CYBERPUNK: Microsoft Should Blame Itself

Bill Gates has only himself to blame. He can rant all he wants. He can stomp his feet and get all red in the face. He can threaten to appeal all the way to the Supreme Court. He can jive on about innovation and competition being stifled. It'll all be for naught. "Tell it to the hand," the Justice Department seems to be saying, "because the ears aren't listening."

When the grand book of computer history is written, the story of the greatest software company of the 20th century will be that of a giant struck down by its own hand. Microsoft fell into the same old traps that have always awaited those in power: greed, arrogance, paranoia, stupidity. Here is a company that had it all -- the entire personal-computer operating-system market and darn near most of the office-applications market as well, with annual booty nearing $20 billion. And it threw it all away, largely in order to battle a fluke, a blip on the screen of prosperity that was somehow perceived to be a nuclear-sized threat: Netscape.

On April 3, U.S. District Judge Thomas Penfield Jackson ruled that Microsoft broke federal antitrust law in its attempts to squelch competition by throwing its weight around ( U.S. vs. Microsoft). Microsoft, the judge determined, bullied computer companies such as Compaq into not using start-up scripts or other programs that would pre-empt Windows. The goal was to prevent computer makers from selling machines loaded with Netscape Navigator -- which was, by 1996, the principal competitor to Microsoft's Web browser, Internet Explorer.

Microsoft's mistake was treating Netscape as if it were a threat to Windows itself -- in retrospect, a laughable notion. Certainly in the mid-'90s Netscape ruled the browser market, just like WinZip rules file-compression software today. However -- also like WinZip -- Netscape posed no real threat to the Microsoft empire. Sure, the new company, drunk on its own rise, may have had plans for extending beyond the browser window, but it never got out of the development stages; hell, it couldn't even keep it together in the browser market. Did anyone not feel severe pain using Netscape Navigator 4.7, a piece of software so elephantine it makes Internet Explorer look nimble?

The bottom line is that people still use operating systems to operate their systems and Web browsers to browse the Web. The only difference is that now Microsoft, not Netscape, lords over the browser market. However you choose to characterize the means by which Microsoft achieved this dominance (and Judge Jackson characterized it as illegally monopolistic), it's a Pyrrhic victory at best. The market the Redmond Giant so lusted after is now one in which the the average price of the product is $0. You can download either Explorer or Navigator for free.

What price this triumph? The government-imposed breakup of Microsoft itself. On April 28, the Justice Department offered this remedy for the antitrust shenanigans: Split Microsoft in two. One half would get all the operating systems -- Windows, in all its flavas (2000, CE, NT). The other half would keep the applications, such as Microsoft Office and Internet Explorer.

Way to go, Bill!

Perhaps the most ludicrous part of this tale is that it was entirely avoidable. What led to this sorry state of affairs, Washington Post columnist David Ignatius argues, was Microsoft's steadfast refusal to make nice with the Justice Department. Ignatius writes that Gates "took a case that could have been settled and turned it into a war of principle." In 1998, the feds would have accepted a settlement that consisted mostly of allowing computer manufacturers the option of setting their own "first screen." As recently as earlier this year, Justice "was prepared to negotiate a tough but workable set of limits on Microsoft's conduct" that would have kept the company intact. "But again," Ignatius wrote, "Gates balked."

In fact, if not for its high-profile attack on Netscape, Microsoft would have likely continued to enjoy its near dominance of the operating-system market. As Forbes magazine points out, there are plenty of other monopolies or near-monopolies that don't seem to bother the Justice Department (or just about anyone else, for that matter): Rawlings Sporting Goods has the grip on Major League baseballs, Eastman Kodak on film, Brannock Device Co. on shoe-store sizers, the U.S. Postal Service on first-class mail (See Forbes Magazine, "Go to Jail"). Would anyone have really sweated the ruthless domination of a company that ranks only 84th -- behind such other ruthless consumer heavyweights as Sara Lee, Kmart, and Safeway -- on the Fortune 1000, that venerable power ranking of U.S. companies by revenue?

Judge Jackson will decide this at a hearing May 24. Will he tear asunder the Redmond Giant? Can Gates keep Microsoft together, if only by appealing the case indefinitely? More importantly, will he ever get over his arrogance, which thus far has probably cost billions in shareholder value and made him look silly besides? Stay tuned.


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