Microsoft: What's Really At Stake

Is Microsoft's growing power in the marketplace inhibiting innovation? Should the government step in to ensure competition in the information economy? These are the fundamental issues in Microsoft's current contretemps with the Justice Dept. Competition and innovation are the driving forces behind America's remarkable surge in growth, profits, and jobs. They play to the core strengths of American society. Monopoly practices that inhibit competition and innovation do dire harm and should be curbed. Period.

But is William H. Gates III a John D. Rockefeller incarnate, intent on building Microsoft into a software trust as monopolistic as Standard Oil? Clearly not, at least in traditional economic terms. The robber barons of the late 19th century built their trusts in oil, steel, and railroads to raise prices. The concern over Microsoft's behavior is not about monopoly pricing. Today, global pricing power is rare and prices for high-tech products tend to fall. In the current debate about Microsoft's power in the Information Age, innovation, not price, is the principal issue.

There is little doubt that Microsoft has leveraged the near-monopoly of its Windows operating system to move into an ever-growing number of markets. It has plans to be big in virtually every business where software matters. It wants to become a powerhouse in consumer electronics, electronic commerce, and corporate computing. It is elbowing Netscape Communications aside to become a prime gateway to the Internet. It is piling into travel services, investment advice, WebTV, cable, E-mail, and auto sales.

Therein lies the rub. The government's case against Microsoft is based on the notion that in high technology, a company that establishes itself as a dominant standard in one critical market can leverage it into other markets to the disadvantage of competing technologies and products that may be superior. The result is a stifling of innovation. That's what Judge Thomas P. Jackson said when he ordered Microsoft to stop requiring computer makers to bundle its Internet Explorer browser with its Windows 95 operating system.

Microsoft is saying "nuts" to this growing opposition. Bill Gates insists there's plenty of competition. Sun Microsystem's Java directly threatens Windows. Netscape, for all its problems, still has the most popular browser. Then there is IBM, well ahead in The Next Big Thing in software--voice recognition--and way ahead, with its Lotus Notes, in sharing information across big corporate networks.

Who's right? It's a tough call. When are competitors' accusations of stifling innovation only sour grapes? Despite the disdain Microsoft has so far shown toward the government in its dispute, Washington has a legitimate role to play in keeping the playing field level. But the government has no business punishing a successful company just because it is successful, nor should it muck about in free markets when they are free. The current debate about monopoly power in the Information Age must be addressed seriously. The stakes are too high for grandstanding or emotion. If innovation declines, it threatens the entire entrepreneurial culture of America.

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