Perspective: 'To heck with Mario Monti'

After getting nowhere with the European Union's competition commissioner last week, Microsoft CEO Steve Ballmer offered a few humble comments and then headed home to await the worst.

What he instead should have said is, "To heck with Mario Monti."

To be sure, the tangle with Janet Reno's Justice Department over antitrust charges in the 1990s taught Microsoft's brass to avoid making inflammatory statements in public.

And so to prevent worsening an already bad situation, Ballmer dutifully stayed on message. Word to Microsoft public relations: In this case, the politic thing would have been for Ballmer to wrap himself in the American flag and cry foul.

If you don't think politics is behind the EU's muscle flexing, I've got a bridge in Brooklyn to sell you. Monti, who finishes out his term this year, has bagged the biggest enchilada of his regulatory career. Forcing Microsoft to bow to the will of a pan-European governing body stands in stark contrast to the U.S. Justice Department's feckless attempt to rein in the software maker only a few years ago. What's more, it establishes the EU's primacy as an arbiter of the technology business.

That's why Microsoft has been fighting tooth and nail to resist the Brussels bureaucrats, who want to decide what should go into Windows. Step away from the immediate controversy, and you see that the exclusion of Media Player from the operating system is small potatoes, compared with the precedent such a decision might set.

The European Union's sanctions against Microsoft are:

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For Microsoft, the prospect of the European Union having veto power over "Longhorn," the next big version of Windows, constitutes a veritable nightmare. With plans to take a run at Google, Microsoft won't willingly compromise its freedom to include new features, such as search technology, in the operating system. "That was the reason there was no agreement," one company insider told me prior to the ruling, still hopeful that the stripping out of Media Player may be the extent of the EU's intrusion into Microsoft's business.

Wishful thinking. If the EU gets its way, Ballmer better develop a liking for moules et frites, because he'll need to spend plenty of time in Brussels over the next few years.

At the heart of the EU case is a philosophical dispute about the future and who should get to decide the contours of a still-amorphous landscape. During this old-new debate, Microsoft has bloodied many a rival--browser maker Netscape being the most famous example--by incorporating similar functions into the Windows operating system. That was one of the considerations that convinced the Justice Department to bring an antitrust lawsuit in 1998.

Microsoft has had uneven luck making its case. During the antitrust trial in the United States, company lawyers presented a stripped-down version of Windows that malfunctioned. That "evidence" supposedly proved the defense's argument that the Internet browser could not be separated from the operating system. The presentation was a fiasco, and the presiding judge was not persuaded.

If Microsoft fails to block the EU's designs, it can't again afford to play cute by purposely rigging an inferior Media Player-less version of Windows. A better strategy is to let the market force the politicians to step aside. Bureaucratic dictates will be less telling than original equipment manufacturers' decisions. And the fact is that Microsoft's Media Player is as good, if not better, than RealNetworks' player.

Not that this is going to be a cakewalk. The behind-the-scenes bargaining promises to be intense. Some PC makers may hold out and demand discounts from Microsoft in return for stocking separate versions of the software. Certainly, no computer maker will pay for the inclusion of Media Player--not when consumers can simply download the software from the Internet. But if customers think the "OS complete" version is a better deal, Microsoft can still come out ahead.

And there's not much Monti or the European Union can do about that.

Biography
Charles Cooper is CNET News.com's executive editor of commentary.

More Perspectives

why is it so difficult to understand?

charles,

"....it would establish the EU's primacy as an arbiter of the
technology business."

Not so. It is Monti's job to regulate monopolies. Both the US and
the EU now found Microsoft being a monopolist AND abusing its
monopoly powers to enter new markets - over and over again.

The only difference is that the US (after Bush came to power) was
satisfied with a mere "slap on the hand" as remedie (although
mush harsher measures were discussed before) and the EU, after
seeing that Microsofts behaviour has essentially not changed
since the US ruling, decided now for much harder remedies.

So the only one to blame is Microsoft, because they repeatedly,
despite beeing a monopolist, violated conduct rules imposed on
them via US and EU laws.

Like it or not, Microsofts behaviour brakes the law on both sides
of the atlantic, the only news here is that now it wont get away
so easily on this side.

Or do you really think regulating monopolies is a bad idea? Then
I suggest you pick up a basic economics book and learn about
the relation between monopolies and innovation.

Because this is precisely what's at stake here: The future of
innovation in the IT industry, no more no less. And that is what
Monti is trying to preserve: A business environment in the IT
industry where (non-Microsoft) innovation is possible.

So cheers to Mario Monti for holding Microsoft accountable for
the consequences (damages) of their illegal business practice

Evil EU

The idea that consumers do not have a choice of OS is absurd. There is Max OS, the is Linux. And Linux is FREE. Do you know what FREE means? People don't choose Windows because they have no choice. They choose Windows because it's just better. Do your computers run Windows? If they do, please tell us why you are not running FREE Linux? If you are not running Windows then that proves Microsoft does not have a lock on computers. This decision is bad for consumers.

monopoly?

Have you heard of Macs, Unix or Linux? Are these available options today to the public upon which they can run their server or desktop OS? I think Millions of people would say "yes!". Monopoly means one, as in, "the only choice". In the phone business...AT&T was THE only game in town...if you didn't want to use them...you had no other choice. This is a monopoly.

If a company, such as SUN, wishes to standardize their servers and desktop on Unix...they can and THEY DO. That's the difference. Every single consumer and every single business has an option to choose what operating system AND what desktop software they choose to use for themselves. As we have seen in the last year, MARKET forces are driving the winds behind Linux, not the goverment. It should be the market which will decide what software is good or bad, not the goverments.

You like RealPlayer better than Media player? So use it! What's your beef with Microsoft trying to continually make their OS and applications better? And why should they NOT be able to innovate on their own platform???? Windows is a Microsoft product...not some goverment standard.

These arguments by SUN, Oracle, and other HUGE players drive me nuts...innovate and produce products on your own. Come up with a better OS....use Linux to standardize on...open up the MAC...do something besides cry and whine about how Microsoft runs the world. You have a ton of choices today...and even more are coming....let the markets decide and keep the damn goverments from killing companies ability to innovate and grow!

Dominant market position

Franck,

While I tend to agree with most of your comments, like many others who have reacted rather strongly to your post(s), I believe you are mistaken when you use the word monopoly.
What is at the center of the ruling - in Europe and in the U.S. - is the abuse of a dominant market position, not a monopoly. That said and you will see that more people will agree with you. And there is no question about Microsoft dominating the overall OS market (consumer and professional).
I do have a few friends who love MacOS, our R&D is working with Linux, but that's where it ends.

Having a credible alternative to Microsoft products (OS or Internet browser or multimedia applications) is key for consumers. Microsoft today can afford to bundle many applications with their OS as they probably make a big margin on the OS itself that does more than cover the associated R&D costs. And there is little incentive for them to reduce this margin: if people buy why sell for less?

In many hi-tech industries (networking equipment, wireless or xDSL), the first companies to market were able to live for some time with high margins. After a while they were challenged by competitors, had to reduce their price, increase the quality of service to their customers and/or channels and streamline their business to continue to be profitable. All of this resulted in higher benefits for end users or companies (lower prices mostly) and faster innovation (Gigabit Ethernet, Wi-Max, and so on: I remember first surfing the web just 10 years ago with Mosaic...).

Now Microsoft has been able to maintain high margins. But they have also been found liable by US and EU courts of thwarting direct competitor's attempts and gaining dominant position in critical applications (browser, media player, and maybe others) by directly leveraging their OS position and thus putting innovative smaller companies out of business.

What does this all mean for us? Let's face it, only few people directly benefited from that and they are now among the richest if not the richest people on the face of the earth. One can admire or loathe them for that.
We as consumers continue to pay a high price, hell I paid 375 Euro for my WindowsXP professional license. Only recently, do we see Microsoft drop their prices on large deals -government deals, etc.- not because linux is a real threat in these environments, but because companies are getting tired of paying so much money and start letting Microsoft know about it.

Now regarding the EU ruling, yes I agree with the findings, like I believe almost everybody, but I am not sure about the remedy.
Of course the fine is a huge amount of money. No doubt some US-EU rivalry/payback happened there: as a French taxpayer, I know I am contributing to similar fines for the Executive Life case, without fully comprehending what it is exaclty about -still probably less than what US citizens are paying on Enron or MCI cases... But in the end this fine is still meaningless -it doesn't hurt Microsoft that bad- and I doubt it is reason enough for them to modify profoundly their way of conducting business. And this is what is a stake here.
Then, regarding a Windows version w/o Media Player, for what, $5 less, I see it as a poor excuse of a measure.

sorry, me again

I cannot get over your article

"The exclusion of Media Player from the operating system is
small potatoes, compared with the precedent such a decision
might set."

Why is it that Microsoft is market leader for Office products,
Browsers and (soon) Mediaplayers?

Right: because it was leveraging (sometimes illegally) its
Windows Monopoly in the Operating System market into new
markets.

To see how much harder it is for Microsoft to compete when
they cannot leverage their monopoly, just check out their
products for Mobile Phones, TV set-top boxes and game
consoles.

So a clear NO to Microsofts ambition to bundle annything into
Windows ("innovation through integration" as Ballmer calls it).

Because if Microsoft can leverage its Windows monopoly
unconstraint into new markets, then it means that it will only be
the technologies that Microsofts promotes that win. A Soviet-
style market.

Wouldn't it be nice if the better technology won? Or the
consumers had a choice?

Monti's decision is just about that: Ensuring that consumers
have a choice, ensuring that there is a business environment in
which different technologies can compete (may the best win,
even if its not from Microsoft)

So the EUs decision is surely bad for Microsoft (if it will ever be
implemented like this). But thats a good thing for the IT industry
at large and the consumer: Innovation and choice are higher
goods than Microsofts bottom line

[dmanrique]

Nonsense

This is a ridiculous argument. To assume just because Microsoft adds a free bell or whistle to the bundle then it is anti-competitive?

So because the game Solitare is in Windows XP, Microsoft is anti-competive to game makers too? Because there is WordPad, there is no opportunity for other Word Processors, and oh gosh, what about all of the poor companies that want to offer a competing product to Windows Calculator. Each copy of Linux that is sold, or downloaded for free (sounds like bundling to me), is bundled with all of these things too, should Red Hat, Novell, IBM, et al get sanctioned too??? That is a load of crap.

If Real, Netscape, or any of the other whiners had a great product, people will use it (and perhaps even buy it). Real player is an inferior product, and just because there is a free Media Player, Text Editor, Internet Connection Utility, Solitare Game, etc in the OS, Microsoft should get "punished" is a stupid argument.

To me, this is a EU ploy to make money and make a name for themselves. If I was Ballmer, I would say "bite me" to the EU.

What he said!

Herr Hoffsümmer says it better than me, but he as it absolutely
right.

Time and again people in the US claim they are for "free
markets" when what they support is actually unfettered
capitalism - when the dominant power is the US.

What Microsoft (as a monopolist) ought to do, if it wishes to
integrate (say) media playing into its operating system, is to
develop _public_ APIs, implement a Media Player which uses
those APIs, and not _force_ OEMs to bundle their player. Other
companies could then develop media players which can also
integrate seamlessly with the Windows OS, and compete with MS
in the media player market.
Only then will you get competition, innovation and improvement
in the market place.
Feel free to substitute 'web browser', 'telephony',
'semantic web', 'database filesystem' and other future
technologies for Media Player in the argument above.

As a monopoly, that is what MS should do. As a doubly
convicted abusive monopolist, that is what MS should be
punished until it is _seen_ to do!

Remember another monopoly - AT&T - were forbidden from
competing in the computer and OS market place - why should
MS be allowed to leverage its might to break into other markets?

What a joke

It's painfully obvious that this Mario character is looking out for #1. I assume Microsoft will appeal (if that's an option) and this will drag out for a couple of years and eventually the fine will be brought down to a reasonable level, if not dropped completely. If not, I hope Microsoft is responsible enough to push this fine back on those who created it - the EU. A bump in the price of Microsoft software in EU countries would take care of the cost of the fine and keep innocent Microsoft customers in non-EU countries out of the whole mess. I, for one, don't want to pay more for Windows just to line the pockets of these EU cronies. What a joke.

[CraigB]

No joke

By "looking out for #1" you probably don't mean either the consumer or the market which is exactly what the goal was: a healthy, competitive market is good for consumers.

It is clear that you have never worked for a company which had a better product (and patents) but still lost to Microsoft. Microsoft is a serial-offender and utterly disdainful of any law.

While the fine of $600 million sounds like a lot of money, for a company sitting on $54 BILLION - in cash - it will be no more than an adjustment to the accounts.

You wouldn't happen to work for Microsoft, would you?

craig

Welcome to the European way of business

Microsoft didn?t stand a chance in the court of Mario Monti. Firstly it is Microsoft (big bad successful and profitable corporation) and secondly it is American. I was amazed the Mario didn?t find some fiendish link between Media Player, Windows and the Iraq war.

We have such a fair, well balanced and regulated corporate environment in Europe that with the exception of SAP we have never created anything like a world ranked IT supplier.

Believe it or not but the last few times I have been in a London pub the conversation has not been dominated by the unfairness of Microsoft integration of Media Player. There have been no demonstrations and riots about the poor old Netscape. This has all been a field-day for the lawyers and the anti-Microsoft brigade and an irrelevance to everybody else.

What Microsoft?s case has made visible to the US is the insular, bureaucratic and anti-business environment that dominates the EU and its institutions. It is no wonder that the German and French economies bounce along on the verge of recession whilst the US steams ahead.

I really hope that Microsoft uses its financial and political power to delay this ruling until we get a more business friendly environment in Europe. I say that more in hope than expectation.

Not an anti-american decision

I don't believe this decision is based on anti-American sentiments. After all, the decision explicitely supports the protection of third-party software makers who are both American: RealNetworks and Apple. They were the ones who complained to Washington and Brussels in the first place. Now who's going to argue that Apple and RealNetworks acted out of anti-American sentiments? They acted out of business sentiments.
Anti-monopoly cases are not an exclusive European reflex. Washington starts up antitrust cases just as easily, if there is a suspicion of monopolisation. The only ones politicising this decision are the commentators.