On Oct. 20, 1997, the Justice Department's antitrust lawyers made the first move in their latest war with Microsoft. Monday, almost exactly a year to the day later, a full-blown Microsoft antitrust trial begins.
A year is forever in the software industry. While the weeks leading up to the Microsoft trial have been occupied with a vast spin war in the press between lawyers for both sides -- as leaked e-mails and memos and depositions fill out news columns in a descending spiral of minutiae -- it's been easy to miss just how seriously the big picture has changed since this antitrust battle began.
Trial coverage will assault us all beginning Monday -- including a public airing of Bill Gates' videotaped August deposition, in which he was reportedly "evasive and nonresponsive." Here are several thoughts to keep in mind amid the onrush of trial coverage.
1) The browser war is over. The initial complaint against Microsoft -- that it had unfairly leveraged its control of the Windows operating system to promote its Internet Explorer browser over Netscape's competing browser -- is now largely moot, less because of the court decision earlier this year that essentially threw out the Justice Department's first, narrow complaint against Microsoft than because of what military and diplomatic types like to call "facts on the ground."
While the lawyers have fought their war of attrition, Microsoft has gradually gained ground on Netscape, and recently passed a critical milestone: A Sept. 29 report from International Data Corporation declared that Microsoft's browser surpassed Netscape's market share this past summer (Netscape is down to 41 percent, and IE -- if you include the IE-based America Online browser -- now has 43 percent). Given this trend, and Microsoft's demonstrated ability of "cutting off the air supply" of its competitors, it's difficult to imagine how Netscape could ever turn the tide in its favor once more -- notwithstanding recent reports of continued Netscape strength in office use.
2) Not everything is going Microsoft's way. Windows NT, the "enterprise"-grade operating system that's likely to be the locus for the next round of Microsoft antitrust scrutiny, is stuck in a development rut. Microsoft is experiencing major delays in bringing out a new 5.0 version of NT -- the company hasn't even set a release date, and analysts now doubt it will ship before the millennium. This gives competitors like Novell and Sun a rare opening.
Apple, which a year ago was on the ropes, has rebounded. Apple hardly threatens Microsoft's monopoly, and in fact its new vigor provides Microsoft with some convenient air cover -- its survival proves that there's still some flicker of competition in the personal computer marketplace. Still, any signs of Apple life are sure to hearten Microsoft's opponents.
Finally, though Microsoft keeps retooling its efforts to build online content and to devise a "portal" site to compete with Yahoo, Netscape's Netcenter and the rest of this crowded field, so far the company has been unable to dominate the Web the way it has dominated the desktop.
3) It's the money, stupid. Still, is Microsoft quaking in its
boots? Hardly. In fact, a Gates memo leaked to the New York Times this week suggests that complacency, not fear, is
the order of the day in Redmond.
The new Gates memo stands as the latest and most hilarious revelation in
a long line of public-relations gaffes -- from last winter's "you
can't remove our browser without crippling Windows" fiasco to the abortive "stealth blitz" of commissioned letters to the editor, op-ed pieces and
other "spontaneous testimonials" that the Los Angeles Times revealed.
Throughout this battle Microsoft has built its defense around a claim
that the software behemoth, with all its billions of dollars and
impregnable market share, is actually a highly vulnerable and desperately
insecure operation that must constantly look over its shoulder lest it lose
its primacy. Certainly, the software industry is volatile, and if
Microsoft seriously screws up over the next decade or two it could suffer, say, IBM's
fate -- becoming a merely huge and important technology company rather
than an overwhelmingly dominant one. But if there were any doubts that the
vision of Microsoft as a terrified weakling is and always was a joke,
Gates' memo clears them up.
In the document (which the Times apparently agreed not to quote directly
but only to paraphrase), Gates "boasts that Microsoft's position in the
computer industry is stronger than it has ever been" and contends that "one
of the company's biggest challenges will be finding ways to continue
motivating employees who in many cases are so wealthy from their Microsoft
stock that they no longer have an economic need to work."
So we now have proof from inside Microsoft of something we could
hitherto only guess: that Microsoft's long-standing claims of vulnerability
are intended less for the public, which couldn't possibly take them
seriously, than for internal consumption -- as a prod to keep millionaire
engineers from slacking. You can just hear Gates crack the whip: "Work
harder! Or Netscape and Sun will eat up your stock options!"
4) Court may be the wrong place to fight Microsoft. Even those
who believe that Microsoft has a monopoly and sometimes wields it in unfair
ways -- and you can count me in this group -- need to ask themselves
whether the courts will ever be able to deliver an effective remedy. The
technology industry has always favored a "keep the government out of our
business" approach, and even Microsoft's direst enemies feel a
little queasy about turning to Washington for relief. But the real
problem with the courts is that they move too slowly, and anyone with a
wallet as big as Microsoft's can work the system to its own benefit. If
it loses in district court, there's always the appellate court, and beyond
that, the Supreme Court. By the time the process is done, a couple of
generations of processor chips and operating systems have come and gone,
and Microsoft will have chewed up and spat out whichever market sector the
lawsuit was about in the first place.
5) If Microsoft is the Evil Empire, look for the Force. One
problem with every challenge to Microsoft, past and present, is that each
company has set out to beat Microsoft at its own game and supplant Gates'
proprietary monopoly with a new one owned by somebody else. One reason few
people are shedding big tears for Netscape is that Netscape hoped to
leverage its browser to gain a competitive advantage just as Microsoft was
leveraging its operating system. This is still Netscape's business plan --
only now, instead of using the browser to try to take control of the
desktop, Netscape plans to use the browser to promote its Netcenter
A frontal assault on Microsoft is always going to be a losing battle.
But there are other approaches. Today, the one worth paying attention to
arises from the Linux camp of free software/open source code advocates. They're the first
Microsoft challengers who don't want to become "the next
Microsoft"-- and that gives them both a leg up in popular support and a
If Linux -- an operating system collectively developed by idealistic
engineers and widely available for free or close to it -- is able to keep
making itself easier to use and grabbing market share, the net effect will
be to reduce the overall value of Microsoft's operating-system monopoly.
The more people turn to an open-source OS that can be distributed
dirt-cheap, the less Microsoft will be able to charge for Windows. If Linux
becomes a serious contender in the mass market, Microsoft will have to
think about giving away Windows for free. And while its control over the
Windows standard would remain a hugely powerful asset, Microsoft's loss of
billions of dollars of OS profits would go far toward leveling the competitive
playing field in the software industry.
Even more than its aggressive tactics, it's the company's huge war chest
that enables it to keep trouncing the competition: Whoever Microsoft can't
beat, it can always buy. Antitrust law seems unable to solve this problem,
and traditional competitors just want that money for themselves. Linux is
fundamentally different. As Bob Young -- CEO of Red Hat Software, the
leading distributor of commercial packages of Linux "installations" -- explained it recently to the New York Times: "My job is not to compete
with Microsoft. It's to lower the value of the operating system market.
Microsoft makes $5 billion in operating system sales. If I get that market,
I automatically make it a $500 million market."
Linux remains very much a long shot in this game, and Microsoft
routinely dismisses it as a threat. But if I were Bill Gates, I'd be less
worried about the Feds than the Red Hats of the world: It's Bob Young's
words that would be keeping me awake at night.