Microsoft juggernauts and antitrust

David Berlind has been writing a fascinating series of blog posts on the "Microsoft media juggernaut." In case you missed them, you can see them here (first, second, third, fourth, and fifth, my apologies if I missed some).

David Berlind has been writing a fascinating series of blog posts on the "Microsoft media juggernaut." In case you missed them, you can see them here (first, second, third, fourth, and fifth, my apologies if I missed some). I find it particularly fascinating because, as a new Microsoft employee, I am now riding inside that juggernaut.

I agree with David's analysis. Microsoft has been moving its chess pieces into place for quite awhile. The unique thing about Microsoft's game, however, is Microsoft's ability to take such a long view of evolving markets. Microsoft has been making forays into the entertainment realm for a very long time, but only recently have people awakened to the fact that they aren't just succeeding, but are the only company with all the pieces in place to have lasting success.

Think of the evolving web of interconnected devices all running Microsoft technology. Microsoft has built an entertainment ecosystem that it would take a competitor years of experimentation and billions in investment capital to match.

As Berlind pointed out, Microsoft's "monopoly" in desktop computers isn't the reason for that success so much as good business decisions not matched by Microsoft's competitors. Still, Berlind thinks that Microsoft should have been broken up into three companies (which goes further than Judge Jackson's proposal of two).

I don't agree, which shouldn't surprise anyone, for a number of reasons. Consider the moral hazard associated with giving companies the ability to rely on government to take a competitor down a notch. People should ask themselves why Microsoft's competitors didn't match its media moves. Were they relying on the courts to break Microsoft up, or at least constrain them with antitrust straps? Sun certainly invested lots of time and effort bad-mouthing Microsoft and/or fighting them in the courts long after it was clear that a plucky little penguin was more a risk to its business than Microsoft.

Are consumers and potential partners (phone vendors, handheld makers, set-top box makers) stupid? Can consumers not be trusted to choose between products that plug-in to the Microsoft universe and those that don't? Will vendors fail to make the best choice with respect to the software that runs on their products? (remember, Microsoft isn't a hardware company.) If you answered "Yes" to any of those questions, there may be a job for you in the Soviet Central Planning Agency.

Okay, facetious comments aside, markets are complex systems consisting of trillions of inputs. This complex system works best when decisions are localized, not because individuals always make perfect decisions, but because individuals (or individual companies) have more knowledge of their relative circumstances than any outside group could ever hope to have. I’d have a better chance of buying a car that suits myself, because lord knows you wouldn’t know I wanted a Honda Element.

In other words, people aren’t stupid. People are best suited to make choices that fit their own needs, which is what matters in the end. This means that the shape of a free economy is as consumers/vendors want it to be, irrespective of whether it fits idealized notions of competitive markets.

As a final point, consider the benefits of technology ecosystems. TCP/IP has created an ecosystem of sorts for networked products. GSM standardization created a vibrant wireless economy in Europe and Asia (though there are murmurs that the European approach to wireless standardization may be too inflexible for modern needs). Granted, these are protocols, and the popularity of both had its roots in government policy, but the principle of ubiquitous technology driving innovation and job creation is the same whether one company does it or governments mandate it.

Software needs standards, de facto or not, a point I've repeated so many times people think I'm stuttering. Microsoft makes many of them, whether or not international standards bodies have placed their imprimatur upon them.

Similar to the cases of GSM and TCP/IP, those standards make possible whole new industries, and create products which wouldn't exist without ubiquitous standards. That's a good thing, and not without precedent. It was good for Korea Telecom (now KT, the former Korean telecommunications monopoly) to spearhead Korea's broadband explosion. It was also good for NTT (Nippon Telephone & Telegraph, Japan's former telecommunications monopoly) to spearhead Japan's wireless revolution (through NTT DoCoMo). Both did so without the bloody dismemberment that was America's "solution" to its former state-constructed telecommunications monopoly.

Companies with strangleholds on a market aren't good. However, as the KT and NTT examples show, our fear of corporate ability to strangle a market is vastly out of proportion to reality. Sometimes it’s better to trust that markets do the right thing than to hope antitrust bureaucrats can outguess the localized decision-making process of market systems.

Though I considered Judge Kollar-Kotelly’s ruling better than the one proposed by Judge Jackson, I still have my doubts…and it's not because I don't think it's good for Microsoft to be open with its technology. Rather, I wonder whether markets wouldn't have forced Microsoft to be more open without government assistance. It seems strange for a government agency whose aim is to tame the power of Microsoft to spend millions making a kinder and gentler corporation that is less likely to scare away partners and customers and thus more able to build the media ecosystem that Berlind talks about.

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