May 20, 1998, Wednesday, ALL EDITIONS, VIEWPOINTS; Page A41
By Al Gordon. Al Gordon is a Viewpoints editor.
YOU
HAVE to give the government some credit for sheer consistency: It got the policy
wrong for telephones, for cable TV and now it is going in the same direction for
personal computers and the Internet.
Microsoft
is not the easiest company in the world to defend. It does seem to have borrowed
its corporate strategy from the Borg on “Star Trek.” (“You will be
assimilated. Resistance is futile.”) But the sweeping federal and state
antitrust actions filed against Microsoft Monday, while not totally without
merit, miss the most important point - separating conduit from content.
The
lawsuits focus on “horizontal integration” - the control of a particular
product category by a single company. In
this case, the government says Microsoft is using its domination (an estimated
90-percent market share) of PC operating systems, the bedrock software of a PC,
to take over the Internet browser market and, by doing so, gain monopoly control
over the gateway to the Internet.
The
problem is that much of this theory doesn’t make practical sense. For one
thing, this Internet monopoly does not now exist. Netscape Communications Corp.,
the company supposedly being protected here, still holds 60 percent of the
browser market and, had Microsoft not entered it, would itself have had a
stranglehold over Internet access. This litigation is an extraordinary
intervention by the government on behalf of an unsuccessful monopolist.
What
economists refer to as the principle of “network externalities” is at play
here. In simple terms, this means that some products or services gain value when
there is a single common standard - and the marketplace itself will settle on
such as standard. This is not
unique to software; it is, for example, why flashlight manufacturers use
standard battery sizes rather than developing proprietary cells.
The Justice Department proves the point itself on its own Internet web
site. It makes available the
documents for the Microsoft case only in a format that uses Microsoft operating
systems. Microsoft’s hardball marketing tactics certainly have helped make its
standards win, but it is naive to think that the lawsuit will magically produce
a world of competing standards.
Microsoft,
however, doesn’t have a blank check, even for operating systems. There are
other systems - Unix, Linux, IBM OS/2 and, of course, Macintosh - dozens of
other browsers and, most important, thousands of software engineers and
programers who could develop competing products.
The market forces Microsoft to keep its prices at a level low enough that
there’s no economic sense in switching to a competitor.
The
government’s case shows a definite lack of computer literacy. For example, the
suit makes a major point of the so-called channel bar - a list of Internet sites
with a connection to Microsoft - set up by Microsoft’s Internet Explorer
software. A user needs only move the mouse pointer to the little “x” in the
bar’s upper right-hand quarter and click it, and this feature is disabled.
Hardly something out of which literally to make a federal case.
Microsoft’s implementation of Internet Explorer, in fact, has demonstrated the
validity of its premise that Internet access can fairly be considered a core
computing function to be included with an operating system.
Microsoft is moving in a direction where it will make it easier for users
to move seamlessly between material inside their computers and data on the
Internet.
Sadly,
the litigation only hints at the really critical problem: “vertical
integration” - dominating all phases of an industry from raw material to
consumer end product. In this case, the product would be information.
Software is a big business, but it is basically chump change compared
with entertainment, financial services, retailing and all the other information
services that can be distributed over the Internet.
Strikingly
absent from the antitrust litigation are significant moves to keep Microsoft
from providing the content on the Internet as well as access to it. It is not
truly possible to “control” the Internet, but making selected services
easier to find and use provides an edge in profitability. This would limit
competition on the Internet. The government seeks to restrict Microsoft’s
ability to give preferred placement on the Windows desktop to Internet services
that haved made deals with Redmond. But
perversely the suit does not preclude Microsoft from owning a piece of the
action and using its financial and technical muscle to support its online
vendors.
Despite
Monday’s lawsuits, Microsoft may continue its online magazine, travel, car
shopping, city guide and financial data services. It is free to keep selling
software for cable systems and to own interests in them, free to be a partner in
the MSNBC news network, free to buy shares in entertainment production
companies. Antitrust regulators
have blocked some Microsoft mergers and acquisitions, but very few of them, and
the software giant has been able to go ahead with most of its crucial deals.
The
last meaningful move in this area may have been about 50 years ago when the
government forced the Hollywood movie studios to divest themselves of movie
theaters (a policy that has since been rolled back).
Since then, phone companies, cable systems and TV networks successfully
have resisted policies that would have limited their ability to control both
content and distribution. Now the
same is happening with the Internet.
Bill
Gates’ control over Internet browsers is of very little importance.
His ownership of the content delivered by the browser is what should be
the focus of government attention.
Copyright 1998, Newsday Inc.