Columns

Let’s leave it to the market

Ross Laver April 24 2000
Columns

Let’s leave it to the market

Ross Laver April 24 2000

Let’s leave it to the market

Ross Laver

Let me see if I’ve got this straight. The U.S. government says it’s cracking down hard on Microsoft because it wants to encourage innovation in the software business. Bill Gates’ company, the trustbusters charge, has systematically stifled innovation by unfairly trying to drive smaller rivals, notably Netscape Communications Corp., out of business. Rein in Microsoft, the theory goes, and the result will be more innovation and, ultimately, a stronger and more vibrant economy.

Oops—guess somebody forgot to tell the stock market. Since Judge Thomas Penfield Jackson’s landmark ruling against Microsoft on April 3, the tech-heavy Nasdaq market has lost more than a quarter of its value, wiping out hundreds of billions of dollars in wealth.

And as investors are painfully aware, it’s not just Microsoft that is getting beaten up.

Shares in Sun Microsystems, Oracle, Red Hat and Corel have also taken a tumble— not to mention America Online, which now owns Netscape. Yet those are all companies that we’re told stand to benefit if Microsoft is broken up or otherwise restrained. If Jackson’s ruling really did strike a blow for innovation, you’d think investors in those companies would be popping champagne corks. Instead, many of them have seized on the court’s decision as a reason to sell.

It’s possible those investors are mistaken. Or maybe, just maybe, the market is trying to tell us something. To wit: government interference in the software business is bad not just for Microsoft, but for the entire tech sector. Want innovation? No problem—just leave the market alone.

I’m not for one moment suggesting that Microsoft’s behaviour over the past few years has been beyond reproach, or that its products are flawless. And, yes, there’s probably a lot of truth to the things critics say about Bill Gates—that he’s a rapacious, cold-hearted megalomaniac whose dream is to somehow stamp Microsoft’s “flying windows” logo on everything from your television to your toothbrush.

But so what? None of those things is illegal. It’s not even against the law for big companies to play rough with smaller companies, as demonstrated by a recent U.S. Court of Appeals ruling in a case involving chip giant Intel Corp. and Intergraph Corp., an Alabama-based maker of graphics workstations. In 1998, an Alabama district court judge awarded Intergraph an injunction against Intel on the grounds that the larger company had arbitrarily cut off supplies of chips and technical information at crucial times. But last Novem-

ber, the appeals court tossed out the lower court’s decision, saying that while Intel may be a tough competitor, that doesn’t necessarily mean it did anything wrong. U.S. law, the court concluded, “does not convert all harsh commercial actions into antitrust violations.”

In the Microsoft case, the judgment turned on two key findings: that the company wields monopoly power in the market for computer operating systems, and that it has exercised that power to the detriment of consumers. But are those things true? Yes, Windows runs 90 per cent of the world’s PCs, but the reason is that in the early days of desktop computing, no other company (except Apple Computer) worked so hard to bring computing to the masses. IBM was pushing OS2 and several other companies offered variants of Unix, but all were targeting the more sophisticated (hence smaller) business market. As for Apple, its Macintosh operating system was, I and arguably remains, superior to Windows I in most respects. But it wasn’t Microsoft that I thwarted the Mac’s adoption as the world’s 5 computing standard. It was Apple itself, § by refusing to license Macintosh to other computer makers. Sounds dumb in hindsight, but Apple was a victim of greed: it was reaping fat profits from hardware sales and didn’t want to share that bounty with anyone else.

OK, so what about the harm Microsoft supposedly inflicts on consumers? In his ruling, Jackson said the company has gouged customers by charging more for Windows than it should. Yet at the same time the court found that Microsoft unfairly targeted Netscape by folding its Internet browser software into Windows instead of charging for it separately. Leaving aside the fact that Netscape had for some time been giving its own browser away for free, the bottom line is that, for most people, Microsoft’s pricing strategy was a wash. Perhaps Jackson thinks Web users should be required to pay extra for their browsers. Good luck telling that to consumers.

Which brings us back to innovation. While Microsoft has been raking in profits from Windows, the computer business has been slipping from its grasp. No matter how much Gates tries, he can’t control the Web—it’s too big, too decentralized and it’s based on open standards that are gradually making a consumer’s choice of operating system irrelevant. The government didn’t order this to happen, and no court can change it. It’s innovation, pure and simple, and it’s what happens when the market is left to sort things out for itself.