Example #1 – Microsoft’s Success
In 1975 Bill Gates and Paul Allen created a company called Microsoft. A little more than twenty years later, Microsoft is a leader in the field of computer programming. Gates and Allen both had big plans for their fledgling company and came up with different ways of managing people and products in order to create possibly the most effective and versatile workforce of any corporation in existence.
To study Microsoft’s way of doing business is to look at the company from many angles, from a managerial and organizational standpoint to its process of developing products and services for its customers. To truly understand Microsoft’s way of doing business is to view how the company’s different project groups and divisions work together to create superb products that the consumers desire, there really is no one true secret to Microsoft’s success.
From an organizational standpoint, Microsoft starts by using an extensive interviewing process to sift out the smartest, most qualified individuals to perform all the tasks associated with their specific workgroups workload. “We start using the very best practices, which was just hiring great people and having small teams?”(Cusumano pg. 25) Gates said of his selective hiring process. Every group manager, line manager, and program manager not only has the leadership and managerial skills needed to keep the process moving along but also the technical skills that their subordinates use.
Prices start at $12
Prices start at $11
Prices start at $14
Prices start at $12
This may remind some of the ways the enlisted ranks in the military perform their assigned tasks. With a leader who possesses the technical skills, decisions can be made without consulting technical advisors and can be made with a great degree of accuracy. Regarding his choice of middle management Gates stated “We don’t have non-technical management trying to make technical trade-offs.” (Cusumano pg. 26). Microsoft often promotes from within, again similar to the military, this provides the greatest common knowledge of the tasks at hand and how to effectively get the job done. By using these types of people as managers, small workgroups could become large workgroups but still function as efficiently.
Microsoft also thought that all of its development should be performed at one site, this allowed project groups to share information and test their specific programs together with the least amount of downtime and hassle. Microsoft’s workgroups are also organized by the product they are designing in order to allow these groups to function together and exchange technical information easily, “People in these jobs work in multifunctional teams organized by product, with some mechanisms to integrate across the product groups.” (Cusumano pg. 35).
Microsoft not only has a formal organizational “chain of command”, but also what they consider a “brain trust” of employees from every level who work together to create product ideas and “plans of attack”. Microsoft also does a good job of retaining its employees by giving them a plethora of stock options and retirement plans to fit everyone’s own personal investment style.
While Microsoft’s salaries may seem a bit on the low end of the scale and the fact that they pay no overtime might discourage some, more than a few of the companies’ employees are millionaires. “Approximately three thousand out of Microsoft’s 17,800 employees are also millionaires due to the stocks they own?”(Cusumano pg. 117).
Microsoft has biannual bonuses of up to 15 percent and allows employees to use up to ten percent of their salary to buy a stock at 85 percent of the market value. Most employees work very long hours sometimes for a few days straight, Jim Conner said of Microsoft employees “You get weird cases where people actually move into their offices? I would have to order people to go home because they were exhausted.
They would work for three or four days straight?”(Cusumano pg. 95). With an organizational setup where everyone knows everything about the assignment they are currently working on and all employees feel included and have the drive and the technical skills to get the job done, it is no wonder that it has one of the most productive workforces around.
Microsoft not only leads the programming industry, but it also helped define and create the industry. By creating innovative and useful programs, Microsoft also created an ever-expanding market for their products. By creating the best in GUI (graphical user interface) operating systems, Microsoft paved the way for a huge home PC market. Along with the home PC’s came a brand new market for more operating systems.
By creating a new market they insured a continued demand for products that Microsoft is more than willing to supply. “Operating systems now account for about one-third of Microsoft’s revenues” (Cusumano pg. 132). Microsoft also uses another strategy to produce continued demand for their products by continually updating their products with new capabilities and features, which in turn eventually renders older versions of the same program obsolete.
Chris Peters stated that “In a sense, Office makes the individual apps(applications) obsolete” (Cusumano pg. 146). Microsoft also enters into exclusivity contracts to keep the companies products at the forefront and to keep sales from slowing down. “Hardware vendors can reduce the OEM price by as much as $30 dollars if they agree to install Windows 95 on 50 percent of their PC shipments or adopt the Windows 95 logo and sign a contract by a particular date” (Cusumano pg. 161). Entering into these contract makes perfect sense from a business and marketing standpoint, but has drawn allegations of monopolizing the industry from their competitors.
While it is true that Microsoft has what would appear to be a monopoly in this industry, it would be absurd to have more than one or two operating systems because it would limit the supply of software for each system. Microsoft simply has a good product and an excellent marketing strategy. “Microsoft’s contracts with leading PC producers in effect isolated IBM when it tried to introduce such alternatives to Windows a Presentation Manager a then OS/2″ (Cusumano pg. 161). By using strategies like these Microsoft has become and remained a leader in the industry.
In order to be proficient at producing and shipping products on time and with the least amount of problems, Microsoft uses certain methods of production such as continually testing their programs as they build them. Also as mentioned before they develop all programs at one site. “Despite the benefits of electronic mail and its extensive usage at Microsoft, single-site development allows project personnel to get together physically on a regular basis and to explore ideas interactively” (Cusumano pg. 285).
By allowing different workgroups to share ideas and share problems they encounter, these workgroups will be more efficient and hopefully prevents them from running into the same problems that their fellow employees encountered. By continually testing the programs as they were developed, Microsoft enables the immediate shipment upon completion of the programming. This process of testing frequently also allows Microsoft to keep a close eye on the progress of each project and allows them to put more programmers on the project if needed in order to keep it on track.
As stated by Mike Maples, “If you do it right, the time from when you finish the product to when you can get someone the whole product is very short?. It does make the process much more predictable. You know much earlier in the process when you’re in really bad shape?. You know where you are” (Cusumano pg. 277). By developing the product at one site, with multiple teams of programmers working together on separate sections of the programs, and by having the program ready to go the second it was completed has allowed Microsoft to introduce products and programs to market quickly and inexpensively.
Bill Gates truly has a keen eye for business and has steered his company in the correct direction in order to create a well-organized corporation. Microsoft has used good policies in order to build a strong, intelligent, and loyal workforce, not to mention excellent benefits and stock options in order to keep their employees happy. By using middle managers with technical backgrounds Microsoft allowed project managers to make technical decisions without the concern of making technical tradeoffs. By working in small groups that overlap in responsibility and work at one site, employees could be as productive as possible and do their jobs with the utmost precision.
By frequently updating programs and entering into exclusivity contracts, Microsoft has made sure that there will be a continued demand for their products in the future. Microsoft creates markets for its products and product ideas by designing new technology and getting in on new technology early on.
Microsoft’s frequent testing of programs and products during and between every stage of the design process allows them to make sure projects are running smoothly and also allows them to ship the finished products to market quickly. Bill Gates has proved that he and Microsoft have what it takes to make it in today’s business world, with good policies and good employees Microsoft is here to stay.
Example #2 – Microsoft – From David To Goliath
The electronic computer has been around for over a half-century, but its ancestors have been around for 2000 years. From abacus to our modern souped-up computer with the Intel Pentium III processor the computer has come an incredibly long way. One of the most significant events that would affect it?s development would be the teaming up of IBM and Microsoft to create a new operating system for the microcomputer. The synergy of these two corporations would change the way we compute today. The notoriety from this partnership would propel Microsoft into the forefront of software design and development and create an industry standard to be followed by all.
In July of 1980 IBM, a $30 billion dollar giant in the computing industry, offered Microsoft Corporation, who at the time consisted of a staff 40 (Cashman, 1.37), the opportunity to design a new operating system for their new IBM “personal” computer. IBM had observed an increased market for the personal computer for quite some time even though they had already failed once trying to tap the market with their IBM 5100.
IBM had considered several options regarding the development of their new personal computer including buying a little known computer game company named Atari. In the end, IBM decided that they would proceed with their plans to build a new computer line with a new operating system. On August 12th, 1981 IBM introduced a new computer called the IBM PC. The “PC” was short for “personal computer” making IBM responsible for the acronym “PC” (“Inventors”).
Microsoft bought the rights to another operating system called Q-DOS (Quick and Dirty Operating System) from Seattle Computer Products for $50,000 without the company ever knowing that it was for the behemoth IBM (Delany). Bill Gates of Microsoft would talk IBM into allowing his company to retain the rights to market the MS-DOS (Microsoft Dirty Operating System) operating system separate from the IBM PC project. In the agreement, IBM would be allowed to use the operating system free of charge while Microsoft would “sell” licenses to use the operating system to other computer manufacturers. By 1984 Microsoft had licensed MS-DOS to 200 personal computer manufacturers, making MS-DOS the standard operating system for personal computers and driving Microsoft’s enormous growth in the 1980s that would lead to huge profits for Microsoft.
After the introduction of the personal computer, sales skyrocketed from 275,000 in 1981 to 3,275,000 in 1982 (Cashman, 1.52). Every software manufacturer would begin to make their software compatible with Microsoft’s operating system. It would now become every computer manufacturer’s goal to make the PC as user friendly and affordable as possible and nearly every computer manufacturer would accomplish this by the ’90s. Computers would soon be in our homes and schools as well as our businesses.
In 1982 Microsoft would begin to develop business applications for personal computers and Multiplan, a spreadsheet application, was introduced. Microsoft would follow in 1983 with it?s release of Microsoft Word, a word processing application. It was also in 1983 that Microsoft would start developing the multi-windowed environment we now know as Windows (Microsoft Corporation).
Microsoft did not rest on their laurels. In 1984 Microsoft would be one of the few software developers to support the Macintosh, a personal computer developed by Apple Computer Company. Their support of the Mac would result in enormous success in their Word, Excel, and Works application software. Multiplan for MS-DOS would succumb to the popularity of another application heavy hitter Lotus 1-2-3, developed by the Lotus Development Corporation which would be acquired by IBM in the 1990s (Microsoft Corporation).
In 1985 Microsoft would introduce it?s first version of Windows, a graphical user interface, (GUI) that enhanced the user-friendliness of MS-DOS. A GUI combines text, graphics, and other visual clues to make software easier to use (Cashman, 1.38). Windows allowed the user to open applications by clicking on pictures or icons instead of typing long tedious strings of file names within various paths.
Critics wondered if the GUI would ever catch on but Microsoft persevered even though Windows was slow to gain acceptance. In 1990 a new improved Windows version 3.0 was introduced. Aided with more powerful processors and a greater variety of software and pumped up with a $10 million advertising promotion Windows would sell more than 4 million copies in one year. Microsoft would introduce a networking version of Windows called Windows NT.
This would become the most popular version of the Windows products in the world commanding more than 25 million users worldwide (Cashman, 1.37). A recent survey by the U.S. Census Bureau published in September 1999 indicates that there almost 37.5 million computers in the home in the United States as of October 1997(?Computer?, U.S. Census). Schools that have computers make up a combined total of more than 8 million (?Computer?).
Almost ninety percent of personal computers sold in the United States and around the world use a Microsoft operating system (Cashman). With a ninety percent market share of operating systems Microsoft is dominating the industry here and abroad. It’s quite a magnificent accomplishment considering the meager beginnings. It’s no wonder Microsoft is the computer industry giant setting the standards for other software developers around the world.
The contemporary business world is characterized by a high level of competition. Various individuals and groups have engaged in conducting business. This builds up the level of competition as businesses engage in the production of relatively the same goods and services.
This, therefore, calls for the application of strategic measures to keep pace with the competitive market situation. For the sake of this assignment, I will give a critical analysis of Microsoft Company. Much emphasis will be given to aspects such as the company’s overview and the industry of its operation, the company’s major business lines and the company’s competitive strategy and market position. Finally, the company’s use of Information Technology for competitive advantage will be highlighted.
Microsoft is a well-known company. It was founded in 1975 by Bill Gates. The company came into being following combined ideas from Bill Gates and Paul Allen, individuals who had an interest in computers and programming in particular. The company started as a small organization whose operations were only local. It was later that Bill Gates developed the idea of programming languages and tried some applications that became successful although initially faced with some challenges (Kumar, 2010).
It was in 1976 that the Microsoft Company was registered in Mexico City. The company picked so well and this enhanced its growth and development. It was not after long that the company was in a position to extend its operations, selling its products locally as well as internationally. The company grew day by day and developed more advanced and desirable programming languages such as FORTRAIN and COBOL (Kumar, 2010).
The growth of the company was accelerated by an increase in Personal Computers’ manufacturers in the market. This increased the demand for Microsoft products and hence the need for Microsoft Company to enhance its production strategies to meet the demand. It for instance started an office in Japan in 1978.
From this time there was the emergence of new developments that put the company at a better position in the market. A major development was that of MS-DOS, which paved the way to other advanced programs like the windows. It was in the year 1982 that Microsoft Corporation changed its name to Microsoft Inc (Kumar, 2010).
Microsoft operates in the software industry. It provides a lot of products and services that are aimed at satisfying the needs of customers in the software industry. In addition to this, the company has diversified its operations in other fields in an effort to enhance its competitive advantage.
This includes Microsoft games which have gained considerable application among people. The industry in which Microsoft operates is highly competitive mainly because of the effects of technological developments making it a necessity to be extremely alert to capture and implement everything new in order to satisfy the ever-changing demand of the market. The industry is also characterized by new entries as people and groups wish to be as successful as Microsoft Company (Kumar, 2010).
To deal with the competition, Microsoft has engaged in the production of products that are of high quality. The company also engages in strategies that are geared towards improving the quality of its products every now and then to satisfy the changing demands of the market. This has been made possible through research and development programs. This is an effort that has borne positive fruits for example attraction of a lot of customers and maintaining their loyalty.
Microsoft is involved in the provision of a wide range of products and services to its customers. The major line of business is however in the provision of software-related products and services. The company is involved in the provision of servers, office, hardware, windows live, software, Microsoft store, and mobile devices among others. Apart from being involved in the provision of products, Microsoft has also invested a lot in services provision.
Some of the services include Skype, Microsoft advertising, and Microsoft Online services among others (Microsoft, 2011). The provision of these products and services has been the main source of profit to the company. This in turn helps in placing the company in a good position in the market as it is an indication of good performance, an aspect that is desired by all organizations as well as customers.
Generally, Microsoft has performed relatively well over the past years. This has led other companies to desire to utilize the company’s production strategies in an effort to excel in their business operations. This has greatly increased the level of competition in the industry thus necessitating that Microsoft engages in even more strategic measures.
A major threat is for example the Linux program which has gained a lot of favor from the customers. However, plans are underway to upgrade Microsoft’s products and enhance its services in order to maintain its competitiveness compared to other companies in the industry. This will be made possible through extensive research.
Description of the Company’s Competitive Strategy and Market Position
Different companies have different competitive strategies and thus they secure different market positions in the market. Microsoft is competitive enough in its industry of operation and it has secured a good position in the market. Various aspects have been attributed to it competitiveness. For instance, its management is a source of its competitive advantage.
There is quality leadership at Microsoft. Bill Gates is the company’s chairman while Steve Ballmer is the CEO. Election is usually fair. The shareholders have the duty of electing the board of directors. The board of directors is then supposed to hire the presidents, vice-presidents, top executives, treasurer, and the secretary. The workforce in Microsoft is very rich in terms of skills and knowledge, making the company to do well in its business operations both locally as well as internationally (Johnson, 2008).
Microsoft has a number of strengths, which have significantly contributed to the company’s success. To begin with, the company has a broad global brand. The company has the largest software developer which has a good reputation all over the world. It has a big customer base which is located all over the world. All the products in the Windows line are successful. This has significantly contributed to the company’s success.
The company’s strongly developed brand has put it in a position where it is able to cultivate customer loyalty all over the world. Its customers are enthusiastic and act as advocates who always use the company’s products. Therefore, the company has managed to retain its existing customers as well as attracting more. This has contributed to the tremendous growth of the company.
Microsoft’s competitive strategy also involves the location of its premises or offices. Microsoft has offices located in different parts of the world. These offices are strategically situated in strategic positions. This has ensured that the company’s products are trendily available to all the customers across the world. For instance, the company has offices in Korea, Europe, China, and Germany. This has promoted the availability of its products throughout the world avoiding unnecessary shortages.
Diversification of the company’s operations has also enhanced its competitiveness. For instance, the company has recently ventured in other areas like game design and developing. This provides a wide range of opportunities to the company.
The company has managed to provide free emails and news to its customers. In addition, it has managed to develop software that is very useful in organizing business spreadsheets and data. This comes at a time when the demand for such software has risen with increased need for efficiency in the contemporary business world.
The company’s market position can be understood by looking at its financial status. As already noted, Microsoft has been in the market for a long time. Since its development, the company has recorded good performance. Earlier this year, the company closed its fiscal year in optimistic results.
For the fourth quarter which ended in June 2011, the company’s revenue rose to $ 17.37 billion (Betanews, 2011). This was an eight percent increase over the last one year. Meanwhile, the operating income hit a level of $ 6.17 billion. During this quarter, the company recorded a profit of $ 5.87 billion (Betanews, 2011).
The success has not been attributed to a single aspect but rather a combination of factors. The strengths and opportunities are a source of the company’s competitive advantage and a good position in the market. For example, a strong brand that is well known all over the world. This has enhanced the level of sales and hence increased productivity and profitability.
Despite the fact that Microsoft Company has got considerable strengths and opportunities, it is not without some weaknesses and threats. Some of the weaknesses and threats that face Microsoft include; compatibility issues involved in the company’s products. For instance, most of its products are not effectively compatible with many hardware and software produced by other companies.
This may discourage customers from buying the company’s products due to the inefficiencies involved. Another weakness of the company is that it has not managed to develop an effective client and service support on the internet. This denies its customers important services in case problems and bugs occur. This threatens the integrity that the company’s products are perceived by its customers.
Competitors are a threat to the Microsoft Company. Many companies have engaged in the business of the provision of software and other computer-related services. This, therefore, necessitates that Microsoft Company establishes and implement strategic measures aimed at maintaining its competitiveness to avoid losing its customers to the competitors. All in all, it is evident that the company has tried to overcome the threats and weaknesses through the reinforcement of its strengths and opportunities.
The Microsoft Corporation (Microsoft) has been under investigation since 1990 for alleged antitrust violations. The Department of Justice (DOJ) feels that Microsoft has a monopoly in the field of operating systems (OSs), and that Microsoft has traditionally cemented this monopoly through unlawful exercises of monopoly power.
As a result, the DOJ got Microsoft to sign a consent decree addressing Microsoft’s illegal pricing policies and overly restrictive non-disclosure agreements. However, Microsoft is still under investigation in for alleged leveraging in the fields of software development and online services, and the alleged use of vaporware (the term used for products announced far prior to their release date, so as to prevent consumers from buying competing products).
The Federal Trade Commission (FTC) began investigating Microsoft in 1990, for possible violations of the Sherman and Clayton Antitrust Acts, which are designed to stop restraint of trade by businesses, especially monopolists. By August of 1993 the FTC was deadlocked; instead of dropping the case, they handed it over to the DOJ. Anne K. Bingaman, the head of the Antitrust Division of the DOJ, proposed a settlement that was signed on July 15, 1994. For Microsoft, the advantage of settling was that it would not have to admit any wrongdoing.
If the DOJ proved a case against them in court, it would open Microsoft up to cases from private companies, who would then be awarded incredible damage fees; Microsoft could avoid this situation by signing the consent decree, without actually admitting to anything contained therein. The Consent Decree and Antitrust Law The settlement covered the two most harmful of Microsoft’s practices, their pricing policies and their non-disclosure agreements (NDAs) in relation to Windows 95.
The settlement included certain measures; one of these measures gives the DOJ complete access to Microsoft’s documents for use in other investigations. Although this final provision would prove highly beneficial, Judge Stanley Sporkin rejected the settlement, wondering why the DOJ had failed to pursue everything in the original complaint. Sporkin was later overruled and the consent decree was signed.
The most important part of the settlement was a stipulation that would end Microsoft’s practice of selling MS DOS to original equipment manufacturers (OEMs) at a 60% discount if they agreed to pay Microsoft for every computer they sold, as opposed to paying them for every computer they sold with MS-DOS preinstalled. As a result, if the OEM wished to install a different OS on some of its computers, it would, in effect, be paying for both operating systems.
This is unfair for several reasons, the first being that consumers, in effect, pay Microsoft when they buy another product, and the second being that it would be uneconomical for an OEM to give up the 60% discount in favor of installing a less popular OS on some of its computers. The question before the FTC, and then the DOJ, was whether or not Microsoft had a monopoly in the PC OS market, and whether or not their pricing practices were anti-competitive. In United States v. E.I. du Pont de Nemours and Company, the Supreme Court defined monopoly power as the power to control prices or exclude competition, significantly raising the barriers to entry within the relevant market.
The most important doctrine in prosecuting Microsoft was set forth in United States v. Griffith, which states that a monopolist may not use a monopoly in one field as leverage to gain a monopoly in another. The Griffith case had to do with movie theaters. Griffith used its monopoly status in small towns (where they owned the only theater) to get better contracts from motion picture companies. If the company wanted their movie to play in small towns, they were forced to agree to the contract terms offered by Griffith.
As a result, Griffith obtained movies for substantially less than their competitors, which gave Griffith lower costs in monopoly towns and competitive markets alike. What Griffith did was anti-competitive because Griffith used monopoly power in small towns as a lever to gain market share in competitive cities. In United States v. Grinnell Corporation, the Supreme Court introduced a test for finding whether or not a monopolist was indeed unlawfully using monopoly power: “(1) The possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as the consequence of a superior product, business acumen, or historic accident.” What this means is that monopolization is not illegal, but the use of monopoly power is.
This position was further developed in Telex Corporation v. International Business Machines Corporation. In this case, the court recognized that a monopolist might use practices that any company, regardless of size, could legally employ. A monopolist cannot, however, use his market power in such a way so as to prevent competition. Basically, a company is allowed to be a monopoly as defined in du Pont, but when a monopolist acts in a way that only a monopolist can (as defined in the second test in Grinnell), the monopolist has broken the law.
In the case of Microsoft’s pricing policy, the DOJ, were it to go to court, would have to prove Microsoft’s monopoly power in the field of OSs, and then subsequently prove that their pricing policy was anti-competitive. Proving that Microsoft has a monopoly in the field of OSs would not be hard, and should the DOJ ever go to court with Microsoft, it will have to prove Microsoft’s monopoly power. If the DOJ decided to litigate, proving that Microsoft’s pricing practices were anti-competitive would not have been hard, either. The fact that Microsoft could institute the pricing policies that it did is evidentiary of their ability to exclude the competition from the market.
This fact, buttressed with the fact that MS-DOS has had over 70% of the PC OS market for the past decade, and currently has a market share of almost 90% proves that Microsoft is indeed a monopoly under the definition set forth in Du Pont. The same evidence that is used to prove that Microsoft has a monopoly could also be subsequently used to prove that they are in violation of section 2 of the Sherman Antitrust Act under the tests set forth in Grinnell and the doctrine set forth in Telex.
Under the Grinnell test, Microsoft fits into the first category, in that it has monopoly power, and fits into the second, as well, in that it maintains that power not through superior product or business acumen, but through anti-competitive pricing policies that limit the choices of consumers.
The real effects of these plans can be seen in the case of Novell’s DR DOS, the number one alternative to MS DOS, which does not come preinstalled on any domestically manufactured computer, even though it is arguably a better product. Novell has been hurt by the fact that no OEMs will sell computers with DR DOS preinstalled because for an OS to survive, independent software vendors (ISVs) must be willing to write software for it. If the OS does not come preinstalled on any computers, then no ISV will write software for it. If there is no software for it, consumers will not buy it. Microsoft also violates the Grinnell doctrine by using monopoly power as a lever to get favorable terms in contracts.
Clearly, Microsoft has used its monopoly power in this field to keep control of an already cornered market. By raising the barriers to entry in the field of OSs, Microsoft may have done permanent damage to the competition. The settlement has done little to loosen Microsoft’s monopoly power, but it has made Microsoft change its pricing structure to one in which Microsoft’s contracts let OEMs sell systems with competing OSs without paying Microsoft, by prohibiting the aforementioned processor agreements. Under the decree, only copy and system licenses would be legal.
The other corrective measure of the settlement had to do with non-disclosure agreements (NDAs). Microsoft made ISVs sign overly protective NDAs that prevented the ISVs from writing software for competing OSs. The NDAs in question was for a product codenamed Chicago, which was released as Windows 95. The DOJ contended that the ISVs were, in effect, forced to sign these contracts. Given Microsoft’s past track record, it was not unreasonable to assume that Windows 95 would become a major OS in the future, and having products for it would be vital to an ISVs survival.
It can be inferred through Microsoft’s actions that Microsoft realized this, and used it to its own advantage. While NDAs are a common practice in many industries, designed to keep secrets secret, Microsoft instead used them to force ISVs to stop developing products for competing OSs for an unreasonable amount of time. Microsoft was clearly using a practice that was unavailable to a company without monopoly power in order to maintain its own monopoly power, which is a blatant violation of Grinnell. On a related note, Apple, the company that makes Macintosh computers, the PC’s main competitor, alleges that Microsoft CEO Bill Gates called up and threatened to stop making Macintosh products if Apple did not stop development on a program that was to compete with a similar Microsoft program.
Microsoft is the largest producer of Macintosh programs. As was previously stated, without strong software support, an OS cannot survive. System 7, Macintosh’s OS, then, would presumably suffer as a result of Microsoft’s decision. Apple also alleges that Microsoft would not send them a beta copy of Windows 95 until they dropped Microsoft’s name from a lawsuit. While these allegations cannot be proven, they certainly fit in with Microsoft’s way of doing business, and, if they could be proven, they would certainly be grounds for legal action.
Most importantly, these practices violate the doctrine set forth in Aspen Skiing Company v. Aspen Highlands Skiing Corporation, in which Justice John Paul Stevens delivered the opinion of the court: “The absence of an unqualified duty to cooperate does not mean that every time a firm declines to participate in a particular corporate venture, that decision may not have evidentiary significance, or that it may not give rise to liability in certain circumstances.” This decision has its roots in Lorain Journal Company v. the United States, in which the Supreme Court declared that refusing to deal with someone was fine unless it was for the purposes of monopolization.
According to Aspen, while Microsoft has the right to refuse to deal with Apple, doing so is evidence of abuse of monopoly power. More specifically, by threatening to not deal with Apple, Microsoft is using its dominance in the field of Macintosh applications to give it leverage in another field, which is contrary to Griffith. If Microsoft can create an industry-standard, its innovation rightfully earns them a short-term monopoly under Berkey and Telex (until the other software companies create applications that conform to the standard). However, if Microsoft used its power in the field of Macintosh applications as a lever, as Apple claims that it did Microsoft has broken the law under the Grinnell doctrine.
The Ruling and Current Investigations 1974, the Tunney Act provides a 60-day judicial review of all consent decrees, in which parties opposed to the decrees can file complaints with the judge, and the judge can then rule on whether or not the decree shall stand. When the law was enacted, its purpose was to make sure that there were no decrees that were not in the public interest. Judge Stanley Sporkin found the Microsoft consent decree to be lacking. As a result, he refused to sign it.
His decision was later overturned. The fact that he would not sign the decree is evidence of its weakness. Microsoft allegedly engages in several other practices that would warrant investigation, including vaporware, and then making claims in relation to Windows 95 and the Microsoft Network, Microsoft’s online service. Another major criticism is that Windows 95, which is covered in the decree, is viewed by some as being an intermediary step between MS-DOS and Windows NT.
The interfaces of Windows 95 and Windows NT are fairly similar. The major difference between the two products is that, while 95 is covered by the decree, NT is specifically excluded, because of its small market share. If NT becomes successful, Microsoft will have successfully, in a way, canceled the consent decree. However, the fact that the DOJ can now make inquiries that must be answered has been extremely beneficial to the DOJ, and extremely costly to Microsoft. In the 50 months that led up to the settlement, the DOJ received 1 million pages of documents from Microsoft. After the consent decree had been signed, the DOJ launched what Microsoft called the campaign of harassment, and eventually sued Anne K. Bingaman.
This harassment was a request for documents concerning a merger with Intuit, the dominant company in the field of financial software. Compliance with the request cost Microsoft $5 million in copying and legal fees. This investigation is seen by most as the reason why the deal did not happen. The vaporware claims seem to be impossible to prove. Microsoft has been consistently late in releasing products. The most notable was Windows 95.
Windows 95 was due out in the spring of 1995, and then Microsoft postponed the release date until summer, then to fall, and then until early 1996. Windows 95 was, in fact, released by the end of 1995, but the series of delays make it a prime example of vaporware. Microsoft’s competitors feel that Microsoft announces products long before they are ready so that the market will become more enthusiastic about their release so that consumers will not buy their competitor’s products. Since everybody is allowed to announce products, Microsoft is protected by the Telex case. The only way the government could make any sort of case would be if it could prove that Microsoft willfully lied about products or release dates.
For this reason, perhaps, litigation on this issue has not been seriously considered. What is being seriously considered are the results of Microsoft’s vertical integration. An example is a Windows feature called Object Linking and Embedding, which was used in Microsoft’s spreadsheet program, Excel, before Microsoft gave the specifications for its usage to the other software companies. Precedent protects Microsoft, though, because, in Berkey, the court ruled that even a monopolist does not have to pre-disclose specifications to a new product.
The circumstances of the two cases are very similar. In the case of Berkey, Kodak had monopoly power in the field of film and introduced a new film format. Kodak pre-disclosed the format two months before its release, but, when it was released, Kodak was the only company that made cameras that accepted the new film format. The court ruled that since a monopolist can compete like anyone else, he can legally invent and market products. Since disclosure makes inventions and innovations less profitable, it makes them less likely.
Therefore, as in Telex, it is the right of the monopolist to engage in this standard business practice; the consumer also benefits, because temporary monopolies promote innovation. Since Microsoft did not attempt to maintain a monopoly on OLE technology, they are hardly at fault. However, relying on the Berkey case as a precedent presents problems for several reasons.
The first is that Berkey was a district court decision, and does not, therefore, hold the status of a Supreme Court case. Secondly, legal scholars see the decision as at fault. According to some, the best line of thinking that can be taken from the Berkey case is a simple one: the DOJ and the courts should weigh the long term market power that will be given to the monopolist for his innovation against the beneficial effects for consumers in having new products. Under the Griffith doctrine, leveraging is per se illegal. Here, Microsoft used its monopoly in OSs to gain market share in the field of software.
The test set forth in Berkey is whether or not a non-monopolist could do what Microsoft did. Since the two situations are almost identical, and the Berkey court ruled that Kodak could, in fact, have done what it did, even if it wasn’t a monopolist, it is logical to assume that they would find the same way in a case against Microsoft. However, given the faultiness of the precedent, the benefits and costs should be weighed. In this instance, consumers were benefited by the new technology of OLE, but it was used as a lever, to transfer part of Microsoft’s OS monopoly into the spreadsheet market. Judging by Excel sales, consumers began to think that Excel was a better product than its competitors. The case that the DOJ has concerned themselves with the most of late is Windows 95.
The major question raised is whether or not bundling software for the Microsoft Network constitutes an antitrust violation. On August 8, 1995, the DOJ announced that it would not finish its investigation before the release date of August 24. Instead of getting an injunction, the DOJ decided to make the investigation ongoing. Microsoft’s opponents feel that bundling the software is an abuse of Microsoft’s OS monopoly because they are using this monopoly as a lever to gain dominance in the field of online communications. To understand the importance of this issue, one must first realize that there is huge potential for growth in the online industry. If one company were able to monopolize through anti-competitive means, the results could be disastrous.
In order to understand just how helpless the DOJ is in the matter, one must consider the fact that they cannot sue unless they can prove that Microsoft will drive the other online companies out of business. The problem is if they wait too long, there is no feasible remedy to undo the harm. If they proceed too soon, they will be charged with being premature.” This is the problem that the DOJ ran into with the previous consent decree. It was too little, too late. Microsoft had already established their monopoly and began cementing it through anti-competitive means in 1988.
By the time anyone did anything, Microsoft had 90% of the OS market. In this instance, Microsoft is protected under Telex, in that America Online, a leading online service provider, gets its software preinstalled on computers by OEMs. Since no one argues that America Online has a monopoly, Microsoft is also protected under Berkey. Including access software in Windows 95 also makes sense economically, because Microsoft does not have to pay for extra disks and distribution costs.
Also, the practice of giving away software is accepted in the online service industry, and what Microsoft is doing is no different. Users are not forced into using something, which they don’t want to use, they are merely confronted with a choice of whether or not to use the Microsoft Network, and since preserving freedom of choice is the ultimate goal of antitrust legislation, Microsoft’s actions are protected.
Still, experts predict that if this case were to go to trial, it would be close. The computer industry is one unlike any other. Constant innovations make it the fastest-changing industry around. The federal government has had a lot of trouble writing and enforcing laws in this field because it doesn’t know how to deal with the uniqueness of the industry. When the FTC began its investigation of Microsoft in 1990, it should have realized immediately that Microsoft’s pricing policies were blatant antitrust violations. Instead, Microsoft was allowed to do irreversible damage to the OS market and walked away 5 years later with a slap on the wrist.
The DOJ’s failure to litigate in other complaints, even though the cases are not as strong, shows a lack of commitment to the antitrust laws and their enforcement in the computer industry. Precedents need to be set on two issues. The first is defining exactly what the limitations are on a monopolist enjoying the fruits of his innovation, such as OLE. The second is defining exactly what constitutes leveraging in the computer software market. Until these precedents are set, the DOJ has no good way to control the computer industry, except through the threat of litigation.
As of now the United States Government has not finished with this case yet. The antitrust trial is still going on day by day. Both sides have a strong case, but many legal issues still come into play. Netscape and AOL scandals have put an edge on Microsoft’s side of the case, which could lead the court to a different decision in the future. If I was a judge of this case, I believe I would rule in favor of The Plaintiff, the United States, because what Microsoft is doing is wrong. Even though it isn’t a bad thing that they are doing, (Offering a total group of products in one giant Operating System), I believe that other companies should have as big a chance to sell their product. Other operating systems are not getting enough exposure, because in fact they have no way of getting around a huge company such as Microsoft.
I would rule against Microsoft. 1.Sherman Act (1890)+ Federal Act. + Outlawed all contracts, combinations, or conspiracies in restraint of trade and all monopolies. Note: two or more participants are involved. + Aimed at competitors who agree to restrict competition. + Illegal for anyone to monopolize or attempt to monopolize. + Illegal to attempt to retain or obtain a monopoly. + Must show a willful intent to monopolize. + Possession of monopoly power is not illegal (superior product or historical accident).+ Increasing capacity to fill demand is illegal if it prevents competitors from entering the market. + Very strict. 2.Clayton Act (1914)+ Prohibits specific types of anti-competitive behavior. + FTC also can sue. + (In addition to DOJ) Prohibits tying arrangements.+ Seller refuses to sell buyer one product unless buyer agrees to purchase another product. (Must be two different products. Windows 95 and IE might be considered two different products. Windows 98 they are one.) + Prohibits exclusive dealing contracts. + Seller or manufacture requires that a buyer not purchase a competitor’s product. 3.Tunney Act ()+ The Tunney Act lets judges review the details of anti-trust settlements and reject those that seem like sweetheart deals.
Technology is an integral part of life in today’s constant and fast-paced world. A plethora of companies have worked to advance this technology, and the Microsoft Corporation is one of the largest in the industry. Since its founding in 1975 (Isaacson 337), the company has grown into one of the more prominent leaders in the field. With its success and prominence, however, the company has had to deal with a variety of problems, including a lack of product innovation, bad communication and rivalry between departments, and power struggles. With its current work at restructuring and establishing new leadership within the company, Microsoft is still a strong company that exhibits good management concepts.
Before becoming a behemoth in the technology industry, Microsoft began small and grew considerably over the years. Bill Gates and Paul Allen, the two founders of Microsoft, attended high school and worked together on programming projects early on in life (Stevenson). After graduating in 1973, Gates went to attend Harvard University but left after Allen and him decided to start their own business with inspiration from the Altair 8800, “an inexpensive and easily constructed home computer” (Stevenson).
Together, they founded Micro-Soft, named simply to express that they wrote software for microcomputers (Isaacson 337), in Albuquerque, New Mexico, and contracted their programming skills for the Altair using their own modified version of the programming language BASIC (Stevenson).
While unsuccessful for the first few years, Bill Gates and Paul Allen finally made success with their work for IBM. After moving from Albuquerque, New Mexico, to Washington State, Microsoft was hired by IBM to code an operating system for its line of personal computers (Stevenson). Instead of working from the ground up, Microsoft bought an operating system called QDOS and modified it, renaming it MS-DOS (Stevenson).
The sales were phenomenal, which led to the decision to take Microsoft public in 1986 (Stevenson). In 1987, Microsoft released its first version of the Windows operating system, which would quickly become its most well-known and popular product (Stevenson). Throughout the following years, Microsoft has released several iterations of Windows, created an office suite, helped shape the Internet into what it is today, and expanded into many other ventures from software to hardware.
With its many products and services, Microsoft has created a large and complex organizational structure to support its many offerings. Microsoft’s 99,000 employees are divided into five departments based upon a divisional structure system. These departments include the Windows Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division (Facts). These departments branch out into many sub-departments and groups, but they all ultimately report back to the VP of the department. The VP’s report to the CEO, who is a member of the board of directors.
This setup creates a very tall pyramid with a centralized authority; the CEO and the board of directors make all the major decisions and the hierarchy of people in charge is quite expansive. This expansive hierarchy makes for a rather formal atmosphere with both written and culture rules; while there are aspects within smaller segments of the departments that are informal, the majority of Microsoft is quite the opposite.
While still very rigid with rules, this current structure has been influenced by a current restructuring at Microsoft, which is slowly changing the company’s strategy. Microsoft’s current CEO Satya Nadella has been carrying out a restructuring program entitled “Microsoft One,” with the intention of improving innovation and efficiency (Facts). While based upon previous CEO Steve Ballmer’s strategy of “devices and services (Reisinger),” Nadella has gone beyond and focused in on four overall main products and services he believes is offered by the company: operating systems, apps, the cloud, and devices (Mangalindan).
This concentration on select categories will allow Microsoft to focus on its most important products and stay alert to the ever-changing world of technology. Similar to other technology companies, Microsoft uses both reactor and analyzer responses to uncertainty; with some products, such as Windows, Microsoft will hardly change anything unless forced to sustain success while other products are built from the ideas that have been amassed from analyzing the products and services of competitive companies.
Satya Nadella, however, is working on one other problem within Microsoft during the restructuring phase: the culture. While obtaining success, the culture that has grown within Microsoft over the years, developed mainly by the founder Bill Gates and his CEO successor Steve Ballmer, has inhibited innovation within the company. Most of these issues and problems are core beliefs, or hidden or overlooked issues, and deeply ingrained habits rather than visible or eye-level problems.
For example, the “forced ranking” system used makes units rate employees based upon a rigorous review process (Mangalindan); this causes a lack of product development and innovation since employees are always worried about their upcoming evaluations. As well, the concept of “licking the cookie,” or showing favoritism towards a certain product – such as Windows – and ignoring others (Rivlin), kills innovation and creates silos in the company due to miscommunication between departments.
This kills trust among employees, preventing teams from working successfully, and creating synergy. These restraining forces have kept Microsoft from pushing past the status quo with its driving forces: new products and streamlined interfaces.
Satya Nadella is accomplishing change in both the culture and structure at Microsoft by taking a different leadership approach than the previous CEO Steve Ballmer. Before Nadella became CEO in 2014 (Anders 67), Ballmer led the company with little room to grow beyond his own vision. While the departments within Microsoft were able to work without oversight, Ballmer always had the last word on all decisions (Rivlin) and usually commanded his will from above – a directing leadership style – using his position as CEO as his base of power; in one case, Ballmer shut down an entire project – a specialized tablet codenamed Courier – just because it overlapped with the goals of Windows, his favorite department (Rivlin).
However, instead of just managing employees like Ballmer, Nadella leads employees by aligning and motivating them, all enhanced with his openness to change. As a person, Nadella is a very humble man that uses his quiet nature to work with employees and get answers (Lashinsky). In Nadella’s mind, he believes this nicer attitude – a supporting or delegating leadership style – will help breed more innovation within the company. The qualities that Nadella possesses are characteristics that are in line with Level 5 leadership: humble, quiet, and putting the company’s success before one’s own fame.
Microsoft, while having a social responsibility to its employees and consumers, makes a majority of their decisions based more upon what is best for the company. In 2015, Microsoft is expected to lay off 18,000 employees to improve its growth and overall success (Reisinger); Nadella says the move is “necessary” to change Microsoft into a “productivity and platform company (Reisinger).” While this isn’t the best decision to benefit its employees, it will help Microsoft’s bottom line more.
On Carrol’s hierarchy of social responsibility, the decision meets the economic and legal requirements of a business – which is required by society – but does not move on to ethical or discretionary realms. However, Microsoft does reach the discretionary level with its many donations to the Bill and Melinda Gates Foundation (Stevenson) and rides the line of meeting the legal level with some of its practices avoiding American taxes (Cassidy).
Even with its ups and downs in the last few years, the Microsoft Corporation is a company setting itself up for a future of continued success with its use of management concepts. With its current restructuring and establishment of new leadership, Microsoft is moving beyond its chaotic history and breaking down silos and miscommunications within the company to improve innovation.
With Satya Nadella’s Level 5 leadership, Microsoft is headed towards a future-focused on bringing together its many products and services (operating systems, apps, cloud, and devices) and creating a streamlined experience. These goals will take Microsoft into the next era of technology and, in Microsoft’s hopes, take them back to their ultimate prominence in technology.
There are many companies and corporations in the business world nowadays. Nevertheless, only some of them have a great influence on different industries during a lengthy period. A clear example of it is Microsoft Corporation – the cutting-edge producer of computer software.
The greatest entrepreneur Bill Gates founded it in 1975. The company has come through different stages of transformations in its historical development as Bill Gates has tried to adjust the production to the actual needs of customers. For instance, to compete with other companies producing software such as Apple (whose computers include a user-friendly interface missing in DOS), Bill Gates has created a Windows operating system. Moreover, in 1996, Microsoft introduced Internet Explorer to appeal to the growing needs of people to be on the Internet (Shelly, 2012, p. 205).
Firstly, in order to understand why Microsoft Corporation is at the top of the business world, it is necessary to analyze the way of its historical development. It is almost impossible to do without analysis of the life path of its creator, Bill Gates. At the age of 13, Bill became programming computers. At Harvard, he continued his hobby. Together with his friend Steve Ballmer, he wrote a version of programming BASIC. In 1975, Bill left Harvard, and together with his friend, Paul Allen, formed Microsoft.
Their goal was to develop software for the newly emerged PC market (Gates, 1998, pp. 25-26). Originally, the company was situated in Albuquerque, New Mexico. Nevertheless, when IBM introduced the first PCs in 1980, Microsoft was given a chance to develop an operating system for the computer hardware and moved to Seattle to perform this task. Gates and Allen made some changes in the operating system, called the Quick and Dirty Operating System.
They gave the new name for it – DOS. After making improvements, DOS was licensed to IBM. From that time, Microsoft software became the standard for PCs around the world. However, to deal with competitors, Microsoft Corporation could not stop at this stage of development. That is why, in 1983, Microsoft created the Windows operating system, which provided users with such benefits (graphical interface) that were proposed also by the Apple system.
This innovation gained success in society and allowed Microsoft to retain the leading position on the PC market. Subsequently, in 1986, the company launched an IPO, which provided Microsoft with the necessary money to develop new products and buy out smaller competitors. In addition, Microsoft Corporation gave away Internet Explorer adjusting to the growing need of the Web. In 1990, Bill Gates introduced Windows 3.0 and provided further competition for Apple software.
By the 1990s, the company held a monopoly in the field of operating systems of PCs, as almost 80% of the world’s PCs used its software (Geisst, 2009, p. 179).
Nowadays, Microsoft Corporation can be defined as the leading company in the field of software. It is known worldwide for such applications as MS-Office Suite consisting of Word (word processor), Excel (spreadsheet), PowerPoint (presentations), Outlook (e-mail and news), and Access (database). Nevertheless, it is not only famous because of its software, but also because of hardware as it offers keyboards, mice, and Xbox gaming console. In addition, in 2013, Microsoft started to expand its power in the sphere of mobile technologies. It acquired the handset division of Nokia (Economides, 2003, p. 3).
Secondly, the benefits of Microsoft Corporation cannot be clearly noticed without regarding concrete case studies. The first one is concentrated on the company SunSmart Energy, which is situated in the U.K. It is “a startup company that designs, sells, and installs solar photovoltaic (PV) systems, which convert solar energy into electricity” (Microsoft, 2012). To attract customers and occupy the leading position on the market, the manager of it, Matt Thorington, has chosen the strategy of close contact with customers.
Microsoft has helped SunSmart Energy to bring this idea into life. It provides it with Microsoft Dynamics CRM Online, the customer and sales management tools, which can be accessed over the Internet. With this program, SunSmart Energy gains such benefits as a cost-effective purchasing model, based on a per month and per user basis, increased profitability through tight control of costs, and direct communication and connection with the customers (Microsoft, 2012). Nevertheless, Microsoft is vital not only for the business environment but also for social ones.
The second case study reveals the importance of Microsoft for people with special needs. Ignacia Picas is a student at Colegio San Benito, a primary level school in Santiago. She is blind. However, it does not prevent her from successful studying. Windows accessibility programs, integrated into Microsoft Office application, and compatible screen reading software play a very great role in it. They give her the opportunity to perform a full range of different activities in the class and be in the same league with other students (Microsoft, 2012).
Despite of all benefits that are clearly defined in these case studies, there are some of them, which point out the weak sides of Microsoft Corporation. For example, the Antitrust Division of the Justice Department accused Microsoft of violations of the Sherman Antitrust Act in 1998 (Geisst, 2009, p. 180). The initial trial judge admitted the guilt of Microsoft for monopolization and ordered the company to break into two parts (Geisst, 2009, p. 180).
According to the historical path of its development and concrete examples of case studies, the main benefits of Microsoft Corporation can be defined. The biggest one of them is the adjustment to the needs of the time. It means that managers of Microsoft work constantly on the improvement of software and hardware as well as the introduction of new models as it gives the opportunity to follow modern tendencies of life.
Another benefit is the diversity of products, which appeal to the needs of big companies and every citizen in particular. It becomes clear from both case studies. In the first example, Microsoft Corporation provides the company with a program that allows its constant connection with customers and tight control of the costs. In the second one, it allows people with special needs to feel comfortable in society. The third advantage is strong leadership.
Bill Gates has not only created a strong initial base for the company but also adjusted it to the needs of the turbulent times. For example, to overcome the competitor, Apple Corporation, Bill Gates has introduced Internet Explorer, Microsoft Windows, and Windows 3.0. Nevertheless, the drawbacks of Microsoft Corporation should not be underestimated.
The biggest of them that it is an almost complete monopolist in the sphere of computer software. Therefore, it does not give customers an opportunity for choice. In addition, the cost of the production is under the tight control of Microsoft Corporation. Consequently, it means that the government does not have many possibilities to regulate it.
There has been a great deal of focus on anti-trust legislation of late, as it involves most famously, Microsoft. Through the media’s attention to this particular company and the conditions of the legislature, we have come to hear a great deal more about the anti-trust legislature. The purpose of this paper is to analyze antitrust laws in relation to the well-known Microsoft antitrust case. The thesis of this paper is that Microsoft is a monopoly in the field of PC operating systems and has abused its monopoly power.
In order to have a complete comprehension of the case, I think it is helpful to provide some background information about the nature of monopoly, the history of antitrust laws as well as its intent and its role today.
It was during the late 1870s that the railroad industry was quickly becoming a monopoly. Through this monopoly, the railroad industry was gaining a substantial amount of power, revenue, as well as land. “As they began to flex their industrial might, society become aware of the potential problems associated with monopolies. Fearing that their businesses would be affected an organization of farmers known as the Grangers began to push for legislative action” (Millunzi). So what is a monopoly? There are two kinds of monopoly. One is a natural monopoly, which is subject to regulation by the government. Such a monopoly is desirable in our society. Because of extensive economies of scale, it would be inefficient to have several firms in an industry, such as the utility of the telephone industry.
The other type is an unregulated monopoly. The monopolists have considerable control over product prices because they are the only producers in the market. You get their products at their price or you get nothing. Fortunately, The U.S. has laws to protect consumers. On July 2, 1890, the Congress passed the Sherman Antitrust Act, which states Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony (Jackson), and again in 1914 with the Clayton Act.
The primary purpose of antitrust legislation is to prevent businesses from creating unjust monopolies or competing unfairly in the marketplace. Antitrust law seeks to maximize market efficiency and to protect consumers. It is often assumed that when a company succeeds in achieving a monopoly status, in whatever their industry, society loses out on the benefits that can be gained through competition.
Monopolies give the public a single provider instead of a choice; monopolistic corporations are inefficient and stifle innovation; being anti-competitive, they result in higher prices and poorer service to the consumer. “Without opposition, a company is able to charge unfair prices for inferior products, at the same time erecting a substantial barrier of entry to potential competitors. (Millunzi).
When we consider Anti-Trust legislation, we are looking at governmental efforts to prevent the forces of corporate wealth and power from assuming despotic control in our society over the lives of the members of society, whether individuals or other corporations.
Whatever the stated or implied goals, the real and essential justifications for antitrust laws are to prevent the violation of equal rights to participate in a free market, which is the foundation of both a free society and its free enterprise system, and to ensure that corporate power does not gather to itself sufficient control to become a despotic force in its own limited, but a segment of this society s economy (Economides).
As is generally true with all depots, they will continue expanding their wealth, power, and control until stopped. Regulation of capitalist enterprise, therefore, is absolutely essential in order to maintain a free society.
We have seen monopolies come and go, such as the phone company AT&T years back, and we are seeing it again with Microsoft.
Twenty years ago, Microsoft was a tiny two-people partnership that wrote an interpreter for a now demised language BASIC for an obscure computer company. Today, Microsoft Corporation is the largest software company in the U.S. The name Microsoft is on the tip of almost every computer user s tongue. Their software products cover almost everything that the computer has ever been conceived to perform, from movie-making to personal finance, the operating system to the application development environment.
Some of them we may be too familiar with, Microsoft Excel, Microsoft Word, Windows, etc., to name just a few. Obviously, Microsoft has had a profound influence on the computer industry and computer users as well. As Microsoft engaged in a series of antitrust cases, there are a few questions that need to be answered about Microsoft. Does Microsoft have a monopoly in the PC operating system? If it is a monopoly, has it abused its monopolistic powers? The answer is yes.
The case began in1990 when the Federal Trade Commission (FTC) began an investigation of possible collusion between Microsoft and International Business Machines Corp. By August of 1993, the investigation ended with no lawsuits. They handed the case over to the Department of Justice (DOJ). An investigation by the DOJ revealed that Microsoft monopolized in the field of operating systems (OS) of personal computers and illegally maintained its monopolistic power through anti-competitive actions.
On July 15, 1994, the DOJ and Microsoft settled the dispute by filing a consent decree. The provisions of the decree stated:
Microsoft agreed to end per-processor (zero marginal price) contracts with computer manufacturers (Original Equipment Manufactures, OEMs ) but it was allowed to use unrestricted quantity discounts.
Microsoft shall not enter into any License Agreement in which the terms of that agreement are expressly or impliedly conditioned upon the licensing of any other Covered Product, Operating System Software product, or other product (provided, however, that this provision in and of itself shall not be construed to prohibit Microsoft from developing integrated products); or the OEM not licensing, purchasing, using or distributing any non-Microsoft product. (Economides)
On October 20, 1997, DOJ sued Microsoft, charging the company with violating the 1995 settlement by requiring computer makers to install its Internet Explorer browser if they want to license or distribute Windows 95.
On June 23, 1998, the Court of Appeal ruled that the 1995 consent decree did not apply to Windows 98, which was shipped with an integrated IE as part of the operating system. The DOJ argued that Microsoft s bundling of IE with Windows and its attempt to eliminate Netscape as a competitor in the browser market was much more than adding functionality to Windows and marginalizing a series of add-on software manufacturers. (Jackson)
On November 5, 1999, Judge Thomas Penfield Jackson issued his findings of facts. On April 3, 2000, Judge Jackson issued his conclusions of law, finding Microsoft liable for maintaining its monopoly power by anticompetitive means and attempted to monopolize the web browser market, both in violation of section 2 of the Sherman Act (Jackson). It also concluded that Microsoft violated section 1 of the Sherman Act by illegally tying the Web browser to its operating system.
As we can see, there are several reasons that indicate that Microsoft is a monopoly in the field of PC operating systems. According to the findings of facts, Microsoft possessed a dominant, persistent, and increasing share of the worldwide market for Intel-compatible PC operating systems (Jackson). For the last decade, Microsoft enjoyed over ninety percent of the market share for Intel-compatible PC operating systems. PC manufacturers have no commercially reasonable alternative to Microsoft operating system for the PCs that they distribute. In addition, Microsoft s market share is protected by high barriers to entry.
One of the most important barriers is that a large number of applications are written to run on Windows. It would be difficult, time-consuming, and costly to create an alternative operating system that runs the programs that run on Windows. Therefore, a potential competitor would find it difficult to enter the market. As a result of such a barrier, Customers do not have any option to choose an operating system for their PCs other than Windows. Microsoft, then, can charge a price for Windows far above the competitive market price without losing customers.
Bill Gates, the founder of Microsoft, claimed that Microsoft was not a monopoly and that the software industry changed radically every six to eighteen months (Economides). This was not true and I think if Microsoft became a monopoly in the free and open market because they had a great product at a reasonable price, no one would complain. There was nothing wrong with being a natural monopoly if the status was gained because the product was excellent. Consumers would not worry that there was no substitute for Windows. In addition, Microsoft was also famous for its innovation.
However, the main violation, in this case, consists of Microsoft s effort to prevent their competitors from participating on an equal basis in a free market. According to the testimony, IBM was threatened into holding back the development of its operating system, known as OS/2, so that it would not compete with Windows. (Jackson)
Besides, Netscape s investigation also revealed another anticompetitive action conducted by Microsoft. Microsoft made written offers to OEMs, Internet Service Providers (ISPs), and too large corporations. These offers provide for either clandestine side payments or discounts on Windows. These inducements are on the condition that the offeree makes competitors browsers far less accessible to users than Microsoft s browser, known as Internet Explorer. (Reback)
In order to squeeze other competitors (Netscape is the biggest rival) out of the browser market, Microsoft conducted another market manipulation tactic by bundling Internet Explorer with the Windows operating system free for redistribution. This meant OEMs and consumers would get Microsoft browser on the Windows desktop whether desired or not. Such action was not fair. And by forcing Internet Explorer on customers at the expenses of Netscape and other rivals Microsoft has violated the antitrust law. (Reback)
Although bundling IE with Windows may benefit consumers in a way that it is given away with no extra charge, increasing its availability, improving the quality of web browsing software, as argued by Microsoft. The action, however, brings a much more detrimental effect on consumers than getting IE for free.
Consumers will get IE even they don t need it and they have to satisfy the slower speed, less memory than the browserless computer. Their preferences of Netscape Navigator may be ignored. And Microsoft will use its monopoly power to harm any rival with the potential to innovate in the computer industry.
In my opinion, Judge Jackson has done a very effective job of applying antitrust regulation to the case. He was completely fair in his decision. It allows Microsoft to divide into two companies, which can spell a great deal of success for Microsoft if they really have no competition, then splitting into two companies only serves to provide them with more opportunities. And if there is no real competition on the horizon, then in 10 years they can reunite the company, having lost nothing in the process.
He could have penalized much more substantially, which was a reasonable decision. We, as users, do not question why computer technology is the way it is, but rather blindly accept what Microsoft has told us, given us, and shown us. We have not stopped to examine how it could be better and more convenient for the user.
Through Judge Jackson s decision the computer industry is given the opportunity to see if it can do these things. Without the complete influential power of Microsoft, it stands to reason that another company may well come onto the scene, giving us more than we have at present, with only Microsoft to provide us with the technology.
In conclusion, Microsoft is indeed a monopoly. Today we will find it challenging in selecting desktop applications, programs that can run properly without crashing when users are running the latest version of Microsoft s Windows operating system. Microsoft, the only company that really know how its operating system works and the only company that can arbitrarily change how that operating system works.
Not content with its enormous market share in PC software, through its prodigious power, Microsoft wants to hold our hand as we navigate the information superhighway, and to push us toward its own partners or by strategically placing desktop or browser links to its products and services.
This will give Microsoft enormous advantage in positioning its own products in electronic commerce and let it play kingmaker for other businesses. Fortunately, the U.S. has antitrust law to protect businesses and consumers, to ensure that every participant plays fairly in the market. Any violation of the law must be prosecuted. Antitrust regulation is indispensable in a free society if the free market and open competition are to be maintained.
Cite this page
This content was submitted by our community members and reviewed by Essayscollector Team. All content on this page is verified and owned by Essayscollector Team. All comments and user reviews are moderated by Essayscollector Team. In the case of any content-related problem, you can reach us through the report button.