Microsoft's morality play

There's a new Bill Gates joke making the rounds on the Internet. As it's told, Gates appears at the gates of heaven, and is confronted by St. Peter. "Gates," St. Peter says, "I can't decide what to do with you. On the one hand, you were the driving force behind the information revolution, and that was good. On the other hand, you created that ghastly Windows 95."

To make a long story short, St. Peter gives Gates a choice between heaven and hell, and even allows him to visit both places. Heaven is pretty much what you would expect--but when Gates visits hell, it turns out to be an alluring beach. When it comes time to choose, Gates decides on hell.

But the hell to which Gates is sent is, as the story goes, no beach party. Instead, it is the traditional hell of fire and brimstone. Later, when St. Peter visits, Gates asks what happened to that beautiful beach he had been shown earlier. "That was Hell 3.1," St. Peter replies. "This is Hell 95."

The interesting thing about this story is the extent to which it mirrors the real-world debate over Microsoft and antitrust policy. Just as in the story, an apparently pragmatic choice takes on moral overtones. Just as in the story, Bill Gates and Microsoft control their own destiny. And, just as in the story, they appear bent on choosing hell.

At a conference sponsored by the Progress & Freedom Foundation last month, Sen. Orrin Hatch--playing the role, I suppose, of St. Peter--laid out the choice very clearly. Holding out the specter of an "Internet Commerce Commission" if one company were to become too dominant, he suggested that "it seems far better to have antitrust enforcement today than heavy-handed regulation of the Internet tomorrow."

The Internet Commerce Commission. That would, indeed, be hell. So why is Gates so adamant in opposing application of the antitrust laws to the software business?

Gates and his allies make a number of arguments. They say Microsoft has only a small share of the overall software market--but ignore the fact that roughly nine out of ten personal computers sold in the United States this year will carry Microsoft operating systems. They argue that innovation can quickly destroy any existing monopoly--but forget to tell you that Microsoft's effective dominance over the operating systems market has persisted for a decade or more, the Silicon Valley equivalent of eternity. They point to falling prices in the software market--and fail to point out that prices are falling faster in every other element of the computer and telecommunications marketplace, even including that old dinosaur, telephony.

Microsoft's central strategy is to turn what started out as an antitrust case into a morality play on a grand scale, painting antitrust czar Joel Klein as regulator-run-wild-cum-devil-incarnate. They would have us believe that any antitrust scrutiny of Microsoft, no matter how clear the violation and how targeted the remedy, amounts to a government takeover. Just by thinking about Microsoft, it would seem, Klein has become a de facto "Internet Commerce Commission."

This strategy has won Microsoft allies among libertarians (some of whom are opposed to the antitrust laws in principle) and in Washington-averse Silicon Valley. But it won't hold water among serious students of antitrust law.

That, at least, was the impression left by more than a dozen former Federal Trade Commission chairs, Justice Department chief economists, and other leading experts--most from the Reagan and Bush administrations, all from the market-oriented "Chicago School" of antitrust analysis--who followed Sen. Hatch to the podium. As the Wall Street Journal reported, these experts concluded that "antitrust enforcers had a role in ensuring that Microsoft doesn't use its lawful Windows monopoly to choke potential rivals in other markets."

It is this issue--not the breakup of Microsoft, not some broad "structural" theory destined to have the courts and the bureaucrats trying to restructure the computer business--that Klein seems to be pursuing in his current investigation of Microsoft, its Internet Explorer browser, and its other marketing practices.