It is acknowledged that Microsoft is the largest manufacturer, as well as, supplier of computer supplies for personal computers across the globe. This means that the global giant is a monopoly in this sector and may have engaged in a series of anti-competitive strategies to make sure that it maintains this status. Microsoft has a track record of having the above anti-competitive conduct which for a very long period of time have generated an anti-competitive effect on the global market. It sells PC operating systems and licenses to people throughout the United States of America USA and the rest of the world delivering copies of its operating system to computer manufacturers referred to as Original Equipment Manufacturers, as well as, retail customers across the globe. However, it is evidenced that its activities have a significant negative effect on the interstate and foreign business activities. Over the past few years, Microsoft has maintained and is still maintaining monopoly power in the market for personal computer operating systems. It is important to note that its operating systems, referred to as Windows are currently operating in more than 75% of Intel based operating systems in the world. The Intel PC is the dominant type of PC in the world. It is clear that more than 85% of new Intel PCs are shipped to different parts of the world with a Windows operating system already pre-installed in them. A majority of the original equipment manufacturers have no commercially alternative to the Windows operating system, thus, they are left with no other option but to distribute their PCs with that operating system. There exist stiff barriers to the entry of new players in the market of PC operating systems. One of the most difficult barrier is the number of applications that have been created to only run on the Windows operating system, as well as, software that must run on an operating system in order to make the operating system of importance to the final user. The final users like the idea that they have all sorts of software at their disposal, however, almost 85% of all the software that exist in the world run on the windows operating system. According to those who have thought about entering the market before, it would be expensive and pointless to create an operating system that supports all the software the Windows operating system supports. Microsoft’s monopoly cannot be threatened directly, however, the only possibility of a threat to is monopoly is a non-frontal attack where software developers create software that may become alternative platforms in which applications can be written, as well as, which can be used in a conjunction with other operating systems and not the Windows operating system alone. The top management at the Microsoft Corporation may have assessed such a possibility and the effect the possibility would have on its already established monopoly, thus, engaged in a number of anti-competitive activities. This particular paper will look at the antitrust and anti-competitive activities Microsoft has engaged in in the last few years and how this has kept competitors out of the market, as well as, denying software and hardware manufacturers an alternative choice of operating system to argue against the regulation of Microsoft as a monopoly (Kovacic, William, and Carl Shapiro pp.43-60).
Microsoft has over the years involved itself in unwarranted conduct which involves tying down its other software products to the windows operating system. Additionally, it has enticed various software companies into signing agreements where they only distribute their products with the Windows operating system. It is also important to note that Microsoft has set up exclusionary agreements that bar other companies from providing services to Microsoft’s competitors or those who show symptoms of being potential competitors. According to its CEO Mt. Bill Gates, Microsoft’s potential competition comes from the internet (Cass, Ronald, and Keith). He noted the competition that exists in the development of internet browsers which are specialized personal computer programs that allow the users to search, locate and manipulate applications and information located on the Worldwide Web. In the year 1995, Bill gates was quoted saying “The new competitor born through the internet is Netscape and this is because their browser is the most dominant of all as it has more than 68% usage share, thus, they can effectively determine which network extensions to use. Netscape is adopting a multi-platform strategy where it is going to move the applications programming interface into the client and this will affect the underlying operating system by commoditizing it”. Since he noted this in the year 1995, it has been established that internet browsers pose a potential threat to Microsoft’s monopoly in the following ways:
The combination of browser technology and the Java programming language
As noted in the above sections, one of the most difficult barriers to the entry of new competitors in the operating system market is by influencing the programming of software that would only runs on the Windows operating system and not in the other operating systems. However, software can be programmed to work in multiple operating systems then there would be a revitalization of competition in the market of operating systems. When the browser technology and the Java programming language are combined, the possibility of having software that run on all operating systems becomes achievable. It is important to note that the Java language itself is designed to allow applications programmed with it to run on different kinds of operating systems and this sets out to eliminate the key barrier that has sustained Microsoft’s monopoly. Microsoft has its own set of browsers, however, due to the fact that it would not like this revolution to take place, it is the non-Microsoft browsers that will work to distribute Java technology to the final users. It is s true to note that the Microsoft Corporation has acknowledged the fact that the widespread use of browsers that are not its own has increased the widespread and use of Java and this is a major threat to its already established monopoly and to cushion itself against this potential threat, it was presented to the Corporation’s CEO Mr. Billy Gate that the corporation adopts a key strategy that would aim to increase its Internet Explorer (IE) share (Yoffie, David, and Michael).
It is acknowledged that Netscape was indeed a program through which various software was being programmed, thus, it posed a major challenge as it aimed at eliminating the major barrier to the entry of competitor operating systems into the market. According to Microsoft’s CEO Mr. Billy Gate, Netscape would commoditize the corporation’s operating system and this would be a fatal blow. To respond to this threat, Microsoft began a serious campaign that aimed to popularize its very own browse the IE. Microsoft was well positioned in this war mainly because of its resources and advanced programming technology and if at all the competition was between the two was done on merit, it would have resulted in positive outcomes such as the development of quality products at cheaper prices, product differentiation and the elimination of the anti-competitive conduct established by Microsoft. However, Microsoft was not willing to compete on merits, however, the corporation engaged and is still engaging in a number of anti-competitive activities that thwart browser competition, as well as, deprive consumers all over the world the choice to choose from alternative browsers. It is for the reasons discussed above that it is said that Microsoft’s conduct in relation to the internet browsers is a pattern of anticompetitive practice aimed at maintaining its established monopoly, as well as, stretch its monopoly to other markets. It is clear that Microsoft approached Netscape with an ill motive that seemed to make the two the only suppliers of browser technology, however, Netscape rejected this illegal scheme, thus, Microsoft went ahead to block all the browser developers from supplying their products to the original equipment manufacturers in a bid to make the IE browser and the Java language a programming platform of their very own right. The Microsoft Corporation managed to do this by:
Making heavy investments in the development, testing, and distribution of IE
It is true to state that Microsoft invested a lot of money into the design, testing, and distribution of the Internet Explorer browser. Additionally, it is true to note that it distributed this browser to the final user without additional charges while Netscape and the other browser developers distributed theirs with additional charges. It is important to note that the then Vice president of Microsoft Corporation stated in the New York Times that they were aimed at cutting off the air supply of Netscape and the other browser providers. With this move, Microsoft made sure that everything Netscape sold they gave out for free. The corporation’s CEO Mr. Billy Gate was noted lamenting that unlike Netscape and their other competitors, Microsoft’s business model still benefits them even when the internet browsers are provided to the end user for free. It is true to state that the corporation did not stop at that, it also engaged in unlawful activities where it paid end users to use the internet explorer browser and publicized its unique controls to other final users.
An unlawful demand to acquire the Windows licenses for PC manufacturers
It is also acknowledged that Microsoft forced the PC manufacturers to agree to pre-install, distribute and market the Internet Explorer browser so that they may obtain licenses to its operating systems. Because the corporation enjoyed the monopoly, all the original equipment manufacturers got illegally tied-in to install the Internet Explorer browser in ever PC they sold. Thus, the Microsoft Corporation unlawfully tied the Internet Explorer browser to the Windows operating system, as well as, unlawfully leveraging PC manufacturers to distribute and license the Internet Explorer software in ever PC they shipped with the Windows operating system. It is true to state that by the corporation tying the Internet Explorer browser to its already monopolized operating system it would be robbing the final users of their ability to choose between different browser products
Microsoft’s Contracts and agreements
Microsoft has continued to abuse the agreements and contracts it has made with the original equipment manufacturers. It has done this by forcing all of them to as a condition of acquiring licenses from it to adopt a uniform desktop screen, as well as, a boot-up sequence that has been specified by it. It is important to note that this greatly determines the writings that every final user sees upon switching on their Windows personal computers. It is also true that Microsoft forbids all the PC manufacturers from removing from the PCs they distribute any part of the Internet Explorer browser or to add to the PCs any browsers from its competitors (Aghion pp.388-401). This has made it a normal thing to note that any new PC no matter which original equipment manufacturer has manufactured it to have the Internet Explorer browser, as well as, the same screen as specified by the Microsoft Corporation. The original equipment manufacturers have been deprived of their freedoms to make their very own competitive choices by being forced to adhere to the restrictive desktop screen and boot-up agreement.
It is true to state that Microsoft also entered into agreements with the major ISP providers in the USA and in particular the online service providers. These are companies and firms that provide communication services between PCs and the internet. This was mainly practiced during the era of Windows 98. The operating system provided the final user with folders that had the names of these ISPs, however, for the ISPs to have their names included in these folders they had to have agreed to the terms provided to them by the Microsoft Corporation. The inclusion of their names into these folders was essentially beneficial to the ISPs in terms of marketing since all the computers in the US as at that time run the Windows operating system. However, this agreement with the ISPs enabled the corporation to leverage the Internet Explorer browser as the only browser the ISPs would provide to their suppliers. It is acknowledged that this agreement with the ISPs in the country forced a majority of browser developers out of the market as this was a major channel of browser distribution.
The corporation did not only stop there, it went ahead to engage in anticompetitive agreements with internet content providers (ICPs). The ICPs would have channel buttons, which were an effective way of advertising and these would appear at the as an active desktop feature of every operating system that was to be installed in a personal computer. In return, the ICPs were not to distribute the browsers of its competitors, not to allow any of its competitors to use the ICPs channels, and to design their websites using Microsoft specific plugins so that the websites would look better when viewed from Internet Explorer alone and not the other competing browsers. These agreements further inhibited competition by thwarting other internet browsers. In a general sense, the contracts and agreements the Microsoft Corporation entered with the original equipment manufacturers, internet content providers and the internet service providers with no reasonable doubt restrained and continue to restrain competition in the internet browser market. This is so because it artificially helped the Internet Explorer browser increase its market share that threatened to tip over the entire market in favor of the Internet Explorer browser, not because of the original equipment manufacturers and the final customer preferred it, but because of Microsoft’s illegal activities that reflect the exercise of its monopoly powers. The cases presented below demonstrates that the Microsoft Corporation seeks to obtain the monopoly in the operating systems market by not engaging in acts of merit but by engaging in tie-ins and dealings that deter innovation, chase away the competition, and rob PC users their right to choose among the existing alternatives.
The History of Cases against Microsoft Corporation
The monopolization case (July 1994)
On July 1994, the USA moved against Microsoft having maintained its monopoly of the operating systems market unlawfully. It was believed that Microsoft had engaged itself in a number of anticompetitive agreements that were directed to the original equipment manufacturers. It was acknowledged that these agreements even included ones which the original equipment manufacturers were required to pay the Microsoft Corporation for every PC they installed an operating system that was not its windows (Gilbert, Richard, and Michael pp. 25-44). All these were attempts by the corporation to unlawfully maintain its monopoly in the operation systems market. The final judgment passed stopped the Microsoft Corporation from engaging the above-challenged activities. It also prohibited the corporation from continuing with its unlawful conduct aimed to fuel its anticompetitive campaign, for example, conditioning licenses of its Windows operating system to original equipment manufacturers.
The Contempt proceedings (December 1997)
On the 15th of December 1997, the Microsoft Corporation moved to state that any original equipment manufacturer that did not agree to the license terms it provided that aimed to distribute the Internet Explorer browser would not obtain any license for its future operating systems. For this particular reason, the USA moved to have the court find the corporation guilty of contempt, hence, the Microsoft Corporation was required to provide the original equipment manufacturers with options to remove the internet explorer option from the desktop startup menu (Gilbert, Richard, and Michael pp. 25-44).
The Microsoft Corporation took actions that reduced the long-run likelihood of competition on the operating systems market. However, it is believed that the actions it took were unlawful and caused more harm than good to the general market. The actions thwarted competition, tied down original equipment manufacturers, and deprived the end user of his or her right to choose between different alternatives. It is acknowledged that its CEO and Vice president openly made remarks on how they would crash any potential competitors even if it meant that they would give products their competitors did at a price for free. The move taken by the Microsoft Corporation to maintain its monopoly was wrong as it was stained all through with unlawful conduct that enticed, as well as, coerced original equipment manufacturers, internet service providers, and the internet content providers into getting into tie-in agreements with it. It is important to note that these tie-in agreements had a lot of restrictions but in general were aimed at crashing its potential competitors. The USA moved to court as it found the Microsoft Corporation guilty of engaging in unlawful conduct whose aim was to fuel its anticompetitive campaign. The corporation was found guilty and prohibited from engaging in such activities again. Due to the above-discussed pieces of evidence, this paper stands firm against regulating The Microsoft Corporation as a monopoly.