In our last installment, we looked over the definitions of monopolies and cartels, and concluded that while Microsoft and Intel both showed monopolistic tendencies, several key side-effect of monopolies weren’t present. Monopolies usually cause prices for their products or services to go up, not down as they have in the computer industry. Issues like that, and the fact that both Microsoft and Intel do have competition from other manufacturers, rule out the label of "monopoly" in its strictest sense.

During our examination of the history of these companies, we observed that Microsoft and Intel took the early leads in the Personal Computing industry by striving to be the defacto choices based on the IBM open architecture. When IBM got greedy and tried to re-engineer the architecture to reclaim proprietary control with the PS/2, the industry and consumers ignored it. Independent builder Compaq became the new champ of PC manufacturing with OS & CPU by (who else?) Microsoft and Intel.

Intel’s dominance didn’t seem fair to American Micro Devices (AMD), a tiny integrated circuit manufacturer which produced some 286 based CPUs under a licensing agreements with Intel. When Intel introduced the 386, it chose to deny "second source" licenses so consumers would be driven toward the more expensive Intel only 386. AMD enhance the 286 to stay in business, but in 1987 it built and marketed its own 386 CPU based on Intel’s designs which AMD believed it had access to through the licensing agreement.

It is important to understand that AMD was so small that their volume of CPUs wasn’t much compared to mighty Intel. Even today, AMD is still barely a speck on the acres of market share Intel holds. But Intel didn’t appreciate the hole that AMD bored in their stonewall, and so sued little AMD. The case bogged down for years in court while AMD made their best selling 386-40. Much to Intel’s embarrassment, the courts eventually sided with AMD, stating that the license agreement allowed AMD access to Intel’s x86 architecture, not just 286. It was shortly thereafter that Intel re-dubbed its forthcoming 586 processor with the neon and chrome title "Pentium", thus choking off licensing access to AMD by taking the "86" part out of the name.

This reaction by Intel spoke volumes about the self-righteous attitude it was developing concerning competition. With only itself to compete with, Intel was under little pressure to innovate. It seemed that Intel believed that owning 75% of the market meant the same as owning 100%.

Unlike the Microsoft story, which shows that Operating System software hasn’t gotten much more expensive than the days of DOS, these Intel anecdotes indicate a practice of price fixing that does indicate monopolistic practices. When AMD marketed the 386 CPUs for a fraction of the price of an Intel chip, the price difference pointed out how much Intel had been over-charging for their product. The cost of processors rapidly became much cheaper because of the merest scrap of competition AMD represented. Computer gurus still love the AMD 386-40: it out performed a baseline Intel 486 and was rock stable and long lived.

One of the present problems with Intel reads like a retro story arranged from tech news clippings of the past decade. In 1994 Intel, upon discovering that it had saturated the CPU market, began a plan to extend its control over the open IBM architecture. Since the number of computer buyers had stabilized, Intel was stuck with an fixed share of the market. So Intel went into the motherboard chipset business. Reasoning that if it couldn’t get more machines going out the door, it could be sure there was more of "Intel inside" than ever before. Intel’s next major move to close the market was to repeat its behavior of a decade ago during the AMD, x86 flap: Use its dominance to cut off access by changing a core technology and not allowing anyone else to play.

As I described in the November 1997 issue, Intel abandoned the Socket7 system (the series of holes on the motherboard and its electronic interface into which you plug the CPU) and introduced its new system called SLOT 1. It then refused to license the SLOT 1 architecture to competitors AMD and Cyrix, thus leaving them stranded on the eventually extinct Socket7. AMD and Cyrix have both found ways around this stricture by duplicating the physical interface (which Intel didn’t own to begin with) by brewing their own electronic interface.

While this type of mean spirited behavior isn’t going to make Intel any friends, it isn’t what they are currently in court over. The only thing the Federal Trade Commission (FTC) has brought to court is Intel’s bad-boy treatment of Intergraph, makers of turn-key production workstations. Intergraph challenged the chipmaker's business interests in separate and unrelated patent-infringement lawsuits, so Intel cut off processors and disclosure of technical information that Intergraph uses to have its systems designed to take immediate advantage of new Intel processors. Without the CPUs and technical information, Intergraph’s capacity to stay in business was virtually strangled. Conclusion #1: The FTC is probably going lose this fight, and you can tell because of Intel’s smugness. There is a reason Intel isn’t worried: There isn’t any law against what they’ve done. The Sherman antitrust act of 1890 covers only companies that are trying to strangle other competitors, not customers. Intergraph is not a competitor of Intel, it is a customer. How the FTC plans to make an antitrust lawsuit stick to Intel’s Teflon hide is anyone’s guess. If this is the best the FTC can do after digging into Intel for the past nine months, I am very worried about our government’s ability (or willingness?) to police companies like Intel.

Microsoft, on the other hand, has more than one piece of chicanery that it is presently being sued over. The big ones are: monopolistic (and tyrannical, for that matter) non-disclosure agreements (NDAs), using dominance of the OS market to control how information is to be accessed over the Internet (the browser war), and extending the capabilities of a licensed technology to make it more proprietary (Java). The browser issue is the only one the Justice Department has actually gone to court with.

Considering Microsoft’s long history of dirty tricks, these behaviors should hardly be surprising. All of it comes back to Bill Gates’ initial business philosophy: Make the path of least resistance lead to your products. In his book The Road Ahead, Gates says as much when reminiscing about his early years trying to sell MS-DOS to IBM for the IBM-PC:

"We gave IBM a fabulous deal—a one-time fee of about $80,000 that granted the company royalty free rights to use Microsoft’s operating system forever. In other words, we practically gave the software to IBM. Giving software away to create strategic value has since become a well established marketing technique in the industry, but it was uncommon at the time. The deal gave IBM an incentive to push MS-DOS and to sell it inexpensively. Our strategy worked. IBM sold the UCSD Pascal P-System for about $450, CP/M-86 for about $175 and MS-DOS for about $60."

Anyone willing to step back and look at the Microsoft domination of the computing software world doesn’t have to retreat too far to see the same principle applied to everything Microsoft does: "Ship it first, cheapests, and make it the easiest to integrate with what you already have. Fix the bugs later, but get it out the door NOW!" Microsoft has used the same tired old ploy over and over again, like a Venus Fly Trap that has only one trick in it repertoire: It never needs to change its ways because the flies never learn.

Remember Ami Pro? Word Perfect? WordStar? Swallowed by MS Word. The same can be said for Paradox and Dbase databases: gone the way of the dodo since MS Access. Even smaller pieces of software haven’t been immune: defrag was created by Symantec for DOS. Now it is part of Windows 95. Gulp. Another one swallowed. This wouldn’t be an issue if other programs had risen up to keep the competition going, but all of these industries now have only one owner.

Microsoft’s browser, Internet Explorer, was a classic implementation of the above stated Microsoft philosophy: Version 1 was a dismal joke that Microsoft could barely give away. Version 2 was vastly improved, but still lagging far behind Netscape. For once, it looked as if the giant was at a disadvantage because of its size.

Microsoft pressed on with development and when Internet Explorer 3 was released, the hilarity that greeted a big company outmaneuvered by a tiny upstart lapsed into an awkward silence. IE 3 was everything Microsoft had promised and more, due largely to its integration into the Operating System. With the release of IE 4, Microsoft effectively surpassed Netscape in browser features. Microsoft was writing a better browser, and giving it away. The only way that was possible was by relying on sales of its other products.

But instead of being satisfied with the browser market, Microsoft went on the attack. When Netscape tried to reinvent themselves as an Internet Server supplier, Microsoft introduced its Internet Information Server and included it FREE with every copy of Windows NT Server. Even Microsoft’s HTML editor, FrontPage, comes with a free "Personal" web server. Far from a "level playing field", this predatory behavior showed that Microsoft was more interested in running Netscape out of business than building a better product.

While Microsoft has successfully reinvented itself as an internet products company, it’s dominance of every market it has entered got the attention of the Federal Trade Commission and the Justice Department. Basic reason says that you can’t be tops in Office applications, four flavors of Operating Systems, internet technology, games, and programming tools without playing harder than the rules allow. This is a remarkable parallel with the Boeing Company, which was judge, jury, executioner, bailiff, and custodian in the early days of commercial flight. Companies that exist today as suppliers and competitors were all part of Boeing: Trans-World Airways (TWA), United Airlines, Pratt & Whitney, and several others. In 1934, the federal government decided more competition was beneficial and broke Boeing into many separate companies. Only the aircraft building company remains today, though parts of the planes (such as Pratt & Whitney engines) are made for Boeing by the now discrete businesses.

There are only two short-term solutions to Microsoft’s choke-hold on the software industry: Legislate it, or smarten up consumers. With all due respect to my very informed readers, the latter is the hard one. Ma & Pa Kettle aren’t likely to understand the details (and all of the Microsoft trouble is in the details) and as such, are unlikely to write letters, picket or buy alternative products. It runs counter to the common pulse of American consumerism that Bill Gates tapped nearly twenty years ago: buy the cheapest and most available products. As a culture we don’t like to wait or pay more, and the computer industry is doubly guilty of that.

The former solution (legislation), while attractive, presents a technical problem: Our legislators have shown themselves untrustworthy to deal a fair hand, or are too clueless about the technology they will be legislating to make informed decisions. This slide toward tyrannical corporations that dictate policy to the federal government is a frightening mirror of the futurist novel "Neuromancer" by William Gibson.

So, conclusion #2: The Feds, having taken Microsoft to court over the integration of IE 4 into Windows 98, will lose in one of two ways.

The first way to lose the battle is to win the case, forcing Microsoft to unbundle IE 4. This will be a Pyrrhic victory at best. 6-9 million copies will have already shipped by the time the case goes to court in September. Microsoft moves on with barely a pause.

The second way to lose the battle is that Microsoft wins the case due to DOJ bungling and, using it as a precedent, puts the screws back on the computer building companies that are presently using the pending court action as a chance to wriggle out from under Microsoft’s thumb. Result: Bill Gates rules the world.

The only way these two scenarios can be avoided or rendered moot is to go much further than the current pending legislation does and shatter Microsoft into at least 3 companies, or home grow an alternative. One of those alternatives, Linux/X-Windows is gaining ground for being the only Operating System to be owned by the internet at large. I’ll be covering the coming Linux storm this summer, so keep watching this space.

None of these scenarios are very appealing, and consumers must either learn to vote with their feet, or be content with the way of things. I presently use a Cyrix P150+ and am upgrading to an AMD K6-266 MMX. The old computer will (hopefully) become a Linux box, with which I can experiment and learn on.

You can see how my feet are moving. Are you happy with the direction the Wintel duopoly escalator is taking you?

Peace,

WebWalker