The Microsoft-Intuit Merger: The Intervention that Worked
and the Dangers Today from Microsoft's Monopoly Practices in
the Online Financial Marketplace


Introduction

What is at stake in the Department of Justice's antitrust intervention against Microsoft? Are there dangers to innovation and rapidly expanding electronic commerce from government meddling in the "free market," as many critics of the DoJ charge?

To begin with the first question, it should be clear that, despite all the discussion about Internet "browsers," the main issue is not market share for a piece of software that is generally given away for free. If all Justice were doing was protecting us from Bill Gates' generosity in giving away Internet Explorer, they need not have bothered.

But the heart of the issue is a much broader fight over corporate power and control of the Internet--the pathway that will direct and guide economic commerce and financial transactions as we move into the next century. The very fact that Microsoft is willing to spend hundreds of millions of dollars developing its Internet Explorer, and then give it away for free, tells you that the browser is only a shadow of the real fight involved.

Browsers are more than a piece of software--they are, at this time, the preferred gateway for information and economic exchange on the Internet. Browsers are the primary means for any computer user to "read" information from Internet computer servers, whether youØre looking at a graphic gee-gaw or accessing your savings account to pay for goods purchased over the Net. No matter how innovative your software or impressive your product being sold over the Internet, if a customer's browser can't access it from their home or office, it might as well not be sold over the Internet. And if you are working in the crucial area of making direct financial transactions over the Internet--essentially a transfer of information backed by legal recognition of the transfer--the Internet standards involved in such virtual transactions are a key part of that fight. If a company controls those standards, it controls the economic lifeblood of Internet commerce.

Which brings us to Microsoft and the DoJ intervention. Much of the focus on this investigation has been as a fight within the "software industry," while downplaying the fact that most systems of management in all industries are increasingly forms of software, whether they are controlling industrial machines, running the Internet, or organizing financial transactions over electronic networks. If a company like Microsoft can control those software standards, it can essentially take over many of the management functions associated with such industries.

In the case of banking and finance, an industry already heavily electronically networked, the threat of monopoly and distorted competition is much more dire than in almost any other field. As examples ranging from the U.S. Savings and Loan debacle to the present crisis in East Asia show, any unregulated and rapid changes in the financial field not only threaten to undermine financial systems but usually end up being a burden on the taxpayer when things go awry. As well, current financial institutions have specific community and fiduciary responsibilities that work to assure some degree of equal access and consumer protection, so any changes in that industry must assure that those responsibilities are addressed. For these reasons, governments must and have gone beyond traditional narrow antitrust rules and given special attention to monopolistic and anticompetitive practices in the banking and finance industry.

With all the discussion of the merits of the present investigation of Microsoft over its "browser" distribution practices, there has been surprisingly little evaluation of the successes of the Justice Department's previous actions against Microsoft, particularly its 1994-95 intervention against Microsoft's acquisition of Intuit software, the leading seller of personal finance software then and now. That Microsoft is not already controlling electronic commerce is in real measure due to that original intervention. Reviewing the arguments over that case both highlights the present dangers to open competition in the electronic finance field and emphasizes the broader issue of how government intervention has been a force for assuring competition and open standards in the emerging online economy.

This white paper will review the Justice Department's intervention in the Intuit deal and the arguments made both for and against that intervention. It will examine the aftermath of the blocking of the Intuit acquisition and the positive expansion of open standards and vibrant competition in electronic banking. Finally, it will outline current dangers posed by Microsoft's anticompetitive practices and the kinds of intervention at the present time that will assure open competition and a secure financial system for all citizens. For, while the Justice Department's intervention against the Microsoft-Intuit merger blocked that route to Microsoft monopolization of online banking, there are still serious dangers from Microsoft's anticompetitive strategies.

Next: The Intuit Deal: Microsoft's "Pot of Gold"

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