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Issue 44, September 1999

What to do about Bill?

MICROSOFT IS a monopoly. This is the ruling from one of the biggest anti-trust cases this century.

In May 1998 the US attorney-general, Janet Reno, and 20 US states, launched anti-trust lawsuits against the giant software company Microsoft. Last month federal judge Thomas Penfield Jackson issued a 270-page ruling, concluding that Microsoft was indeed a monopoly, that its actions had harmed consumers, and that it had used its power to punish competitors.

Establishing these 'findings of fact' that everyone already knew may turn out to be the easy bit. The next stage in the proceedings, 'rulings in law', is for the judge to decide whether Microsoft has broken the law and what to do about it. If the court rules against Microsoft, the corporation could appeal, so it could be another two years, or more, before the whole business is completed.

Judge Penfield is a veteran of the anti-trust case against IBM that was abandoned after 12 years in 1982. With that in mind it is not surprising that he has appointed a mediator, judge Richard Posner, in an attempt to speed up the process and reach an out-of-court settlement. The stakes are very high, however, particularly for Microsoft, so this could be difficult.

Microsoft's legal wrangles stretch back to the early 1990s and in recent years, as in this case, centre on its Internet browser, Internet Explorer. Netscape, a software company that has a rival browser, Navigator, alleged Microsoft was using unfair and anti-competitive practices that have affected its sales and resulted in Internet Explorer eclipsing Navigator as the leading browser. Microsoft's decision to give Internet Explorer away for free was very unfair, forcing Netscape to do the same.

 

This happened during the trial, as did the acquisition of Netscape by America Online for $4.21bn in a complex deal involving Sun Microsystems, who have their own beef with Microsoft. America Online is the biggest internet service provider (ISP) with a commanding position in the US. Netscape and Intel had already announced they had invested in a small company developing the Linux operating system, seen as a long-term rival to Windows, Microsoft's operating system. Intel makes Pentium microprocessors which are fitted to most personal computers and last month itself had an anti-trust case overturned at appeal.

Intel attended the trial to weep at how unfairly they had been treated by Microsoft. Apple, in which Microsoft has a stake, took the stand to allege they had been coerced into an alliance with the devil. Compaq, the world's biggest PC maker, along with Hewlett-Packard, also claimed strong-arm tactics.

Why all the fuss? During the trial the 24-year-old company doubled its value becoming the biggest company in the world. Microsoft's profits are more than those of the next 500 software firms combined (by over three times). Each one of them are sore and, it seems, at the trial. Everyone else in the schoolyard has ganged up on Microsoft; it is taking too much and has to be pushed back to let others in.

The capitalist state represents, in the final analysis, the interests of the capitalist class as a whole. Marx described it as the executive committee of the ruling class. If one individual capitalist acts in a way detrimental to all the other capitalists, or a large enough number of them, the state will intervene - its instrument, the courts. This is what the courts are for; settling disputes between capitalists in the interests, in this case, of US capitalism. It has nothing to do with fairness or the freedom of anyone else, however much it is dressed up to appear so. Marx also pointed to the tendency toward monopoly, to the development of fewer and bigger companies. It is a tendency locked into the laws of capitalism, driving companies to grow, merge, be devoured or go under. A company can start small, like Microsoft did, but can't stay that way on pain of death.

 

The US anti-trust laws aren't all that they seem either. In fact being a monopoly, a trust, is not an offence. Acting to defend a monopoly is, which is why the trial degenerated into a slanging match of who shafted whom and how hard. Microsoft, to their embarrassment, certainly appears to have won that one!

So, what to do about Bill? The worst that can happen is that Microsoft could be broken up into 'Baby Bills'. This is a reference to when the US telephone company, AT&T, (formerly the Bell Telephone Company, known as 'Ma Bell') was broken up into 'Baby Bells' in the 1980s. The Economist magazine (13 November) comments, "Past fragmentations have often reinvigorated large firms (not that Microsoft lacks vigour). In the ten years after the divestiture of Standard Oil in 1911, for example, the trust's constituent companies quintupled in value". Microsoft's 30,000 stock-wielding employees in 60 countries will no doubt bear this in mind and it is probably why, after such a devastating indictment, Microsoft shares, after falling slightly, quickly recovered.

Outside of the computer software industry there is not so much rejoicing at the prospect of Microsoft's monopoly of operating systems being broken up. The Windows operating system is terrible (it is difficult to set up and maintain) and is universally hated (a new version will be along soon) but it is a standard and big business, internationally, are heavily committed to it. The prospect of having two, three or more operating systems that may or may not work as well - let alone work together - is a nightmare that big business dreads. Capitalism has found joined-up computers horrendously complicated and massively expensive to support and maintain, and near impossible to just keep up with the tidal wave of acronyms. It is even possible that no one person understands how the Windows operating system works because of the size of the code - tens of millions of lines.

 

Within the industry other monopolies or near monopolies exist. For example Cisco and it's arcane world of routers, bridges and switches. They will be studying the small print very carefully indeed. Perhaps this is why they have decided to launch a TV advertising campaign with a young girl asking 'Are you ready?' - meaning are you ready for the Internet. This is because the Internet is forecast to solve many if not all of these problems, reverting to the old mainframe model with cheap semi-dumb terminals (thin clients) on the end of, or close to, telephone lines. The importance of the operating system would be diminished, undermining Microsoft's dominance. Few believe this will happen soon, however, if it happens at all.

Microsoft's monopoly does begin to reveal, however, albeit in a distorted fashion, how the industry could be organised. Part of its annual $3bn research and development budget is used for extensive market testing, asking software users their opinions and more or less successfully (usually less) incorporating them. It is an attempt at planning that is, however, always smashed on the rocks of profitability. Microsoft is forced to consume or annihilate anything that gets in the way, regardless of what it may claim it wants to do. It has acquired 13 companies since the case was filed, and made substantial investments in 30 more.

Computers have an important role to play in developing society. In industry, education, and culture, the pundits never tire of extolling their virtues. Privately-owned monopolies, however, are solely responsible for the mess they have created and are incapable of exploiting the possibilities so tantalisingly on offer.

 

Whatever the outcome of this anti-trust trial, as Gregory Palast noted in The Observer, 'the Microsoft economy has automated the largest upward transfer of wealth in American history' and that 'the fruits of rising technological productivity will continue to shift from workers to owners'. But we would emphatically disagree with his conclusion that, with 'the road to the future now clear' the only option is to 'just move along, get out of the way - or get run over'. The road to the future is indeed clear; we will move along but someone else will have to get out of the way - or be smashed. Are you ready?

John Sharpe


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