American citizens have long valued the entrepreneurial spirit, and nowhere is this more apparent today than in the burgeoning computer industry. Many of today's most successful computer industry leaders started their own businesses. Bill Gates and a handful of other entrepreneurs have achieved spectacular fame and fortune, but there are countless other software engineers and hardware manufacturers who have developed successful small and mid-sized businesses. Competition among these businesses is the spark that ignites innovation in the computer industry, and it is innovation that brings real choice to consumers in the marketplace. But one company -- Bill Gates' Microsoft Corporation -- has achieved such a dominant role in the global computer industry that it presents a serious threat to further competition, innovation, and entrepreneurship.
Bill Gates is the modern-day equivalent of a Robber Baron, well on his way to creating a Microsoft monopoly. As James Gleick notes in Making Microsoft Safe for Capitalism , a significant majority of the world's personal computers already rely on Microsoft's operating system and use Microsoft software. Because Microsoft controls the standards and architecture that control the design of software, the company continues to capture market share, buying up its competitors when necessary. In the seven years since the Federal Trade Commission (FTC) initiated an inquiry into Microsoft, consumers have become increasingly dependent on computers and the Internet for both business and personal communications. During this same time period, an astonishing array of new information technology products have emerged. A Microsoft monopoly would likely put an end to this innovation and leave consumers without competitive choices.
Free market advocates are fond of blaming economic problems on government regulation, and they don't look kindly on government-regulated monopolies. But the real threat to a healthy economy is an unregulated monopoly. Microsoft's marketing strategy is aimed at controlling the market.
In Gleick's words,
"...(P)ervasive as P.C.'s are now, Microsoft has made clear that they are only the beginning. The company is working toward wallet computers that carry digital signatures, money and theater or airplane tickets; toward new generations of fax machines, telephones with screens, and car navigation systems; toward Microsoft-run interactive television boxes, office networks and wireless networks, and most potently, toward an aggressive Microsoft role in the Internet itself."
Microsoft's recent purchase of WebTV is a case in point. "This is about Microsoft's plan to take over the world," writes industry observer Anders Schneiderman in the electronic newsletter ENODE.
"Many of us thought Microsoft's plans for world domination might be stymied by Network Computers (NCs)," he explains. "But by buying WebTV, Microsoft has demonstrated that it may once again do the impossible."
Even Wired Magazine, which typically looks toward a techno-centric future through rose-colored monitors, admits to worrying about Bill Gates' plans. The Wired Scared Shitlist!, published on Hotwired on the eve of 1997, includes a scary scenario for the year 2001 in which Gates becomes president of the United States and immediately announces a hostile takeover of every company on the New York and Nasdaq stock exchanges.
When publications as divergent in their editorial views as the New York Times, ENODE, and Wired Magazine are all concerned about Microsoft's plans, it's time for consumers to worry. One anti-trust expert compares Bill Gates' Microsoft Corporation to John D. Rockefeller's Standard Oil Co., and calls Gates the Rockefeller of the late Twentieth Century. At NetAction, we call him Robber Baron Bill.
Largely as a result of the monopoly abuses of the early U.S. industrialists, American businesses are subject to a set of strong anti-trust laws, chiefly the Sherman Antitrust Act of 1890 and the Clayton Act of 1914. When these laws are enforced, monopoly practices can be curtailed, competition among entrepreneurs can flourish, and consumers can benefit from competitive choices in the marketplace.
But these laws are not being adequately enforced. James Love, an economist with Ralph Nader's Consumer Project on Technology (CPT), lists a number of anti-trust abuses that are not being addressed:
As Gleick notes, "The essence of anti-trust is an American view that the public has an interest in preventing excessive concentration of economic power."
No longer is that the case, especially in the volatile computer industry. Microsoft has achieved such a dominant role that most competitors prefer to capitulate rather than complain about anti-competitive activities. What they fear is retaliation; and with good cause.
In The Lone Crusader, profile on anti-trust attorney Gary Reback, Jonathan Littman describes how the Justice Department's Antitrust Division in 1994 asked Reback to submit a white paper analyzing Microsoft's planned acquisition of Intuit. Rather than submitting the analysis on behalf of a client, however, federal officials asked the attorney to submit the paper under his own name. Writes Littman:
"The reason, according to Reback: 'so that no client has to be disclosed, so that Microsoft won't be able to retaliate against them.'"
Microsoft's competitors are so worried about retaliation, in fact, that Reback's clients have at times been anonymous. In his recent profile on Reback, Littman reports that there is almost no one in the Silicon Valley who will talk publicly about Microsoft, anti-trust issues in the computer industry, or Reback's legal battle. If powerful business interests are that scared of Microsoft, why aren't our federal officials doing something about it?
In 1994, Justice Department officials signed a consent degree that concluded the anti-trust investigation initiated four years earlier by the FTC. US District Judge Stanley Sporkin rejected it in early 1995. In his opinion, Judge Sporkin explained why:
"The picture that emerges from these proceedings is that the U.S. Government is either incapable or unwilling to deal effectively with a potential threat to this nation's economic well being. How else can the four year deadlocked investigation conducted by the FTC be explained. What is more, the Justice Department, although it labored hard in its follow up investigation, likewise was unable to come up with a meaningful result.
"It is clear to this Court that if it signs the decree presented to it, the message will be that Microsoft is so powerful that neither the market nor the Government is capable of dealing with all of its monopolistic practices. The attitude of Microsoft confirms these observations. While it has denied publicly that it engages in anticompetitive practices, it refuses to give the Court in any respect the same assurance. It has refused to take even a small step to meet any of the reasonable concerns that have been raised by the Court."
Without admitting to any violations, Microsoft had agreed to stop certain business practices, including a requirement that PC manufacturers pay Microsoft the same royalty fee whether or not the computers they sold contained Microsoft's operating system. According to Judge Sporkin, the agreement was not in the public interest. He wrote:
"The Court cannot find the proposed consent decree to be in the public inte"The Court cannot find the proposed consent decree to be in the public interest for four reasons. First, the Government has declined to provide the Court with the information it needs to make its proper public interest determination. Second, the scope of the decree is too narrow. Third, the parties have been unable and unwilling adequately to address certain anticompetitive practices which Microsoft states it will continue to employ in the future and with respect to which the decree is silent. Thus, the decree does not constitute an effective antitrust remedy. Fourth, the Court is not satisfied that the enforcement and compliance mechanisms in the decree are satisfactory.
Although Judge Sporkin rejected the consent decree, his ruling was later overturned by the U.S. Court of Appeals.
NetAction agrees with Judge Sporkin's view that federal officials were too "soft" on Microsoft. Gleick has suggested that the Justice Department force Microsoft to permanently open up its operating system and standards if Microsoft won't do so voluntarily. NetAction agrees.
Anti-trust laws aren't just intended to protect competitors from anti-competitive practices. These laws are also supposed to protect consumers! Everyone who uses a computer has a stake in maintaining a competitive computer industry. And you don't need to know any complicated economic theories to understand why. If one company controls the market, it sets the price, controls the quality and determines the availability of products. With a Microsoft monopoly, you can count on higher prices, lower quality, and more delays in new product roll-outs.
NetAction believes its time for consumers to speak out, loud and clear, and demand that federal officials enforce the anti-trust laws. If they don't, there's a good chance Bill Gates' Microsoft Corporation will take our choices away. Join NetAction's Consumer Choice Campaign today and tell federal anti-trust officials:
1. First published in The New York Times Magazine, November 5, 1995. Copyright 1995 by James Gleick.
2. West magazine, April 20, 1997. West magazine is an insert in the Sunday edition of the San Jose Mercury News.
NetAction thanks Michael Gold, James Love, and Keith Porterfield for their help in preparing this article.