Open letter to the European Commission

COMMENTARY--I’m no fan of antitrust. That should be clear frompast articles (my second article on ZDNet was named,rather melodramatically, "Death to Antitrust") where I’veoutlined several reasons why I believe antitrustpolicy is outdated and detrimental to economic health.

Contrary to popular belief, I’m not emperor of the world, and lots of people think antitrust is very important to the proper functioning of modern economies. The U.S. Government obviously falls intothat category, as does European Commission, who lastweek conducted hearings where Microsoft and itsopponents argued over remedies proposed by theEuropean antitrust authorities.

I take less issue with the actions of antitrustregulators, however, if they make it a point toconsider the original purpose of antitrust, which wasto benefit consumers using competitive markets as ameans to that end.

In my post-Tunney comments (which was originally a letter sent to State Attorneys General involved in the case, as well as the Microsoft legal team and Judge Kollar-Kotelly), I argued that requiring Microsoft to open protocols related to interoperability was in keeping with the original spirit of antitrust, more in keeping with the lessons of the last 100 years of economic history and vastly superior to the structural remedies previously advocated by Judge Jackson. Along those lines, I recommend that the European Commission concentrate on mitigating market power through the enforcement of more open desktop and server interoperability protocols and reject attempts to take software design decisions out of Microsoft’s hands.

What not to do--The Commission’s Media Player Proposals
The European Commission understands the difficulties faced by competitors when Microsoft decided to integrate a new feature into Windows. Given that every copy of Windows ships with the new feature, third parties must convince end users that their product is sufficiently better than the existing, integrated product that they are willing to download a replacement. Though this is certainly easier today compared to 10 years ago before the internet revolution reshaped global commerce, it still requires interest on the part of the individual.

This is a valid issue. However, making life easy for competitors is not the goal of antitrust. Consumers derive a number of benefits from the presence of features integrated into Windows that outweigh the heightened competitive pressures faced by third-party vendors of those features.

Gains from API consistency
As I noted in my Tunney comments, software needsstandards because software lacks natural levels of compatibility. Application Programming Interfaces, or APIs, are the means by which programmers reuse code built by other programmers. However, there is infinite variability in the definition of an API. To send mail, one vendor might choose to create an operation named "SendMail," while another might call it "_SendSmtpMail." Furthermore, the types of data either operation requires to perform its task (a.k.a. "parameters" in programmer-speak) will vary between the two operations.

This search for standards explains why consolidationaround one dominant API has happened repeatedlythroughout the history of the computer industry. Standard APIs imply a larger market for products whichadhere to that API, enabling boosted developercompetency and an increase in compatible product. Inthe past, IBM defined the APIs for the industry, arole filled today, at least on the desktop, byMicrosoft. Linux is rapidly becoming the center ofthe Unix programming domain, and Apache has all butbecome the de facto standard for web servers.

Integrating the latest technology behind new APIs isone of the tasks required of standard-settingcompanies or organizations. This enables developersto use that technology easily without having to becomemasters of its idiosyncrasies, enabling them toconcentrate on logic specific to their application. In the case of Windows, Microsoft included networkingand a primitive web browser with Windows 95, Mailhandling functionality through Outlook Express,Instant Messaging through MSN Messenger, and mediaplaying as far back as Windows 3.0.

This integration leads to software that can assume thepresence of high-level technology features thatconforms to a particular API. Intuit’s tax softwareis built atop the Internet Explorer HTML renderingengine, a product that I’ve noted in the past is moreAPI than client browser tool. Similarly, a number ofcompanies reuse Microsoft media playing components,among them any product that uses DirectShow to rendervideo to a screen (DirectShow is now THE media API for Windows), or more specifically, the repackaged Napster music service. This leads to more feature-rich applications, which benefits consumers.

It’s worth noting that MediaPlayer IS capable ofplaying media in formats besides Microsoft’s own,something far more important than which clientapplication an end-user uses. MediaPlayer is builtatop Microsoft’s DirectShow pluggable media handling technology. Plug-ins exist for MP3, as well as QuickTime and the Real Audio format. In other words, third parties have a relatively easy time making themselves a part of the Windows media playing API. They just have to provide a DirectShow "filter" (inDirectShow parlance) for their media format, and endusers can view/hear the new media stream using MediaPlayer.

Gains from market building
Most people who use a television know next to nothingabout how it works. This doesn’t mean, however, thatregular consumers shouldn’t use TV sets.

The same applies to regular computer users. Mostconsumers view computers as a tool. They want to beable to run the software they find at the localcomputer store or download off the internet. Theywant to use the hardware that is available. Theydon’t tend to explore all the capabilities of theircomputer, simply because they have other things to dowith their lives.

This means they aren’t likely to use new technologyunless someone shows them the ropes. In that regard, integrated products act like training wheels for the non-technical user. They learn what kinds of things are available on the web by using Internet Explorer. They try out instant messaging using MSN Messenger. They experiment with digital media using theintegrated Media Player product. Furthermore, theycan be assured that any computer they encounterrunning a particular version of Windows will have thesame high-level features.

This creates market opportunities for companies thatbuild ancillary products that require the popularityof certain technology. Content providers have newopportunities due to the presence of a unified marketcapable of consuming their product.

Many analysts have opined that the lack of broadband applications has held back widespread adoption of broadband in the United States. Microsoft’s inclusion of new high-level features into their OS builds markets by creating a consumption point for technology, generating revenue for third parties and building a large and profitable software ecosystem that provides lots of jobs, in Europe and elsewhere.

Remember, antitrust is about consumerbenefit
Non-technical users eventually become more experiencedwith new technology, and might find the defaultproduct lacks features they want. Such people mightdecide to go out and download alternative products. This was certainly the case when media player was the "lobotomized" product which existed in previous versions of Windows. Such products served as poor competition to more professional products, and experienced users quickly went in hunt of them. In this case, integration drove demand for third party products by introducing non-technical users to new areas of technology in greater numbers than these third parties might have managed on their own.

The inclusion of product only becomes a problem forMicrosoft’s critics when the product becomessufficiently good that regular users have less of aneed to try alternatives. Being "too good" has beenidentified as problematic by American courts in thepast. The Honorable Learned Hand famouslystated in his Alcoa Aluminum antitrust ruling:

"we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections, and the elite of personnel."

Consequently, this ruling has been widely criticized,and for good reason. It actually suggests thatcompanies should NOT make high quality, low costproducts for their customers as it is"anti-competitive" if they are so good that lifebecomes very hard for competitors. In other words,the Alcoa ruling lost sight of the original purpose of antitrust. The preservation of competition for its own sake became the underlying principle, not benefit to consumers.

In short, if Microsoft makes such good integratedproduct that consumers have less incentive to tryalternatives, then that is GOOD for consumers.

Never forget, however, that alternatives DO exist toevery product in Microsoft’s software library. Linux,the Mac OS, FreeBSD, Netscape, Mozilla, Opera,RealPlayer, Apple’s QuickTime player, WordPerfect,StarOffice, etc. ALL exist. The "problem" withMicrosoft isn’t that competitors do not exist. Rather, the issue is whether consumers choose to use competitors’ products.

Part of the reason competitors always exist insoftware markets is that software isn’t like airplane manufacturing, an industry that requires billions in up-front costs. Software has low barriers to entry due to low cost tools (PCs, plenty of free developmenttools) and the human skill orientation of softwaredevelopment. Microsoft has often been consideredparanoid due to its constant fear that the companythat will replace it lies just over the horizon. Tosome extents that fear is justified, as softwareevolves VERY swiftly due to low barriers to entry.

Most of the industry considers Linux a seriouscompetitive threat to Windows. I don’t imagineMicrosoft fails to take Linux seriously, and neithershould antitrust regulators.

Remember the power of free markets
Free markets work for one simple reason: becauseindividuals have more knowledge than planners can everhope to gather. This isn’t because the people chargedwith making economy-wide decisions are stupid. Rather, just as an individual responsible formanufacturing TV sets knows less about what isrequired to run a steel mill, far-removed plannerscannot know as well as individuals their particularneeds, or the circumstances of individual lives. Individuals spend their entire lives living insidetheir own skin (at least, I do). This is "division oflabor" at its most distilled, and represents whyrelying on free individuals to make decisions inmarkets works better.

Individuals make better buying decisions as well asbetter producing decisions. In other words, peoplewho work at Oracle are better able to make properdecisions related to the Oracle database product. People at Novell are better able to make properdecisions with respect to their directory servicesproduct. Lastly, people at Microsoft are better ableto make proper decisions with respect to Microsoftproducts.

When the Commission suggests that Microsoft redesigntheir products, they are bypassing division of laborand OF NECESSITY making a less informed decision thananything Microsoft could make. Like I said, thisisn’t because commissioners are less intelligent thanthe general population. Rather, it is becausecommissioners don’t spend every working day of everyyear getting to know the insides and outsides ofMicrosoft products.

There are a number of reasons why Media Playing functionality exists in Windows that have relevance today, and that I’ve mentioned. You would see where they are going with the technology, however, if youattended Microsoft’s recent Professional Developer’sConference in Los Angeles. The ability to use mediawill be extended to every aspect of the Longhorn userinterface (Longhorn is the next generation of theWindows operating system), leading to richer and more interactive user interfaces. Such is the advantage of integrating advanced media playing architectures into Windows, as it enables media to be used in ways that standalone applications of the sort envisioned by the European Commission cannot enable.

These are all things that Microsoft developers, as"experts" from a division of labor standpoint inMicrosoft products, well understand. 100 years ofeconomic history has shown that the best approach toeconomic management is to leave choices as much aspossible up to individuals. Along those lines, Isuggest that the Commission should leave choicesrelated to the design of Microsoft’s products up toMicrosoft’s own developers.

Regarding the inclusion of competitors’ products in Windows
This isn’t per se as serious an issue, though it sets a nasty precedent. Imagine a judge ordering J.K. Rowlings to include short stories from lesser-known fantasy writers because of her "unfair" power in the fantasy book market. What if Dell was forced to offer IPaq and Palm handhelds as add-on options to new PCs instead of the Dell-branded Axim Pocket PC product? What if independent consultants such as myself wereforced to include documents praising other consultantsin business presentations because it is "unfair" thatI get all the attention.

No one would ever suggest doing any of these things. It’s not categorically different, however, thanforcing Microsoft to ship with competitors’ products. Such a policy is justified by the theoretical need toattack "monopoly" status (I don’t have a monopoly on consulting). It doesn’t make the concept any less weird, though, or less a serious imposition on the economic freedom of large numbers of people.

Would companies whose products were ordered includedin Windows be required to pitch in to the costs ofdeveloping Windows? If not, why not? Microsoft paysto have its own products included in Windows becauseit is completely responsible for all costs associatedwith Windows development. Why wouldn’t makers ofthird-party products which Microsoft is forced toinclude, and test, in Windows, be required to pitchin?

Furthermore, why can’t companies pay PC manufacturersto ensure inclusion? That is an option on Windows PCsthat doesn’t exist for platforms made by Apple andSun. Apple and Sun both make the hardware that runstheir proprietary operating systems, whereas Microsoftdoes not. Sun has already used this to great effect,paying companies such as Dell, Gateway and HP to shipwith their Java Virtual Machine pre-installed. Whatare the odds of Microsoft convincing Apple or Sun todo the same thing with .NET?

How would companies get the right to be included inWindows? Would the decision be made behind closeddoors or out in the open where everyone can see it? Either way, is not the commission inviting lawsuitsfrom those parties who feel they were unfairly leftout? Such conflicts are easily avoided by stating onprinciple that free companies in free markets have theright to include whatever they want in theirown products.

The proper approach - deal with Microsoft’s market power
Dominance in the software industry is a natural and NECESSARY part of that market (note the term "dominance" as opposed to "monopoly." There ARE multiple alternatives to Microsoft’s products. People just aren’t using them as much). The software market has not been without a dominant player for its entire history, and unless software stops evolving and technology becomes sufficiently well understood that consistent and universal standards can be made with a reasonable expectation of accuracy and long-term applicability, will remain so for the foreseeable future.

That does not mean, however, that the Commissioncannot do something useful as the result of their investigation. At the end of the American court case, it was decided (by a Clinton appointed judge) that the best approach would be to require Microsoft to open more protocols in order to facilitate interoperability. She explicitly rejected, however, the notion that courts would call the shots with respect to design decisions in Microsoft’s products (in other words, no requirement to remove products from Windows). In so doing, she ensured that competitors would have an easier time interoperating with a product whose dominance was based in the need for standards (and from which consumers derive a number of benefits), but not impinge on what Microsoft is best qualified to do, which is make decisions for its own products.

Should the Commission take a similar approach,Microsoft is highly likely to go along with it. They negotiated in conjunction with America’s Department of Justice the settlement approved by Judge Kollar-Kotelly. Likewise, Microsoft has shown a strong interest in putting their antitrust tribulations behind them. What appears non-negotiable, however, is their right to design their own products as they see fit.

Requiring that Microsoft open protocols in order tosimplify interoperability does not restrict theirdesign freedom, as well it shouldn’t. Furthermore,the Commission could walk away with a solution to thiscase now, rather than waiting for several years, aswould surely be the case if they decide to requirechanges to Windows. Microsoft fought tooth and nailto ensure the inclusion of Internet Explorer inWindows. I expect that they would fight just as hardto maintain Media Player in Windows.

Conclusion
The United States spent over four years fighting asimilar antitrust case in its own courts, and a Clinton-appointed judge (the same administration that STARTED the original antitrust suit) came to the conclusion that judicial control of software design decisions was a bad idea.

I think it’s just as bad an idea in Europe.

Deal with Microsoft’s market power, and trust thatmarkets chose to standardize on Windows for a reason. Consumers and producers (programmers, hardware makers, etc.) derive benefit from a large, ubiquitous marketmostly unified around a single platform. Governments,who can’t gather enough information to compare withwhat exists in the mind of every buying and producingcitizen, should be loath to tamper with it.

biography
John Carroll is a software engineer now living in Geneva, Switzerland. He specializes in the design and development of distributed systems using Java and .Net. He is also the founder of Turtleneck Software.