consider that in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it." ~ Adam Smith
Amidst terrorist bombings, the European Union lashed out last week at what it considers to be the heart of evil: the Microsoft corporation, headquartered in the state of Washington . As punishment for the evils of being a successful American corporation, the EU fined the software giant the equivalent of $613 million. The EU antitrust chief Mario Monti noted that "dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition."
Default">Further, the EU demanded Microsoft make changes to its Windows operating system by removing the Windows Media Player (WMP). The charge is that Microsoft shuts out competitors by bundling WMP with the operating system. Some of the companies making media player products are RealNetworks, Inc., Apple, and Nullsoft; some of the competing products are RealPlayer, QuickTime, and WinAmp. Notably, each of these three major competitors offers both free and low-priced versions of their products. Notably, none of them are based in Europe .
Default">The EU refers to Microsoft as a "virtual monopoly." This phrase is an echo from U.S. District Judge Thomas Penfield's 1997 ruling against Microsoft on similar grounds.
Default">From the standpoint of both the EU and the United States government, the word "virtual" means about 80%: Microsoft's operating system appears on about four out of five personal computers. On the other 20% of desktop computers, you will find a few other operating systems, most notably Apple's Macintosh and various flavors of Unix. You have the choice to purchase and use any of these other operating systems instead of Windows. You can run non-Microsoft media player software on these operating systems. In fact, you can load versions of Unix on a machine for "virtually" nothing, while versions of Microsoft Windows cost several hundred dollars.
Default">From a legal standpoint, a monopoly is when one producer is the sole retailer of a particular kind of merchandise, to the detriment of the public. If you think about it, there are few true monopolies. You have a choice when it comes to procuring "virtually" any kind of product or service. (By virtually, I mean close to 100%, not this 80% nonsense.) Even when it comes to things such as basic utilities, you usually have a choice of using alternate power sources over the grid provided by your local power company.
Default">In fact, the few monopolies that exist today are largely the fault of government. The postal service, for example, is a pure monopoly, enforced by government laws. You are legally prohibited from starting your own business to deliver letters. You cannot start your own lottery business in most if not all states. In some states, you cannot sell liquor as an independent business.
Default">Anyone with a grade-school education can understand the definitions of "virtual," "monopoly," and "choice." It is clear that virtual doesn't mean 80 percent. It is clear that monopoly means 100 percent. A true monopoly precludes choice. Microsoft forces neither Europeans nor Americans to buy Microsoft products. Microsoft is not a monopoly. But governments are rarely rational or sensible, unfortunately. Therefore, we have a new legal phrase, "virtual monopoly," which I translate to mean that the government can arbitrarily decide when someone has become too big for their britches.
Default">Microsoft engages in what the U.S. government calls "predatory" practices. Microsoft does all they can to prevent loss of their market share. But this is what their shareholders want! Should it be illegal to make good business deals that retain or increase the market share of your product? Microsoft has made many people very wealthy, not just its employees and Bill Gates.
Default">Microsoft's success has helped the United States economy in an unimaginably huge way. Think about the entire personal computer market and all its attendant needs: hardware, software, distribution, support, and so on. Think about the business process improvement realized by successful software projects. Then consider the extent to which Microsoft has contributed to the growth of that market.
Default">The current furor over the inclusion of media players in the operating system is similar to the furor over the inclusion of browsers in 1997. The EU wants Microsoft to strip the media player from Windows. The claim is that a media player is not a fundamental part of an operating system, and Microsoft is only including it to shut out competitors. On the surface, this seems like a fair assessment.
Default">Microsoft could easily deliver an operating system without a media player, and it would work just fine. But we have accepted that browsing the Internet is a fundamental use of an operating system for most people. You wouldn't accept a modern personal computer that came without a web browser. Today, streaming audio and video are part of the rich multimedia experience that we encounter frequently while using the Internet. If your operating system came without a media player, you would find yourself needing to install one in the first few hours of browsing the web.
Default">Microsoft could also deliver an operating system without many of the other features consumers have taken for granted: image drawing, word processors, backup utilities, email programs, and accessibility features for the handicapped, to name only a few. But the lack of these features would greatly inconvenience the consumer. Not only do you expect these features, to purchase them all individually could cost you several times as much as the copy of Windows. You would need to waste numerous frustrating hours to install and configure them all.
Default">Yet, for each of these features that Microsoft provides for free, competing products earn profits for other vendors. Why? These products either offer something that the Microsoft product doesn't, or they somehow do it better. But the reason really doesn't matter. What matters is that for all Microsoft's supposed power, they have not shut out all competition. If anything, the success of Windows is what has created a market for media players in the first place.
Default">The existence of WMP has not prevented businesses in the United States from making profits with competing products. The true rationale for the EU fine must be something else. Perhaps it is hatred of the United States , hatred of success, or boredom on the part of the legislators. But the most appropriate explanation is government greed.
Default">Will the money from the fine help competitors? If you believe that, take a look at the United States cigarette settlement from 1997. The cigarette industry has paid out massive amounts of money to state governments. They will have paid hundreds of billions of dollars over a 25 year period. To date, states have spent the windfalls on many things. Yet few of those things have included tobacco prevention. No, the money from the Microsoft fine will line the pockets of government officials from each of the EU member nations.
Default">In the wake of Enron, WorldCom, and Global Crossings scandals, you've been inundated with the phrase "corporate greed." You've been led to believe that the solution is more government. Yet Microsoft and other corporations have no power over you. Far more dangerous than corporate greed is government greed, which leads to more government power over you.
Default">The EU's decision to punish Microsoft for harming non-existent European competitors is pure and simple government greed. This decision is a blatant exercise of power. It represents the greedy and non-deserving attempting to steal money from the producers and consumers.