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


The Results of the Blocked Microsoft-Intuit Merger

So what were the results of the Justice Department's actions against the Microsoft-Intuit merger?

Most obviously, and against the predictions of those who saw Microsoft's monopoly role as indispensable, online commerce has exploded in the years since the decision. By 1997, consumers were spending an estimated $2-4 billion online. As significantly, analysts such as Forrester Research estimate that one out of four of the 40 million Internet users had bought something online[7]. With analysts projecting up to $10 billion in online consumer commerce by the year 2000 and up to $160 billion in business-to-business online transactions projected by that time[8], it is clear that those who defended a Microsoft monopoly as the only route to online commerce were dead wrong--an important warning to those wringing their hands that any limitation on Microsoft will impede computer progress.

In the personal finance software market, competition has remained healthy and, if anything, more innovative. Intuit retail sales have tripled since 1994 and continue to dominate retail sales of personal finance software with over 10 million people using its Quicken software and with Intuit's business software, Quickbooks, having 80 percent of the retail software market for small business.[9]

More importantly, the continued competition between Intuit and Microsoft opened the way for tiny MECA Software to become a major competitor. Largely abandoning direct retail sales, MECA--now co-owned by seven banks--has concentrated on selling its personal finance software, called Managing Your Money, directly to banks which in turn package it with their own online banking services to their own bank customers. By 1997, MECA was distributing about 45,000 copies of Managing Your Money each month through its bank relationships--almost double the number that Intuit was distributing through retail outlets. MECA offers banks a range of turnkey services, including a call center for customer support that now handles over a million calls a year[10]. In 1998, MECA struck a deal with Intuit to customize Quicken software for individual banks, another competitive option against Microsoft. This range of competition in 1998 would have been unlikely if in 1995 Microsoft had been allowed to merge with Intuit and turn Quicken into the de facto Windows standard for all personal finance management.

There is an argument that without that de facto Microsoft standard, overall home banking use may not be as large today as it could have been, but the slowness to adopt that original vision of home banking is itself one of the best arguments against having monopolies short-circuit technological competition. Microsoft's vision in 1995 for its Intuit merger was to build on Quicken's proprietary software interface to create a system of online banking and bill payment controlled completely by Microsoft. Tied into Microsoft's original vision of its Microsoft Network online service, itself originally based on proprietary non-Internet standards, that system of online banking might have taken off faster but would have been technologically limited and created a system that might have slowed down growth of the overall Internet due to incompatibilities. Without monopoly control of financial standards through its Intuit purchase, Microsoft's whole initial Microsoft Network proprietary model was no longer viable, and by December of 1995, Microsoft had abandoned those proprietary standards in favor of Internet standards. While the strength of the Internet would probably have forced Microsoft to adapt to Internet standards at some point, an initial position of monopoly control of personal finance standards on the desktop might have created a wasteful and destructive delay in Internet expansion as Microsoft built on its rival proprietary model.

As the Internet has grown, online commerce has had to adapt itself to the changing contours of the whole range of technologies involved, but that step-by-step growth between competitors working around broad open standards has created the vibrant Internet industry we have today. A short-term delay on some aspects of that commerce (and very short delays by any long-range evaluation) are more than compensated for by the flexibility and vigor of open standards and competition. Defenders of corporate monopoly control of standards as a short-cut to industry development ignore the long term effect of the loss of competition and the lock-in to substandard technology.

Next: Creating New Internet Standards for the Banking and Finance Industry

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