Multinational Monitor

NOV 1998
VOL 19 No. 11


Oligopoly! Highly Concentrated Markets Across the U.S. Economy
Amy Taub and Robert Weissman

Terminator Seeds: Monsanto Moves to Tighten Its Grip on the Global Agriculture
by Hope Shand

Financial Deregulation Fiasco: HR 10 and the Consequences of Financial Concentration
by Jake Lewis


The Microsoft Monopoly
an interview with
James Love


Behind the Lines

Breathing Life Into Antitrust Policy

The Front
Sweating a Labor Rights Deal - Arbitrary in Alabama

The Lawrence Summers Memorial Award

Money & Politics
A Connected Industry

Names In the News


The Microsoft Monopoly

an interview with James Love

James Love is the Director of the Consumer Project on Technology. The Consumer Project on Technology is active in a number of issue areas, including intellectual property, pharmaceutical drug and biotechnology pricing, telecommunications, privacy and electronic commerce, plus a variety of projects relating to antitrust enforcement and policy. Love and the Consumer Project on Technology have also emerged as leading critics of Microsoft.

Multinational Monitor: In what ways is Microsoft improperly seeking to promote its Internet browser, Explorer?

James Love: Microsoft has used an awesome array of strategies to eliminate competition in the browser market. While Microsoft's main target has been Netscape, its campaign to bury Netscape also acts as a deterrent to other potential entrants. So, like the markets for most office productivity applications new entrants.

When Microsoft decided it wanted to dominate the browser market, it engaged in a war-like effort. Much of what Microsoft did was legal, but the Department of Justice (DOJ) and many others believe Microsoft has also has crossed the line in many areas and broken the antitrust laws.

Microsoft has more than a 90 percent market share for the operating system software used to run personal computers (PCs). Indeed, it is nearly impossible to buy a PC from a top PC "original equipment manufacturer" (OEM) without buying Microsoft's Windows, and often without buying some Microsoft applications. And Microsoft has about the same degree of dominance in a number of office productivity applications. Microsoft leveraged its positions in the operating system and the applications markets to monopolize the browser market.

One such mechanism was pretty straightforward. Microsoft used its large cash reserves to buy market share. Microsoft spent a huge amount of money developing and promoting its product, and Microsoft announced its browser would be free, making it difficult if not impossible for Netscape to charge for its browser. Microsoft gave Internet service providers cash payments, free server software and promotional benefits if they featured Microsoft's browser, and it pressured OEMs to ship only its browser with new computers.

Microsoft also Put enormous pressure oil a variety of third-party applications to distribute the Microsoft browser with their own products. At one point, Microsoft asked applications developers to distribute Microsoft Explorer as a condition of licensing important updated versions of files.

Microsoft rivals in the areas of computer languages, encyclopedias, online networks and personal finance software all became unwilling promoters of Microsoft's browser in order to retain access to various Microsoft licenses, technical information or favorable locations on the Windows desktop.

Content providers such as Disney were asked to create services that only ran oil Microsoft's browser. Microsoft bought popular web sites such as, which has interactive computer games, and made it rely upon Microsoft's proprietary software.

Microsoft gave away free web authoring tools with every Windows installation and Office CD that created web pages that only worked with Microsoft's server extensions and Microsoft's browser technology. Microsoft's own servers were reportedly designed to perform faster for Microsoft's browser than for Netscape.

Beyond these practices, Microsoft engaged in an endless effort to re-engineer its operating system and applications software so that it is not practical for consumers to choose anything but Microsoft's browser Several Microsoft applications would not even install unless the consumer permitted the installation of Microsoft's browser.

Finally, Microsoft built its browser directly into Windows 98, so you could not buy Windows without installing and using Microsoft's browser, making Netscape's product a redundant, non-interoperable alternative.

MM: Why does it matter if Microsoft controls the browser market?

Love: This Would be important even if the browser was simply another application like a word-processor or spreadsheet. As Microsoft expands its dominance into each new software application market, it continues to make it ever more difficult to use products from any other company. This is because consumers expect software applications to work with other software applications. Microsoft is creating in environment where only Microsoft products will work properly with each other. As Microsoft expands the number of product spaces it controls, it makes it that much more difficult for consumers to choose anyone else's products.

But the browser isn't simply another application. It is more important.

The browser is a platform that runs Internet software applications. Multimedia programs, mail clients, distributed database clients and other products are using the browser as a client operating system. For example, today Java support is provided by the browser, and programs like RealAudio are typically launched by the browser.

The browser is the interface for Internet navigation. The browser determines the "first screen" that consumers see when they connect to the Internet, and sets a number of defaults for Internet navigation, for search engines, for electronic commerce sites, for news and for new Internet services. Microsoft wants to steer consumers to Microsoft's preferred sites for Internet content. It is seeking to influence the consumer's ability to find information and services on Internet, and to use that influence in anticompetitive ways.

If any one firm can control the browser market, they can also control the development of standards for web publishing. Microsoft has been quite explicit about this. They hope to use their growing control over both the server (NT) and browser markets to move the Internet away from open standards to an environment where Microsoft sets standards privately, using proprietary technology, turning the Internet itself into another extension of the operating system.

The fate of the browser market is also linked to a number of emerging technologies, including new electronic technologies that require browser interoperability.

MM: In general terms, what is the basis of the government's antitrust claim against Microsoft?

Love: The government's antitrust Case against Microsoft is broader than the browser itself. The Justice Department and the state attorneys general have presented evidence about an astonishing array of strong-arm tactics by Microsoft aimed at Intel, Apple, Sun, Netscape, AOL and many other companies. Of course much of the government's case is focused on the browser market.

In some ways, the government's case has yet to be defined. The Justice Department has presented loads of evidence that Microsoft engages in exclusionary practices, tying agreements and predatory pricing, that Microsoft pressures rivals to segment markets and to kill new technologies, and that it leverages its dominance in the operating system and the applications markets to gain market share in new markets, like the browser.

The government says that Microsoft has engaged in a wide range of anticompetitive practices with the intent to monopolize internet client software markets. Microsoft pressured Intel to kill Internet multimedia software products, and to drop support for Java, which Microsoft perceived as a threat to its operating system monopoly.

Apple was asked to "knife the baby" and drop support for its QuickTime software, which Microsoft perceived as a competitor to its own multimedia products. Microsoft would not provide an updated version of its dominant Office applications to the Macintosh Unless Apple agreed to replace Netscape with Microsoft's browser.

There is much, much more in terms of specific acts by Microsoft. The depositions and transcripts from the government's -witnesses read like a novel. The government's exhibits are fascinating. Most if not all of this is available on the Internet.

What is missing from the government's case is the end game. What are the remedies that the government seeks for Microsoft's wide-ranging anticompetitive actions? Since we don't know what the government wants as an outcome, it is hard to evaluate the case itself. Also, the government case may Suffer from a lack of focus.

Many of us wanted the government to bring a much broader case, but we also recognized the advantages of a narrower tactical case that could be concluded in a reasonable amount of time.

There is a sense that the present case isn't either one. The government hasn't gone after the broader issues, such as Microsoft licensing practices and bundling issues for its Office Suite, the wider range of interoperability issues with the operating system and the Office products, and Microsoft's attempts to extend its monopoly in television set-top boxes and Consumer electronics device markets.

But the case isn't simply a browser case either. The evidence in the case goes beyond the browser to next generation Internet technologies.

It is sometimes difficult to guess where the government will go with its evidence.

Overall, however, we arc very impressed with the government's management of the litigation. This is a very complex and difficult case, and there will be an enormous amount of second guessing no matter what they do. Being realistic about the practical challenges in antitrust litigation, one should be impressed with the speed, skill and toughness of the government's effort.

MM: Has Microsoft attained its 90 percent share of the operating system market through legitimate business techniques?

Love: Microsoft's entry into the operating system market began by licensing Q-DOS from Seattle Computing Products and licensing the program to IBM as MS-DOS.

Initially consumers were drawn to the IBM platform because it was so open. Microsoft did not become a factor in the applications markets for several years, and the MS-DOS operating system was a fairly simple program that managed system memory, input-output and connected devices. IBM's architecture was open, using third party hardware, such as the Intel CPUs. IBM's brand was important too.

Over time, the IBM market became the IBM compatible market, as companies like Compaq offered computers that used Intel's CPU and ran MS-DOS and the applications that had been developed for the IBM PC.

As more and more companies offered IBM compatible computers, IBM sought to close the architecture, with its PS/2 line of computers that used a new proprietary "bus" hardware architecture that was not hardware compatible with it,, older computers. '

At this point Compaq and other PC OEMs decided to embrace the older more open architreture and to develop new technologies that had better backward compatibility. As the market embraced the more open Compaq-led effort, the market was redefined as the Intel/Microsoft plat form. IBM was no longer important. No one wanted to be compatible with IBM, but everyone wanted to be compatible with Intel and Microsoft. Eventually, as companies cloned the Intel x86 CPU technology, the only concern was compatibility with Microsoft.

IBM's disastrous and unpopular PS/2 effort would later haunt IBM as it tried to Persuade consumers to embrace OS/2, the technically impressive operating system that IBM positioned as a Successor to MS-DOS.

When Apple first developed the Macintosh, it was light years ahead of Microsoft and IBM in terms of the hardware and the software. Steve Jobs and Apple had implemented the Xerox Parc vision of the future of computing, and dazzled consumers. But Apple also was extremely closed. If you wanted the new Apple operating system, you had to buy your computer from Apple. Not only your computer, but in the beginning, your computer monitor, printer, keyboard, disk drive and nearly everything else.

Most consumers were put off by the closed nature of the Apple system, and also by the higher cost of the system.

The ultimate value of a computer platform is typically determined by the investments made by third parties. In the case of the Intel/Microsoft platform, there was soon an enormous choice for software applications and hardware devices that ran on the Intel/MS platform. And as this platform grew, consumers began to experience "lock-in" effects. It became highly costly for consumers to migrate to a new platform. Workers were trained on this platform, data was stored on it and hundreds of thousands of customer soft\\ -arc pr() grains have been developed for the platform.

MM: How did Microsoft use its operating system to leverage power in software markets?

Love: As this lock-in became stronger, Microsoft began to emerge as a competitor in a wide range of software applications markets. Microsoft had its own word processor (Word), spreadsheet (Excel), and presentation graphics (Powerpoint) program. It bought into the database market. Microsoft offered a number of programming languages and development tools. As Microsoft's ambitions grew in applications, it began to manipulate its operating system so that its own applications had secret advantages, or so programs by rivals performed badly or crashed. This is when the phrase, "DOS isn't done until Lotus won't run" was coined. Microsoft constantly added minor changes to the operating system that caused problems for Lotus 123 and other rival applications.

Microsoft reportedly used a variety of anticompetitive tactics to harm potential operating system competitors, such as DR-DOS, which was considered a better DOS than MS-DOS, or various programs by Quarterdeck which ran on top of MS-DOS, and offered multitasking and other advantages. Microsoft's "per processor" licensing to OEMs meant that OEMs (and consumers) would still have to pay for MS-DOS even if they wanted DR-DOS. Microsoft raised doubts about the compatibility between its Windows program and DR-DOS, to discourage consumers from running Windows on DR-DOS.

Not all of this was clear to consumers. But one message did get out If you buy non-Microsoft products, you can expect compatibility problems down the road.

MM: What is the dispute between Microsoft and Sun Microsystems? In what way does Sun pose a competitive threat to Microsoft?

Love: Sun is a competitor to Microsoft in several areas, including in the server market, where Sun's computer and software products compete with Microsoft server products that run on Windows NT. However, what is getting the most attention in the news media is Microsoft's efforts to undermine Java, a new technology invented by Sun.

Java is Supposed to be an environment where "write once" programs will "run everywhere." In theory, if any machine has sufficient Java support, it will run Java programs, regarding of the hardware and software used by the end user. Java programs can also be distributed over networks, as part of web pages or mail messages, and can be used in a wide variety of new consumer electronics devices and in cable set top boxes.

Java is one of several technologies that threaten Microsoft's monopoly power. If applications were written in Java, they could be run on non-Microsoft operating systems. Java would chip away at the "lock-in" most consumers have with Windows. Java would also have its own applications programming interface (APIs) that would be independent of Windows. If this became important, Microsoft would lose some valuable control over standard setting for software programs.

Microsoft has mounted a war against Java. Indeed, one rationale for the war on Netscape's browser is to control the environment where Java has to run.

Microsoft wants to distribute an "enhanced" version of Java that would actually "poison" Java, by making the platform specific to Windows. This would damage the "write once, run everywhere" promise of Java. Microsoft sells Java authoring tools that create programs that run only on Microsoft Java, and not on the standard Java that would be found on non-Microsoft computers.

Microsoft has also put pressure on Intel, Digital, Apple and other companies to withhold support for Java. Microsoft is also promoting its Active-X technology, which is similar to Java, as an alternative to Java.

In general, Microsoft's attacks on Java are part of a larger effort by Microsoft to undermine nonMicrosoft standards or technologies, including the Internet's open and non-proprietary protocols.

Indeed, the Internet itself is a threat to Microsoft, because it has greatly undermined the "lock-in" with Microsoft. Consumers can easily share files, mail and databases over the Internet regardless of the type of hardware or software they use for client machines, and the Internet makes it easy for computers and software to be interoperable with each other.

Microsoft sees open interoperability platforms as a threat to its monopoly power. To a degree, Microsoft is right. Open Internet protocols are a threat to its monopoly. But Microsoft's response should be to adopt and to innovate, rather than to destroy or undermine open platforms.

MM: You have said that, "If Microsoft were to succeed in every area it is active, it would have the most important control over commerce and worldwide information flows of any firm, ever. " How does Microsoft intend to gain control of the Internet, a free medium?

Love: Microsoft wants to control the interface for next generation television, radio and multimedia programs delivered over next generation infrastructure. It wants to "own" the rights to virtually all software used to transmit and receive content over these networks. It wants to control the default menus for navigation, and it wants to monopolize the searching tools used to locate information, services and other content on the Internet. Microsoft wants to accomplish the same thing for the devices used to receive information from satellites and wireless communications, including new consumer electronics devices.

Microsoft hopes to parlay its influence over Internet navigation into greater success in Internet content. Microsoft's subsidiaries or partners would be easier to find. Microsoft could make some information very hard to find.

Autobytel, an Internet site that sells cars, recently complained when Lycos, a search engine, was programmed so that it was impossible to get to a direct link to Autobytel, and every time a consumer searched they saw a click-through banner ad for Carpoint (Microsoft's subsidiary that is a direct competitor to Autobytel).

This describes the problem. Microsoft's content was easy to find, its competitor's content was hard to find. With dozens of search engines, this isn't the end of the world, but if Microsoft could come to dominate the search engine market, as it has the browser market, there could be enormous problems and issues of concentration of both economic and political power.

With MSNBC as the "all Monica, all impeachment" channel for cable television, it is not difficult to imagine the possibilities if a member of Congress (or of a foreign parliament) was openly hostile to Microsoft. Constituents search on a representative's name and what do they find? Consumers want to buy flowers or find a plumber, and who do they find?

It's not that you can't get to everyone else's web site, but there is a big difference between being on page one rather than page six when a search is conducted. Like real estate, the most important factors arc location, location and location. Microsoft wants to control the location on the desktop, the bookmarks and default menus for the browser, and it wants to dominate the Internet search engine market.

Microsoft is focusing on dozens of ways to control the development of the Internet. If Microsoft can control the client software used to receive Internet content, it can then begin to control server platforms. Microsoft can design the client software so that it works better with Microsoft's servers, just as MS-DOS and Windows supported Excel better than Lotus 123.

And, if Microsoft comes to dominate either the client or the server software, Microsoft can move the Internet away from open standards to closed proprietary standards controlled by Microsoft. Microsoft has proposed doing just that in the "Halloween" memos that were leaked and posted on the internet in late October .

MM: How will a computer company be able to compete with or even dominate banks and car dealers in their areas of expertise?

Love: Microsoft's goal is to influence Internet navigation and Internet protocols enough that it can tip the scale in competitive markets.

If Microsoft's services are easier to find, and work better than services offered by competitors, they will have an edge. Microsoft hopes this edge will be enough.

One surprising aspect of new information technology markets is the tendency of leaders to get further ahead. Increasing returns in many fields OF commerce seem to be very large. We don't know enough about the future of electronic commerce, but there is a surprising degree of concentration in several fields already.

If one firm becomes a factor in many areas, it creates frightening scenarios.

Microsoft can do a lot of scale tipping. Imagine, for example, if the telephone company was permitted to leave some companies out of the yellow and white pages, and if it could degrade the level of service to some firms, or provide special telecommunications services that only some businesses could utilize. The phone company could end up as your business partner, whether you wanted this or not.

MM: What should the courts do to address the antitrust issues raised by Microsoft's conduct?

Love: The issue of remedies needs more discussion, and not only for Microsoft, but for the entire new world of electronic commerce we are entering. In Microsoft's case, the government should begin with remedies that address licensing practices, interoperability and bundling.

In the area of licensing, we have asked the government to require Microsoft to provide non-discriminatory licensing of Windows, Windows NT and Microsoft Office. These arc the core products that OEMs need to license. Until the OEMs can be assured that they can obtain these products at competitive prices, they will be afraid to challenge Microsoft in important areas. Companies like Dell, Micron, Gateway, Compaq and Packard Bell should be able to offer consumers a choice of operating systems or applications, pre-installed, without retaliation of any kind from Microsoft.

Microsoft also has to be forced to provide its competitors with more complete technical information regarding its products, so that rivals can build products that are interoperable. One solution would require Microsoft to offer certain products as open source, where the underlying code could be inspected. Netscape does this now with its browser. Microsoft should be required to do this with Windows and also with sonic core dominant applications.

On the bundling front, the government could require Microsoft to distribute certain products separately. The browser has been the focus of the current trial, and much good and no harm would come of requiring Microsoft to distribute the product as a stand alone product.

But even more could be done. For example, Microsoft could be required to sell Microsoft Word and Excel as separate products, so that Microsoft could not wipe out competition in an entire applications segment by bundling a product with Word and Excel on its Office CD, as Microsoft did with personal information management (PIM) software when it added Microsoft Outlook to Microsoft Office.

Microsoft would be free to make these products interoperable with each other. Indeed, that is what Microsoft does now. Consumers can choose which Microsoft Office applications to install from the same CD, and this could easily be done from separate CDs.

One particularly important unbundling remedy would be to separate the Windows desktop and the Explorer navigation defaults, so OEMs could ship computers with links to software and electronic commerce from Microsoft competitors.

And if Microsoft succeeds in wiping out competition for browsers, the Microsoft browser should be designed so that third parties could modify the navigation defaults.

The government could also break Microsoft up into parts, or failing that, create "Chinese walls" between various Microsoft groups, with conduct rules designed to level playing fields.

MM: You have championed Linux, an alternative computer operating system to Microsoft's Windows. What is Linux and what are its social benefits?

Love: Linux is the name of a computer operating system. This is a Unix-like operating system that was first created in 1991 by Linus Torvalds, then a Finnish graduate student. Today Linux is a full-featured operating system with thousands of programming tools and software applications. It is now the work of thousands of volunteer programmers, who organize themselves in a variety of projects to develop particular features or applications. Indeed, what people call Linux is really a movement that includes a number of software programs that exist independent of Linux, such as programming languages or servers like Perl or Apache, which work on several platforms.

Linux and most of the tools you get when you install Linux are free.

But Linux is copyrighted, and distributed under a novel and controversial GNU Public License (GPL), sometimes referred to as copyleft. Under the GPL, if you modify the source code and redistribute it, you must make the modifications available on the Internet, and give the person who receives the code the same rights to use and redistribute the code, subject once more to the GPL. The GPL is designed to protect the free software from embrace and extend strategies that would privatize the work of the original authors. In the GPL licensing scheme, all modifications of the code are always free.

Not all components of a typical "Linux" distribution are covered by the GPL, and indeed, there exist countless variations of free software licenses, some incompatible with each other.

What makes Linux interesting isn't that it is free, but that it is free and very good software.

Linux is designed by hackers, and it is an interesting contrast to Microsoft. With Linux, everything can be customized. Like Windows, Linux can be run with a slick graphical user interface (GUI). But unlike Windows, you can choose between probably a dozen different GUIs, each with its own look and feel. My PC at work is very stable, and I can run it for months with having to reboot the computer. Buggy programs can and do crash, but program crashes are easier to manage in Linux, and don't crash the whole session. The system is more robust.

We began using Linux at CPT to see if we could survive without using Microsoft products. We were also interested in the underlying politics behind Linux. Linux isn't owned by anyone, not even Linus Torvalds. There are commercial companies that distribute Linux, like Red Hat, Caldera or S.u.S.E., but the software itself belongs to the users. It is improving rapidly. Linux volunteers claim they can improve the platform faster than Microsoft can improve Windows, no matter how much money Microsoft spends. Having seen the progress of Linux over the past nine-months, I find this plausible. We use commercial products like WordPerfect and Netscape with Linux, and we have found it fairly easy to train people to switch from Windows to Linux. Most people do not know how to install Linux on a PC themselves, however.

We have been asking OEMs to offer consumers PCs with Linux pre-installed, at least on some mail-order PCs. This has yet to happen with the major OEMs, due to pressure from Microsoft.

Linux could be the next big thing. It's open and non-proprietary development model is considered revolutionary. It is a high tech cyberspace consumer cooperative. It is facilitated by the vast changes in communications brought about the Internet. It is an anti-monopoly development model - the ultimate open playing field. It can run on multiple platforms. In addition to Windows compatible computers, Linux works on palm-pilots, Macs, Sun Sparcs and PCs with Alpha chips, plus a number of other platforms. If you can't trust any one firm to control the operating system, maybe we can trust the operating system that cannot be owned, by anyone.


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