Coming To Grips With Microsoft

The opening session of the antitrust trial against Microsoft looked more like a street fight than a legal proceeding to determine the fate of the most successful high-tech company in the world. The government called Bill Gates a liar, and Microsoft responded by ridiculing the Justice Dept. lawyers as ignorant "luddites." There may, of course, be reasons for this public vitriol, but it is important to take a moment to understand that few things matter more to the long-term economic health of the U.S. than the correct outcome of this trial. Microsoft is at the very heart of the high-tech economy that is driving growth and prosperity in America. The legitimate issues raised by this power must be resolved in ways that do not destroy the country's entrepreneurial culture.

Indeed, the initial battle appears to be over the nature of that high-tech culture. The government is painting a picture of Microsoft as a monopolistic bully that leverages its dominance of computer operating systems into control of other digital markets. Justice argues that Microsoft kills competition, hurts innovation, and is a threat to the free market.

Huh? That's Microsoft's reply. Who are you talking about? Microsoft says its abrasive, in-your-face, cutthroat behavior is just Silicon Valley culture. Everyone kicks butt, works 20-hour days, and tears the eyeballs out of the competition. Microsoft accuses Washington of putting Silicon Valley's way of life on trial. Its defense, the company says, is the similar behavior of other hot-shot high-tech companies such as Oracle. On the Internet, all the players are going 95 miles per hour.

But not everyone is big enough to own the road. Even if Microsoft is doing nothing more than other high-tech companies, power changes everything. Microsoft does, after all, have more than a 90% market share in operating systems, the heart of personal computers. Monopoly is the issue, not culture and the behavior that goes with it.

But that is what Microsoft refuses to accept, and why this antitrust case has elements of a classic tragedy. Our guess is that Bill Gates, who built an empire from scratch, can't conceive of being punished for his success, and neither can the thousands of people working for him. They undoubtedly see themselves as quintessential capitalists.

So did John D. Rockefeller and the people who ran Standard Oil in the antitrust trial that opened this century. After all, Rockefeller standardized a chaotic industry, stabilized prices, and delivered an essential good to the masses. The parallel with Gates and Microsoft is telling. And so, perhaps, might be the irony associated with the government's victory over Standard Oil. Even as the government was breaking up the energy giant in 1911, the market was already moving to take away its monopoly. Had there been no legal action, Standard Oil would have lost its dominance anyway.

The high-tech market is moving far faster than the oil market of that era. In just one year's time, what appeared to be Microsoft's dominance in a whole array of niches and markets is already eroding. Washington complained then that Microsoft controlled the first screen that popped up when people opened their personal computers from Dell, Compaq, and other manufacturers. It could channel consumers to Net sites and companies owned by and allied to the software giant.

Not anymore. Today, the same computer companies are linking directly to portals on the Net in alliance with Yahoo!, Excite, and others, circumventing Microsoft. In addition, the cable industry, led by John C. Malone, is boosting rival Sun Microsystems' Java software. And Microsoft's direct ventures into electronic commerce are having a mixed reception from consumers. It may be that competitors are more emboldened by the government's pressure on Microsoft. Even so, technology and markets are moving at lightning speed.

It's too soon to tell if the last major antitrust trial of the century will end like the first--or whether it should. How best to promote competition and innovation in a fast-changing high-tech economy is a question with no simple answer. Corporate behavior that limits competition and choice has to be checked. But in the end, Microsoft's fate will largely be determined by the markets.

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