The easy bit has been done. The US district court judge, Thomas Jackson, has ruled that Microsoft abused its 90% hold on personal computer operating systems in violation of anti-trust laws. The difficulty now is deciding what to do about it. Judge Jackson must have hoped that Microsoft would accept the compromise solutions offered by the independent mediator appointed to help bring about a settlement; but the Seattle colossus would have none of it. Microsoft became macro hard and decided that corporate advantage lay with hoping that the more conservative appeal judges would be lenient or that the appeal might linger on into a more congenial political atmosphere if George W Bush won the presidency. And all the time Microsoft would retain the fruits of monopoly control in the shape of its juicy 41% net return on sales, a rate of profitability that most e-commerce companies, caught up in the deflationary pressures of the internet, can only dream about.
What should be done? Some libertarian economists ask: why worry? Technological monopolies have short lives; upstart companies always undermine them (as Microsoft did with IBM). Even the revered guru Peter Drucker points out that no non-governmental monopoly in history has lasted longer than 15 years. But this ignores two points. First, why should companies be allowed to enjoy monopoly profits - ie money that should have gone to the consumer - even for 15 years? Second, companies like Microsoft, having done it themselves, are learning from the mistakes of the past. Nearly five years ago Microsoft saw a start-up called Netscape in its rear view mirror, which quickly captured an 80% share of the market for internet "browsers". It responded by bundling its own (bought-in) browser with its operating system - the main point at issue in this case - and all but snuffed Netscape out. Microsoft now has nearly 80% of the browser market.
Judge Jackson has the difficult choice of either deconstructing Microsoft into smaller competing units or insisting on good behaviour. He should go for the tougher structural solution. Microsoft can't be relied on to change its ways. It deeply believes that it has done nothing wrong (monopolists are notoriously myopic) and has such a fierce business culture that to ask it to change would be like appealing to a tiger to behave like a pussy cat. The key is to try to preserve the one positive thing that has come out of the monopoly situation - a common world standard for computers - while shedding the bad effects of stifling competition and innovation. There is no intrinsic reason why a browser or a spreadsheet has to be bundled in with an operating system. Who would dare launch a new browser now to compete with the one Microsoft gives away "free" with its operating system (on which it earns monopoly profits)? Operating systems should be constructed to take all sorts of competing software, and if they can't then they should be regulated like a utility. Microsoft often boasts of its innovation but most of its strengths (including its Excel spreadsheet and the operating system itself) originated outside the company. If Microsoft were broken up into competing units it would not only be good for consumers and Microsoft - whose huge reservoir of skilled people could be unleashed on other activities - but also for the computer industry, whose creative energies have been held back by the long shadow of Microsoft's dominance. When AT&T's telephone monopoly was broken in the 1980s, it led to the highly successful "Baby Bells". History can be repeated.
