Why Microsoft Is A Monopoly Through a combination of tactics that many people would consider monopolistic Microsoft is now involved in almost every aspect of the computer and computer-related telecommunications markets and is emerging as a major player in Internet commerce and on-line media ventures. As of March 1997, 87% of all the software developers were actually developing the Windows bit 32 platform, which is the operating system for Microsoft. Fifty three percent of 2.4 million US Professional developers use Microsofts visual basic program as their primary development language(1) Microsoft is playing an increasing role in their technical education, forging commercial partnerships with both commercial and academic training institutions. Microsofts Internet Explorer desktop browser has overtaken Netscapes software for navigating the Internet. Microsoft also has made many alliances with banks and its financial software, Money and Personal Investor, along with its financial server software, Microsoft is emerging as a key player in shaping the on-line financial transaction system of the future. Its ownership of the Microsoft Network(MSN) and its partnership with NBC, which has created MSNBC venture has given Microsoft strong distribution outlets for its emerging range of media content.
Its investment in Dreamworks gives it a position in Hollywood movie and music production that can be assembled into its on-line ventures involving interactive multimedia as computers and television combine in coming years. Also Microsoft is working to control the way people connect to the Internet from work and home. Its $425 million purchase of WebTV gives it control of a major avenue for non-PC internet access. Its $1 billion investment in the cable company Comcast and proposed investments in US West cable now make it a major player in designing standards for accessing the Internet over cable. Microsofts Bill Gates is in partnership in a $9 billion venture to create a low-orbit satellite system called Teledesic that could give high-speed Internet access to anyone anywhere in the world, an investment supported by the US government through a massive free giveaway of radio spectrum to the company. Microsoft has used that financial clout consistently over the last few years to acquire companies and their software and human assets, while sealing financial alliances with a range of partners. While many of the financial details have not been made public, Microsoft spent an estimated $1.5 billion between 1994 and 1996 on acquisitions.(3) Microsoft has purchased many companies buying or investing in over twenty companies in 1996 alone. Its investment have not only been with the $1.5 billion spent on WebTV and Comcast, the $150 million invested in Apple, and the hundreds of millions invested in additional Internet-related companies, including its key investments in audio and video streaming.
It has been acquiring key strategic technologies at a rate of over one per month. Surprisingly Microsoft is not at the peak of an industrys size but at an early stage in markets that are expected to explode in the next decade. If unchecked, there is a real possibility of Microsoft becoming a financial and technological mountain dominating more markets and industries than any monopoly has ever dominated. The nature of high technology makes each individual market linked to other markets through a combination of software standards, training skills, development tools and physical architecture that must all be able to work in combination. The key to the economics of networked technology is that products and markets do not stand alone in these high-technology markets but instead reinforce one path of innovation versus any alternative path.
An operating system attracts software developed around that operating system, which discourages new competition since any alternative faces not only the challenge of creating a better operating system but competing against a while array of already existing software applications. Businesses train employees in one technology and are reluctant to abandon that investment in training, while the existence of a pool of people trained in that technology encourages other businesses to adopt that technology. And as desktop software has to be able to work with client-server networks and an array of other technologies, it becomes nearly impossible to abandon an established set of technology standards that tie those different parts together. These so-called network effects give an incredible anti-competitive edge to companies like Microsoft that control so many different parts of the network and use that control to leverage position in connected markets.(5) Any market leader that has many financial resources can easily drop its prices to prevent an upstart from destroying its initial investment. Since this is not a perfect world we have one company, Microsoft, that towers over its competitors in most market segments and who is doing everything possible to undermine open standards in favor of ones that its controls.
As well , Microsoft has not been adverse to engaging in outright anti-competive practices as needed to assure its dominance of markets, as a string of lawsuits and complaints trailing in its wake can attest to. From his first days in the computer industry back in the 1970s, Bill Gates said repeatedly We want to monopolize the software business.(6) And while he has actually changed his words, his actions have shown no change in attitude other than the range of industries he wants to monopolize has expanded. When competitors have released new software, Microsoft has announced upcoming better features on its own software- improvements which often would not materialize for months, even years after their scheduled release. Hidden features of its operating system have been used to give its own application developers an advantage over the competition. And the bundling of software has allowed Microsoft to use dominance in both markets together.
It has used its advantage of its monopoly control of the desktop to obtain dominance of Internet standards and in turn use that control to achieve a dominant position in Internet commerce. The Internet, while a potential threat to Microsofts dominance, is also an opportunity for the company to seize control of those Internet standards and thereby gain new network footholds on every computer connected to the Internet. Through the combination of controlling standards in the Web browser market, Web servers, development tools for Internet software developers and development of standards for financial transactions on the Net, Microsoft is not only quickly dominating markets for software sales related to the Internet, it is using dominance of software technology to obtain a commanding position in consumer-oriented Internet commerce, from auto sales to classified advertising over the Internet. It is seeking to further reinforce its dominance by controlling standards and connections to the Internet right from home. While the network effects of technology have played a large role in Microsofts monopolistic success, much of the blame belongs to the federal government for its failure to curb abuses by Microsoft, block its acquisition of key technology, or step in to support open standards not controlled by Microsoft.
The government must examine not only individual markets but how Microsofts expansion from desktop software to investments in enterprise computing, media content, on-line commerce and Internet access to the home all work in combination in anti-competitive ways. The operating system, MS-DOS and Windows, are the software core of almost all computers-linking keyboards, the central processing unit, memory chips and all other software together in a functioning whole. While Microsoft has expanded its operations in the last few years, it was through control and sale of desktop operating systems in the consumer market that Microsoft made the fortune from which all other ventures have sprung and it is the operating system that has been the key strategic point of control that has given Microsoft a monopolistic advantage in other ventures. Microsoft is now using many of the same tactics that it used to monopolize the consumer market for the desktop computers to win domination of the business-level and Internet markets. Microsofts MS-DOS operating system, begun in controversy and accusations of deceptive business practices, has been the subject of a Justice Department defense decree, and to this day is still the object of residual lawsuits from ertstwhile competitors. When IBM licensed the operating system from Microsoft in 1980, the fortune of the company was made as it went on to resell the operating system to almost every company seeking to build computers that were compatible with the new IBM standard.
While Microsoft has traditionally pushed forward its dominance through control of software, it is increasingly investing financial resources in professional training, and tilting the workforce towards Microsoft expertise. As Microsoft makes sure there are professionals available trained in its technology where its rivals often cannot, business will feel pressured to adopt Microsoft technology just to be assured of a trained workforce. Microsoft’s existing worldwide training and certification programs trained more than 1.2 million technology professionals in fiscal year 1997 as part of a program Microsoft calls Skills 2000. It reaches these professionals through an intensive combination of partnerships with computer vendors, work with commercial training centers, a free television-based training program, training sessions linked to conferences around the country and a growing network of academic alliances.(29) Microsoft is the only software vendor (outside fading Novell) which has its own professional certification credential. The company has worked with a variety of vendor partners and commercial training centers to establish its certification program; with 120,000 Microsoft Certified Professionals by 1997, the number had grown 250% in one year.
Concentrated in the consultant services and system integrators hired by other firms to set-up their computer systems, such strategic training is magnified as those Microsoft-trained professionals tilt the buying decisions of a whole range of companies(30 Microsoft is spending hundreds of millions of dollars on training–thousands of dollars per person trained–on other peoples’ employees in order to tilt the supply of software professionals towards Microsoft technology. Microsoft is also tying over 300 academic institutions and 40,000 students a year into its training program through its Authorized Academic Training Program It provides free technical training to teachers and educators and has shaped those academic programs to create Microsoft Certified Professionals, adding the academic stamp of approval to its own programs. Essentially, Microsoft is taking advantage of the weakness of standards in both the private and public technical education fields to mold them into subsidized Microsoft recruitment tools. Looked at comprehensively, Microsoft is using its training programs to further reinforce the network effects already tilting control of corporate computing under its dominance. Its competitors like Novell, Sun and Oracle are scrambling to create a multi-company training network to contend with this Microsoft-controlled training system, but it is an unfortunate fact that our country’s whole system of technical education is being distorted as it becomes one more tool for Microsoft’s monopolistic goals.
The rise of the Internet has been both a threat to Microsoft’s empire and an opportunity to expand it to a degree impossible before. With various forecasters expecting between $80 and $160 billion in electronic commerce by the year 2000, the Internet had become the decisive realm of computer competition for the future(35) And Microsoft is working hard to ensure that consumers will become captive customers of its monopoly. The threat of the Internet was obvious: with a twenty-year tradition of open computing standards connecting computers of all kinds, the Internet looked ready to make proprietary operating systems for individual machines an anachronism. As the Internet broke into national consciousness in 1994 and 1995, it appeared that millions of computers were connecting to one another with Microsoft having nothing to say in the matter. The rise of Netscape and a host of other new Internet companies seemed to promise a new era of competition including a whole new cast of companies.
The final nail in Microsoft’s coffin seemed to be when it introduced a new proprietary Microsoft Network on-line service as an alternative to the Internet; within months, Microsoft shut down the proprietary version in late 1995 and converted it fully into an Internet service provider. But in many ways, Microsoft’s quick success since that point in seeking control of the Internet marketplace just shows the inherent monopolistic power of the company’s place in the computing world. Having dismissed the Internet until relatively late, Microsoft has in under two years been able to assume not only a competitive position but is now threatening to control the standards of the Internet. Microsoft’s slogan has been to embrace and extend (and thereby control) the Internet from its position of control over the desktop. Nothing highlights Microsoft’s monopolistic strategies more than its attempts to destroy the open computing standards of the Internet-oriented Java language–an open standard for running software over the Internet created by Sun Microsystems and supported by hundreds of other companies.
The most basic use of Java is for enhancements of Web pages–animated pictures, interactive queries from browsers – to go beyond viewing static information. But Java is ultimately a way for the Internet to act as one giant computer where programs can be located anywhere and be accessed instantly over the Internet from any desktop. The key innovation of Java is to be platform-independent, meaning that a Windows user can run software from a UNIX server or even run sophisticated software from simple network computers that need only a stripped-down operating system for Internet access; most software functions will be run somewhere else on the network and only small applets need be sent back-and-forth between desktop and central computer. Obviously, Java is a direct threat to Microsoft’s Windows franchise and the power Microsoft derives from it, so Microsoft has done everything possible to undermine Java’s write once, run everywhere programming standards. Microsoft’s first strategy was to create a competing software system called ActiveX for allowing Web designers to create mini programs on their Web sites to lessen the immediate demand for Java applets. Microsoft quickly used its control of major development tools like Visual Studio and its web server support software to make writing ActiveX commands as easy as possible to lure developers and companies to adopt ActiveX.
And this strategy partly worked with an estimated $400 million market in ActiveX components created by 1997.(49) But Microsoft also recognized the lure of Java and it initially licensed Java from Sun for its own Web software and development tools for fear that developers might abandon them if Microsoft did not provide Java capability. Microsoft’s Visual J++ Web development software (incorporated in Visual Studio) quickly became the most popular Java development tool and is used by 50 percent of Java developers.(50) Microsoft accomplished this dominance through large-scale distribution of free and reduced copies of J++ to key developers around the country. It also bought out Colusa, an early developer of Java tools, and in 1997 purchased Dimension X, whose Liquid Motion graphics and multimedia authoring tools for Java were already considered top in the industry.(51) All of this gave Microsoft an emerging dominance in the Java field that was surpassing Sun itself. However, Microsoft’s J++ tools are optimized for Windows machines and many developers expressed skepticism of Microsoft’s commitment to open Java strategies. By mid-1997, it became clear that Microsoft’s goal was not just to embrace and extend Java but to destroy its multi-platform function, using Microsoft’s combination of browsers, operating systems and developers tools to divert Java into a new Microsoft-controlled proprietary system running best only on Windows-based machines. Microsoft introduced a new version of Java called J/Direct which went beyond being optimized on Windows machines to actually making direct calls on Windows operating system commands – violating the basic principles that all Java programs should be independent of a specific operating system. In July of 1997, Microsoft announced it would not include any of what Sun called Java Foundation Classes–bits of standardized Java code to assist cross-platform compatibility–in future Microsoft products.
As one Microsoft executive stated flatly, It [Java] is a competing operating system and Microsoft’s goal was to undermine, not support its use as a cross-platform standard, no matter how many companies supported it.[(52) Microsoft is promoting a competing Windows-oriented Java Application Foundation Classes (AFCs) and has been working with its hardware ally Intel to optimize its new software standards with Intel’s hardware–thereby reinforcing both their positions in control of computing standards.(53) Having largely engineered its unfriendly takeover of Java standards, Microsoft put the final nail in the coffin with its $150 million investment in Apple Computer. In exchange for that investment, Apple not only agreed to bundle Explorer with every Apple computer, but agreed to support Microsoft’s Java standards – essentially extending Microsoft’s control of Internet standards across nearly 100% of desktop computers.(54) On Oct. 7, Sun filed a breach-of-contract suit in federal court in San Jose, Calif., arguing that Microsoft was misusing its license to use Java in creating platform-dependent versions. Business Week commented on the importance of the lawsuit, stating, [Java] is perhaps the only remaining technology that can challenge Microsoft’s dominance, but they also noted that the delays involved in any lawsuit may well kill open Java standards since the legal uncertainty plays right into Microsoft’s hands since it can in the meantime confidently promise to, through its economic strength, deliver one standard or another on its Windows machines.(55) If there is no quick, decisive action by the courts or the Justice Department to support open standards, Microsoft will end up expanding its monopoly to control of software throughout the Internet and corporate networks, and consumers as well as business customers will be captives of its monopoly. Having come to dominate software sales in the computing world, Microsoft is looking to use that control to …