|Published by NetAction||Issue No. 28||April 27, 1998|
A Global Perspective on Microsoft
Microsoft Out of California's University Technology Deal
About Micro$oft Monitor
While most attention on Microsoft has been focused on investigations by the United States Department of Justice, the reality is that Microsoft is facing legal investigations of its predatory and monopolistic practices from governments around the world. This issue of the Microsoft Monitor will detail some of those investigations. With over 50% of its sales occurring outside the United States -- a share that is growing each year -- legal challenges to Microsoft in other nations are as important as the Justice Department's investigation here in the United States.
This article was prepared by Nathan Newman, NetAction's Project Director for the Consumer Choice Campaign. Contact Nathan with questions or comments. Email:
Microsoft's global alliances and deals are as pervasive as they are because those foreign sales are much more lucrative for the company. Microsoft generates about $500,000 in revenue from each employee in the United States, but almost $1 million in revenue from every overseas employee. This is a phenomenal return, and sales are growing 50% a year in places like Africa & the Middle East, and doubling each year in countries like China.
This global growth is a crucial part of Microsoft's long-term monopoly strategy, so NetAction lauds the investigations by foreign antitrust authorities and urges the Justice Department to coordinate its investigations with those other governments.
Since last fall, the European Commission -- what the European Union calls its set of government agencies -- has been paralleling the Justice Department's investigations into Microsoft. The European Commission's first area of concern were contracts with Internet Service Providers which required exclusive promotion of Microsoft browsers. In early March, with the U.S. Justice Department making similar investigations, Microsoft altered its contracts to give ISPs the freedom to support alternative browsers.
The European Commission also played an important role in forcing Microsoft to stop interfering with the development of a key UNIX competitor to its Windows NT operating system. Back in the 1980s, Microsoft had developed its own version of UNIX called Xenix. A part of that code was incorporated into a version of UNIX owned by AT&T at the time. When the Santa Cruz Operation (SCO) acquired that version of the UNIX operating system in 1995, Microsoft used court orders to not only collect royalties on the old code but prevent SCO from developing more advanced versions of UNIX that would no longer use Microsoft's code.
With Microsoft's legal demands hampering SCO's ability to innovate around its operating system, and costing SCO $4 million per year in royalties to Microsoft, SCO filed a complaint with the European Commission in January 1997. (Microsoft's actions are ironic in light of the company's complaints about legal actions restraining its innovation.) The Commission agreed that Microsoft's legal actions had "hampered (SCO's) ability to compete with Microsoft's own products, particularly Windows NT." Before the Commission took final action, Microsoft, in November, notified the Commission that it would waive both royalties and requirements that its code be incorporated in future versions of UNIX worldwide. This is an important victory in assuring that UNIX remains a viable competitor to Microsoft on business machines.
Japan began its investigations of Microsoft later than both the United States and Europe, but Japan's Fair Trade Commission has made up for it in the aggressiveness of its efforts. In early January, amid suspicion that the company was violating anti-monopoly laws, investigators from Japan's FTC searched Microsoft's Tokyo offices. With the evidence they collected, the Fair Trade Commission announced a full scale antitrust investigation of Microsoft.
Japan's first major concern parallels the U.S. Justice Department's opposition to Microsoft requiring the "bundling" of the company's Internet Explorer browser as a requirement for computer manufacturers to license Windows 95. The Fair Trade Commission has charged Microsoft with unfairly pressuring those manufacturers.
The Japanese government's second major concern focuses on Microsoft's bundling of Office software applications. Microsoft is charged with using the bundling of software to unfairly compete against a Japanese word processor called Itchitaro. Japan is exploring whether Microsoft made installation of Microsoft Word and Excel a precondition with some manufacturers for licensing Windows 95.
While much of the third world has not had the economic or political clout to take on Microsoft, Brazil's Justice Ministry this month opened an investigation into Microsoft's Brazilian subsidiary over alleged violations of antitrust law. Microsoft's Office suite of applications already dominates 95% of the Brazilian market and the newest complaints focus on Microsoft's Money financial software. Microsoft has attempted to lock-up the marketplace by giving its Money software away to Brazilian banks and bundling it with a general package of software for small business. Paiva Piovesan, a local competitor which makes a rival package called Finance for Windows, has charged Microsoft with unfair competition, and the Justice Department has followed up with its own investigation.
In Israel, the Antitrust Authority is considering declaring Microsoft a monopoly under Israel law and subjecting it to new restrictions. Authority director David Tadmor sent a letter several months ago to Microsoft and informed it that the authority was considering declaring it a monopoly. The effort was launched in response to complaints from a number of sources regarding Microsoft's activities in Israel.
Even in places where Microsoft has threatened or cajoled support from local governments, grassroots activists are raising concerns about Microsoft. In the Philippines, activists within that nation's Green movement have criticized their own government for accepting $1 million in free software from Microsoft while, at the same time, launching raids on local public schools to root out software piracy at the behest of Microsoft. Accusing the government of being bribed, the Philippine Greens have suggested that, "The government may now hypocritically conduct police raids on others who continue to do as the government did, copying commercial software."
Microsoft's competitors and local activists around the world have charged that Microsoft has used anti-piracy campaigns as part of its anti-competitive practices in the third world. One example, uncovered by the magazine Mother Jones, was the case where Antel, the national telephone company of Uruguay, was caught pirating $100,000 of software in 1995 by the Business Software Alliance. At the time, the BSA was funded by Microsoft, Lotus, Novel and other companies. After the BSA launched the legal case against Antel, Microsoft used this as leverage to get Antel to exclusively use Microsoft software -- and then pressured BSA to drop its suit. Lotus and Novell dropped out of the BSA's foreign operations soon after, with Novell citing this and other instances of Microsoft abuse of anti-piracy campaigns as a reason.
Many other activists have complained of Microsoft's close collaboration with authoritarian governments. In China, Microsoft in 1996 cooperated with police raids on computer software stores after anti-Beijing phrases were discovered in Microsoft software produced by Taiwanese contractors. Microsoft halted sales of its Chinese-language operating system until the ideological content met with the Chinese government's approval. At least in the case of ideological censorship, Microsoft seemed quite happy to accommodate that government's requests for regulation.
On April 16, the California State University system announced that Microsoft Corporation had been dropped from the proposed $3 billion ten-year partnership that university officials had proposed to manage technology systems for the entire university system. Citing grassroots protests, the officials, in the words of the Los Angeles Times, "did not want to be dragged into the debate over whether the software giant is a monopoly."
Richard West, Cal State's senior vice chancellor for business and finance, said it made little sense to keep Microsoft as a partner "from a political point of view...it's not worth the political costs."
After hearings at the California Legislature in January demonstrated widespread student, staff, faculty and public opposition to the monopoly deal being proposed with Microsoft, GTE, Hughes and Fujitsu, university officials were forced to scrap their initial plans for the so-called California Education Technology Initiative (CETI) and begin renegotiating the deal without some of the monopoly concessions in the original proposal.
Without those provisions, however, the partners, especially Microsoft, no longer showed much interest in guaranteeing the $300 million in loans they had originally promised for upgrading technology and telecommunications systems throughout the university. As NetAction noted earlier, the proposed CETI deal was a financial boondoggle for taxpayers in the state. Without the ten-year captive customer base promised in the original deal, it's hardly surprising that the corporate partners are not as eager to sign onto a deal.
Hughes was also dropped from the negotiations, but no deal with GTE or Fujitsu is in sight. The state Legislature made it clear that they wanted to hold hearings before any new deal was approved. Consequently, with the spring school term about to end, there is an understanding that no deal will be approved until a full review can take place in the fall.
Given that Microsoft, GTE and university officials hoped the deal would be quietly approved last fall, it is a victory that students, faculty, staff and the public have won the right to further review before any deal is approved.
NetAction will continue to monitor the CETI proposal, given our continuing concerns. While Microsoft will no longer be a full partner in the deal, we want to make sure that no exclusive licensing deals are signed with Microsoft. Also, GTE's continued participation in building a private telecommunications network could be a threat to telecommunications competition in the state.
For background on CETI, see the Micro$oft Monitor No. 20 and subsequent issues.
For a speculative look at what the world of software and information technology will look like A.M.-- after Microsoft -- check out the article "After Microsoft" at http://future.sri.com/bip/ScanTOC/AM-S2133.html.
The article was written by Bob Jacobson, senior consultant with the Business Intelligence Center at SRI (and also a member of NetAction's Advisory Board). Jacobson looks beyond the new millennium and envisions a world in which Microsoft has been divested into five separate companies: the BabySofts. By pondering the unthinkable (a world without Microsoft as we know it), Jacobson identifies discontinuities and other currently dormant factors that are likely to play an important role in any transformation that the computing and networking world will experience after Microsoft.
(An earlier version of this article was published in NetAction Notes No. 36.)
Bill Gates may envision the Internet as one vast toll-road for the Microsoft monopoly, but that isn't a vision shared by Brian Behlendorf, Eric Allman, Greg Olson, Larry Wall, Paul Vixie, or a host of other software developers whose names are not nearly as well known, but whose work we rely on every time we visit cyberspace. What these individuals have in common with each other -- and what distinguishes them from Gates -- is that the products they developed are available for free to anyone who wants to use them. Behlendor lead the team that developed the Apache web server, which runs more than 50% of all Web sites; Allman and Olson are responsible for sendmail, the program that routes more than 75% of the Internet's email, Wall developed the Perl computer language used to create and manage most web sites, and Vixie is responsible for BIND, the software that provides the domain name service (DNS) for the entire Internet.
These individuals, and other software developers who create "freeware" products, do so with publicly available source code, rather than proprietary source code like that used by Microsoft. The non-profit Software in the Public Interest uses the term "open source" to describe software programs created from publicly available source code and distributed for free. For a complete description of "open source" criteria, see http://www.opensource.org/.
Earlier this month, Tim O'Reilly, CEO of O'Reilly & Associates, convened a gathering of the developers of key Internet technologies, whom he described as "open source pioneers." The meeting in Palo Alto, CA, was a forum for exploring ways to expand the use and acceptance of freeware development as a business model. A report on the O'Reilly forum, including a complete list of the software developers who participated, is at http://www.oreilly.com/.
NetAction Advisory Board member Judi Clark attended a press conference at the conclusion of the meeting. Judi sees the gathering as important to ensuring that the Internet remains open an accessible.
"One point that came out clearly was the need for the public to see and understand the significance of this model of software development, and its prevalence in our lives," said Clark. (For more on the significance of freeware, see Keith Porterfield's article "Software Wants to be Free."
The conference participants identified several reasons why the "open source" model of software development is so important to the future of the Internet:
Open source software is already running a significant portion of the Internet. This suggests that a collaborative business model, based on shared knowledge, can be as operationally feasible as a competitive model based on proprietary knowledge and private control of standards for interoperability.
Open source software development has already spawned numerous new businesses and businesses models, some focused on driving down the cost of distribution, and others targeting the need for customer support.
Open source software has social values -- such as a broad distribution of labor, and competition focused on implementation, rather than control of, standards -- which overlap the emergence of new business models.
John Gilmore, another open source "pioneer" who attended the O'Reilly conference, pointed out another social value -- freedom to innovate.
"Companies like Microsoft are working hard to make it impossible for anyone but themself to provide innovations," he noted. "They fear a loss of control. Freeware creators, maintainers and distributors have discarded the idea of controlling the market. Instead, they stay ahead of the competition by *doing a better job*. If they stop doing a good job, they get bypassed."
Open source software development demonstrates new ideas by promoting widespread use of new products, one example of which is the evolution of the web browser. In its first, text-based form, the browser was created by Tim Berners-Lee at CERN (Centre Europe'enne pour la Recherche Nucle'aire).
Open source software development promotes consumer choice and helps keep the market honest. With the typical proprietary model of software development, companies are often compelled to market software with "bugs" in order to meet the demands of investors, and consumers are expected to accept the marketing, for profit, of defective products. Moreoever, when new versions of the product are released to correct the "bugs" found in the initial product, the new versions introduce yet another set of "bugs" which will eventually be fixed by yet another release.
Judi Clark is optimistic that the Palo Alto meeting will lead to further discussions, and to increased awareness among Internet users of the importance of supporting the continued development of software based on publicly available source code.
The Micro$oft Monitor is a free electronic newsletter, published as part of the Consumer Choice Campaign http://www.netaction.org/msoft/ccc.html. NetAction is a national, non-profit organization dedicated to educating the public, policy makers, and the media about technology-based social and political issues, and to teaching activists how to use the Internet for organizing, outreach, and advocacy.
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