Microsoft and the DOJ

A modest proposal

Over the past year, people have asked me how the Department of Justice's (DOJ's) case against Microsoft would affect the Windows 2000 (Win2K) and Windows NT market. My response has been that the outcome won't have any significant impact on the market. The key decision makers are IT managers who have made significant investments in NT. Even if the court ordered Microsoft's breakup, the decision probably wouldn't affect Microsoft's products in ways that matter much to IT professionals. These professionals care about security, price and performance, ease of administration, and availability of third-party support, and Microsoft products would continue to provide all these features. For the most part, you probably won't be fired for buying Microsoft, no matter how the government decides to restructure the company.

However, I have to wonder about the "remedy" in this lawsuit. Do the courts really understand the evolving marketplace enough to make decisions that will benefit consumers? I can think of at least one creative solution that would be great for consumers, for third-party vendors, and for Microsoft and that would drive innovation and quality forward. Of course, I'm not privy to the court's thinking, but I'll bet that a creative solution won't happen.

The Evolving Market
While Microsoft and the DOJ move into a remedy phase, the technology landscape is changing. Handheld PCs, Wireless Application Protocol (WAP) phones, game consoles, set-top TV boxes, and Web terminals are increasing in popularity. Microsoft doesn't have a dominant market share with any of these devices. The browser will become the default user interface (UI) for every client device. So would forcing Microsoft to create the only client UI without a built-in browser make sense? Would the DOJ block the release of Windows Millennium Edition (Windows Me) and its integrated browser just because Microsoft builds it? This remedy makes no sense.

If the DOJ penalizes Microsoft for exploiting its Windows monopoly on PCs, will the department use the same logic to go after monopolies on other client devices? For example, suppose Microsoft wants to include a version of Internet Explorer (IE) for the Palm OS on Palm devices. If Palm blocks that move, will the DOJ go after Palm because the company's 80 percent market share monopolizes the Personal Digital Assistant (PDA) market? If so, the DOJ would be stupid; if not, the DOJ would be hypocritical.

A Creative Solution
Still, how do you prevent Microsoft from unfairly leveraging its dominant products to crush its competitors? For example, when you install a new version of IE, you get a new version of Windows Media Player (WMP) by default. Although RealPlayer from RealNetworks has a dominant market share today, WMP gets the attention of Web developers because it's on a majority of PCs. To compete, RealNetworks will have to guarantee a sustained large audience of users, but as an independent company, RealNetworks will be hard pressed to vie against Microsoft. To have any realistic chance of competing with Microsoft, RealNetworks might have to let AOL/Netscape acquire the company to gain access to a sustained audience of millions of users.

One way to let Microsoft dominate the browser market and let independent companies like RealNetworks compete would be for Microsoft to offer a choice of media players during the installation of IE. For example, during the IE installation process, a user could receive the option to install WMP, RealPlayer, or both.

I'm sure Microsoft could get some substantial co-marketing and revenue benefit for offering this type of service to its partners and competitors. In addition, consumers and third-party vendors would certainly benefit from having more choices. Microsoft's Web sites have millions of unique users looking for updates, new software, and product support, as well as people using the company's free Hotmail and calendar accounts. Microsoft could use these interactions with customers to sell, rent, provide subscriptions to, and distribute third-party applications and services. This model could be a great revenue source for Microsoft. In addition, if Microsoft is co-marketing applications from its competitors, the DOJ will have a hard time proving that Microsoft is hurting competition.

Industry Perspective
From my perspective within the industry, the government's proposed remedies don't look very interesting or productive. Perhaps I would think differently if I could see all the remedies that the DOJ and Microsoft have proposed. I wonder whether the government has rejected some commonsense, win-win proposals for stupid reasons. I hope not. I'd like to see this standoff end with a creative solution that helps the marketplace.