What Really Scares Microsoft

LOS ANGELES—A federal judge has made it official: Microsoft is a monopoly, a two-ton bully that squashes competitors and cheats consumers. Still, no matter how much the government lawyers crow or Bill Gates complains, the fact is that the real future of the software industry is already being decided entirely outside the court system—in a technological marketplace too fast-moving and too accepting of good new ideas to be artificially held in check.

In his findings of fact issued on Friday, Judge Thomas Penfield Jackson concluded that Microsoft had hindered technological creativity, that its attempts to protect the profits from its core products would prevent innovations that would benefit consumers. This was in keeping with the rhetoric of "innovation" deployed by both sides in the case. The Justice Department argues that protecting innovation means blocking Microsoft's ability to use the power of its Windows licenses to crush upstart competitors or competing ideas. Microsoft, for its part, does not want to ask regulatory permission to add features to its operating system, and it clearly doesn't want to become a lawyer-bound bureaucracy like the I.B.M. of Microsoft's formative years.

Ultimately, of course, the government's antitrust case against Microsoft will be decided on the law, not on Judge Jackson's findings of fact—and on appeal, not in his court.

But even that is beside the point for many of the people whose original thinking and sophisticated work will shape the real future of computer technology. For them, the suit is just one front in a broader culture war—and not necessarily the most important one.

At technology conferences, Microsoft is the devil, or the guaranteed laugh line. Its products are mocked, its business practices booed.

"The quality of their software is terrible in itself, and it's contagiously terrible," says a former Microsoft programmer, now with a Bay Area Internet startup. "It becomes the tar baby of bad code. It's really demoralizing to work with it."

Programmers do not, of course, necessarily value the same things consumers do. "It drives the Valley nuts that the market may want something—a standard platform for applications, backward compatibility, low cost, ease of installation, bundled products—that conflicts with their notion of what is technologically superior," says another programmer who frequently gets into arguments with colleagues by defending Microsoft's success.

This broader view of quality notes, for instance, that Microsoft got its operating system dominance largely because Windows came with relatively inexpensive computers. Apple, by contrast, mostly sold the Macintosh operating system only on Apple hardware and priced this unified system to maintain 50 percent gross profit margins.

What really scared the people involved in technology was the threat that Microsoft might conquer the Internet. Two or three years ago, there was widespread fear that the Redmond giant would suck all the fun and adventure out of the high-technology game and that the chance to build cool, exciting new products and companies would disappear. Microsoft, people feared, would squelch the Net's wonderful creativity, diversity, and openness and would force closed standards and endlessly mediocre products on the world.

The government's antitrust case embraced these fears. The final statement in the plaintiffs' proposed findings of fact is an apocalyptic warning from the economist Franklin Fisher, a crucial government witness and a man known to colleagues and students at the Massachusetts Institute of Technology for stating things in the boldest possible terms. Fisher declared: "Microsoft has shown that it will decide the ways in which innovation takes place in this industry, and that any innovation which threatens Microsoft's platform monopoly will be squashed. We will live, as it were, in a Microsoft world in which choices are the choices that Microsoft makes."

You can practically hear the scary organ music.

But we are not living in a Microsoft world. Web sites have not adopted Microsoft standards to the exclusion of others, and even Judge Jackson does not expect that to happen. The Web's combination of highly individualized personal sites and mass market commercial sites puts a premium on ease of use by everyone. It just doesn't make sense to create a site that can only be used by people with one particular browser, even if it offers some special features. Microsoft hasn't been able to lure Web site developers into exclusive relationships.

The acquisition of Netscape by America Online, the largest Internet service provider, makes it even less likely that Microsoft can dominate Web standards.

The Internet has also become an important mechanism for delivering new software, further eroding Microsoft's influence. Instead of making programs that come in a box and run on Windows-based machines, new companies are selling software as Web-based services: computer backup systems for businesses, for instance, or on-line legal documents, like wills, for consumers. Delivered this way, software doesn't care what kind of operating system you're using. Microsoft still overwhelmingly dominates in personal computers and exercises influence on PC vendors, but for consumers, the effects of that control are muted.

Venture capital is pouring into the new Web-based software companies. According to the latest PricewaterhouseCoopers survey, in the second quarter of 1999, software and information accounted for $2.1 billion in venture capital, or 28 percent of total investments, the second-highest for any category, after communications.

Meanwhile, hardware prices are plummeting. For desktop computers, this means Microsoft's license fees are a more significant portion of vendors' costs, making the vendors likely to squawk. And traditional PC's are facing competition from specialty products like Palm Pilots and Web-surfing cellular phones. Microsoft's Windows CE hasn't done too well in the market to serve these small devices. The Windows NT software, used on server computers, also faces strong competition.

Among those competitors, the most interesting and cheapest is Linux, the operating system developed for free by hackers working worldwide. The system has about a third of the server market, nearly as much as Windows NT, and companies that make Linux easy to obtain and work with are attracting significant financing. Red Hat Inc., which sells a version of Linux for less than $50, went public in August; on its opening day, the company's market capitalization shot to more than $3.4 billion. Today, Linux is mostly a server operating system—and thus deemed irrelevant by Judge Jackson—but it could eventually gain share in the PC market. It unquestionably threatens Microsoft's future.

Although Linux grew mostly from the hackers' pursuit of pleasure and prestige, it has become a high-profile weapon in the anti-Microsoft crusade.

At stake is what Eric S. Raymond, editor of "The New Hacker's Dictionary" and a Linux evangelist, calls a quasi-political question: "Will the Internet culture tolerate single-vendor monopolies on critical infrastructure or not?" The answer appears to be no. Internet culture will work to undermine monopolies. And it will do so faster, and more harmoniously with the fluid nature of the technical world, than will lawyers.

There's a popular saying in the technology world that the Internet interprets censorship as damage and "routes around it." Desire and innovation will trump policy, the argument goes, as clever programmers find a way around controls. This may or may not be true of censorship—utopians of the computer world tend to discount the physical powers of police states—but it may well be true of Microsoft's dominance. The profit motive is strong in Silicon Valley, but so is the desire to beat up the bad guys in Redmond.