Microsoft, A Monopoly No More

Robert Hahn
Robert Hahn
Robert Hahn Director of Economics - Smith School of Enterprise and the Environment at the University of Oxford, Former Brookings Expert

April 7, 2000

Apparently, justice will try to be swift now that Federal District Judge Thomas Penfield Jackson has declared that Microsoft maintained a monopoly in personal computer operating systems by anticompetitive means.

But even if the judge accomplishes his goal of compressing the remedy and appeals process, he may find that his decision is too late. The technology business has changed light years in just the two years since this case was filed, and it’s hard to imagine a judicial remedy that would be relevant.

The government said that Microsoft tried to dominate the browser market by tying its Web browser, Internet Explorer, to Windows, the company’s operating system. Microsoft allegedly believed that Netscape Navigator, the competing browser, could undermine the value of Windows by doing its job as a kind of electronic valet, performing routine functions like telling the printer what type size and style to use. By making Internet Explorer ubiquitous, the government contended, Microsoft eliminated a potential rival to Windows.

But where does the market stand today? Netscape Navigator did indeed lose its title as king of the browser hill. But far from slipping into oblivion, Netscape was purchased by America Online for $10 billion.

Why pay so much for a loser? AOL (and everybody else in the industry) had concluded that the real value of Navigator lay in its affiliated Netcenter, a super-site on the web that attracts surfers (and thus advertising) by offering a variety of services ranging from sports scores to yellow pages to online chat rooms.

AOL’s acquisition also made it almost impossible for Microsoft to eliminate Navigator. AOL can guarantee that Navigator will have tens of millions of users simply by switching its own Internet service customers to Navigator from Internet Explorer.

Indeed, with the release this week of a newly enhanced version of Navigator, the browser wars are about to recommence.

What else has changed? Start with the spectacular rise of Linux. When the trial began, this software had a modest toehold as an operating system for network servers, the computers that coordinate local networks. Today, however, the major computer makers offer Linux as an alternative to Windows for personal computer users, and investors have bet tens of billions of dollars that Linux can take a big chunk of the market away from Bill Gates and company.

Or consider the sudden rise of so-called netpliances, like Palm Pilot. Before the antitrust trial, computer-like devices that didn’t run on Windows were a curiosity. Today, handheld devices like the Palm Pilot are used by millions to exchange e-mail and surf the net.

Sprint is heavily advertising cell phones that offer stripped-down e-mail and browser functions as well as voice communications. Simple desktop computers that do nothing but e-mail and web surfing and don’t use Windows can be had for as little as $99. Meanwhile, Sony and Sega are selling sophisticated game machines that also provide access to the Net.

Perhaps the most insidious challenge to Windows comes from new applications software built to run with virtually any computer using virtually any operating system. Sun Microsystems, for example, has designed office software—for spreadsheets, word processing and schedule organizing—that sits on big network servers and can be used by any computer linked to the Internet.

The browser war was just one of an endless series of battles for supremacy in information technology. And recent history suggests that technological change, not antitrust intervention, is the best defender of competition.

Robert W. Hahn, director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies and Non-Resident Scholar for The Brookings Institution, is a consultant to Microsoft.