Microsoft and its Battles

The Economist looks at Microsoft’s showdown with the European Commission over its Windows Media Player (WMP):

The crux of the matter is, can Microsoft lawfully integrate other pieces of software into Windows? This was also, of course, at the heart of the American action. In that case it was the web browser, rather than the media player, that was under consideration, and Microsoft was found guilty of illegally exploiting its monopoly by tying its web browser to Windows.

Short of a break-up, however, there is no effective antidote to tying. Forcing Microsoft to produce a Europe-specific version of Windows without WMP (or any other specific features) would, in effect, impose an inferior product on European consumers. It is difficult to argue that this would be in their interests. And it would, in any case, probably result in a grey market as the full version of Windows was imported from elsewhere. There are also problems with the must-carry approach: which other media players would be included? Presumably those with the greatest market share. But that would itself be anti-competitive, since it would entrench the positions of the existing players. Furthermore, WMP would still be ubiquitous.

…and the forthcoming battle with Google:

Google’s power makes it just the sort of company that Microsoft typically tries to squash. At the World Economic Forum in Davos last week, Mr Gates admitted that Google’s search technology was way better than Microsoft’s, and identified internet search as a key focus for his company. Microsoft already offers searches through MSN, its web portal. But until this week it had yet to play its trump card: exploiting its dominance of the web-browser and operating-system markets to extend the reach of its search service. That changed on January 26th when it launched a toolbar plug-in for its Internet Explorer browser, enabling instant searches (via MSN) from any web page. It is an imitation of Google’s toolbar, which has helped to contribute to the search engine’s success: on a computer screen, as with real estate, location is everything.

Initially, the MSN toolbar is a free optional download, as Microsoft’s web browser and media player once were. The next step, inevitably, will be to integrate such search functions into Windows, on the grounds that it constitutes a core technology that should be part of the operating system. In his keynote speech at last November’s Comdex show in Las Vegas, Mr Gates demonstrated a prototype technology called Stuff I’ve Seen which does just that. It allows computer users to search for context-specific words in e-mails and in recently visited web pages, as well as in documents on their computers.

In other words, Microsoft is preparing to use its dominance in web-browser and operating-system software to promote itself in yet another separate marketsearch engines this timeat the expense of competitors. Is that tying? It is entirely possible that, in a few years, the same arguments heard in the American and European cases will again be raging, unresolved. Microsoft will insist that it has done nothing wrong, as competitors cry foul and wizened regulators launch further investigations.

The Economist’s conclusion: “This newspaper has long argued, and still believes, that a break-up of Microsoft is the only remedy that would have any impact on its conduct, by removing its key weapon, Windows. At the moment that seems out of the question. How else might Microsoft be stopped from illegally exploiting its monopoly? By the long-awaited rise of open-source software such as Linux, maybe, though that seems unlikely. Perhaps the company will eventually conclude that the costs, in bad publicity and constant legal battles, of maintaining its monopoly exceed the benefits, and choose to divest or open up Windows itself. But that also seems implausible when there are large monopoly rents to be had. Some day a break-up of this too-mighty firm will again have to be considered.”

I think the third major battle Microsoft faces is in the emerging markets – and there it has to contend with piracy, non-consumption and Linux. Long-term, this is going to be the hardest battle, because the emerging markets are computing’s next markets with a billion users waiting. The winner(s) will need to provide whole solutions at affordable price-points.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.