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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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David F. Carr
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David F. Carr,
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7/18/2014 | 10:15:39 AM
Absolutely nothing?
Much as I hate to disagree with the boss, I'm not sure government antitrust had "absolutely nothing" to do with Microsoft losing its dominant position. I'd rate court/government intervention a 10% factor to 90% missed opportunities for Microsoft, entropy in the market, and smart moves by competitors.

Maybe a little bigger than 10%. It's no fun to run a race with lead weights around your ankles. The court action reflected the late 90s duel between Microsoft and Netscape (and others) over Microsoft's attempt to leverage the Windows/Internet Explorer combination to make itself dominant in web-based as well as desktop computing. IE faded partly because of poor software design, relative to the competition, but also partly because Microsoft wasn't able to maximize the advantage it had there relative to the competiton. MS also had to step carefully with other product introductions that might provoke court / Justice Department intervention.

The rise of the smartphone / tablet / smart gadget market, which made Microsoft's desktop dominance less relevant (and helped boost Apple's Mac/iPhone/iPad/iPod ecosystem) has been the bigger factor in recent years, and I'd agree that was absolutely independent of antitrust. Or at least 90%.
RobPreston
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RobPreston,
User Rank: Author
7/18/2014 | 10:26:24 AM
Re: Absolutely nothing?
Diagree with me any time, Dave! But I still fail to see how the government's moves to protect Netscape (a company that no longer exists) and promote browser competition contributed to the rise of Android and the smartphone and tablets and other Windows competitors. The innovations of Apple and Google and others not aided by the antitrust efforts are responsible, no? Are you saying that the trustbusters slowed Microsoft down enough to let those innovators steal a march on Microsoft?
D. Henschen
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D. Henschen,
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7/18/2014 | 10:33:36 AM
Great analysis and long-term perspective. Where does open source fit in?
You are absolutely right about free-market forces working faster than government intervention to reshape IT. Where does open source fit in here? Just one more market force? Some say the model is a game changer in putting IP in the hands of the community. It has reshaped the database business and is a foundation of the big data world.

Granted, there always seems to be the commercial support and "enterprise" software layer on top, so detractors might say it's just a new way to get people hooked on commercial offerings. I honestly vacillate between seeing open source as huge and seeing it as, ultimately, just another model for making money on software -- even if startups and get started and self support for years before opting for commercial support options. What's your view?
David F. Carr
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David F. Carr,
User Rank: Author
7/18/2014 | 10:41:02 AM
Re: Absolutely nothing?
No, I'm saying it was a factor, not the dominant factor. The rise of personal devices other than PCs is probably a bigger one.

Netscape was probably a goner by the time the government acted, and it may well have failed anyway. Remember when they wanted us to pay for the browser and Microsoft made theirs free (bundled with Windows)? That was probably never a winning strategy; other free browsers would have come along and undermined them there.

Still, there's no way to re-run the experiment and watch history play out again without the antitrust action. But I imagine that in that alternate history, Microsoft would have been a little bit stronger competitor and might well have leveraged it's position on the PC a little bit more, and its smartphone and tablet offerings would have won a little more market acceptance as a result.

Of course, if that alternate history still featured the same UI revamp for Windows 8, all bets are off.
Whoopty
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Whoopty,
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7/18/2014 | 11:13:50 AM
Chip makers
I've enjoyed watching the large chip makers become supplanted in recent years. While AMD might have given Intel a run for its money in the desktop market during the early 64bit dual core era, the latter has always maintained its performance crown. However in recent years, with the growth in mobile and smaller form factor computing, Intel seems lost in comparison.

AMD has the notebook market tied up, ARM, Qualcomm and others have bigger stakes in the mobile market. 

And Intel wants to reinvent the desktop to somehow bring people back. It's interesting stuff. Perhaps its own anti-trust fines have prevented it from domineering as it once did. 
soozyg
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soozyg,
User Rank: Ninja
7/18/2014 | 11:46:08 AM
staying ahead
Microsoft's announcement Thursday that it's cutting 18,000 jobsfrom its payroll,

I remember years back, about 5 years into Bill Gates's rise, there was all kinds of commenting and articles about how he seemed to be swallowing up everyone and everything around him. All the technology, all the companies, all the personel. When asked why he was doing business in hyper-speed, even after he was a billionaire, he responded with something like "I always have to stay ahead of the curve." Oh well.
soozyg
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soozyg,
User Rank: Ninja
7/18/2014 | 11:53:47 AM
today's market
the free market has a way of sorting things out -- faster than ever in this day and age

Yes, I can see that. With tech companies coming and going so quickly, the order of things gets figured out very quickly these days.
stevew928
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stevew928,
User Rank: Ninja
7/18/2014 | 12:28:38 PM
Re: Absolutely nothing?
I seem to remember being fairly disappointed with the government's actions, considering all the damage Microsoft did to the industry. But, what I think it did accompllish, was to slow down Microsoft's blatant efforts to hold their monopoly by any means. So, while the anti-trust penalty was merely a slap on the wrist, without their continued efforts to thwart any competition, they lost the ace up their sleeve. Normal innovation in the industry killed the giant that had little innivation.

But, I'm still left scratching my head a bit over the whole investor thing. What did investors have to do with it? If anything, they *reacted* insanely late, maybe helping nail the coffin.
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.
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.
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