Over the past decade and a half Bill Gates has built up one of the largest corporate empires the world has ever seen. He is chairman and largest shareholder in Microsoft, the computer software company. A US court has found it in breach of the tough anti-competition Sherman Act. It was the same Act that forced the huge telecommunications company AT&T to be split up two decades ago. AT&T had the business of virtually every telephone subscriber in the US. The Microsoft case is slightly different. For a start, unlike AT&T Microsoft is dominated by one man. Secondly, Microsoft is a vertical monopoly as well as a horizontal one. Microsoft has a horizontal monopoly in that it has supplied the operating system on 90 per cent of the personal computers in the world. It also has vertical monopolies which has spun off from that. It supplies a very large section of the market for computer applications software like word processing and spreadsheet programs. It also supplies a very large proportion of internet browser software.
The US Justice Department has shown to the satisfaction of a court that Microsoft has unfairly leveraged its internet browser software into the market on the back of its operating system software. Microsoft realised that market share is more important in new technology than next quarter’s profits. So it bundled its internet browser software in with its operating system software so 90 per cent of the personal computers in the world came with Microsoft’s internet browser already installed. Moreover, it intertwined the two software systems in such a way that it became awkward for computer users to use any other internet browser with the Microsoft’s Windows operating system. The court ruled that this was unfair. Microsoft has failed to come up with any satisfactory solution to allow others into the market. It now seems the court will find its own way to deal with the abuse of monopoly position.
Alas, it seems the court might just go for penalties. Microsoft is large enough and wealthy enough to pay them without feeling it too hard. It can then continue with its vertical monopoly, perhaps not abusing its monopoly position as aggressively as in the past, but still behaving in a way that is against the best interests of the world’s computing public.
It would be far better if the court ordered the splitting up of Microsoft into its three logical parts: operating-system company, an applications company and an internet browser company. At present, one of main (and perhaps only) reason many people buy Microsoft products is just because everyone else has them and incompatibility problems can be avoided. But that comes at a big price. Microsoft tries to do everything, usually by taking products from other developers. Invariably, they have teething problems and Microsoft expects its customers to be the guinea pigs in ironing out glitches. And because Microsoft is a monopoly it has lost the competitive pressure to innovate. At the same time it stifles the ability of others to innovate. It also uses its power in one sector to market in another by bundling its operating system, applications and internet software at the time of hardware purchase. It then locks them together so that non-Microsoft products are at a disadvantage.
If Microsoft were split into three different suppliers, they would be able to compete more effectively and innovatively in supplying applications software and internet-browsing software for Microsoft Windows as well as non-Microsoft operating systems. They would be open systems with source code available to anyone who wanted to develop any sort of software to run on them.
For too long Microsoft has stifled innovation by buying out or beating down competitors with new products or just copying the key elements of the new product but in an inferior way. The quicker the monopoly is split up the better. Bill Gates would get market price for his shares, but Microsoft would no longer be able to abuse a monopoly position.