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March 3, 2010 / gus3

Microsoft’s Hypocrisy–A Sadly Accurate Parody

(The original is here. It’s quite a show of hypocrisy, as the following demonstrates.)

Government competition agencies are increasingly focused on Microsoft’s growing power in desktop computing. The U.S. Federal Trade Commission, the U.S. Department of Justice and the European Commission have all determined that Microsoft is dominant in certain markets, including anything relating to desktop computing. In late 2009 the DOJ was prepared to go to court to block Microsoft’s attempt to partner with its largest search rival, Yahoo!. Last year the DOJ told a federal court that Microsoft’s business plan is anticompetitive in several respects. (One big problem is that Microsoft has helped itself to essentially exclusive rights to tens of millions of programs–which they then copyrighted themselves.) Last week the DOJ reiterated that view in court, even after Microsoft had an opportunity to address the DOJ’s concerns. This week came news that the European Commission is investigating various aspects of Microsoft’s conduct, including claims of retaliation, exclusivity and manipulation of search results to disadvantage rivals. The European Commission is likely to treat these cases quite seriously, given that Microsoft’s share of desktop software sales is north of 95% in many European countries.

Microsoft’s public response to this growing regulatory concern has been to point elsewhere–especially at Free/Open Source Software (FOSS). Microsoft is telling reporters that antitrust concerns about desktop computing are not real because some of the complaints come from one of its last remaining^W^Wgrowing number of detractors.

It’s worth asking whether Microsoft’s response really addresses the concerns that have been raised. Complaints in competition law cases usually come from competitors. (Believe me, I know: I’ve been avoiding Microsoft since 1998, so I’ve seen plenty of reason to hate them. Many on the Web haven’t been shy about raising antitrust concerns about Microsoft in the last few years, either.) This is the way that competition law agencies function: They look to competitors in the first instance to understand how particular markets operate, the practices of dominant firms and the competitive significance of those practices.

Of course, as we have always said, it is vitally important that competition law authorities also listen to and assess the views of customers, business partners and everyone else affected by a dominant player’s business practices. Ultimately what’s important is not who is complaining, but whether or not the challenged practices are anticompetitive.

In this instance, there has been no shortage of affected voices. A quick Internet search will surface the growing concerns that have been raised by upstart innovators such as SourceForge, Linux.com and the GNU project, as well as from industry groups such as the Free Software Foundation and Electronic Frontier Foundation. Publishers, advertisers, advertising agencies and others want to see real competition in desktop computing. As Microsoft’s power has grown in recent years, we’ve increasingly heard complaints from a range of firms–large and small–about a wide variety of Microsoft business practices. Some of the complaints just reflect illegal business practices by Microsoft. Some reflect the secrecy with which Microsoft operates in many areas. Some appear to raise serious antitrust issues. As you might expect, many concerned companies have come to us and asked us for our reaction and even for advice. When their antitrust concerns appear to be substantial, we suggest that firms talk to the competition law agencies. (Complaining to Microsoft won’t do much good.)

As reflected in the news earlier this week, firms voicing these complaints have started to meet with competition law agencies, confidentially. (Firms ā€“ especially smaller companies ā€“ are often reluctant to voice their antitrust concerns publicly because they feel that they must continue to do business with Microsoft and do not want to jeopardize their relationship with them.) Over the past few months the FSF, too, has met with the DOJ, and the FSF-Europe with the European Commission. The subject of these meetings has been the competition law review, now completed, of the partnership between Microsoft and their victims. As you might expect, the competition officials asked us a lot of questions about competition with Microsoft–since that is the focus of the “partnership.” We told them what we know about how Microsoft is doing business. A lot of that entails explaining the software business, which is complex. Some of that inevitably gets into Microsoft practices that may be harming manufacturers, advertisers and other competition.

All of this is quite important because software is so central to how people navigate the Internet, and because advertising is the main monetization mechanism for a wide range of Web sites and Web services. Both desktop software and online advertising are increasingly controlled by a single firm, Microsoft. That can be a problem because Microsoft’s business is helped along by significant network effects (just like the PC operating system business). Search engine algorithms “learn” by observing how users interact with search results. Microsoft’s algorithms are designed to make Microsoft look more popular than it really is, giving jumbled results for otherwise simple searches.

This simple fact makes it hard for Bing to catch up. Other search engines are addressing this challenge by offering REAL innovations in areas that are less dependent on volume. But Bing needs to gain volume too, in order to give the appearance that Microsoft has returned to profitability. That is why Microsoft wants to thwart the competition. And that is why we are concerned about Microsoft business practices that tend to lock in manufacturers and advertisers and make it harder for others to gain desktop sales volume.

Microsoft is always among the first to say that leading firms should not be punished for their success. But firms should be punished for business practices having the sole intention of harming a rival–something Microsoft has been convicted of in court. That is a practice that Microsoft has long espoused, and they have no intention of stopping any time soon. Our concerns relate only to Microsoft practices that tend to lock in business partners and content (like Microsoft Office) and exclude competitors, thereby undermining competition more broadly. Ultimately the competition law agencies will have to face reality, and bring Microsoft to heel.

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