Microsoft will not be broken up. There's no chance the Bush
administration will ask the Supreme Court to reverse Thursday's federal
appeals court rescue of the company. Instead, the case will go back to a
new judge to decide how to respond to Microsoft's monopoly without
splitting it up. The best outcome: a new order requiring Microsoft to
make its Windows operating system available to everyone free of charge.
Here's the problem with Microsoft's monopoly, which even the appeals
court agrees still must be addressed: Windows is so widely used that
other producers of computers, browsers and other software have to license
it from Microsoft if they want to connect their gadgets and codes to most
other gadgets and codes on the market. This gives Microsoft power to
thwart competition and discourage innovation.
Imagine what would have happened a century ago at the dawn of the age
of electricity if a company named, say, Electrosoft had patented a design
for electrical plugs and sockets. Assume its design is four prongs
arranged vertically--maybe not the most efficient, but Electrosoft is the
first and biggest company in this new market for electrical appliances,
so the four-prong vertical design becomes a standard that everyone begins
Soon all homes have Electrosoft sockets in their walls, and all
appliance makers use Electrosoft plugs. Building contractors and
appliance makers pay Electrosoft a royalty every time they install or
make a new socket or plug. As Electrosoft's profits mount up, it becomes
one of the richest companies in America, and the net worth of its
president soars to a level about equal to the total net worth of the
bottom half of all American families combined.
Now suppose Electrosoft uses its huge profits to start marketing its
own electric appliances. It even gives away a free toaster or lamp with
the purchase of any Electrosoft plug or socket. Good for consumers,
Yes, but wait. As a result, every other maker of toasters and lamps is
wiped out. They can't make a profit. And potential inventors of future
electric appliances don't even try. Why bother? There's no money to be
made competing with Electrosoft.
A few years later, Electrosoft raises the price of its toasters, lamps
and other appliances. Buyers have no alternative but to pay the higher
price. And forget about innovation. Electrosoft might invent some other
appliances, but isn't in any great hurry. After all, no other company is
inventing electric appliances. Refrigerators and electric stoves won't
appear for a century.
Now fast forward to the present day, and Microsoft. The company says
consumers gain when it adds free software gizmos to its Windows operating
system, like e-mail servers and Internet browsers. But like the
Electrosoft example, consumers will suffer in the long run if Microsoft
wipes out competitors and discourages other software inventors from
coming up with their own new gizmos, such as voice-recognition devices,
video mail, three-dimensional Internet or whatever else lurks just beyond
Microsoft says consumers benefit from having a common standard Windows
operating system. The company is right--imagine how confusing life would
be if there were tens or hundreds of different operating systems. But
this doesn't mean Microsoft should rake in huge profits from selling
Every period of rapid technological change creates a need for common
standards. In the early 1880s when lightbulbs were first invented, bulbs
and sockets came in 175 different sizes. The threads on hoses, screws and
other industrial parts that were supposed to fit into one another were
almost as varied. When a portion of Baltimore was in flames, city
officials discovered that almost none of its fire hydrants and fire hoses
Yet rather than one company setting common standards, industries as a
whole set them and made them freely available. A standard for lightbulbs
and sockets emerged in 1884, and shortly thereafter the two-prong plug
and socket that we still use today. In the early 1920s, Herbert Hoover,
then secretary of Commerce, created a National Bureau of Standards to
hasten the development of many other standards, free of charge. It was
one of his finest achievements.
So if Microsoft isn't going to be broken up, there's the other way a
court can undercut its monopoly: Require it to make Windows freely
available, like any other common standard. That way, consumers get the
convenience of a common standard without sacrificing the benefits that
come from competition and innovation.
But don't hold your breath. The Bush administration will settle on
terms favorable to Microsoft. And Microsoft won't be willing to give up
Windows. That means Microsoft is likely to behave just like Electrosoft.
Watch your wallets.
Robert B. Reich, a former Secretary of Labor, is a professor of social and economic policy at Brandeis University and the author of "The Future of Success" (Knopf, 2001)
Copyright © 2001 Los Angeles Times