May 24, 1998

Competition More Threat To Microsoft Computer Tie-In

For those of us who haven’t figured out how the pulley works, the Justice Department’s anti-trust suit against Microsoft revolving around “tie-ins” is less than absorbing.

Of greater import is the philosophical standing of free-market competition versus government regulation.

The Sherman Anti-trust Act adopted in 1890 stipulates: “Every contract, or combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several Sates, or with foreign nations, is hereby declared illegal.”

The Clayton Anti-trust Act of 1914 strengthened the law, and the giants of industry began to fall. Economists and historians ever since have debated whether anti-trust has helped or hurt consumers.

Certainly the so-called “robber barons” of the late nineteenth century made enormous fortunes by exploiting such new technologies as the steam locomotive, electricity and internal combustion engine. Yet they ushered in great benefits at low prices for Americans.

Federal Reserve Board Chairman Alan Greenspan declared 30 years ago that “the entire structure of anti-trust statutes in this country is a jumble of economic irrationality and ignorance.”

The prospect of fabulous wealth, and the constitutional right to profit, are the drive wheels of democratic capitalism.

Thus, the plight of Bill Gates, founder of Microsoft Windows, is germane today. He started out as a young man tinkering with an early Apple Computer in his garage. Now he is said to be the richest man in America with a net worth of $230 billion.

Gates copyrighted the “software” Windows program used in 90 percent of personal computers. It encodes “application” commands on a magnetic disk. This operates the right combination of electronic switches among the millions on a computer’s “hardware” of silicon chips. Intel Corporation has patented Pentium, the most widely used chip for personal computers.

There are hundreds of computer applications available. Most popular are those for word processing (hooray for spell checking) and for “browsing” on the “internet” library of information sites (some valuable, some trivial). Internet providers try to make money through advertising spots and subscriptions. Largest internet site of several available is Netscape Navigator with the most extensive library and ten million subscribers.

Gates has a late-starter browser program known as Internet Explorer with three million subscribers. He tries to promote the application by “tying” it to his Windows program -- if you want Windows you must also take Internet Explorer and give it “first frame” exposure.

Windows 98 and Internet Explorer are on their way to manufacturers -- despite efforts of the Justice Department to stop them. Upgrade kits for existing computers will be available also. Tying is not illegal unless it also requires manufacturers to refuse any other systems.

The legal battle over Microsoft’s alleged restraint of trade hinges on a fine point of law. “Integrated” systems of products are OK with the Sherman and Clayton acts. Separate programs tied together, and requiring preferential treatment, are prohibited.

Microsoft says Windows and Internet Explorer are integrated -- one won’t work efficiently without the other. Justice Department contends they originally were separate products -- and remain so. Therefore, they should be sold separately without tying.

Gates points out that automobile radios originally were sold as add-ons by non-dealer installers. Today they are bundled as a package with the automobile. Gates asserts that conditions change.

Correct. This tendency for new technology to change rapidly should give pause to both Microsoft and Justice. There are technical developments in the offing that very well could make today’s personal computers obsolete -- and the anti-trust suit moot -- in a twinkling.

Now being market tested is Oracle, which connects a keyboard and home television set to computer hardware in a central office. Cost: $299. Sun Microsystems has introduced its Java operating system more versatile than Windows.

It doesn’t make economic sense to pack powerful hardware into every personal computer when the average owner uses it only as a smart typewriter or a network browser. The telephone, for example, is just a connecting device to billions of dollars worth of switching equipment downtown.

Gates knows the days of free-standing personal computers are numbered. Hence, his desperation to extend his monopoly and get into the internet business.

It took the Justice Department 13 years to destroy IBM’s near monopoly in central office computers. The company finally collapsed because of competitive pressure of the personal computer.

The free market, free of government interference, will create more competitors -- and introduce innovations quicker -- than a pack of well meaning bureaucrats.

Good luck to Gates, and good luck to his competitors.

PARTING SHOTS

Mike McCurry, Clinton’s press secretary, says the Republican suggestion that the president not go to China next month as planned would “dis” that country. Doo dah main man know his press dude jives Ebonics?

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Bread always falls jelly side down.

By Lindsey Williams, columnist for Sun Coast Media Group newspapers