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Hazlett in Financial Times: "Antitrust Case of the Century" Ten Years Later

Whether one views the court-imposed sanctions in the 1998 Microsoft antitrust case as having worked or not, the government's actions failed to open the firm's monopoly to competition.

So says Professor Thomas Hazlett, writing for the Financial Times. Instead, Hazlett points out, competition unimagined at that point in time has flourished, and he cites the resurgence of Apple's product line, open-source Linux, and the Mozilla, Netscape, and Opera browers.

But the real story, says Hazlett, is that operating systems and browsers "turned out to be a side show." Instead, innovators produced such things as Google and Apple's Pod, Tunes and Phone. And in the final analysis, Hazlett states that the software giant Microsoft was helpless against competitive forces.

Ten years on, how evil was Microsoft's Evil Empire? The Financial Times, January 28, 2008. By Thomas Hazlett.

Excerpt:
"Ten years of wild and crazy software sector history allow us to reflect. First, we note that the case struck a decisive blow against the Silicon Valley hubris that it was beyond the range of regulatory attack. Its Maginot Line breached, the tech industry flipped from defence to offence, equipping new armies to do battle in Washington and Brussels. The sleeping giant now roars public policy. From libertarian survivalists to shock troops for 'network neutrality' in just one decade.

"And we can now judge the government's fundamental assertion in US v Microsoft. Did Microsoft's tactics serve to protect a Windows monopoly that a targeted antitrust intervention could open to competition?

"No. Whether one concludes that the court-imposed sanctions worked, or did not, the answer is the same. If the antitrust enforcers imposed precisely the right measures, Java has done nothing to dent the Windows franchise. If the sanctions were inept or poorly enforced, that is even more directly a failure of the theory that an anti-monopoly law can improve on the 'but for' scenario.

"But the decade has hardly been a bust for competition. It flourishes on margins unimagined by those who were professing to protect its path. Rivalry has come not from Java, but from a resurgent Apple and the open-source Linux. One is a vertically integrated firm with proprietary innovation; the other a geekdom of code-sharers seeking karma and human capital. Meanwhile, Microsoft's Internet Explorer is coughing up market share to Mozilla, Netscape and Opera, browsers that ride comfortably on Windows.

"But operating systems and browsers turned out to be a side show. The profits of the decade have been stolen by entrepreneurs who saw what was unfolding over a distant horizon. And then traversed that distance in a flash.

"While the DoJ was filing against Microsoft, two youngsters at Stanford were crawling the web. With a search engine that could catalogue and rank the world's web sites, matching key words while filtering out mish mash, their start-up quickly entered the language as a verb - a really popular verb. You can Google it.

"Meanwhile, Apple has been making its own fortune under the shadow of the beast. It is crushing Microsoft in media players, finding its salvation in the holy i-trinity of Pod, Tunes and Phone. Domination of this digital consumer space was right there for the dreaming.

"In 1998, operating systems and browsers looked to be the strategic high ground of cyberspace. He who dominated these tools would extract tolls, excluding rivals and squeezing customers. The reality was different. Incredible value was created in applications not then known and party occupying the old position of dominance proved ineffectual as a monopolist and an also-ran as a competitor.

"Microsoft is valued at about $300bn, modestly above where it stood a decade ago. In just the past five years, however, Google and Apple have together generated a brand new $300bn in shareholder wealth. That a software giant proved helpless against competitive forces is an important lesson. We were not saved from the Evil Empire by police action. But Darth Vader proved not so scary, after all."

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