Antitrust

High-Tech's Starr Report

The consequences of a software culture war.

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On November 5, U.S. District Court Judge Thomas Penfield Jackson released the high-tech version of the Starr report: the finding of facts in the antitrust case against Microsoft. It is as angry and, in its own way, as lurid a document as Kenneth Starr's account. And it is also the product of a culture war.

Grassroots techies–the mostly unknown people who write code and start companies that don't make the headlines –hate, loathe, and despise Microsoft. At technology conferences, it 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 start-up. "If you write for a Microsoft platform, it becomes the Tar Baby of bad code. It's really demoralizing to work with it." This developer doesn't want the government meddling in the software business. But, he says, "Microsoft is the Skokie Nazis of free markets."

Microsoft has its defenders, of course. They argue that the craftsman's view of quality is too narrow. Programmers do not 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 bundled with relatively inexpensive computers, thanks to the fierce competition among companies using Intel microprocessors. (See "Creative Insecurity," January 1998, available with other Microsoft-related material at www.reason.com/microsoft99.html.) Compared to the Macintosh package, priced to maintain 50 percent gross profit margins, consumers found the less technologically elegant Wintel combination a bargain. And by providing a standard, Microsoft made it possible for personal computing, and all sorts of auxiliary devices, to flourish.

This culture war is a civil war–the most vicious kind–among people who care about technological creativity and progress. Both sides say they're out to protect "innovation."

For Microsoft's opponents, that means blocking the company's ability to use its Windows licenses to crush upstart competitors or chill ideas that might threaten its profits. "Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," Judge Jackson concludes. "Microsoft's past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft."

Microsoft, for its part, argues that it can't innovate if it has to get government permission to add features to Windows. The definition of an "operating system" is bound to evolve with customer demands and technological possibilities. And Microsoft clearly doesn't want to become a lawyer-bound bureaucracy like the IBM of Microsoft's formative years.

The problem with using antitrust law to protect innovation is that the courts take a static view of the dynamic marketplace. Thus, Jackson dismisses potential competitors to Microsoft, no matter how promising, on the grounds that they are not significant at this particular moment.

Now that the high-tech community has its Starr report, the consequences of using the law to fight a culture war are beginning to dawn on Silicon Valley. Assuming Microsoft doesn't settle the case with the Justice Department and 19 ambitious state attorneys general, the judge will rule on the law and penalties. He will start redesigning the software business, creating a de facto federal "Department of Microsoft." It will be run not by genius programmers but by lawyers dedicated to properly slow procedure. The civil suits will start, using the judge's findings as proof of damage. And the attorneys general will go looking for their next high-tech target.

"As much as the Valley would love to see Microsoft given its comeuppance, it's profoundly ambivalent about Washington being involved," Palo Alto-based futurist Paul Saffo told The Washington Post a week before the ruling. "If Washington can't figure out how to handle a presidential affair, I guarantee you they're not going to be able to handle technology."

What a lot of technologists would like is pretty much what happened with that presidential affair: official confirmation that Microsoft has been bad, bad, bad, with no serious legal consequences that might disrupt today's extraordinary prosperity and possibility.

As the Republicans learned during impeachment, culture wars unleash government powers that scare the public. A Gallup poll taken November 4-8, a period which included the judge's report, found that 68 percent of Americans have a favorable opinion of Bill Gates, compared with 19 percent unfavorable. Forty-five percent said they side with Microsoft in the trial, and 54 percent said they oppose any government breakup of the company.

These respondents aren't techies or antitrust lawyers. They just see a successful company and an entrepreneurial hero under attack. As with Bill Clinton, they are unmoved by videotapes in which Bill Gates looks like a squirmy liar.

Deep cultural disagreements also motivate people to change the world without government help. A few years ago, the technology community was terrified that Microsoft would suck all the fun and adventure out of the high-tech game. People feared it would squelch the Internet's wonderful diversity and openness and force closed standards and endlessly mediocre products on the world.

But Web sites have not adopted Microsoft standards and excluded others; even Jackson does not expect them to. The acquisition of Netscape by America Online, the largest Internet service provider, further reduces the chances. As Jackson notes, "AOL was interested in keeping [Netscape's] Navigator alive in order to ensure that Microsoft did not gain total control over Internet standards."

The Internet has also become an important way to deliver new applications software, further eroding Microsoft's influence. Instead of software that comes in a box and runs on Windows-based machines, companies are selling software as specialized Web-based services. Microsoft still "controls the desktop" and influences PC vendors, but the effects of that control on consumers are diminishing.

Money is pouring into the software business, with start-ups at their highest valuations ever. According to PricewaterhouseCoopers, in the second quarter of 1999 "software and information" drew in $2.1 billion in venture capital, or 28 percent of total investments.

Meanwhile, hardware prices are plummeting. For desktop computers, this means Microsoft's license fees are a more significant portion of vendors' costs, making them more likely to squawk. Traditional PCs face competition from specialty products like Palm Pilots and from the servers that provide the nodes in computer networks. Microsoft's Windows CE hasn't done too well in the specialty-device market, and its Windows NT faces strong competition for server customers.

Among those competitors, the cheapest and most interesting is Linux, the "open source" operating system developed for free by hackers working worldwide. The system has about a third of the server market, nearly as much as NT, and its share is growing. Red Hat Inc., which sells a version of Linux for less than $50, went public in August, raising $83 million; on its opening day, the company's market capitalization shot to more than $3.4 billion. Today, Linux is mostly a server operating system–irrelevant in the judge's static view of the world–but it is slowly gaining a foothold in the desktop market.

Linux has become a high-profile weapon in the anti-Microsoft crusade. At stake is what Linux evangelist Eric Raymond calls a "quasi-political" question: "Will the Internet culture tolerate single-vendor monopolies on critical infrastructure or not?" The answer appears to be no.

There's a popular saying that the Internet interprets censorship as damage and routes around it. Desire and innovation will trump policy, the argument goes, as clever programmers circumvent controls. This may or may not be true of censorship–cyber-utopians tend to discount the physical terror 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. It's just too bad they got the lawyers involved.