office (which it could have done without trustbuster attention); browsers became a special class of protected software; open-source got an interface (the Web).

VInt Cerf argues that even though Microsoft was not broken up, open source saved competition and innovation. As I see it, open source, the Web, and Java are intertwined. Open source mattered to companies as a way to be free of platform-locking and vendor meddling. But it began mattering to consumers when it became the free interface for the Web.

Much of Microsoft's troubles have to do with it still relying on the same revenue sources now as it did two decades ago. It got too complacent. But competitors would have had a harder time without the leg up provided by government oversight. For example, when Google was offering desktop search software, Microsoft tried to hobble it. Google complained to the government and got Microsoft to back down. That might not have happened as easily if Microsoft had not been an acknowledged abuser of monopoly power.
TerryB
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TerryB,
User Rank: Ninja
7/18/2014 | 1:09:06 PM
Re: staying ahead
I agree with Steve, there was a period of time where MS played the Oracle game, long before Oracle used it to get where they are now.

Anything that had any (MS) perceived potential got bought out. Any patents/technology from it they thought would add to their existing products they used, but the "brand" of the startup was gone. Whether that caused the internal stagnation of innovation or was a symptom of it, I'll leave you to decide.

But this whole tablet/smartphone thing, who could really see that coming? If you would have told me back then people would willingly shell out $50 a month on data plans for these tiny screens, I'd have thought you were crazy. Shows what I know about people.

Apple had very little to lose when they entered this market, their Mac's were a niche and still are. Google/Android had very little to lose, they could also take risks you could see a mature, profitable company like MS saying "Ummm, no" to. Also keep in mind MS was very preoccupied with Xbox and Zune (iPod competition) during the period leading up to tablet/smartphone explosion. In phones, they were aiming at Blackberry back then, which seems humorous now.
Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
7/18/2014 | 12:56:54 PM
Re: Absolutely nothing?
I feel like the reasons for Microsoft's undoing (rise of smartphones and tablets, decline in PC sales, SaaS) started to happen seven or eight years after the 2000 anti-trust ruling. So it's hard to blame anti-trust on Microsoft losing its way in the mobile era, unless perhaps the anti-trust battles made Microsoft weary and tentative to go after new markets. But I don't buy that argument. I think it was just poor leadership and lack of foresight by Ballmer, who was allowed to run the show for too long.
stevew928
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stevew928,
User Rank: Ninja
7/18/2014 | 12:37:19 PM
Re: Absolutely nothing?
I'd maybe even put it a bit more strongly. While I'm sure *eventually* Microsoft would have been taken down by someone.... I'd say that had the government not stepped in and at least tripped up Microsoft's plans and actions, it's hard to say where we'd be right now. Microsoft was dominating by preventing industry innovation. They might have not been able to keep everyone else down forever, but they were doing a pretty good job of it.
stevew928
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stevew928,
User Rank: Ninja
7/18/2014 | 12:32:19 PM
Re: staying ahead
The problem was that was just a bunch of baloney. Microsoft wasn't staying ahead of any curve. They were using all sorts of tactics to hamper innovation and retain their position. He probably really meant the financial curve.
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