Gates Scoffs at Assertion Microsoft Is Monopoly
After years of shunning Washington even as his company came under increasing federal scrutiny, Microsoft Chairman Bill Gates appeared before a Senate panel Tuesday and rebuffed criticism that Microsoft is a dangerous monopoly.
In his first appearance before Congress, the richest man in America brushed aside attacks by rivals and some lawmakers about Microsoft’s business practices, saying his company is not using its dominance of computer operating software to try to turn the booming Internet into a private toll road.
“In the end, the software industry, which contributed over $100 billion to the national economy last year, is an open economic opportunity for any entrepreneur in America,” Gates, who is worth $46.7 billion, told the Senate Judiciary Committee during a 4 1/2-hourlong hearing.
The Washington appearance by Gates and executives from two archrivals, Netscape Communications Inc. and Sun Microsystems Inc., drew massive interest and caused a big commotion.
News organizations carried the hearing live and crowds of people clamored to get into the SRO Senate hearing room. The collection of cyberspace celebrities even prompted Sen. Patrick J. Leahy of Vermont, the ranking Democrat on the Judiciary Committee, to pull out a small camera to take pictures of the proceedings.
Termed a “fact-finding” session by Chairman Orrin G. Hatch (R-Utah), the hearing is unlikely to lead to legislation.
But it may well galvanize the Justice Department, whose antitrust division in December urged a federal court to fine the software giant $1 million a day for allegedly violating a 1995 consent decree by forcing personal computer makers to install Microsoft’s Web browser on their computers as a condition to offering Windows 95.
Although that case is under appeal, the Justice Department is mulling a broader antitrust case against Microsoft, a department source said. At the same time, Microsoft is racing to bring out Windows 98, a major upgrade to its cash cow Windows operating system that will even more tightly integrate its Web browser into its other software.
Under questioning, Gates refused Tuesday to concede that Microsoft holds a monopoly. He maintained that the demand for software products--which can become obsolete in as short as 24 months--gives rivals ample opportunity to knock off Microsoft. Gates said federal regulators should lay off of the software industry.
“The statistics show that the cost of computing has decreased 10 million fold since 1971--that’s the equivalent of getting a Boeing 747 for the price of a pizza,” Gates boasted without further substantiation.
But Gates’ rivals at the hearing said they doubt any firm will supplant Microsoft as the dominant supplier of personal computer operating systems in their lifetimes.
“The only thing I’d rather own than Windows is English or Chinese or Spanish, because then I could charge you a $249 right to speak English,” quipped Sun Chairman Scott McNealy at the hearing. “And I could charge you an upgrade fee when I add new letters like N and T,” he said, in a swipe at Microsoft’s business operating system, Windows NT.
Netscape Chairman James Barksdale, after asking for a show of hands, found that the overwhelming majority of people in the hearing room uses Microsoft Windows. “Gentlemen, that’s a monopoly,” he said.
The hearing’s focus on Microsoft’s controversial efforts to market software for the Internet highlights how important the worldwide computer network has become.
With more than 50 million users, the Internet is a huge and growing market for electronic commerce, entertainment, information and software. Microsoft, Sun Microsystems and Netscape are waging a high-stakes battle to dominate this platform.
But because the Internet is so vast, Gates rejected any assertion that Microsoft, through its dominant operating systems, could take over control of the global network.
The Internet “cannot be controlled or dominated or cut off because it is simply a constantly changing series of linkages,” Gates said.
Still, Microsoft’s aggressive tactics have many wondering how long rivals can survive against the company. Netscape, once a high-flying start-up, has laid off hundreds of employees and is facing an uncertain future.
Microsoft’s aggressive tactics have helped place its operating software in more than 90% of the world’s personal computers. The company’s flagship Microsoft Office product holds more than 75% of the market for business productivity software like word processors, spreadsheets and messaging programs.
Microsoft software and business application products are so dominant and lucrative--generating profit margins of 24% last year--that it can give away software in markets it does not control, such as browsers, to quickly build market share.
McNealy and Barksdale warned lawmakers Tuesday that Microsoft must be prevented from using its dominance of operating system software to reduce consumer choice by dominating other kinds of software applications.
“I believe in winners and losers and the freedom to fail,” McNealy said. “What we want today is the enforcement of the laws that are already on the books.”
Both McNealy and Barksdale said existing laws are adequate to address their grievances against Microsoft and that they do not want to encourage further government regulation of the largely freewheeling computer industry.
McNealy added, however, that he is mulling whether to file a private antitrust suit against Microsoft.
“We are investigating that opportunity and looking for the right kind of case to build if it presents itself,” he said in response to a question by Leahy.
But Robert A. Levy, a senior fellow in constitutional studies at the Cato Institute, a Washington think tank, said he believes that Gates in his testimony appeared to soften one crucial hard-line stance, acknowledging that the Justice Department has a role to play in overseeing business practices in the software industry.
“Microsoft and its allies and rivals all appeared to unite on two propositions: that there is no need for further antitrust legislation and . . . that the Justice Department has a role to play” in antitrust enforcement in the computer industry, Levy said.
But McNealy, Gates’ most strident critic at the hearing, alleged that Microsoft has recently doubled the cost of its server software, used in business network computer systems, at the same time it gives away its Internet browser software.
“So, we see some very predatory pricing practices and pricing practices that only monopolists could engage in,” he said.
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How Dominant Is Microsoft?
The Senate panel is looking for evidence that Microsoft is using its dominance in operating system software to snare the market for Internet software.
Operating systems sold worldwide, in thousands
*--*
1996 1997 1998* Mircosoft 64,278 76,741 90,314 Others 8,528 9,769 10,037
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* Figures beyond mid-1997 are projections
Source: Dataquest
Researched by JENNIFER OLDHAM / Los Angeles Times
