Consumers will lose if states win Microsoft battle

By John Barrett
BHI Research Economist

Attorney General Thomas F. Reilly's first duty is to the citizens of the Commonwealth. However, his pursuit of antitrust penalties against Microsoft is both counterproductive and harmful to Massachusetts consumers and producers.

In joining with eight other attorneys general to limit the ability of Microsoft to bring its products to market, Reilly is carrying water for Microsoft's competitors - firms such as Sun Microsystems, America Online, and Oracle that are, in effect, banking on the courts to accomplish what they have been unable to do in the open market. It is these firms, not the citizens of Massachusetts or the other states bringing this case, that stand to benefit from the sought-for penalties.

Consider the problem that the nine states want to "correct." The problem is most certainly not that consumers have no choice but to use Microsoft's Windows operating system. Consumers are already free to choose Macintosh, Linux, or any one of the several versions of Unix.

Now, thanks to a settlement between Microsoft and the Department of Justice, consumers will be free to unbundle any of the middleware products, such as Internet Explorer or Windows Media Player, that Microsoft has traditionally integrated into its operating system, and instead use competing products.

The "problem," as the nine states see it, is that the DOJ settlement allows Microsoft to leave intact certain kinds of code, called application programming interfaces, or "APIs," that third-party software manufacturers need to develop their products.

The Windows APIs allow software developers access to Windows' full functionality when writing and debugging programs. Because Windows is widely popular, Microsoft saves software manufacturers billions of dollars by building its APIs into its Windows operating system.

The nine states would require Microsoft to produce, along with its regular Windows operating system, a "modular" version of Windows from which it has removed all Microsoft middleware components, including its APIs. Presumably this would encourage computer manufacturers to use middleware products made by Microsoft's competitors, so that, for example, a computer would come equipped with Netscape Communicator rather than Microsoft Explorer.

This increased competition in the middleware market is not, however, the prize sought by the attorneys general. Rather, they are betting that, by forcing software manufacturers to write to a variety of middleware APIs, they will spur the development of rival operating systems, thus further challenging Windows' hegemony.

The problem, however, is that there is no reason to put any faith in this joyous outcome. There is no evidence that any of Microsoft's competitors is champing at the bit to develop an operating system or, if it is, that the operating system it develops would compete effectively against Windows.

Then there's the matter of cost. In pursuing the illusory goal of new competition in the operating system market, the attorneys general would inflict unnecessary financial harm on software developers and consumers. They would force software developers, who must now write for new hybrid versions of Windows, to produce several versions of their applications, driving up developing, debugging, and marketing costs. A portion of these costs would be passed on to consumers.

Massachusetts' burgeoning high-tech sector and many colleges and universities all stand to lose if the attorneys general prevail. A recent study by the Beacon Hill Institute at Suffolk University, "And Then There Were Nine:+ The States v. Microsoft," assesses the impacts of these remedies on the Commonwealth. The study shows that Massachusetts consumers would incur $625 million in extra costs, while Massachusetts software producers would see their costs rise by more than $3 billion over the next three years.

Many Massachusetts software manufacturers are already struggling to survive. The added costs of providing products for a fragmented Windows market could easily force these firms to close up shop, thus making their products unavailable to consumers. The test of any good antitrust settlement is how it treats consumers. On this fundamental measure, the litigating states fail miserably.

Reilly is badly serving his constituents by pursuing this chimera of a remedy. He would do better to find some other case on which to build his legacy.

This article appeared in the Boston Sunday Globe on May 12, 2002

Format revised on 18 August, 2004