Will Windows Crash?
Friday
evening, U.S. District Judge Thomas Penfield Jackson issued his findings of
fact in the Microsoft antitrust case. He ruled that Microsoft is a monopoly,
that it has abused its monopoly power, and that this abuse has harmed
consumers. "For Microsoft's image, the damage is incalculable," said the
Wall Street Journal . "It's hard to imagine how the findings … could have
been worse news for Microsoft," added the Washington Post . The media,
like the company itself, seem crippled by a failure of imagination. Things can
get worse for Microsoft. Much worse.
From
the outset, Microsoft (which owns
Slate
) and the press corps have
treated the case as a bipolar debate: Either Microsoft has engaged in illegal
business practices, or it hasn't. Among other things, the Justice Department
accused the company of stifling competition by requiring business partners to
sign exclusionary contracts, colluding with Netscape to divide the browser
market, and eventually bundling Internet Explorer with Windows to wrest control
of that market. Microsoft could have conceded some of these issues--for
example, that its contracts were unnecessarily exclusive--or it could have
denied that any of its practices were illegal. The company chose the latter
course.
In a
bipolar world, that calculation made sense: At best, Microsoft would get to run
its business as usual, and at worst, rather than surrender prematurely, the
company would be ordered by the judge to change some of its practices. What the
company failed to grasp is that the two-sided clash in the courtroom left open
a third possibility in the financial press and the stock market. Microsoft says
none of its practices are illegal. The Justice Department says
some of Microsoft's practices are illegal. But a third camp, led by
Microsoft's competitors, says all the company's practices are
illegal--and if that perception prevails, true or not, investors may conclude
that Microsoft can't thrive once it is stripped of those practices by the
courts or by a settlement. The Justice Department can only hurt Microsoft. The
stock market can kill it.
Until
now, the notion that Microsoft owes all its success to ruthless marketing
rather than technical ingenuity has been a fringe view. But that view gained
momentum Friday with the judge's declaration that "it is Microsoft's corporate
practice to pressure other firms to halt software development that either shows
the potential to weaken the applications barrier to entry or competes directly
with Microsoft's most cherished software products." Justice Department
antitrust chief Joel Klein underscored that sentence in a press conference
after the ruling. Nightline , the New York Times , and other media
outlets followed suit. On Nightline , Klein called the case "a story of
predation, of anti-competitive behavior, and monopolistic abuse. … It's a
mighty powerful story about consumer harm and predatory practices."
Discussing the ruling on television over the weekend, Klein repeatedly
distinguished Microsoft's "predatory" practices from its "innovations," which
he praised. But Microsoft's corporate enemies aren't interested in this
distinction. They want to convince the public, politicians, and the financial
markets that the "corporate practice" cited in the judge's opinion isn't just
Microsoft's bad habit, but Microsoft's soul. They want to equate the "story" of
the trial--predation--with the story of the company.
Immediately after the opinion was released, Ed Black, a Microsoft antagonist
who heads the Computer and Communications Industry Association, told reporters
in front of the courthouse: "The behavior they [Microsoft] are accused of,
which the judge seems to be finding in fact that they did, is not behavior off
to the side of their business. It reflects a fundamental approach of the core
business strategy of the company, which is to leverage and utilize their
monopoly to expand into neighboring markets, and to use that monopoly as a
critical tool of leverage with all of their business partners, customers, and
competitors. Because it is so central to the way they do business … it will be
very hard for this company to make slight adjustments to their behavior and in
any way comply with the spirit of the antitrust law." Minutes later, Black told
viewers of CNN's Crossfire that "Microsoft really was created" from "the
old IBM monopoly" and that the company relied not on "innovation" but on
illegal strong-arm tactics, like in The Godfather . Crossfire
co-host David Corn joked that Microsoft even "stole the operating system from
Apple."
By
itself, this account of Microsoft's livelihood is a mere insult. Combined with
the antitrust case, however, it threatens mortal injury. The combined message
to investors is that Microsoft will now be forced to fight fairly--and that it
can't. Microsoft "will have to compete on the merits of their products," Corel
Vice President Kevin McNeil told the Wall Street Journal . Microsoft is
"not an innovator but a fast follower," anti-Microsoft futurist Paul Saffo told
the Los Angeles Times . In a press release, Sun Microsystems argued,
"Microsoft should be prohibited from buying the distribution channels of the
future (e.g., cable and wireless) and from buying rather than inventing
technologies"--a constraint designed to handcuff Microsoft in a high-tech
economy driven by timely acquisitions.
The
image of Microsoft as a crippled and helpless giant is increasingly penetrating
the mainstream media. "In Courtroom and Beyond, Software King Is at Risk,"
warned the front page of Sunday's Washington Post . The Los Angeles
Times published a virtual obituary of Microsoft: "Its strategy of buying up
rivals to absorb their technology no longer works as well as it has in the
past, in part because of the greater likelihood of firmer antitrust scrutiny of
such deals. … Jackson's finding that Microsoft commanded a monopoly--and the
implication that he will rule shortly that the company broke the law--may well
hobble its efforts to meet [new] challenges. … [A]s much as [Bill] Gates is
widely viewed as a business genius, his company is seen as technologically
mediocre."
Microsoft has understood all along that its business image is as important as
its political image. At every opportunity, its spokesmen have reiterated their
commitment to quality and innovation. But they have failed to foresee a
collision between this message and their defiance in the antitrust case. By
insisting that everything Microsoft has done is fair competition, they risk the
possibility that the public, if it accepts the judge's finding to the contrary,
will conclude that Microsoft doesn't know the difference. The ultimate danger
is that investors will conclude that Microsoft, stripped of its ability to
exploit its monopoly power, doesn't know how to "compete."
Microsoft has stuck to this all-or-nothing strategy even in the wake of the
judge's findings. "The American legal system ultimately will affirm that
Microsoft's actions and innovations were fair and legal," Gates declared.
Microsoft Senior Vice President Bill Neukom added, "We've always competed
fairly, and we will continue to do that. … We think that Microsoft's actions
have been entirely normal competitive behavior." At the end of a conference
call with reporters, a Time correspondent asked, "Does Microsoft plan to
change any of its practices based on this court's findings today?" Microsoft
Chief Operating Officer Bob Herbold replied, "The answer to that question is
no."
Microsoft may be right in
claiming that it has done nothing wrong. Even if it isn't, it may succeed in
selling that argument to the public. But if it fails, the stakes are enormous.
In the courtroom, the worst that can happen is an array of sanctions--possibly
even a corporate breakup--designed to force Microsoft to compete "on the
merits." In the stock market, however, the damage can get much worse. Investors
can decide not only that Microsoft owes its success to the abuse of monopoly
power, and not only that the courts will strip the company of this ability, but
that Microsoft doesn't know any other way to survive.
