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What to do about Microsoft?

Justice Department must avoid making a bad deal

By Theo Gantos

The Justice Department finally is standing up to Big Bill. So what now? How will it all end?

Here's how I predict it will play out, based on past history. Microsoft (and Gates) will be publicly outraged and defiant until the very last minute, when they suddenly will reverse their position and offer a deal, as though they intended to cooperate all along. The question is: Will the Justice Department be prepared for this sudden shift, or will they again be caught by surprise and agree to a bad deal?

The intent of any antitrust action must be to stimulate competition and free this market, which is ever more vital to our gross national product. The following is what a good deal might look like.

What should we do about Microsoft to increase competition in the market? First, the Microsoft Applications Group should be a separate company from Microsoft the operating system company (Windows 95, NT, NT server, Windows CE). That would move applications like Office, Exchange, Outlook, etc. away from the operating systems programmers. It's far too tempting to pass secret internal techniques, tricks and undocumented system calls, which improve performance to the group down the hall. Separating these gives other companies making competing programs a fair chance. Microsoft should get no more access to the Microsoft OS engineers than any other application software company.

Second, Microsoft should be prevented whenever possible from "pre-announcing" products before introduction. This practice hurts competition by cutting off demand while customers wait for Microsoft's product. Often the competing products have more features and are more stable but they are hurt or even crippled by this pre-announcing tactic.

IBM did this against several competitors in the '60s and '70s until it was forced (by the Justice Department) to stop. Several times, IBM pre-announced products that were never introduced but killed off the competition anyway. They were dubbed "killer machines" because they were intended to kill the market for the competition until IBM could enter it.

Microsoft should make their OS available on other platforms like Alpha and PowerPC as well as Intel without charging unreasonable fees to support these platforms. Anything else smells of collusion with Intel. (Do we have a cartel forming here or what?)

Microsoft must be prevented from using strongarm tactics reported by several PC vendors and customers to maintain and increase market share. In several cases, Microsoft reportedly threatened to force a review of software licenses at consulting firms and educational institutions unless competing platforms were converted to Windows NT. Since such a review may be potentially costly and time-consuming to an organization, this amounts to nothing less than extortion.

Microsoft therefore should be required to use a non-profit independent organization (such as the SPA or Business Software Alliance) to verify licensing compliance. Licensing bullying should not be a part of their sales strategy.

Microsoft should be unable to force companies to "bundle" applications like Microsoft Network, Internet Explorer, or Office with their systems as a condition of preferential OS licensing. Compaq in particular allegedly was threatened with having their distributor license not renewed unless they allowed several Microsoft icons on the desktop. They had no choice but to agree. Loss of their distributor license would put them out of business.

The question of OS licensing should be forever separated from the applications and again would be if the MS Application group were spun off.

Microsoft must be prevented from gaining significant control of other related businesses to the extent that this might further limit competition.

An example might be an unfair favorable representation and increased exposure of Microsoft products on MSNBC. This is clearly anti-competitive.

The practice of "dumping" or artificially pricing products below cost to stifle competition and control markets should be barred. "Giveaways" by a powerful company like Microsoft must be scrutinized carefully to determine the intent of the giveaway. Further, if Microsoft is allowed to giveaway or "dump" software, further price changes should be regulated.

Encryption technology must remain separate from the Windows OS and applications as much as possible to prevent Microsoft from controlling encryption standards. Similarly, enabling technologies such as speech, video compression, and others should also remain unbundled from Microsoft products to allow competition.

The intent of these limitations on Microsoft should be to foster innovation and allow the best products to enter and succeed in the market. The computer industry has enjoyed rapid progress since IBM was throttled back in the early '70s, but lately innovation and the rate of progress has slowed significantly. Those of us who have been in the industry since before the entry of the personal computer can see this, but newcomers may have trouble getting enough perspective. The pace of these advances as of late have nearly always followed Microsoft and Intel announcements exclusively.

The technology sector is one sector where the United States predominates worldwide. The risk to the US economy is therefore too great to allow one or two companies to control the pace of innovation. President Theodore Roosevelt took down the Vanderbilt railroad trusts in the early 1900's to eliminate barriers to free trade. We must do the same or watch the United States fall behind in yet another vital strategic market.

What if Microsoft won't agree to these limitations? Then they must be treated the same as the railroad, energy, and telephone monopolies of the early part of this century. They must be recognized as a monopoly and regulated by the government. The threat of this should be enough to get Bill Gates to stop and think.

I personally don't feel that regulation would be good for the market or the industry. The government is far too slow to react to the pace of technology. Witness the blunders made in Telecommunications regulations and the Patent office alone as examples. But truly something must be done or the technology market worldwide will BE two companies, Intel and Microsoft.

Theo Gantos is president of TEKA, a technology consulting firm. Contact him: