IT strategy: antitrust – Microsoft in court but not in trouble

Monday 18 May saw the culmination of a “will they won’t they” saga straight from the pages of a soap opera – would the US government file an antitrust suit against Microsoft or not? It finally did take action, alleging far broader anti-competitive practices than in its limited action last year, which focused entirely on the bundling of Microsoft’s Internet Explorer browser with its Windows 95 operating system. This action resulted in measures of limited impact on the software giant’s business, and since 95’s successor, Windows 98, was about to ship, it seemed almost irrelevant anyway.

Some IT strategists are dismissing the new suit – which also involves 20 US states and the District of Columbia, all alleging anti-competitive practices and abuse of a dominant market position – as a headline-grabbing story that will have little effect on business users. They point to the lengthy court cases that are bound to follow, evoking painful memories of the 12-year antitrust case against IBM. They also claim that, even if Microsoft is forced to sell its browser and other products separately – or even to offer a competitors’ product – the impact on users will be trivial.

“As long as a browser is available, who cares?” was the dismissive reaction of one IT director.

Microsoft itself, of course, claims the suit is not in the interests of users. It is pleading its case on the basis of its “right to innovate” and to integrate new features of benefit to users into Windows. The antitrust suit and the resulting delays in product development – although the Department of Justice has not threatened to halt the shipment of Windows 98 this month – will only damage PC users, it argues.

The pleading may be predictable, but Microsoft does have a point. Competitors clearly resent the power of the Redmond giant and it is almost certainly true that it has managed to bar rivals from some markets through its dominant position. But we must remember that Microsoft gained that position because – whatever we think of the technology – people bought it. And business users and consumers tend to be in favour of standardisation and simplicity even while vendors urge free competition and other high-sounding euphemisms for giving them a leg-up in the market.

The drive for uniformity may lead to the dumbing down of technology – as in the VHS versus Betamax debate – but it does produce products that everyone understands and can use wherever they go, something Microsoft has achieved where endless standards processes have conspicuously failed.

But all the goal posts may move if the action broadens to include Windows NT. This would have massive impact on IT strategies. Many believe NT will come into the antitrust remit for two reasons – Microsoft is increasingly tying tools and services closely into the operating system, and so could meet the same objections as when it bundled its browser with Windows – that it makes it very hard for third parties to persuade users to go through extra complexity or expense for their product when they have a Microsoft one at hand. The second reason is that NT and Windows will increasingly converge and the strategy is to make Windows 98 into a consumer implementation of NT – therefore any rules that apply to 98 will need to be extended to NT too.

This would be really serious because it would come just at a time when NT is starting to make inroads into the corporate sector, so dearly coveted by Microsoft. For those who have been won over by the arguments for putting NT on the enterprise server, antitrust rumblings could deter them from making a major commitment or at least make them nervous. In fact, it is unlikely that any antitrust rulings will significantly affect an NT server strategy, except by offering greater choice of third party tools, but as former Digital chief Ken Olsen once said, there’s nothing like a lawsuit to make people feel nervous.

Microsoft may have a stronger argument over NT anyway – it does have a powerful rival in the enterprise, in the form of Unix’ various implementations, and NT is by no means dominant yet. A lot will depend on US judges’ views of how Microsoft is competing with Unix – by fair means or foul.

This is the core of the problem with antitrust cases – they are decided by people with no knowledge of the IT industry, rather than by those who buy the equipment. It is very difficult to know where to draw the line on bundling – clearly it favours the bundled product, but it would be intolerably inconvenient to say that the operating system could not be tied with the PC, or the car engine with the chassis.

In the end, the legal battles are likely to rumble on for years, probably with more time spent on obscure points of law than on the meat of the issue. And in the mean time, some corporate users and consultants may be made more nervous of the NT route, but most will probably decide the whole debate does not concern them and go ahead anyway with the technology that suits their business, or which is most aggressively marketed.

It was industry downturn and changes in customer habits, both poorly predicted by IBM, that led to its momentous crash in the late ’80s – not antitrust legislation. That gave IBM rivals such as Amdahl a more level playing field, but did not significantly boost their market share, because Big Blue had marketing clout and financial resources. Similarly, if Microsoft is to come a cropper, it will be because the needs and buying preferences of big business change, not because of the DoJ.

This came close to happening when the Internet first emerged as a serious force in IT, but Microsoft proved swifter than IBM at carrying out strategy zigzags and adapting to changing markets. The Java brigade led by Sun and Netscape may have a chance of toppling Microsoft if they make their technology robust and suitable for enterprise applications. But resorting to the law courts, while it makes some valuable points of principle, only really benefits the lawyers and should not cause serious U-turns in corporate IT strategies.

Caroline Gabriel is a group editor in VNU’s IT portfolio.

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