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From:
Mike Austin <[log in to unmask]>
Reply To:
ACS staff discussion list <[log in to unmask]>
Date:
Wed, 22 Dec 1999 11:35:39 -0500
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This is part of a talk that Ralph Nader gave to a recent
Open Source event in NYC.

   Jamie Love <[log in to unmask]>

(http://www.cptech.org/ms/harm.html)

                 Consumer Harm in the Microsoft Case

                            by Ralph Nader

                              Address to
              The Bazaar - An Open Source Software Event
                          New York, New York
                          December 15, 1999

     Every time the Microsoft antitrust case moves forward, one
observes a new wave of "where is the harm?" opinion articles in daily
newspapers, presenting Microsoft's anticompetitive practices as
harmful to competitors but not consumers.

     Judge Jackson's 206 page findings of fact addressed the issue of
consumer harm in ways that resonated with many computer experts.
While Judge Jackson mentioned that Microsoft had considerable leeway
in terms of pricing Microsoft Windows, citing an internal Microsoft
memorandum comparing the benefits of a $49 or $89 price for an upgrade
price for Windows 98, the findings of fact devoted considerable
attention to the non-price issues, such as those relating to
innovation, choice and software quality, that are key to the Microsoft
case.

     However, Judge Jackson's findings of fact are limited by the
scope of the government lawsuit against Microsoft, both in terms of
the types of anticompetitive conduct and the harm to consumers, and
therefore understates the harm of Microsoft's monopoly to consumers.
The US Department of Justice and State Attorney Generals have decided
to prosecute a relatively narrow case against Microsoft, largely
ignoring a plethora of issues relating to Microsoft's huge power in
the desktop applications area, including the components of Microsoft
Office, or the impact of its anticompetitive enterprise licensing
strategies.

     We often hear from consumers who say they are harmed by
Microsoft's monopoly abuses.  Here are some of the complaints.
Because this is a meeting about Linux, a free operating system, I will
begin with the pricing issues.

     Pricing Issues

     Windows is too expensive.  The price for Microsoft Windows
depends upon how you buy it.  A license for Windows is often bundled
with a new PC.  That doesn't mean it is free -- only that the OEM has
paid for the license.

     When people talk about software prices, they sometimes forget
that typically new technologies begin with high prices.  Television
sets, compact disk recorders and personal computers are only a few
examples of this.  Automobiles were very expensive when they were
first introduced, costing around $10,000, or nearly $200,000 in
today's dollars.  More efficient mass production was followed by much
lower prices.  The Ford Model T, which was produced from 1908 to 1927,
at one point sold for less than $260.

     As prices for personal computers, scanners, printers and other
computing devices have fallen, Microsoft has been able to charge high
prices for many of its products.  For example, the OEM prices for
Windows licenses have increased, making this license an ever larger
share of the cost of a new computer.

     Microsoft charges consumers a list price of $109 for an upgrade
of Windows 98, which is discounted by retailers to $89 -- but to get
this price you must already own Windows 95, so it is like a
maintenance fee.  The list price for a new version of Windows 98 is
$209.  Yahoo.com sells Windows 98 at a discount for $181.92, nearly
half the price of buying a new low end PC, and more than three times
the $49.99 price for the well reviewed BeOS.   BeOS is a
technologically superior operating system that suffers from a paucity
of third party applications, illustrating the significance of the
consumer lock-in with Windows.

     In addition, Microsoft is steadily tightening the conditions on
licenses.  Many OEM licenses for Windows are tied to a single machine,
and cannot be sold or transferred to another machine, even by the
original owner.  Business users are facing restrictions on the use of
concurrent licenses, requiring them to purchase more copies than
before.  And for most models of PCs that consumers buy, the OEM has to
purchase the license, even if the end user doesn't want the software.

     The "required to buy" Windows problem is a particular galling
issue for Linux users who are often actively trying to avoid using
Microsoft products.  After our own efforts in 1998 to push the major
OEMs to give consumers the chance to buy PCs without a Windows
license, we have seem some modest improvement, as Dell and other PC
manufacturers offer a limited number of PC models with Linux pre-
installed.  But it is still the case that nearly all of the PC models
sold by major OEMs, including Dell, require purchase of a Windows
license.

     A consumer who has been using computers since 1995 may have
already purchased a half dozen or more Windows licenses.  You might
have begun with Windows 95a, but bought Windows 95b so you could
better use the large hard drives.  And then purchased one or more
upgrade computers, with new Windows licenses.  Then one has to
consider the number of computers that need licenses.  Often a person
may have separate PCs for work and home, plus a laptop for travel.  So
it isn't simply the price of Windows, it's the number of licenses for
Windows that you end up buying, and how often you have to pay upgrade
fees.

     Microsoft forces upgrades of the operating system by introducing,
even between official revisions, significant changes in the OS,
including the important support for third party device drivers.
Indeed, Windows 98 is already on its "second edition."  To get what
are essentially bug fixes, Microsoft charges Windows 98 users $19.95,
plus shipping and handling, for the second edition of the same
product.  (Creating yet another opportunity to charge consumers more
money so its products will function properly).

     Any given version of Windows becomes obsolete within a few years,
because it will no longer support the latest innovations in hardware.
This is intentional, because Microsoft's biggest "competitor" in the
OS market is its installed base of users who have already purchased
Windows.  Microsoft forces consumers to buy what is essentially the
same product again and again.

     In 1997, analysts said that Microsoft had a ninety-five percent
share of global revenues for sales of office suites.  Microsoft Office
has become the global standard for word processing, spreadsheets and
other desktop productivity applications.  The pricing for MS Office is
high.  Microsoft's Office 2000 "standard" edition lists for $499, with
a "street" price of $399. Even an upgrade to Office 2000 Standard has
a list price of $249, and a discounted price of $195 - and this
assumes you have already purchased the Microsoft Office before.

     The "premium" version of MS Office is now priced at $799, or $449
for an upgrade version.

     These prices are much higher than the prices for Corel's Office
200 suite, which features WordPerfect.  For example, the list price
for an upgrade of Corel's Standard Office 2000 suite lists for $99,
about 40 percent of the Microsoft list price.  (And discounts for
about $79, about 40 percent of the Microsoft discounted price).

     Microsoft can command hefty prices for its Office Suite because
consumers are often forced to upgrade - simply to read documents they
receive from others.  Microsoft is constantly changing document
formats so that owners of older versions of Microsoft Office cannot
read the newer documents.  Again, Microsoft's main competitor is its
own base of installed users.  And, here too Microsoft is a tough
adversary, using interoperability and compatibility as weapons, to
force upgrades and generate more earnings for Microsoft.

     Millions of computer users who have perfectly functional copies
of Microsoft Office 95 found it impossible to read documents prepared
in Office 97, and one anticipates a new round of compatibility issues
with Office 2000.

     Microsoft knows that most consumers have little use for the
endless expansion of word processor features, particularly as the
world has come to rely upon the much simpler formats for information
used in electronic mail.  Moreover, the newer versions nearly always
contain new bugs, and necessitate more learning, and spark new
predatory attacks on non-Microsoft products.

     Plus, as MS Office and Windows become ever larger, they require
huge increases in computing resources.  For consumers this often means
a costly and time consuming hardware upgrade -- an event highly
correlated with losses of user data.  But for Microsoft, a hardware
upgrade is usually just another source of revenue -- as nearly every
new PC ships with a new license for Windows and other Microsoft
software.

     One feature of Microsoft's pricing is the huge difference between
its list prices and the prices paid by large buyers, including OEMs,
big corporations, governments or universities.  Microsoft knows that
these large buyers need licenses to Microsoft products, and that they
don't want to pay the high list prices.  All of these large buyers get
Microsoft products at significant discounts.  However, for many big
users, Microsoft insists on "enterprise" type licenses, which
effectively force big organizations to buy licenses for many products
for all employees (or students).  When Microsoft gives an organization
a blanket license for Windows and Office, they make it next to
impossible for rivals to compete, since the organization has already
paid Microsoft a license fee for all the computer users.  Microsoft's
pricing strategies are designed to give organizations no realistic
options, if they want to avoid sky high list prices for Microsoft
Office and Windows.

     This is also an issue for the OEMs, since the price of software
is a significant component of cost in the highly competitive PC
market.  Microsoft can use the threat of higher prices for OEM
licenses -- for Windows or Office -- to discipline OEMs, and reduce
opportunities for Microsoft competitors.

     Non-Pricing Issues

     While the pricing issues are an important measure of the cost of
the Microsoft monopoly, we hear more often from consumers about non-
price issues, including many of the non-price issues raised by Judge
Jackson.

     The most common complaint is that Microsoft crashes.  "At least
once a day," according to many Microsoft Windows users.  We also hear
countless complaints that Microsoft attacks non-Microsoft products, so
they don't work.  For example, when Microsoft released its Windows
Media player, as a competitor against the RealAudio player, consumers
wrote to say it disabled dozens of third party multimedia software
programs.  Little wonder that people call Microsoft's Internet
Explorer, the "Internet Exploder," because it attacks and disables an
unpredictable number of non-Microsoft applications.

     The documents in the Microsoft trial shed new light on the
seemingly endless compatibility and interoperability problems with
Windows and Microsoft Office.  When Microsoft executives proposed
making "running any other browser . . . a jolting experience," they
were simply adding yet another example of the "DOS isn't done until
Lotus won't run," corporate legacy.

     Microsoft could never have succeeded as a software company if its
intentions to sabotage third party products were known earlier, before
consumers and third party developers invested billions of dollars and
countless hours around the Windows platform.

     Even before you consider issues surrounding deliberate hostility
to users, you have the typical problem of a monopoly that can get away
with poor products.  Because it is so costly and difficult to migrate
to a new platform, Microsoft can succeed even when its core products
suffer hugely from poor stability, limited interoperabilty, and
endless security problems.  The fact that millions of users tolerate
daily crashes of Windows says volumes about the costs of migration
away from Windows.

     But, as Judge Jackson points out, and as most computer experts
know, not all of the quality problems are innocent.  In its internal
emails and by countless examples, Microsoft has demonstrated that it
believes it benefits when consumers cannot make competitor's products
work correctly.  Microsoft has a range of methods to undermine its
competitor's products.  When it does not use deliberate sabotage, it
can withhold important technical information or refuse to license
technology to its competitors, such as when it refused to permit
Netscape to distribute a utility to log-on to Internet Service
Providers, or when it withholds or unexpectedly changes applications
programming interfaces and data file formats.

     Microsoft can also destroy the quality of rival software by using
predatory business practices, such as the enterprise licensing of
Windows and MS Office, exclusionary OEM and ISP licensing, or bundling
of products with "must have" Windows and Office products.

     When Netscape cannot effectively distribute its browser through
ISP or OEM channels, and when Microsoft's Internet Explorer product is
bundled in with Windows and MS Office, Netscape can no longer justify
continued R&D in the product. This harms consumers who prefer
Netscape. When Microsoft bundles Outlook Express, its personal
information manager and email client, into Windows, millions of users
who relied upon rival products, like ECCO Pro, were stranded when
their products were abandoned by publishers who could not compete with
a bundled product having a zero marginal cost to consumers.  And there
are countless other examples of this in the software market.

     Despite the colossal sums of money being invested in ecommerce
ventures, there is very little investment for desktop productivity
software.  And while the stock market seems crazy about some Linux
stocks, and with all due respect to this gathering, and in light on
the fact that we are using Linux extensively in our offices, Linux is
still primarily a server technology, without significant penetration
in the PC "client" space.   For this to change, there will have to be
considerable improvements in Linux documentation and in Linux desktop
applications.

     For most PC users, there is a steadily shrinking number of
choices for a growing number of important applications.  Microsoft is
squeezing the life out of markets for word processors, spreadsheets,
desktop database software, presentation graphics, personal information
managers, email clients and Internet browsers -- the applications that
most computer users need.

     Some observers, such as Robert J. Samuelson, seem to think that
Microsoft has provided a public service.  By eliminating competitors,
Microsoft gives everyone a common standard, and making life simpler
has benefits, Samuelson says.

     I think most people here see the poverty of this analysis.  There
are, of course, alternative methods of setting standards than relying
upon a private monopoly.  The Internet is a powerful and relevant
example of how a non-monopolistic standard can facilitate enormous
innovation.  And, as pointed out in Judge Jackson's findings of fact,
Microsoft has sought to crush third party technologies, such as Java,
that create cross platform standards that Microsoft does not control.

     The free software movement actively embraces a more open approach
to software development.  A distribution of Linux isn't the creation
of a single firm.  It is a collection of hundreds of programs
developed by different individuals and groups, that work together.
The disclosure of the source code is designed to make it easier to
design software programs that work together, to solve user problems.
There is competition among distributions of Linux, and users can
choose alternative graphical user interfaces, programming tools,
utilities and applications.  As described in the so called Halloween
memorandums, Microsoft's response to the popularity of Linux is to
seek ways to cripple interoperability, by deploying proprietary and
patented software interfaces.  And so far, Microsoft has resisted
efforts by OEMs to ship computers ready to dual boot Windows and Linux
or Windows and BeOS.

     There are, of course, huge costs associated with forcing everyone
into a software monoculture.  Some of the issues concern security.
Microsoft's security breach of the week wouldn't be such a huge
problem if its software wasn't so ubiquitous.  But this is only one of
many issues.

     There are also large costs associated with the disappearance of
the products that Microsoft crushes.  In the beginning, Microsoft had
a tiny presence in desktop applications, and businesses and
individuals invested money and time around non-Microsoft products.
The forced migration to Microsoft's Johnny-come-lately imitations is
costly.

     Consumers value choice, about a wide range of software
characteristics.  WordPerfect and Microsoft Word have different
approaches to document management.  Netscape Navigator,  Microsoft
Explorer and Opera appeal to differ users.  Every software product has
its own fans and its own critics.  Robert Samuelson seems to think of
this as an inefficiency, but the contrary is true.  A "one size fits
all" world harms consumers, and lowers productivity.

     Competition among software products leads to innovation and
improvements in software quality.  This competition moves the industry
to solve the problems consumers face, and leads to more productive and
reliable products.  Indeed, perhaps the most important consideration
is that Microsoft is not a leader in product development -- it is an
imitator, and this is the most significant harm to consumers -- the
stifling of innovations that we never see.   As pointed out by Judge
Jackson, even Intel, the other half of Wintel, was forced by Microsoft
to stop development of a promising new multimedia technology.

     We recognize that in software markets, there may be cases where
the market coalesces around a single product with a large market
share.  But it is one thing for that decision to be made on the basis
of competition for consumer satisfaction, based upon product quality
and price, and something else when consumers are forced to pick
Microsoft, by an endless array of underhanded, coercive and non-
meritorious tactics.  Consumers are harmed when there is no real
choice, except to succumb to the Microsoft Borg.

     Thank you.


For more information, see http://www.cptech.org/ms

Contact Ralph Nader at [log in to unmask]


--
James Love / Director, Consumer Project on Technology
http://www.cptech.org / [log in to unmask]
P.O. Box 19367, Washington, DC 20036
voice 202.387.8030 / fax 202.234.5176

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