I watched the trial of Microsoft from Stanford; what struck me was the quality of the judgment of a district court judge - such a refreshing contrast to the rambling, unfocussed, poorly argued judgments of Indian judges that I was used to. This is what I wrote in Business Standard of 27 November 1999.
THE MICROSOFT CASE
On 5 November, Judge Thomas Penfield Johnson of the
District of Columbia district court made public findings of facts in the case
filed by the US government and a number of State governments against Microsoft
for abuse of power. This was not a judgment; the judgment will follow a couple
of months later – unless something else happens in between. This judgment has
been widely reported as being hostile to Microsoft. Actually, it is a model of
drafting.
The 207-page statement begins by giving definitions and
describing the contours of the software industry. It defines the personal
computer, an operating system, the internet, internet service providers,
internet access providers, etc etc. I had been reading about internet for years,
but this statement gave me for the first time a complete and reliable picture
of the industry.
It then defines the relevant market in relation to which
Microsoft’s monopoly power must be judged. The test of the market is whether a
consumer would substitute another product for a Microsoft product; the judge
shows why other operating systems – for instance, software of server systems,
Intel-incompatible systems, information devices like palmtops, browsers etc –
cannot be counted as substitutes for Windows. Nor is a substitute likely to
emerge, because of the enormous volume of software designed on the Windows
platform – 70,000 programmes. The closest rival is Macintosh Apple, on which
12,000 programmes are based. Judge Johnson then lists the players who have
tried to create competing operating systems – IBM, Mac, Be, Linux – none of
which have succeeded. Given the variety of Windows-based programmes available,
a consumer is bound to prefer Windows to other software platforms. Given his
preference, every original equipment manufacturer installs Windows in his PCs.
Judge Johnson calls this the applications barrier to entry.
Netscape Navigator and Sun Microsystem’s Java first
seriously threatened this barrier. Navigator, Netscape’s web browser, was
ported to fifteen operating systems; and Sun has designed programmes called
Java virtual machines which permit Java programmes to run on other operating
systems. Netscape Navigator was a hugely successful web browser, and it,
together with Java, posed the first serious threat to Microsoft, especially
since Navigator exploited the fast-expanding internet market.
Before Netscape Navigator was launched, Microsoft tried
in 1995 to ensure that it, so to speak, joined the Windows family. Netscape was
interested in making Navigator compatible with Windows; for that it needed
access to a certain application programming interface. But the two sides could
not agree on division of functions. Microsoft did not give the relevant API.
That held up Netscape only for a while. Once it became clear that Netscape
would not compromise, Microsoft launched its competing browser, Explorer; from
1995 onwards it spent over $100 million a year developing it. By 1999, over
1000 engineers were working on it; they had improved Explorer enough to whittle
down the distance between it and Navigator. Throughout, Microsoft gave away
Explorer free to all buyers of Windows. It introduced a term in the contracts
of OEMs whereby they could no longer remove an installed icon from MS Windows.
Compaq and Hewlett Packard had introduced booting sequences and tutorials which
would make their PCs more user-friendly; Microsoft introduced a condition
preventing the disturbing of the Windows booting sequence.
Compaq
finally decided that discretion was the better part of valour, and came to an
arrangement whereby it would use only Windows software in its PCs. In return,
Microsoft signed a “frontline partnership” agreement with Compaq, and was
believed to have given it the best terms of all hardware manufacturers as well
as considerable technical and marketing support. IBM, on the other hand, had
developed its own system called OS/2, and was consequently treated less
generously. In Summer 1994 it asked Microsoft for the same terms as were being
given to Compaq. Microsoft offered IBM a “frontline partnership” agreement if
it mentioned only Microsoft products in its advertisements and preinstalled
Windows 95 on at least half the PCs it shipped two months after Windows 95 was
released. IBM refused; it vigorously advertised its own operating system; and
in June 1995 it acquired Lotus and started promoting Lotus Smartsuite as a
product competing with Windows. At the same time, it asked for a licence for
Windows 95 in March 1995. Microsoft waited till July. Then on 17 July, it issued
the mastercode for Windows 95 to all OEMs except IBM; on the 20th it
told IBM that it would have to wait till Microsoft completed an audit of
royalties due from IBM – a process which might take months, certainly far
beyond autumn which is the peak marketing season for PCs in the US. IBM offered
Microsoft a bond of $10 million. In a meeting on 9 August, Joachim Kempin, who
was in charge of Microsoft’s OEM sales, asked IBM for a bond of $25 million,
and said it could be reduced if IBM postponed installing Smartsuite on its PCs
for six months to a year. IBM refused to accept the deal. Windows 95 was
launched on 24 August; IBM was given the licence 15 minutes before the launch
event, after giving a bond of $31 million. As a result it failed to cash in on the
back-to-school sales in September.
In the
following two years, Microsoft went berserk. First it made it impossible to
uninstall Explorer. Every operating system, including Windows, has a button for
uninstalling a programme; Windows provided one for every programme – except
Explorer. Further, even when another browser was installed, Windows made
Explorer the default browser; so users using Netscape would suddenly find that
they had strayed into Explorer.
This
massive evidence marshaled by Judge Johnson constitutes a damning indictment of
Microsoft. Microsoft still hopes to avert an adverse verdict by arguing that it
was all done to benefit the consumer. But that is not the only defence it is
planning. It has already given $13 million to Presidential candidates last
year, and $6 million this year. For next year there will be another President.
