December 1, 1997

The latest attack on U.S. Justice Department, accusing the software giant of
anticompetitive practices, seems to many people like one of those giant research
projects that boldly proclaims the obvious: “Study proves that mice like cheese!”

Everyone knows that Microsoft likes cheese. With ownership of more than 94 percent of the PC
market, its taste for toothsome morsels in the form of competitors and new markets is legendary.

But that view of the case is far too narrow. Something more is happening here that demands
closer examination. As a society, we have chosen to remain ignorant about software — the lingua
franca of the millennium — and about how the growing ubiquity of these invisible bits of data
fundamentally reshapes our approach to almost everything: to art, commerce, media and
communication, and most certainly to business practices.

And Microsoft has taken brilliant advantage of that ignorance. Many people, for example, do not
understand how Microsoft’s business works or how it has come to dominate the software
industry.

The key to Microsoft’s success is its strategy of linking its Windows operating systems
— the foundation of a PC’s operations — to its productivity applications, to the Internet,
to its consumer products, to its programming tools and to hardware manufacturers in a
tight, interdependent chain.

Whenever it makes a significant modification to Windows — as it did in the step from
Windows 3.1 to Windows 95, for example — everything in the chain has to change,
too. The entire PC industry is forced to bind its product development plans to the
evolution of Windows to remain relevant in the market.

And those developing competing software often find themselves a half step behind
because Microsoft has the advantage of being able to create the next generation of its
operating system while developing the applications that will run on it, incorporating new
Windows features before competitors know about them — or at least before they fully
appreciate their nuances and full potential.

Customers are also caught in the competitive spiral, being constantly pressured to
upgrade “obsolete” software — though the definition of obsolescence is debatable.

And in contrast to product-development cycles in old-style manufacturing businesses like
auto making, extensive changes to an operating system — and the subsequent upgrades they
force throughout the chain — require no costly retooling of assembly lines and no new raw
materials. The main cost is human capital — some months of programmers’ time.

Microsoft’s chairman, Bill Gates, has denied that this tight linkage of system software
to applications gives his company an unfair advantage. Rather, he says, it is simply a
way to keep adding value for his customers.

In the case brought last month by the Justice Department, Gates argued that Microsoft
was within its rights to require that PC makers who license the operating system
include the company’s World Wide Web browser, Internet Explorer, to “preserve a
consistent customer experience when using Windows.” Doing so, he said, was
comparable to Ford Motor Co. not allowing its dealers to “replace a Ford engine with a
Toyota engine.”

Gates did not mention that consumers already have a consistent customer experience,
plus or minus a few bells and whistles, in any brand of car they buy. All have four
wheels, seat belts, brakes and accelerators, and so on.

And unlike Microsoft, which encourages Internet developers to design Web sites that
can only be viewed with its Explorer browser, no auto maker would try to restrict road
access to one type of car, refusing others or flattening their tires.

Gates has also said that the ubiquity of Windows gives developers “the incentive and
the certainty they need” to build products and thus keep the PC industry growing and
innovating. But that argument rings hollow with the entrepreneurs who refuse even to
start a software business for fear of bringing Microsoft crashing into their tents. Those
who do invariably have an exit clause in their business plans that states, “… and then we
sell the company to Microsoft” — thus providing a steady stream of innovation for …
Microsoft.

That is life in the free market, the company’s defenders say. But the Justice Department
and a growing number of Microsoft competitors are questioning whether such a market
is truly free.

Today, anyone who wants to be a player in technology or media has already made, or is
likely to make, a deal with Microsoft (for a partial list of partnerships, point your
browser to www.netaction.org/msoft/world/table.html).

Among these links in Microsoft’s chain are financial institutions, Internet transaction
companies, Internet access and cable television providers, game makers, entertainment
and news media, giving the company growing control over multimedia Internet
standards, server operating systems, enterprise computing and desktop applications.

Microsoft’s defenders say that antitrust laws in the United States are outdated with
respect to emerging technologies, and few would argue with that point. But that does
not answer the question of whether it is possible, given Microsoft’s huge holdings and
its chain-linked business strategy, to compete with the company on its own turf.

And to date, no one has stepped forward to suggest changes to antitrust laws that
would better reflect the realities of the information age — laws that would balance
free-market vitality against the prudence of allowing any single company to control so
much of our digital future.

Denise Caruso

Copyright 1997 The New York Times Company