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.
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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