Wednesday, 28 November 2018

Capitalism, Competition And Microsoft Antitrust Action

Kevin Williamson writes an ode to the benefits of competition and capitalism, one of his themes being the changing fortunes of Apple and Microsoft over the last two decades. I'm mostly sympathetic, but in a hurry to decry "government intervention in and regulation of the part of our economy that is, at the moment, working best", he forgets or neglects to mention the antitrust actions brought by the US government against Microsoft in the mid-to-late 1990s. Without those actions, there is a high chance things could have turned out very differently for Apple. At the very least, we do not know what would have happened without those actions, and no-one should use the Apple/Microsoft rivalry as an example of glorious laissez-faire capitalism that negates the arguments of those calling for antitrust action today.

Would Microsoft have invested $150M to save Apple in 1997 if they hadn't been under antitrust pressure since 1992? In 1994 Microsoft settled with the Department of Justice, agreeing to refrain from tying the sale of other Microsoft products to the sale of Windows. It is reasonable to assume that the demise of Apple, Microsoft's only significant competitor in desktop computer operating systems, would have increased the antitrust scrutiny on Microsoft. At that point Microsoft's market cap was $150B vs Apple's $2B, so $150M seems like a cheap and low-risk investment by Gates to keep the US government off his back. I do not know of any other rational justification for that investment. Without it, Apple would very likely have gone bankrupt.

In a world where the United States v. Microsoft Corporation (2001) antitrust lawsuit didn't happen, would the iPhone have been as successful? In 1999 I was so concerned about the potential domination of Microsoft over the World Wide Web that I started making volunteer contributions to (what became) Firefox (which drew me into working for Mozilla until 2016). At that time Microsoft was crushing Netscape with superior engineering, lowering the price of the browser to zero, bundling IE with Windows and other hardball tactics that had conquered all previous would-be Microsoft competitors. With total domination of the browser market, Microsoft would be able to take control of Web standards and lead Web developers to rely on Microsoft-only features like ActiveX (or later Avalon/WPF), making it practically impossible for anyone but Microsoft to create a browser that could view the bulk of the Web. Web browsing was an important feature for the first release of the iPhone in 2007; indeed for the first year, before the App Store launched, it was the only way to do anything on the phone other than use the built-in apps. We'll never know how successful the iPhone would have been without a viable Web browser, but it might have changed the competitive landscape significantly. Thankfully Mozilla managed to turn the tide to prevent Microsoft's total browser domination. As a participant in that battle, I'm convinced that the 2001 antitrust lawsuit played a big part in restraining Microsoft's worst behavior, creating space (along with Microsoft blunders) for Firefox to compete successfully during a narrow window of opportunity when creating a viable alternative browser was still possible. (It's also interesting to consider what Microsoft could have done to Google with complete browser domination and no antitrust concerns.)

We can't be sure what the no-antitrust world would have been like, but those who argue that Apple/Microsoft shows antitrust action was not needed bear the burden of showing that their counterfactual world is compelling.

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