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New Vistas for Microsoft--so why not Europe?

Policy analyst George A. Pieler says EC regulators are taking the wrong tack when it comes to the software giant.

    In the wake of Europe's latest and most amusing action against Microsoft--a new fine of $357 million levied by the European Commission because it doesn't like the way the software giant opened up its source code in response to the Commission's antitrust decree--the company has unveiled new operating principles for its software design. These principles, which are to be reflected in next year's scheduled launch of Vista (the next version of Windows), emphasize flexibility, easy interoperability with other manufacturers' products, innovation and market choice.

    What's really new here? Not much. Microsoft has been accused--not just in Europe--of bludgeoning its way to the top of the software universe by using proprietary code and savvy marketing tie-ins to head off not just other operating systems but also add-on software products that could compete with Microsoft's own versions. Its allegedly anticompetitive bundling of Internet Explorer into Windows, for example, was a major focus of the EC's antitrust complaint and, indeed, Microsoft dutifully complied with Europe's unbundling order. The result is the marketing of a Euro-special version of Windows, sans browser, that no one in the world actually wants to purchase.

    It's unclear why bundling is fine for some types of manufactured goods but not others.

    Why should they? While it certainly helps Microsoft to have IE as a built-in default browser pre-installed on personal computers--on the theory that lazy users won't look any further for their browser needs--nothing stops those users from installing another browser if they wish. The inclusion of Internet Explorer is a cost benefit for consumers.

    In terms of competition theory, it's unclear why bundling is fine for some types of manufactured goods (automobiles don't have to be sold with the seats, radios and navigation systems stripped out to enhance competition, for example) but not others (software pre-installed on computers).

    Europe no doubt wants credit for Microsoft's new operating principles because EC authorities think their fly-swats at Microsoft have revolutionized the technological landscape. Earlier this year, EC Competition Commissioner Neelie Kroes told Microsoft that Europe expects Vista to be created "in line with the European competition laws...It would be rather stupid to design something that is not."

    So now Europe, not exactly the leader of the pack in today's global economy, wants to take on the task of designing tomorrow's software products. Perhaps the inter-Europe alliance that created the Concorde, the late, lamented, supersonic transport that failed every test of market success, could take on this vital new task.

    To think that such rhetoric is actually driving the software market is like believing the sun rises just because the rooster crows.

    Seriously, no one should doubt that Microsoft has an eye to its political situation (not just in Europe) when it designs and markets products--why incur legal costs you don't need to? At the same time, it's ridiculous to think the world's leading software company would engineer its revamped platform for the benefit of "competition policy" rather than for the benefit of consumers.

    Microsoft knows as well as anyone that the exponential growth of the PC market and of Internet usage has greatly transformed its consumer base: More people want more options, more flexibility, and the power to create and explore new market niches. By definition, this new consumer demands products that are less top-down in terms of engineering and more responsive to the particular needs of each individual user--more customizable, as it were.

    That this new market profile may coincide with some rhetorical flourishes from European authorities is interesting and amusing. But to think that such rhetoric is actually driving the software market is like believing the sun rises just because the rooster crows.

    Europe is a spectator of the software scene (albeit a particularly annoying one), skimming a little money off the top with its antitrust fines while pretending to stand up for European technological might. It's a pleasant bit of theater, but don't confuse it with the real world.