No, the Justice Department Didn't Cripple Microsoft. The Internet Took Care of That
Not surprisingly, a lot has been written over the past few days, not just about the upcoming retirement of Microsoft Chief Executive Steve Ballmer and the impact his departure will have on the software giant, but also about his legacy, such as it is, and what he could have done differently. Some visions of this alternate future are more likely than others, but others are closer to being flat-out wrong, such as the version Matt Yglesias tries to put forward in a piece at Slate, in which he argues that the Justice Departments prosecution of Microsoft (MSFT) saved us from a hideous future in which Apple (AAPL) and Google (GOOG) never existed.
Yglesias makes his point obvious in the headline of his piece: “The Justice Department Was Absolutely Right to Go After Microsoft in the 1990s.” In a nutshell, the Slate writer argues that if the federal antitrust authorities hadn’t launched a case against the software company in 1998 and extracted a series of concessions from it during a long settlement process, we would be living in a very different world—one in which Microsoft is such an impervious monopoly that neither Apple nor Google is really able to build much of a business in search or mobile technology. For Yglesias, the lesson is:
“There was nothing foolish about the DOJ’s pursuit of a case against Microsoft, the settlement eventually reached with the company was perfectly reasonable, and what we’ve seen over the past decade or so is very possibly the benefits of that litigation—litigation that, in retrospect, has had no meaningful costs or downsides.”
According to Yglesias, forcing Microsoft to dismantle the integration of Internet Explorer and the Windows operating system—one of the main targets of the government’s antitrust case—was the key to unlocking the potential of the Internet, which in turn led to the rise of Google and that company’s dominance of Web search and related services. (Somewhat confusingly, Yglesias also argues in a separate piece for Slate that we should thank Microsoft for blunting the impact of a potential Google monopoly.) As he describes it:
“Had that not happened, its entirely possible that Microsoft could have used its dominance of the PC marketplace to substantially pre-empt the rise of Google. Imagine a world in which more than 90 percent of people have Microsoft computers that default to a Microsoft Web browser that defaults to a Microsoft-owned search engine. Google search is out there as a kind of niche product for serious nerds, but it never generates the kind of revenue flow necessary to move in to start dominating the webmail and map spaces.”
Not only that, but Microsoft’s monopoly over the Internet, in Yglesias’s version of events, also winds up blunting the impact of Apple and thereby effectively prevents the company from building on its success with the iPod to launch the iPhone and reinvent the entire mobile phone market. Says Yglesias:
“With Microsoft-owned Web services for search and mapping dominating the Internet and exclusively available to users of Windows Phone, it’s not possible for rival smartphones to ever go mainstream. The mobile revolution looks more like a slow inching forward, with cutting-edge technology rarely finding marketplace acceptance and market-leading technology rarely being genuinely the best stuff [and] app-based services find it harder to take off.”
Is it possible that what the Slate writer describes might actually have happened had there been no Justice Department prosecution of Microsoft? Theoretically, anything is possible, but for me, at least, his vision of a Microsoft-led future stretches the bounds of credulity to the breaking point.
Why? Because even before the antitrust case was concluded and a settlement reached, it was already blindingly obvious that Microsoft had missed the potential of the Internet completely. While it saw the browser as another piece of software it could tie into Windows and get people to use, it had no clue about the disruptive effects the Web would have on virtually every aspect of the technology business over the subsequent decade, from search, to advertising, to mobile and personal Web services. None of that even started to become obvious until Google came along, and even then it took a while to sink in.
Internet Explorer was almost pathetically inadequate for a long time (although I am willing to admit it did eventually get better), as were almost every single one of Microsoft’s attempts at Web services such as MSN and all of its various related features, on which the company wasted untold billions of dollars. The Web-ification of Office and other moves by the company eventually found a market with Windows users, but that also took years to accomplish.
The idea that the company could have built up this unassailable monopoly on the Internet that would have ensured Google and Apple never became as dominant as they are in search or mobile borders on the ridiculous. And it also plays into a dangerously complacent view of antitrust investigations like the Microsoft one, which argues that if it weren’t for the Justice Department swooping in to rescue us, we would have been condemned to a nasty future, trapped under the boot-heel of a monopolist, unable to save ourselves.
The reality is that in most cases, as in Microsoft’s, the disruptive effects of a changing technology environment have far more impact on dismantling a company’s monopoly control over a specific market than anything an antitrust regulator does. If Matt Yglesias wants to thank someone for crippling Microsoft, he should be thanking the Internet and the company’s own sclerotic management, not the Justice Department.
Also from GigaOM:
Unlike Ballmer, Microsoft’s New CEO Must Understand Mobile (subscription required)