Don't Persecute Microsoft For Doing Things Well

Few doubt that Microsoft Corp. Chairman William H. Gates III is now the most influential figure in the computer business. Still fewer doubt that his $1.7 billion company is the software industry's most powerful. So the Federal Trade Commission has seized plenty of attention by investigating allegations that Microsoft "has monopolized or has attempted to monopolize" markets for personal computer software and peripherals.

While Microsoft might seem invincible, the FTC should think twice about punishing the company for its success. The government's antitrust laws were written to protect consumers, not competitors. It may be true that Microsoft has played hardball in software, but its accomplishments in giving millions of people access to powerful technology surely outweigh any headaches it has given rivals along the way.

SPLITTING UP? Not surprisingly, all the known complaints about Microsoft have come from inside the hotly competitive software business. Such complaints prompted the FTC recently to expand its inquiry to cover suspicions that Microsoft employs inside knowledge of its operating systems--the set of commands that control a computer's functions--so that its applications software can be the first on the market with advanced features. Some industry executives are even calling on the FTC to split Microsoft into two companies--one for operating systems and one for applications.

Rivals also charge that Microsoft breaks contracts with business partners and then swipes ideas from them. For instance, a startup called Go Corp. three years ago demonstrated for Microsoft its then-secret software that allows a computer to read handwriting. Instead of then creating products to support Go, Microsoft changed course and developed technology to compete directly with Go.

At first glance, it may seem natural for the FTC to get involved in this. Microsoft controls the basic standard for personal computing, namely the decade-old MS-DOS software that powers some 70 million PCs worldwide. But in antitrust law, there's nothing necessarily wrong with having a position as the dominant player in an industry. As Judge Learned Hand once wrote: "The successful competitor, having been urged to compete, must not be turned upon when he wins."

If Microsoft had used its dominance in operating systems as a lever to monopolize the booming market for applications such as spreadsheets, it could be vulnerable to the government trustbusters. But no one has ever convincingly promoted that argument. Why not? Simple: Microsoft controls only about 10% of the MS-DOS applications business.

What really worries rivals is that Microsoft has an unbeatable edge in the new era of so-called graphical software. Last year, Microsoft brought out Windows 3.0, software that gives PCs running MS-DOS easy-to-use graphics similar to those of Apple Computer Inc.'s Macintosh. Although Windows dates back to 1983, it didn't catch on until last year. Its vast popularity has sent the business for compatible programs soaring. Microsoft now controls more than half that category--a key reason it said on Apr. 16 that its net income in the nine months ended in March surged 63%, to $324.3 million.

For all its success, Windows is installed on just about 5 million PCs, or 7% of the total. Only if Windows products in and of themselves can be deemed a "market," according to the Sherman Antitrust Act, could Microsoft rightfully be accused of monopolizing it. Defining the relevant market is no trivial matter--a host of antitrust cases have risen or fallen on that point. And many antitrust experts believe that the Windows-compatible category is not yet large enough to be considered a market.

BAD VIBES. More persuasively, there are several similar systems competing with Windows, including IBM's OS/2, Quarterdeck Office Systems' Desqview, and several graphical add-ons for PCs powered by Unix. Even Apple has hinted that it intends to move its graphics software to non-Macintosh PCs. With all those choices and with so many companies trying to catch Microsoft in Windows applications, the tide of competition will probably prove at least as formidable as Microsoft itself.

Clearly, Microsoft's aggressive business practices have set off bad vibes. But the FTC will be hard-pressed to turn up any real wrongdoing. One of the toughest tasks in antitrust law--as shown in the 13-year-long case against IBM--is proving that a company holds monopoly power and abuses it. IBM's hegemony has deteriorated dramatically over the past decade. But credit the forces of competition for that, not government lawyers.

How does Microsoft measure up? Walk into almost any computer store. You'll find Microsoft products competitively priced with a variety of rival software. That fact alone should give the feds pause in considering action that may weaken the strongest player in one of the strongest U. S. industries.

Evan I. Schwartz

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