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Since its founding in 1975, Microsoft has aimed to "create software for the personal computer that empowers and enriches people in the workplace, at school and at home." It has done a great job fulfilling that mission. Too good a job, it seems. On October 20th, the U.S. Department of Justice, cheered on by a small but shrill number of Microsoft's vanquished rivals, launched a massive attack against the computer giant. Attorney General Janet Reno implored a federal court to fine Microsoft an unprecedented $1 million fine per day. The alleged crime? Microsoft had the nerve to integrate its own Internet browser (software that allows computer users to access the Internet) into its hugely popular Windows 95 applications package. Instead of applauding Microsoft for markedly increasing the value it offers its customers, the federal government sought to punish the company for daring to expand the frontiers of its industry. Attorney General Reno charged that Microsoft is "taking advantage of its Windows monopoly to protect and extend that monopoly and undermine consumer choice." Fair enough. Let's take a look at this monopoly. While it is true that the Microsoft Windows operating system is present on 85 percent of all computers, Microsoft is far from monopolizing the rapidly growing Internet. As for the numbers, Netscape Corporation's Navigator currently commands a 62 percent share of the Internet browser market. Microsoft's Explorer controls just over 30 percent. So much for conventional Inside-the -Beltway wisdom. Of course, for those familiar with the computer industry, the disparity in these numbers should be anything but surprising. No monopoly, even if created, could survive for long in an industry as consumer-driven and dynamic as the computer software and Internet industries. "Success is perishable," observes Compaq CEO Eckhard Pfeiffer. More so than in most industries, as Sunbeam Chairman Al Dunlap put it, "The predators are out there, circling, trying to stare you down, waiting for any sign of weakness, ready to pounce and make you their next meal." What about Microsoft's alleged heavy-handedness? Although Microsoft requires the Explorer icon to be initially present on all computers using its Windows 95 software, it makes no demand that its customers keep the icon or refrain from installing competing browsers. Of course, this is never mentioned by Microsoft's opponents nor their allies in the Justice Department. In fact, the process for removing the icon is so simple that even computer neophytes have little difficulty purging it. Simply, one right-clicks on the offending icon, left-clicks on "delete" from the resulting pull-down menu, left-clicks on the "yes" prompt, and the Explorer icon is no more! So much for a lack of consumer choice. The dirty little secret behind the Justice Department's lawsuit is the role of Netscape Corporation which filed a legal complaint against Microsoft that, in part, precipitated the government action. Netscape has, for years, been quietly laying the groundwork to use its near monopoly in the browser market as a springboard to introduce a competing operating system to Microsoft's Windows. Microsoft beat them to the punch. Now, instead of fighting it out in the competitive market place where the prospects for its alternative operating system are highly uncertain, Netscape has asked the federal government to do what the company could not: tilt the playing field in its favor. The stakes in this fight are enormous. The software industry is one of America's fastest growing industries. Between 1987 and 1994, the industry grew 117 percent in real terms. This is seven times the growth rate of the U.S. economy. The benefits have been abundant. Since 1987, U.S. employment in the software industry has increased at an annual rate of nearly 10 percent, more than five times the national rate. And these are good-paying jobs. Software workers earn an average wage of $57,300 per year, more than double the U.S. average of $27,900 per year. Today, U.S. software producers account for 75 percent of global software sales. Nine of the world's top ten and forty-five of the world's top fifty software makers are U.S. firms. U.S. might in the software industry is overwhelming. One need go no further than one's own workplace, bank, or even home to begin to appreciate the enormous benefits of the American software juggernaut. Indeed, software breakthroughs are behind the increasing competitiveness of American firms in every industry. The software industry has helped give the U.S. a decisive edge in innovation and entrepreneurship by dramatically lowering the costs for entrepreneurs to create new products and new industries. The results have been breathtaking. American unemployment now stands at a mere 4.6%, and the American economy is the world's most dynamic. Today, and even more so tomorrow, high-growth companies will surpass their rivals, not through conventional approaches, but through what W. Chan Kim of the Boston Consulting Group and Renée Mauborgne, a senior research fellow at INSEAD, refer to as "value innovation." These companies, instead of merely improving on existing products or services, will offer customers quantum leaps in value. Microsoft's adding Internet access capabilities to its operating system at no new charge is a good example of how this process works. Correctly anticipating the lucrative relationship between software and the Internet's growth (the number of Internet users is expected to climb nearly tenfold to around 500 million persons worldwide by the year 2000), Microsoft acted decisively to tie the two together. Now others are scrambling to catch up. And they should. That's what business is about — competition in the market place. It is not, nor ever should be, about regulatory intervention. Companies should rise and fall based solely on their ability to satisfy customers, and the market place should remain the only forum for business competition. Rather than handicapping the companies at the vanguard of America's entrepreneurial economy, the federal government should concentrate on making the environment even more favorable for risktaking entrepreneurship and business success. For example, the federal government could work to eliminate trade barriers, reduce regulation, and lower taxes. This effort would further strengthen America's already impressive global competitive advantage. Everyone would benefit. America's economic prosperity has been fueled by its abundant supply of innovative entrepreneurs and business leaders. A Justice Department victory would represent a triumph of idiocy over innovation. It would be a devastating setback for all those who strive each day to create new and better products, as well as the millions of customers who would stand to benefit from their heroic risktaking. Not surprisingly, 61 percent of respondents in a recent poll published in Business Week said that the Justice Department should leave Microsoft alone, while only 39 percent supported the Justice Department's position. Shouldn't today's business pioneers have at least as good a chance to change the world for the better as their predecessors had? Or should Janet Reno and the Justice Department be allowed to "dumb-down" business competition, much as government has done with the nation's public schools? |
| Donald Sutherland is a research associate at the Institute for SocioEconomic Studies in White Plains, New York. djsutherland@msn.com. |
