December 4th 1999

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Articles from this issue:

BOOKS: A RETURN TO MODESTY: Discovering the Lost Virtue, by Wendy Shalit

BOOKS: 'Constanze, Mozart's Beloved', by Agnes Selby

EDITORIAL - Microsoft and the dangers of private monopolies


Fall of the Wall

Contents - 04 December, 1999

ECONOMICS - Can co-operatives civilise capitalism?


ECONOMICS - More than self-interest needed for a functioning economy

England's countryside: reformed to oblivion

HISTORY - Poland's WWWII agony

TAIWAN - Taiwan's quake recovery shows remarkable resilience

NATIONAL AFFAIRS - Senate inquiry questions dairy deregulation


ECONOMICS - Competition, profit and common sense

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Microsoft and the dangers of private monopolies

by Peter Westmore

News Weekly, December 4, 1999
In a landmark decision last month, a US District Court judge found that the world's largest computer software company, Microsoft Corporation, had wielded monopoly power to stifle competition and stifled innovation in the personal computer industry.

The case highlights what happens when a single company gains a dominant place in a key industry, and shows that even where there are many other companies active within it, monopolies are, in principle, dangerous.

On a recent visit to Australia, Microsoft's founder and Chief Executive Officer, Bill Gates, was feted by the Federal Government, which gave him an opportunity to address Federal Cabinet.

In a devastating 207-page critique of Microsoft's business ethics - or lack of them - Judge Jackson said Microsoft had used its position to harm both consumers and rivals.

The 'findings of fact' recorded hundreds of instances in which Microsoft executives had exercised its monopoly powers to buy-off potential rivals, or cripple those who stood up to the company.

As a result, US District Court Judge Jackson found that Microsoft continues to enjoy an 'extremely large and stable' portion of the market for software operating systems.

'Three main facts indicate that Microsoft enjoys monopoly power,' Jackson said: the company's large and stable market share, the high barriers to market entry, and the lack of a commercially viable alternative to the Windows operating system. The 'findings of fact' could be especially troublesome for Microsoft because Judge Jackson also concluded that many of Microsoft's actions had harmed consumers in ways that he said are immediate and easily discernible.

'They have also caused less direct but nevertheless serious and far-reaching consumer harm by distorting competition,' he added.

The judge found that Bill Gates, founder and Chief Executive Officer (CEO) of Microsoft, was directly involved in strong-arming companies into kowtowing to Microsoft's demands.

The judge's 207-page condemnation of Microsoft is a litany of precisely the same offenses the company's critics have spent years complaining about. They include the use and threat of coercion and intimidation.

Judge Jackson highlighted how Bill Gates was personally involved, often interacting with other CEOs, to extract concessions for Microsoft.

Among other things, the court found that:
'With the encouragement and support of Gates, a group of Microsoft executives commenced a campaign in the summer of 1995 to convince Netscape to halt its development of platform-level browsing technologies for Windows 95.'

When the campaign failed, Microsoft attempted to destroy Netscape by giving away its browser, Internet Explorer, free.
It also forced computer manufacturers to bundle Explorer with Windows, thereby locking Netscape out of much of the PC market. It tried to coerce Internet Service Providers to offer only Microsoft's Web browser, and denied Netscape access to all the required computer code needed to work with Windows 95 and Windows 98, causing Netscape to suffer unexpected crashes.

Additionally, Microsoft only provided its PC operating systeam, Windows, with Internet Explorer 'bundled', so that users of Windows had no choice but to use the Microsoft Web browser.

'In the first week of July 1995, Gates himself met with Intel's CEO, Andrew Grove [and tried] generally to reduce the number of people working on software at Intel ... Faced with Gates' threat, Intel agreed to stop developing platform-level interfaces that might draw support away from interfaces exposed by Windows.'

'Microsoft did not intend to capitulate [on development of the OS/2 operating system]. In July 1995, Gates called an executive at the IBM PC Company to berate him about IBM's public statements denigrating Windows. Just a few days later, Microsoft began to retaliate in earnest against the IBM PC Company.'

Microsoft did this in many ways, including delaying licensing of Windows 95 to IBM, causing it to lose market share, delaying access to its operating system code, and charging IBM higher operating system licensing fees than it charged other computer manufacturers.

'Gates expressed frustration that [America OnLine CEO Steve] Case continued to insist on getting an AOL icon on the Windows desktop in addition to the technology, engineering assistance, and technical support Microsoft was offering AOL. Despite the obvious importance that Case attached to desktop placement, Gates said he would not agree to that condition.'
The court will announce later what orders are to be given to prevent Microsoft engaging in monopolistic practices. The ruling was criticised by Microsoft, but warmly welcomed by the US Justice Department, which conducted the case.

The Microsoft case shows that unless there is effective supervision, the so-called 'free market' is wide open to exploitation by powerful corporations.

Peter Westmore is National President of the National Civic Council

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