Today's Opinions, Tomorrow's Reality
The Coming Irrelavence of Monopolies
WASHINGTON, November 4, 1997 --
One of the greatest monstrosities of the late-1980s trash television industry was a show called Grudgematch. The program combined characteristics of both The People's Court and the trailer court to create a semi-violent venue where shameless parties could settle their disputes by beating each other with foam bats and other demeaning implements. Ten years later, a dispute has arisen that is seemingly perfect for settlement on the show: The United States of America vs. Microsoft Corporation. The image of Bill Gates bludgeoning Janet Reno with a foam bat is something I'd love to see.
While such a spectacle wouldn't be very productive, it's hard to see how the Justice Department's legal action against Microsoft is any better. Attorney General Reno's decision to request anti-trust penalties against Microsoft is a pointless move that threatens to disrupt a smoothly-running revolution in home computing. As in the case of Grudgematch, it is the public spectacle that really matters. The Justice Department's move is about popular politics and perpetuating government power. Microsoft is the perfect target -- Bill Gates is the guy everybody loves to hate.
The substance of the dispute involves Microsoft's Internet browser software, Internet Explorer, and Microsoft's requirement of computer manufacturers to include it in systems utilizing the Microsoft Windows operating system. This, according to the Justice Department, is anti-competitive and violates a 1995 court order requiring Microsoft to stop coercing PC manufacturers.
"Forcing PC manufacturers to take on [a] Microsoft product as a condition of buying a monopoly product like Windows 95 not only is [a] violation of the court order, it's just plain wrong," Reno said.1
An appeal to morality may be somewhat odd in a discussion of technology marketing, but it doesn't come close to the oddity of the U.S. Government's source of legal authority in fighting Microsoft's success: The Sherman Anti-Trust Act.
When the act was passed, the U.S. was in an era of rapid economic change similar in scope, but vastly different in nature to the technological revolution of today. Back then, cutting-edge technologies like steel, oil, and telephones created monopolistic industrial behemoths like the U.S. Steel Trust, the Standard Oil Trust and the Bell Telephone Company. Public fear of these monopolies and their "Robber Baron" industrialist owners led to the passage of the Sherman Act in 1890. The same law, more than a century later, is being used by anti-Microsoft activists to limit its growth.
"Bill Gates is the modern-day equivalent of a Robber Baron," says NetAction's Audrie Kraus, who writes an anti-Microsoft consumer newsletter. "A Microsoft monopoly threatens to end innovation and leave consumers without competitive choices."2
This idea is fundamental to the case against Microsoft. It is an idea that is also fundamentally wrong. Saying Bill Gates is a modern-day Robber Baron is as ridiculous as calling suburbanites modern-day cave men. The modern world hardly resembles that which existed in the 1890s. The huge coal-burning smoke-belching industrial plants that Robber Baron's called home are gutted and abandoned. Their workforce has been downsized, redistributed, and absorbed into the modern economy.
The logic that led to the creation of the Sherman Act no longer applies to the U.S. economy -- at least not to its fast-growing software sector. Unlike railroads and steel plants, the software business does not require a large concentration of capital to produce a product. It is very difficult for Americans to accept that a monopoly is not necessarily evil or even anti-competitive. In the case of software, however, that's exactly the case.
Windows is widely regarded as a monopoly product simply because it is overwhelmingly popular. Alternatives do exist. Intel-based PCs will run both OS/2 and LINUX, two operating systems that have vibrant, if small, communities of users. If Microsoft Windows grows too outdated or expensive, rival startups will be lurking on the horizon. Mass production of information-based technologies takes place literally at light speed.
This calls into question the wisdom of Bill Gates' strategic plan. While Gates' enormous resources can easily pummel smaller rivals like Netscape Communications in the short-term, it is unclear that it will pay off in the long run. For years, Microsoft has been giving away its web browser for free, just to advance its position in a market dominated by Netscape. Now that it is poised to capture the market with its clearly superior Internet Explorer 4.0 -- the subject of Janet Reno's complaint -- it is hardly time for Microsoft to reap the profits.
Gates will have to keep pouring money into his web browser just to keep ahead of other entrepreneurs. If he gets sluggish and overpriced, as AT&T did in decades past, dozens of twelve-year old hackers will produce their own superior beta products and release them as shareware. Microsoft, monopoly or not, can be defeated overnight.
This is an incredible difference from the smokestack economy of
the Sherman era. The change is so far-reaching that it is undoubtedly
difficult for many people, especially older Americans like Reno,
to fully comprehend its ramifications. The government prescription,
therefore, is clear. The Justice Department should immediately
drop its complaint against Microsoft and divorce the government
from software regulation.. The legal Grudgematch between Reno
and Gates, while amusing, is not in consumers' interests.