Microsoft vs. the EU: When Antitrust is Anti-Competitive

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Antitrust law exists to support market competition and protect the public from unfair business practices. But who protects us from grandstanding government lawyers?

Case in point: The New York Times reported yesterday that US antitrust regulators are going after Google, Apple and Yahoo. The probe centers on the accusation that these companies are colluding with each other to divvy up rare engineering talent. The idea is that by cooperating on hiring, the companies can avoid bidding wars that could drive salaries through the roof.

I have no idea whether the probe has merit. But I do find it fascinating that our economy is meltdown, jobs are evaporating, deficits are soaring and competition from the likes of China is squeezing American technology industries — and the solution to all this is to harass and distract Silicon Valley. Top salaries just aren’t high enough. Prices for tech goods and services aren’t high enough. And the Silicon Valley giants are just too lovey-dovey with each other. Yeah, that’s the problem.

I don’t oppose the probe, necessarily, just the timing.

But even Washington’s timing is spot-on compared with the European Union’s. The Wall Street Journal reported this week that EU antitrust regulators are launching new action against Microsoft. The focus of their attack: They’re concerned about the unfair practice of bundling the Internet Explorer browser with Windows.

No, I’m not kidding. It’s not a misprint. And I’m not mistaking a report from ten years ago.

In this obsolete antitrust war, Microsoft’s argument has always been correct, and has in fact been proved in the market. The Microsoft position has been that Windows does not represent a proper monopoly because any user can re-format their PC and install a competitor — or can simply choose an alternative system, such as an Apple system running Mac OS X. Further, Microsoft has argued, the ease of installing an alternative browser greatly diminishes the advantage of bundling.

Microsoft has claimed that as soon as someone offered a superior OS or a superior browser, Microsoft would lose market share. And this is exactly what has taken place.

In early 2007, Microsoft released a version of Windows (Vista) that was clearly inferior in many respects to competitive operating systems. And what happened?

Suddenly, Microsoft started bleeding market share, and Apple started gaining. Apple’s share increased 22 percent in 2007 and 32 percent in 2008. Stories about defections from Windows to Mac became common. Apple had a better product, and people switched. Just like Microsoft said they could.

Microsoft tried to leverage its so-called monopoly on operating systems to own the future of what Microsoft and partners called “ultra-mobile PC” computing. The company pushed its unpopular Vista OS in this market, and the public rejected the whole initiative.

Then, some Taiwanese upstart came along and launched the ASUS Eee PC, which originally ran only Linux. The Eee PC was a mega-hit, and mainstreamed what we now call the “netbook” (and which Microsoft wants to call the “low-cost small notebook PC”). For a time, Microsoft was shut out of the hottest market in the PC industry because consumers simply preferred the alternative. Just like Microsoft said they could.

Microsoft ended up dominating the netbook market only by giving consumers what they wanted: Windows XP, and cheap. Microsoft wanted to retire this OS in favor of Vista, but consumers forced them keep selling it, and at record-low prices.

And what about browsers? As this chart shows, people are choosing Firefox, Safari and Chrome over the bundled IE at ever-increasing rates. Current trends will make IE the number-two browser (after Firefox) in two or three years. More importantly, bundling has not enabled Microsoft to unfairly block competitors from eating its market share. Just like Microsoft said.

It’s in this disastrous (for Microsoft) competitive climate that the EU is taking action to erase the company’s “advantage.”

The action the EU is proposing, by the way, is to force Microsoft to bundle all browsers, and enable customers to choose at installation. But since recent history has proved Microsoft’s case — that its dominance is only as good as the quality of its products — the EU’s action is unwelcome, unsupported by the facts and, at the very least, ten years too late.

Clearly bundling gives Microsoft an advantage. But it’s a comparable advantage to Apple’s bundling of Safari on both Mac OS X and iPhone, and possibly even of Google app integration with Android.

Besides, the list of “victims” of Microsoft’s bundling of IE with Windows — Google, Apple and Mozilla — reads like a who’s-who of the companies that are kicking ass, taking over and positioning themselves to own the future.

The purpose of antitrust action is not to “kick ’em while they’re down” (or while they’re on their way down). The purpose is to protect consumers from harm when unfair competition isn’t corrected by the market.

Antitrust law has existed for decades to protect consumers from anti-competitive actions. What we lack is a process for protecting companies, industries and workers from the anti-competitive actions of antitrust crusaders. Regulators should be held accountable for the damage they do to jobs, innovation and global competitiveness. And they should have to prove that the market isn’t already fixing the problem.