Data Bases • Custom Term Papers • Free Term Papers • Free Research Papers • Free Essays • Free Book Reports • Plagiarism? Links • Top 100 Term Paper Sites • Top 25 Essay Sites • Top 50 Essay Sites • Search 97,000 Papers @ DirectEssays.com • Search 101,000 Papers @ ExampleEssays.com • Search 90,000 Papers @ MegaEssays.com Free Essays • Term Paper Sites • Chuck III's Free Essays • Free College Essays • TermPaperSites.com • Free Essays • My Term Papers • Essay World • Planet Papers	Search Lots of Essays Back to Subjects - Business Microsoft Case Microsoft Case The government has been looking into Microsoft since 1990, when the Federal Trade Commission first started examining charges of monopolistic behavior. In 1995, Microsoft and the U.S. Justice Department reached a settlement that required the company to change a variety of business practices, including key aspects of its licensing agreements with personal computer makers (2). Microsoft has grown into an enormous and powerful corporation by a combination of aggressive business practices and having written operating systems (DOS and Windows) for personal computers. From operating systems it branched out into other software which has, along with the operating system, become something of an industry standard. These software products include, but are not limited to, the Microsoft Office Suite and Internet Explorer browser. One of the leading questions is if this is a “good” state of affairs: should one company so dominate computing and the Internet when we rely so heavily upon it? The most recent lawsuit involves the Justice Department and 20 state attorneys general. They believe that Microsoft has used its monopoly in operating system software to protect its dominance and eliminate competitors. The government says that in the long run, consumers will be harmed, because there will be less competition and fewer choices. More specifically, the government contends that Microsoft has engaged in actions to preserve its Windows monopoly that violate antitrust laws. The government also maintains that the company has used the power of its Windows monopoly to attempt to monopolize the market for Internet browsing software. In addition, government lawyers allege that the company has committed other anti-competitive acts (2). In addition to the DOJ and the 20 states, several other players are part of the government team against Microsoft: Netscape/AOL, Sun Microsystems, Linux and the Open Source movement, and the Consumer Project on Technology. The keys concerns are illegal tying arrangements with Windows and Internet Explorer; illegal market division between Microsoft and Netscape; and predatory conduct/pricing between Microsoft and Netscape, MS Office and Word Perfect Office and Lotus Office Suite (3). Microsoft contends that it is simply trying to innovate its products. The company contends that its actions are legal and says that there's no groundswell of consumer indignation over the practices that the government is targeting (3). The Justice Department and the states contend that Microsoft is violating the Sherman Antitrust Act, which was passed by Congress in 1890. The act has two sections. Section I prohibits certain types of agreements that restrict the flow of trade. Section II prohibits the misuse of monopoly power, namely anti-competitive actions that seek to maintain that monopoly power and actions that attempt to use that monopoly power to dominate another market (2). The government, for example, contends that some of Microsoft's business agreements with Internet service providers and Internet content providers, which restrict their ability to promote non-Microsoft browsers, violate Section 1 of the Sherman Act. The government also alleges that Microsoft has violated Section 2 by engaging in anti-competitive actions to preserve its Windows monopoly and to extend that monopoly into the browser market (2). No matter who wins, the case almost certainly will be appealed, probably all the way to the Supreme Court. If the government wins at the trial court, it has already specified that it wants Microsoft to cancel contracts deemed exclusionary. In addition, the government wants Microsoft either to strip out its Internet browsing technology from Windows 98 or to include a rival browser made by Netscape Communications Corp. The government also indicated in October that, should it win, it would seek an additional hearing where it would suggest additional sanctions that should be placed on Microsoft. Ultimately, though, it is up to the judge to decide what penalties to levy upon Microsoft should he rule in the government's favor (2). Practically speaking, if Microsoft loses, industry analysts expect the company to place Netscape's software in Windows 98 because removing Microsoft's Internet Explorer software would be extremely difficult. It is impossible, however, to determine the consumer impact of other "remedies" the government may suggest (1). If Microsoft wins: For one, Microsoft's Windows 98 software would not be affected. But even if Microsoft wins, it still may not spell the end of the company's legal fight with the government. The Justice Department continues to investigate some of the company's other business practices and products, including Windows NT, its operating system for corporate networks (1). Judge Jackson already has issued factual findings, arguing that Microsoft has a monopoly that has harmed consumers, stifled innovation and stymied competition. He has not yet ruled on whether the company broke antitrust law. Although Jackson clearly called Microsoft a monopoly, his findings carry no force of law. Indeed, it’s not against the law to hold a monopoly, nor is it illegal for a monopoly to aggressively compete in the marketplace. What the government’s filing does is seek to apply the law to Jackson’s findings, in essence, to slay the “Beast from Redmond,” as the company was called during the trial phase, by trying to convince the judge that the company has, according the facts he found during trial, violated antitrust laws (3). The Sherman Anti-Trust Act, under which Microsoft is being sued, does not outlaw having a monopoly but rather using anticompetitive means to obtain or preserve a monopoly. So complaints against Microsoft allege that the company uses illegal measures to extend and protect its market power. Lack of effective competition might make such measures relatively easier, perhaps to the point that otherwise-legitimate competitive tactics might become anticompetitive. In a way, Microsoft has argued just that when they point to the quality and value of Windows, they're saying it's the best out there, and that's why it has the market share it does (4). However, certain contractual terms required by Microsoft in its dealings with Original Equipment Manufacturers (OEMs) appear decidedly anticompetitive, seemingly intended solely or primarily to extend Microsoft's monopoly in desktop operating systems to the new market for Web browsers. There was competition in Web browsers, and Microsoft's actions preceded a notable decrease in the competition. It's hard to know how to authoritatively explain and surmise Netscape's ultimate loss in momentum -- how much to Microsoft's allegedly-anticompetitive actions and how much to Netscape's failure to execute. But whatever Netscape's faults, it seems that Judge Jackson had evidence from which to find that Microsoft's contractual relations with OEMs crossed the line from "hardball" to "anticompetitive" (4). Three main facts indicate that Microsoft enjoys monopoly power. First Microsoft's share of Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows (1). Judge Jackson might rule that Microsoft harmed Netscape Communications Corp. and other competitors by illegally "tying" its own Internet Explorer browser into the purchase of its Windows operating system. The government argues that Microsoft plotted to kill Netscape by "bolting" Explorer onto Windows. Government lawyer David Boies said this nuts-and-bolts approach to computer software added no value for customers, but gave Explorer an unfair competitive advantage. In a few weeks, if a settlement is not reached, Jackson will issue his final ruling. He'll almost certainly find that Microsoft created an illegal monopoly, that it illegally tied Explorer and Windows, and that, as a result, the company should suffer the most severe sanctions, perhaps even a breakup. Another area of concern for the Justice Department is in productivity software. Microsoft Office has locked up almost all of the desktop suite market, Publisher is a strong competitor at home and Microsoft's other applications lead in most categories. Why? Well, despite their protests, it's obvious to even the casual observer that the application group gets inside information on upcoming operating system (OS) features and functions from the OS group. It happens like clockwork. Microsoft releases a new OS and shortly thereafter updates its applications with key features that take advantage of new OS functionality. Other vendors, forced to play catch-up, can take six to 12 months longer to capitalize on those new features in their applications. Without those new features, their applications lose market share and development resources and begin to lag further and further behind. Eventually they become marginalized (1). For proof, just look at Lotus and Corel in the suite space, Borland in the tools market, or Sybase in the database arena. I imagine Judge Posner sees his role as facilitating a settlement. How? If I were he, I'd try to get each side to recognize the weaker elements of its arguments and give ground accordingly. There's benefit to each side from settling and moving on -- yet, in the absence of a mediator, like Posner, it seems quite possible that no agreement could be reached. In particular, the many separate state attorneys general are said to have splintered somewhat from the Department of Justice, reportedly demanding relatively more drastic remedies, and Posner therefore likely hopes to remind the plaintiffs of their common interest so that they're more likely to join together and settle. Because the mediation is voluntary, any settlement solutions offered by Posner aren’t binding. Posner is considered part of the “Chicago school” of antitrust theory along with Judge Robert Bork, and has argued that predatory pricing — a monopolist’s driving prices down to kill a competitor — almost never exists. The school of thought holds that the market will adjust itself and competition will emerge automatically. Posner has said that too much of law — and especially antitrust law — is decided by arguing over legal theories rather than empirical facts (4). One of the strongest legal arguments the Department of Justice has in its case is that Microsoft threatened to pull Compaq Computer’s Windows license if the computer maker replaced the Internet Explorer icon with Netscape’s on the PC desktop. Microsoft has already admitted making the threat, but they also said they didn’t mean it. They got Netscape CEO Jim Barksdale to concede that he had no evidence Microsoft ever punished a computer seller for displaying the Netscape Navigator icon, rather than Internet Explorer. But now the threat is dead. It is very likely that this behavior change will be the only long-term effect on Microsoft of this anti-trust trial. But it is a real effect and a real improvement. The government believes Microsoft's efforts to monopolize the market for Internet browsers could have an wide-ranging impact in the networked world. If most people accessed the Internet with Microsoft software, some critics of the company suggest that it could control commerce and content on the global computer network. The stakes, they contend, are much higher now than they were in the markets for word processing or spreadsheet software (2). Microsoft contends that it’s competitors lost market share because of incompetence, and that those same companies were trying to entrap Microsoft all along. For Microsoft, any market share significantly less than 100 percent is cause for concern. You can’t be a good monopolist unless you have a good monopoly. The single most important job of the CEO is increasing per-share earnings. Admittedly, this is done for the most part by solving customer problems, delivering new products, and competitors, but those are just tools for accomplishing the true goal. The people who really count to the CEO aren’t customers or employees, but shareholders. There are only a few ways to really increase per-share earnings and Microsoft does them all. The simplest method is to buy back your own shares, reducing the size of the pool of shares against which profits are accounted. The other techniques are related to customers: You can get new customers or find ways to extract more money from existing customers. One possible motivation for Microsoft to reach a settlement is the danger of private lawsuits filed by class-action lawyers. A U.S. District Court judgment against the company could add significant momentum to those cases (110 lawsuits in 28 states) under federal antitrust law, which permits that judgment to be used in the follow-on cases (3). Antitrust is not there to protect competitors but to protect consumers. If you can’t show that consumers were hurt, the you can’t prove antitrust. Sure, Microsoft is a bully, but that’s not illegal. Sure, Microsoft wanted to kill Netscape and to corrupt Sun Microsystems’ Java language, but does either act hurt consumers? The government’s insistence that Microsoft tied its Internet Explorer browser to the Windows operating system is a crucial aspect of their case. An earlier decision by a federal appeals court “tentatively” said that Microsoft was allowed to tie the products together, unless there was other compelling evidence to show that such an action harmed consumers in some way. Microsoft has held to that appeals court decision at every step of the trial, insisting that the decision was the right one, claiming that a court has no business trying to second-guess the technological decisions of a high-tech company (3). No decisions have been made, but two dramatic proposals are being considered: Breaking the software giant into two or three separate companies, and forcing it to license its Windows code. Or, the Justice Department may propose some less drastic remedies. Another potential fix could be to order Microsoft to end predatory business practices defined by the government--such as its Internet service provider contracts, which many view as exclusionary. However, that was the intent of the 1995 consent decree Microsoft signed with the Justice Department and is viewed as largely ineffective. A recent survey found 63 percent opposed a Microsoft breakup; 67 percent opposed forcing Microsoft to open up Windows to licensing; and 72 percent opposed the forced inclusion of competing companies' software in Windows. The survey was done by the Washington, D.C., firm Mason-Dixon Political/Media Research. "People like standards, and we've chosen Windows to be our standard," said Ted Johnson, executive vice president of Visio. "It's a stable platform on which we all rely. It is not really a surprise to me that UNIX never really took off" (2). Negative publicity hurts, and could erode sales or make it harder for the company to do business deals with partners. Some industry analysts also fear that Microsoft management could get so distracted by the lawsuit that they might make poor business decisions. When applying the Utilitarianism theory (the greatest good for the greatest number of people), breaking up Microsoft into separate companies is not good for the consumer. As Robert Cringely states, “the popular notion of breaking Microsoft into pieces would be a bad idea, turning a great white shark into a school of piranhas. You see, Microsoft business units are locked in their own competition for market share and internal rates of return. They each other. So unleashing half a dozen new enterprises – each with the market capitalization of Sears – might be even worse than what we have now” (1). Following the Utilitarianism theory again, forcing Microsoft to abandon predatory business practices would be beneficial to all. Microsoft should establish a fair and consistent pricing model for all products. This model should insure all OEM’s get the same price and terms. Upgrades should cost less than the original product. Product price increases should be governed by investment and inflation. Establish a fair and consistent product license agreement that follows established industry norms. Another possibility to bring to greatest good to the greatest number of people would be for Microsoft to establish clear product maintenance and support rules. All products would have a predetermined warranty period of 18 months to three years. Microsoft would fix all product defects and provide those fixes free of charge during the warranty period. Consumer protection provisions would be improved to provide reasonable product support assistance. If Microsoft wins, there will be little impact on Microsoft, but the Justice Department may be more timid about filing antitrust cases involving computer technology. If the DOJ and states win some or all of their points, possible sanctions range from forcing Microsoft to distribute Netscape with Windows, to allowing companies other than Microsoft to sell Windows, to a breakup of the company. Whether or not Microsoft has engaged in anti-competitive behavior in the past, this trial will go a long way toward making Microsoft act differently in the future. To protect itself, the company is giving up one of its most powerful weapons. Intimidation. If Microsoft loses, it could mean a reinterpretation of the traditional antitrust law. Maybe an extension of the law or a change to it. Microsoft’s competitors might not be ready for new legal precedents that bring the bully under control. Why? Because the tactics that Microsoft is getting hammered for are common practice in the PC industry. Bare knuckles is what it’s all about, and has been for a long, long time. Before this assignment I had previously read other books about the history of the Silicon Valley, Netscape, Apple, and the computer industry in general. In every story line the “blood and guts” and “cut throat tactics” theme prevailed. It’s just that in this case, we are being given a more public look inside one company – Microsoft. If we looked inside another company would it be all that different? If Microsoft is a monopolist, then so is Intel and Intuit. If the rules are changed it will certainly be different for everyone. Microsoft is accused of having a monopoly in operating systems, and using that clout to push browser software companies out of business by bundling its browser with the operating system. Judge Jackson has likened Microsoft to the Standard Oil at the turn of the 20th century. Standard Oil controlled 90 percent of the oil market, including its distribution and shipping, and was broken up for pushing competition out of business. However, the products are so different in nature, the industries the companies are competing in so different, and the very facts pertaining to the control of their respective industries are only vaguely comparable. To begin with, the products by their nature are completely different, and this affects the "monopoly" designation. Standard Oil's monopoly was in oil. The nature of that product is that the consumer continually buys it to fuel their car, oil their machines, and so forth. Microsoft's operating system does not need to be continually purchased. As such, Microsoft is faced with the added hurdle of competing against itself -- a person who buys Windows 95 might not choose to upgrade. Microsoft has to present a better operating system in the future in order to get any more business from that customer. The new operating system, therefore, is competing against the old system. Standard Oil never had this problem, as customers who used oil would always be back for more at some point (3). Even worse for Microsoft, operating systems may have hit their zenith as Web-based applications are gaining in popularity. The computer industry and the Internet are changing so rapidly that it's impossible to tell what the future may hold. Microsoft may well be a successful dealer of a soon-obsolete product. Standard Oil surely had no such worry. Microsoft is also being attacked for engaging in exclusionary contracts to prevent competition from other operating systems and browsers against its Windows and Explorer. Standard Oil made deals with railroad companies and pipelines to ensure the transport of its products to prevent competition, but this is far different in two ways. First, there are many computer dealers that offer computers without an operating system or with another operating system installed, like MacOS or Linux, and shipping isn't any real barrier to receiving the goods. Second, there's nothing about Microsoft's Windows operating system that prevents or obstructs consumers from getting a browser other than Explorer. Standard Oil's exclusionary contracts actually prevented people from having choices in whose products they could buy. That is not happening with respect to Microsoft. Any computer publication has the phone numbers and Web addresses for dealers that sell computers without Windows on them, and anyone with Windows can put Netscape on their computer and let Explorer gather cyber dust on the hard drive. What's more, Netscape recently merged with AOL, giving Netscape instant access to 16 million AOL users. Anyone who gets an AOL account will receive a copy of Netscape, much as I did when I got a Juno Web account. Jackson cited Rockefeller's absolute control over his oil. Well, considering Rockefeller was responsible for drilling it from the ground and getting it to where the customers are, it should be his. One would expect it would be the case that any businessperson would own the products they sell. That is a good thing. When Microsoft's lawyers argued that Microsoft has a copyright over its software, and thus had the right to limit its use by others (such as computer dealers), Jackson said that he didn't understand that defense. It seems pretty clear that if Microsoft owns the copyright to its software, then it has the ability to sell that software as it sees fit. Microsoft has a very large share of the operating system market, but Jackson is off base equating Microsoft to Standard Oil. As a consumer, I have a hard time getting upset with Microsoft in general. I like the idea of being able to go to most any computer in this country and immediately be able to use the software. Whether it be Windows or Office products, the look and feel are the same at home or at any workstation. Bibliography: Bibliography 1. Cringely, Robert X. “Hit Me, Slap Me, Make Me Write Bad Code”. I, Cringely – The Pulpit, (November 11, 1999). [http://www.pbs.org/cringely/pulpit/pulpit19991118.html] 2. Chandrasekaran, Rajiv. “U.S. vs Microsoft”. Washington Post, (January, 2000). [http://www.washingtonpost.com/wp-srv/business/longterm/microsoft/basics.htm] 3. Meeks, Brock. “Justice vs Microsoft”. MSNBC, (February 24, 2000). [http://www.msnbc.com/news/343334.asp] 4. Zittrain, Jonathan. “U.S. vs Microsoft: The Expert Opinion”. Chicago Tribune Internet Edition, (February, 2000). [http://chicagotribune.com/tech/news/ws/indx/0,1306,8297-16796,00.html] Word Count: 3592
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