Everyone Comes Out a Loser in Microsoft Ruling

FRAMINGHAM (04/10/2000) - Both Microsoft Corp. and the U.S. Department of Justice (DOJ) will likely rue the day that they failed to reach a just settlement and forced the antitrust process to move forward. Sadly, this result wasn't really surprising. Microsoft has consistently failed to manage this critical case in anything resembling a statesmanlike way. Similarly, government lawyers, especially the attorneys general for the 19 states involved in the case, seem to have forgotten that the public interest called for a solution, not another whipping boy.

Although the exact settlement negotiations remain secret, it appears that neither side was willing to make the required compromises. But what makes this failure so unfortunate - and unnecessary - is that, despite what you often hear, the challenge wasn't that difficult. The parties had plenty of time to design an effective settlement that wouldn't unfairly impair Microsoft's ability to compete.

Fundamentally, this case has always been about three main issues: behavior, bundling and pricing. Of these, modifying Microsoft's behavior remains the most straightforward. Ideas such as making the Windows source code public, banning certain operating system contract requirements and insisting upon standardized Windows pricing would have gone a long way toward curbing Microsoft's most objectionable tactics, without seriously damaging the company.

The issue of which new software features should or shouldn't be bundled into Windows is certainly more complex, but it's not exactly the riddle of the Sphinx. The problem here is that Microsoft continues to want to have things both ways. It wants to be able to say that browsers, streaming media, speech recognition and the like should be part of Windows, but it also wants to make them available separately, to run on older Windows versions.

This self-serving position remains Microsoft's Achilles' heel. The government should support Microsoft's view that determining which features are part of the operating system should be entirely Microsoft's call. However, the DOJ should insist that a new function can't be both a separate application and an operating system feature. In other words, if a new feature is deemed an integral part of Windows, then it can't be made available separately for older Windows versions. Given this choice, Microsoft would think twice before requiring its supposedly cherished operating system integration.

But in the end, the entire antitrust case comes down to pricing. Can Microsoft decide which of its products to give away and which to price separately?

Giveaway pricing was clearly the main strategy Microsoft used to wipe out Netscape, and it's definitely what current and would-be Microsoft competitors most deeply fear.

Here, however, it's the government that has to give. The reality is that giving away software is now inseparable from everyday Web-based competition. It's simply inconceivable that some judge or bureaucrat will be able to determine when Microsoft's prices are too high, too low or, somehow, just right. Indeed, when faced with free software from Microsoft, competitors have three tough choices: provide sufficient functionality to justify their prices, align themselves with enough financial backing to match Microsoft's pricing or suffer the consequences. There just isn't much that the government can or should do.

But, for now at least, these types of sensible compromises are dead, and instead of a useful settlement, we face the likelihood of a lengthy appeals process, frivolous private lawsuits and the demonization of a great and important company. Microsoft has only itself to blame for losing so much control over its fate; but, unfortunately, the government and the public have become losers as well.

DAVID MOSCHELLA is vice president of knowledge strategy at Meansbusiness, an Internet startup that's building a database of ideas. Contact him at dmoschella@earthlink.net.

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