Chris Barton: Mighty Microsoft learns some manners

By CHRIS BARTON

I first used the "t" word in November 1998 - in relation to the United States versus Microsoft case. I said: "It [the case] is also about tying one product to another when you make a purchase, but with no choice. You will have fries with that."

The case had made headlines in New Zealand because of testimony by Netscape chief executive Jim Barksdale claiming Microsoft offered to upgrade 9000 of Telecom's Windows 3.1 PCs to Windows 95 free if it would use Microsoft's web browser.

A few days later, I was summoned to the office of Microsoft New Zealand managing director Geoff Lawrie, who banged his fist on the table and said: "That's not tying - that's when you maintain a customer must buy one product in order to get a concession on another. That does not happen. There is no product tying here - the customer does not get a benefit in one area for buying another."

I hadn't realised "tying" was such a powerful word. It seemed obvious to me that the customer was getting a benefit - free browser software with a free operating-system upgrade.

Did our Commerce Commission see fit to investigate the allegation as possible anti-competitive behaviour? No. Nor other allegations at the time that Microsoft was offering internet providers including Telecom bounty payments for every customer they managed to switch from using the Netscape Navigator browser to Microsoft's Internet Explorer.

To understand this never-ending saga, you have to remember that back then Microsoft had missed the internet boat and Netscape ruled the surfing waves.

Microsoft's worry was that the browser might become the new desktop. That's where users, regardless of denomination - Mac, PC, Unix workstation - begin their working day. Microsoft with its Windows dominance in PCs had long known that whoever owns the desktop owns the world. In theory, Netscape had the power to unseat the Windows monopoly.

So Microsoft came up with a cunning plan. Give its browser away free and develop as quickly as possible a browser that merges with the operating system.

The plan worked brilliantly. Within a few years Internet Explorer became the dominant browser and Netscape Navigator was flotsam in the giant's wake.

Windows' dominance was no longer under threat. Except for an annoying problem called the United States Department of Justice, which had in May 1998 brought an "anti-trust" case against Microsoft alleging abuse of monopoly power and anti-competitive behaviour.

The case dragged on for ever, but eventually district court judge Thomas Penfield Jackson ruled that Microsoft abused its monopoly power and stifled innovation. To stop this happening again, the judge ordered Microsoft broken in two - one company to handle the ubiquitous Windows operating system and the other for the development of applications such as Word, Office and Internet Explorer.

In June 2000, I was able to ask Microsoft supremo Bill Gates about this ruling. He was dismissive and said it would be overturned at appeal.

The "t" word was never used at Microsoft. It preferred the "i" word, as in "Microsoft is not tying the browser to the operating system, it's integrating them." Bill said not being able to integrate the browser with Windows hurt customers. I asked how?

Rocking back and forth, Bill said: "Well understand that we add features to Windows all the time and Windows is made up of literally thousands of features. It's not even clear if we're allowed to add features. Would we have to ship it as 10,000 different products - 50,000 different products?

"Why is the PC industry so successful? It's because every year we've added new capabilities to Windows. Their [the court's] basic principle is no new features should be integrated in."

Turns out Bill was partly right. A month ago, the Federal Court of Appeals overturned the break-up ruling, kicked Judge Jackson off the case, upheld that many of Microsoft's licensing deals with computer makers were an illegal abuse of its monopoly power and sent back a number of issues for the district court to reconsider.

Among those is the thorny issue of unlawful tying. On the one hand, the court says tying that stifles competition and consumer choice is wrong. But on the other, it says not all bundling of features together in software is necessarily bad - as, for example, "the inclusion of spell checkers in word processors."

It's a conundrum still to be resolved. Meanwhile, Microsoft last week altered some of its more coercive licensing rules. PC makers now have the choice of removing Internet Explorer icons from the Windows Start menu and blocking access to Internet Explorer in the new Windows XP operating system - options that will be extended to Windows 98, Windows Me and Windows 2000.

For floundering Netscape, the change of heart has come far too late to make any difference. But it does indicate that Microsoft may have learned it can't use unlawful exclusionary conduct to crush nascent competitive technologies.

On the other hand, it still believes it can "integrate" as much as it likes - and judging by what's bundled into Windows XP it intends to keep doing so.

But at least for now, Microsoft is learning to say "Would you like" rather than "You will have fries with that."

* chris_barton@nzherald.co.nz

* Peter Sinclair is on leave.

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