European Commission’s Microsoft Decision

The European Commission’s decision is coming in for a lot of comment. Writes the Economist:

The headline-grabbing 497m ($612m) fine imposed by the European Commission on Microsoft this week is the least of the software giant’s worries, for it makes that much profit every two weeks and is sitting on a cash pile nearly 100 times bigger. Far more worrying for Microsoft is the commission’s demand that it produce, within 90 days, a version of its Windows operating system stripped of its media-playback capabilities. That sounds trivial, but it would set an important precedent that could be used to make Microsoft remove other bits from Windows in future. Hence Microsoft’s recent strenuous efforts to negotiate a settlement to avoid this week’s ruling, and its determination to have the ruling overturned on appeal. Allowing PC-makers to pick and choose which bits of Windows they want from an la carte list of features is something Microsoft wants to avoid at all costs.

That is because Microsoft relies on the bundling of new features into Windows to protect its existing monopoly and to extend it into new areas. Windows is installed on over 90% of new PCs. So any feature Microsoft addsa web browser, say, or a media playerquickly becomes ubiquitous. Rival products, such as Netscape’s web browser or the RealNetworks media player, which must be installed separately, lose out. Microsoft crushed Netscape this way, and now the commission has ruled that Microsoft’s bundling of its media player into Windows is an example of a more general business model which deters innovation and reduces consumer choice in any technologies which Microsoft could conceivably take interest in and tie with Windows in the future.

The next version of Windows, codenamed Longhorn, due in 2006, will include search, database and security add-ons, and will no doubt inspire new legal challenges. By making Microsoft unbundle its media player when asked to do so by PC-makers, who can then substitute an alternative, the commission’s aim is both to level the playing field today and pave the way for further unbundlings in future.

If Microsoft’s various add-ons were optional rather than compulsory parts of Windows, each one would have to compete on merit with rival alternatives. PC-makers could then differentiate themselves from each other by assembling different software bundles for specific markets.

From The Register comes a different reading:

Far from penalizing Microsoft, Wednesday’s decision by the European Commission assures a bright future for the company as a patent licensing operation, according to one representative only two open source interests called to testify before the investigation.

Because Microsoft will be allowed to pursue royalty revenue from the APIs it publishes, Jeremy Allison says that the projects such as Samba, which he jointly leads, may face a prohibitive hurdle. Microsoft’s competitors use software such as Samba to access file and print services on Windows machines.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.