Antitrust Probe May Aid Microsoft, Foes
The Federal Trade Commission is investigating Microsoft Corp., resurrecting the great American tradition of antitrust and confusing most people no end.
Here’s the situation: Microsoft is far and away the world leader in personal computer software, an extremely important high-technology field dominated by U.S. companies.
A decade ago Microsoft developed the basic disk operating system (MS-DOS) for the IBM personal computer, and it has grown with the success of that machine to provide the operating system for 90% of the world’s personal computers.
Microsoft has developed programs for word processing, accounting and filing that also have been successful, although it is not the leader in each of those specialties. And recently Redmond, Wash.-based Microsoft brought out a product called Windows that allows all computers to feature graphic displays and an ease of use similar to that of the Apple Macintosh.
Microsoft is a highly successful business, growing from $24 million in revenue in 1980 to an estimated $1.6 billion in the fiscal year that ends June 30--and earning an excellent 30% return on investment.
Furthermore, it’s an American-dream kind of company, founded and led by William H. Gates, a computer genius who left Harvard in 1975 at the age of 20 to start Microsoft. The company, which went public in 1986, has made many backers and stockholders rich--including Gates, whose 40% shareholding is worth $4 billion.
Yet Microsoft is getting neither cheers nor medals for its success. Rather, its records are being subpoenaed by the FTC, and it is being denounced by competitors, many of whom are quoted in Forbes magazine’s latest cover story, which is titled “Can Anyone Stop Bill Gates?”
But “why stop him?” many people will ask, including Microsoft shareholders, who saw their stock drop 15% on the antitrust reports. Does it make sense for the U.S. government to stop a world-beating competitor?
Clearly, the answer will depend on what the investigation finds--and the FTC is not even admitting that there is an investigation. But, make no mistake, antitrust questions are good and sensible questions.
The issue, industry sources say, is whether Microsoft has been maintaining its lead by hard work, investment and innovation or by using its market power to chill innovation by competitors.
That Microsoft is trying to elbow tiny Go Corp., a company trying to develop software that recognizes handwriting for its notebook computers, is seen as excessive competitive zeal by the company’s critics.
But judgments are not easy, cautions Joseph Sims, an antitrust lawyer with the Washington firm of Jones Day Reavis & Pogue. “The line between playing to win and unfair competition is hard to define,” says Sims, who points out that the government tried to find antitrust violations against computer leader IBM for more than a decade--but failed to do so and dropped the case.
The intent of the IBM action, brought in the early 1970s when the company dominated computers, was to see that the business remained open to changing technology. As it turned out, the government needn’t have bothered. By the time the case was dropped in the early 1980s, it was clear that technology was changing so fast that IBM had all it could do to keep up.
A similar intent, to keep a changing business open to new ideas and new entrants, is behind the Microsoft inquiry.
It’s an industrial policy as old as the United States. In 1824, Robert Fulton, inventor of the steamship, tried to prevent others from carrying goods on New York State waters by steam locomotion. Fulton and his financial backer, Robert Livingston, were trying to enforce their technological advantage. But the U.S. Supreme Court ruled against them on grounds that others carrying freight with whatever steam power they could muster would reduce freight charges and improve business.
Similarly, the courts decided in a case involving the Sherman Anti-Trust Act of 1890 that cotton producers and processors could not divide business among themselves in a cartel but must open up to make room for outsiders. In a country built by immigrants, it is important to keep business open to outsiders and newcomers.
What will be the upshot of the Microsoft matter? It may never come to trial, says lawyer Sims. “A lot more inquiries are launched than actual court cases.”
But it will have an effect. Microsoft may become less aggressive against potential competitors. However, that need not mean less profitable or less competitive. IBM’s long antitrust siege did not make it less competitive but helped shift its focus to the forward march of technology.
Similarly, if the government’s new inquiry encourages innovation by Microsoft and a lot of other companies, then it will have served a purpose. But the government must be careful not to discourage cooperative ventures, such as the one Microsoft is entering into with Compaq and MIPS to come up with a whole new kind of computer.
For all his competitors’ complaining, few doubt Gates’ technological vision. “He had more vision than our whole company,” says a former official of competitor Ashton-Tate Corp.
His vision today, says consultant Richard Shaffer of Technologic Partners, is to make a computer as easy to use as a sheet of paper--to do away with confusing categories such as “spreadsheet” and “word processor.”
The payoff for making a computer that easy to use goes beyond convenience to continued U.S. leadership of the global industry.
The antitrust action, whatever it turns out to be, should allow Microsoft to succeed while keeping the field open for the visions of others. That’s a neat trick, of course, but it’s one that has served U.S. business well for a long time.
