The Trials of Microsoft

A. Scott Piraino

Microsoft owes their monopoly to a crucial mistake made by IBM Corporation.

When IBM debuted the personal computer in 1984, it had a central processor made by Intel, and operating software from Microsoft. IBM did not seek patents for the entire computer, and soon other companies were copying, (or cloning), the PC. As more companies cloned the PC, Intel and Microsoft became the two key suppliers to the computer industry.

It is important that we realize this, now that Microsoft is worth more than IBM, Boeing, or even General Motors, all without manufacturing anything. The company did not become today’s software goliath through skill or innovation. Microsoft was only able to eliminate their business rivals after being handed a monopoly on computer operating systems.

Microsoft’s first competitor was an operating system offered by Novell corporation, called DR-DOS. Although the program had similar capabilities to Microsoft’s own DOS program, e-mails reveal a deliberate policy to spread “fear, uncertainty, and doubt” about the rival software. Programs were written to work with MS-DOS, but fail when ran under Novell’s operating system. It worked. DR-DOS disappeared, and today Novell is nearly bankrupt.

Next Microsoft copied technology from Apple computer to create the Windows operating system. This program had a user friendly graphical interface and quickly became the standard on all IBM type PCs. Since anyone could clone IBM’s computers, but no one else could manufacture Apple’s machines, sheer numbers of PCs reduced Apple to a fringe player.

By 1991 Windows operating systems were installed on 90% of all PCs. Microsoft then began leveraging their operating system monopoly into the market for software applications. Contracts with computer manufacturers required them to include MS Office when installing Windows on their machines. This put word processors, spreadsheets, and other programs from rival software vendors at a disadvantage.

The Justice Department took note and began scrutinizing Microsoft’s business practices. To avoid charges of violating anti-trust laws, the company signed a consent decree in 1994. This barred them from leveraging their Windows monopoly to control the market for other software products.

Microsoft had won the battle for the desktop, but a new challenge would come from the emerging World Wide Web.

In the mid 1990’s a silicone valley company created a computer program that allowed users to access the internet and view not just text, but graphics, video, and sound. This company became Netscape, and the computer program became the web browser, Navigator. Then Sun Microsystems debuted a revolutionary computer language called Java. A program written in this language could be accessed over the internet and ran on any computer, regardless of type.

A new, internet based computer architecture threatened to make the Windows operating system obsolete. As Netscape’s Navigator became the standard on all PCs Microsoft’s programmers rushed to create their own web browser. But the first version of Internet Explorer released in 1996 was clearly inferior to Navigator. To improve it, Microsoft had to have Java.

They licensed the new programming language from Sun Microsystems, then created “Wintel Java”, a version that only ran under Windows. Sun sued Microsoft for violating the licensing agreement, but the damage was done. Microsoft used their Wintel Java to create a new and improved Internet Explorer.

The problem was, Navigator was already installed on millions of computers. To overcome Netscape’s market advantage, Microsoft forced computer manufacturers to bundle Internet Explorer with Windows on all new computers. This excluded Netscape’s web browser from 90% of all new computers, and violated the consent decree of 1994.

Finally, in May of 1998, the Department of Justice and 19 states file suit against Microsoft for violating anti-trust laws and extending their monopoly on software. In opening arguments Microsoft argued that they weren’t a monopoly at all. But they couldn’t deny that Windows and Office were installed on 90% of personal computers. If further proof were needed, the price of Windows had not declined in ten years, even while computer prices dropped 50 percent.

As the trail progressed the central issue became Microsoft’s leveraging of that monopoly to control the market for web browsers. Judge Thomas Penfield Jackson issued a preliminary order to stop the bundling of Internet Explorer with Windows. Microsoft immediately appealed that order in another court and it was overturned.

During the two year trail Internet Explorer continued to be installed on all new PCs. Netscape was forced to distribute their browser for free, but with no revenue their business collapsed. In November of 1998 the company was sold to America Online.

Microsoft’s lawyers crowed that Netscape’s demise made the trail unnecessary, but it only highlighted their sleazy tactics. At one point during the trail defense lawyers brought a doctored version of Internet Explorer into the courtroom, they were caught. When called to the stand, Microsoft founder and CEO Bill Gates alternated between belligerency and amnesia, even denying knowledge of e-mails he had written.

Needless to say these antics did not endear them to the judge and the company lost the case. Microsoft has been found guilty of violating anti-trust laws and abusing their monopoly power. Judge Jackson’s decision was to order Microsoft split into two companies. One company would own the Windows franchise, the other would control all applications, including Office and Internet Explorer.

Microsoft pundits complained that splitting the company would be a disaster, citing the court ordered breakup of AT&T in the 1980s. Of course this was nonsense, AT&T was a huge company with employees and infrastructure throughout North America. Microsoft has no factories and virtually all their assets are electronic.

The breakup was to take effect within one year after all appeals were exhausted. Instead Microsoft lawyers maneuvered their appeal into the very same court that overturned Judge Jackson’s order during the trail. In June of 2001, the Washington D.C. appellate court overturned the decision to break the company in two.

Microsoft’s lawyers have dodged the legal bullet, but they are almost too busy to gloat.

The company has been sued for anti-competitive practices by the new owners of DR-DOS. AOL Time Warner sued for damages over the demise of the Navigator browser, the case was recently settled for 750 million dollars. The lawsuit with Sun Microsystems is ongoing, and the court has already found Microsoft to be in violation of the Java licensing agreement.

After a federal court has found them a monopoly, Microsoft faces hundreds of class-action lawsuits filed on behalf of consumers. The State of California just settled one such civil suit with the software giant for over one billion dollars. Many more class action cases are now being consolidated in a Baltimore court.

Microsoft’s business strategy is clear: Steal technology and ideas from competitors, and when sued for breaking the law simply tie the matter up in the courts. Microsoft has been sued by the company that invented browser plug-in technology, Apple Computer, Sun Microsystems, and numerous other software companies. One case in particular illustrates how ruthless Microsoft is, and how cheap.

Synet had already trademarked Internet Explorer as a brand name when Microsoft came calling, offering 75 thousand dollars for rights to the name. When they refused Microsoft stole the name anyway, and Synet went bankrupt fighting the software goliath’s lawyers in court. After filing for bankruptcy the company was forced to settle for a paltry five million dollars.

Despite their legal woes, Microsoft is still all powerful. The company has over 40 billion dollars in cash, more than enough to settle pending lawsuits and fight legal battles in the courts. Through greed and strong-arm tactics Microsoft has come to dominate the market for operating systems, desktop software, and web browsers.

Now Microsoft’s sights are set on the internet. The company has unveiled a bold new software initiative called Dot Net, (spelled .NET). This new software language is similar to Sun’s Java, in that it is designed for the World Wide Web. But there is one crucial difference, .NET only runs under Windows.

Microsoft’s next web browser will not include support for the Java programming language. Instead programmers of web based programs will be forced to write code using .NET. If Microsoft’s new programming language becomes the standard, the internet will only run under Windows.

Microsoft just might pull it off. The only challengers to the Windows franchise are Apple Computer and open source software programs like Linux and BSD. But while Microsoft’s Windows, Office, and Internet Explorer run on 90 percent of all desktop computers, any competitors face an uphill battle. In the meantime Microsoft owns the software keys to our computers, that and a lot of lawyers.

Published in: on October 10, 2003 at 5:05 pm  Leave a Comment  

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