The Slippery Slope

June 7, 2000 is a day that should go down in the books as one of the darkest days in the history of high technology business. It was the day that Federal Judge Thomas Penfield Jackson, unwitting tool of the anti-Microsoft lobby, ruled that Microsoft—due to anti-competitive behavior—should be split into two companies. It was the day the government of the United States decided that the free market doesn’t work.

Alright, I admit this might be a little melodramatic, but I firmly believe that the decision to split Microsoft into two companies is wrong and fundamentally flawed. Furthermore, aftershocks of the decision will reach further than anyone thinks.

To date, there have only been two major breakups of companies found to be monopolies by the federal government: Standard Oil and AT&T. In both of these cases, I think reasonable people will agree that the effects of their monopolies had deleterious effects on the consumer.

Standard Oil was more than just a monopoly. It was a vertically integrated conglomerate that had virtually no competition whatsoever, on any front. Standard Oil owned the oil exploration outfits, the drilling rigs, the refineries, the distribution network, the whole kit and caboodle. Because of this, they were able to set the ultimate price that consumers paid for petroleum products.

Follow the chain. They could find the oil. They could drill for the oil. They could refine the oil. They could distribute the petroleum products. With no competition they could set the price that the consumer paid, no matter what the actual cost of production. Even worse, it was impossible for anyone to break into the oil business. For example, if you wanted to start a drilling company, how were you going to find the oil? Certainly Standard Oil was not going to let you use their exploration companies. The barrier to entry into the oil market was so high that starting an oil business just wasn’t practical.

In much the same way, AT&T controlled the telephone business before their breakup and no one could realistically think of starting a telecommunications company while AT&T held their monopoly. Again, they controlled the prices for telephone service and most would say these artificially high prices harmed the consumer.

Now we have Microsoft that, just for kicks, I’ll concede is a monopoly. What I won’t concede is that Microsoft’s monopoly, and their business practices, have harmed the consumer. It is clear that Microsoft is a fierce competitor and will do anything in its power to destroy their competition. Well, so what? Weren’t the anti-trust laws put in place to protect the consumer, not the competition?

I am not convinced that the price of PC operating systems would be lower if there had been more competition in the market. It would be hard, if not impossible, to prove.

When Microsoft moved the browser into the OS, thus reducing the cost of Internet browsers to zero, this had the effect of destroying Netscape. At the time, Netscape derived more than 50 percent of its revenue from browsers and the company never recovered, and was eventually bought by AOL. Now, exactly how did this hurt the consumer? They got something for free that they formerly had to pay for, and it was more closely integrated with the OS, and therefore easier to use.

Certainly Netscape has a beef with Microsoft, and that is exactly why the DOJ pursued the suit. The powerful Silicon Valley technology lobby, a decidedly anti-Microsoft group, pushed hard for the DOJ to bring the case to court, and they ultimately succeeded.

Unfortunately, their success may backfire on them. Now that the government has had a taste of controlling the advancement of technology, will they sit back and let the market, thus corrected, take its own course? I think not.

If I were John Chambers, CEO of Cisco Systems, I’d be sweating bullets right now. Their own marketing campaign makes them a prime target for Joel Klein and his “trust busters.” What is Cisco’s marketing slogan? “The Worldwide Leader in Networking for the Internet.”

After Cisco, who’s next? Sun? HP? Who knows? The great thing about the free market is that it adjusts itself, it adapts, and those that don’t adapt to it get rolled over and left in the dust.

I saw a poll on CNN.com the day after the decision that showed that almost 65 percent of those polled did not agree with Judge Jackson’s decision. These polls, albeit not very scientific, usually reflect the will of the people. Now, the people may not know squat about anti-trust law, but I’ll bet they know if Microsoft has hurt them.

I can think of many companies that have injured me more than Microsoft. How about the record companies that artificially inflated CD prices, or OPEC for making me pay $1.79 for gas that should cost 99 cents? There are so many companies that the DOJ could target now, that they will have enough work well into the next millennium.

On second thought, why don’t we leave them alone and let the free market sort things out. It’s done quite well until now and I trust the free market more than I trust Thomas Penfield Jackson.

Related Information:

  • Antitrust Division Department of Justice (new window)
  • Microsoft PressPass Trial Page (new window)