The Trails of Microsoft

By: A. Scott Piraino

Microsoft grew into today's software goliath through greed, strong-arm tactics, and leveraging their software into new markets. But Microsoft owes their monopoly to IBM corporation's crucial mistake. When IBM debuted the personal computer in 1984, it had a central processor made by Intel, and an operating system from Microsoft. IBM did not seek patents for the entire computer, and soon other companies were copying, (cloning) the PC. As more companies cloned the PC, Intel and Microsoft became the two key suppliers to the computer industry. After being handed the market for computer software, Microsoft began eliminating their business rivals.

Microsoft's first operating system was called MS-DOS. Their competition was an operating system from Novell Corporation, DR-DOS. Although the two programs had similar capabilities, Microsoft e-mails reveal a deliberate policy to spread "fear, uncertainty, and doubt" about DR-DOS. It worked. DR-DOS disappeared, and today Novell is nearly bankrupt.

After defeating DR-DOS, Microsoft copied technology from Apple Computer to create the Windows operating system. This program had a user friendly graphical interface and quickly became the standard on PCs. Since any company could clone IBM's computer, but no one else could manufacture Apple's machines, sheer numbers of PCs reduced Apple Computer to a fringe player.

By 1991 Windows operating systems were installed on 90 % of all PCs. Microsoft wasted no time leveraging their monopoly into the market for software applications. Contracts with computer manufacturers obligated them to include Microsoft's Office when installing Windows on their machines. This put word processors, spreadsheets, and other programs from rival software vendors at a disadvantage.

The Justice Department took note and began scrutinizing Microsoft's business practices. To avoid charges of violating anti-trust laws, the company signed a consent decree in 1994. This barred them from leveraging their windows monopoly to control the market for other software. Microsoft had won the battle for the desktop, but a new challenge would come from the emerging world wide web.

In the mid 1990's a silicone valley company created a revolutionary computer program that allowed users to access the internet and view not just text, but graphics, video, and sound. This company became Netscape, and the computer program became the first web browser, Navigator. Later Sun Microsystems debuted a new computer language called Java. A program written in this language could be accessed over the internet and ran on any computer, regardless of type.

A new, internet based computer architecture threatened to make the Windows operating system obsolete. Microsoft's strategy, of course, was to keep users dependent on Windows. They had Windows 95, but no web browser. As Netscape's Navigator became the standard on all PCs, Microsoft's programmers quickly created their own.

The Internet Explorer brand name was already trademarked to a company in Chicago when Microsoft stole it for their web browser. When the first version of Internet Explorer was released it clearly inferior to Netscape's Navigator. To improve it, Microsoft had to have Java.

They licensed the new programming language from Sun Microsystems, then created "Wintel Java", a version that only ran under windows. Sun sued Microsoft for violating the licensing agreement, but the damage was done. Microsoft used their Wintel Java to create a new and improved Internet Explorer. When version 4.0 debuted in 1997 it was good, but Navigator was still better, and already installed on millions of computers.

To overcome Netscape's market advantage, Microsoft resorted to pressuring computer manufacturers. They were required to add Internet Explorer when installing Windows on their machines. This excluded Netscape's web browser from 90% of all new computers, and violated the consent decree of 1994.

Finally the Department of Justice and 19 states filed suit against Microsoft for violating anti-trust laws and extending their monopoly on software. In opening arguments Microsoft insisted that they were not a monopoly at all. They couldn't deny that Windows and Office were installed on 90% of all PCs. If further proof were needed, the price of Windows had not declined in ten years, even after computer prices dropped 50%. As the trial progressed the central issue became Microsoft's leveraging of that monopoly to control the market for web browsers.

Judge Thomas Penfield Jackson issued a preliminary order to stop the bundling of Internet Explorer with Windows. Microsoft immediately appealed the court order and it was overturned. During the two year trail Internet explorer continued to be installed on all new PCs. Netscape was forced to distribute their browser for free, but their business collapsed and the company was sold to America Online.

Microsoft's lawyers crowed that Netscape's demise made the trial unnecessary, but it only highlighted their sleazy tactics. At one point during the trial defense lawyers brought a doctored version of Internet Explorer into the courtroom as evidence, they were caught. When called to the stand, Microsoft founder and CEO Bill Gates alternated between belligerency and amnesia, even denying knowledge of e-mails he had written.

Needless to say these antics did not endear them to the judge and the company lost the case. Microsoft has been found guilty of violating anti-trust laws and abusing their monopoly power. Judge Jackson's decision was to order Microsoft split into two companies. One company would own the Windows franchise, the other would control all applications, including Office and Internet Explorer.

Microsoft pundits complained that splitting the company would be a disaster, citing the court ordered breakup of AT&T in the 1980s. Of course this was nonsense, AT&T was a huge company with employees and infrastructure throughout North America. Microsoft has no factories and virtually all their assets are electronic.

The breakup was to take effect within one year after all appeals were exhausted. The Justice Department argued to have Microsoft's appeal heard directly by the Supreme Court, but the high court declined to hear the case. Instead Microsoft has maneuvered their appeal into the very same court that overturned Judge Jackson's order during the trial. The Washington D.C. appellate court has twice overturned decisions that were harmful to Microsoft. Any dismemberment of the company is now at least two years away and parts of the verdict may be overturned.

Microsoft's lawyers may have dodged the bullet, but they have been too busy to gloat. In 1996, a software company bought the rights to DR-DOS and has sued Microsoft for anti-competitive practices. The Sun Microsystems lawsuit is ongoing, with Microsoft already found to have violated the licensing terms for Java.

Worst of all, after a federal court has declared them a monopoly, Microsoft faces hundreds of civil lawsuits seeking damages. The company is even being sued by their legal insurance provider. Zurich American Insurance wants to avoid legal bills from over a hundred anti-trust lawsuits already filed.

Despite their legal woes Microsoft is still powerful. the Wall street Journal estimates that Windows profit margins are over 90%. The Windows and Office franchises earn the company two billion dollars a year, more than enough to buy out emerging technologies and fight a legal war in the courts.

With their breakup on hold Microsoft executives even had the audacity to unveil a bold, new software initiative. Dot net, (spelled .NET), will seamlessly tie all of Microsoft's products together over the internet. In effect Windows, Office, and Internet Explorer would merge into an uber OS for the entire world wide web.

Microsoft just might pull it off. There is no challenger to the Windows franchise in the near future. Perhaps a web based computer or interactive television will displace Microsoft , but any emerging challenger is years away. In the meantime Microsoft owns the software keys to our computers, that and a lot of lawyers.