by Ajay Dawar, MBA1

adawar@umich.edu

OK. I'm biased. I will do my summer internship at Microsoft and I like the company. But unlike those reporters in BW and WSJ, I probably know more about high-tech industry economics than the two put together. Before coming to UMBS, I was a software engineer and, as part of a microeconomics course, presented a paper on the meaning of monopoly in the high-tech industry, and why it needs to be treated specially under the Sherman act.

Having bragged enough, lets get to the point. Microsoft has been criticized for using it's monopoly in operating system software to "unfairly" gain market share in the browser market. If it did and if it was unfair, the law needs to be enforced. But there is a big difference between Microsoft's products, high tech, and AT&T's telephone service. Your choice of telephone service does not depend on what others are using. But your choice of software depends on what software other people are using. All software processes information and in that sense they are information devices. After processing, the most important dimension of information is sharing. The crux of the case lies here. The ability of different software to share information amongst themselves is what creates value to consumers. And this is why the number of users of a software affects your decision to buy them.

For almost every software product that Microsoft has, there are alternatives out in the market. The difference is that Microsoft's software works together and create immense value. To break up Microsoft will deprive users of that value. Imagine not being able to use one version of Excel with another version of the operating system and with another version of Powerpoint.

The competitive landscape has changed drastically since the case was filed. AOL owns Netscape, but pushes Internet Explorer rather than Netscape in it's software. Startup companies have enough capital to write application software for the web which is immune to operating systems. At no other time in the company's history has it's market share in the operating system market been threatened so much. Linux's market share is growing at a faster rate in the Web server market than Microsoft's NT. To a significant extent the case against Microsoft is moot.

If Microsoft has unfairly used it's monopoly, the remedial measures should ensure that it does not happen in the future. But the measures should also realize that this is not AT&T and splitting the company will hurt consumers. And the drastic measures that Mr. Boise, the government's attorney, speaks about are already happening through the market. Having said that, the measures should not be just a slap on the wrist. The government needs to walk a tight line between prevention of unfair practices and keeping the value of Microsoft to consumers intact. The problem is that such a balance requires an intimate knowledge of the industry, which the lawyers and the judge seriously lack. I can only hope that the outcome of this case doesn't hurt the industry, which is now the foundation of the economic prosperity that this country is enjoying.