Do you have a computer or know someone who does? If you do then you are probably familiar with how rapidly the computer software industry grows and how quickly products become outdated. Presently the average life of a product before it is outdated is eighteen months(1). This means that if a company does not continue to produce cutting-edge products it will soon be forgotten. This is the determining factor of many companies that base their success on one product and do not spend the time and money to keep them updated. When a company creates many products and increases its workforce to keep their products "on-edge" then they are soon recognized as an industry leader and their profits grow proportional to their popularity.
As a company's product becomes the leader in its field other products begin to be designed to work with it in order to gain their own popularity and success. This is how industry standards are created. Industry standards are usually formed by the company that designed the initial product or by an association of many companies in order to insure product reliability and allow computers to work together, correctly(2). When the initial product is an operating system, which is the main software-based manager of a computer, it is used as a foundation in which to create a variety of competitive markets of cutting-edge products. Although if the operating system does not keep updating frequently then it will soon be replaced by a competing product. The time to gain the position as an industry leader could be very quick thanks to the pace of the industry, yet it can be lost just as quickly.
Microsoft became an industry leader when it teamed up with business giant IBM to create one of the first Personal Computer's in 1981(3). Microsoft's Disk Operating System (DOS) was the software backbone of the computer. Updated versions of DOS were released throughout the 1980's to keep hold of the market. The command-line interface of DOS was soon left in the dust by the emerging "consumer friendly" Graphical User Interface (GUI). Microsoft jumped to the lead again with the first release of the Windows dynasty, Windows 3.1 and later 3.11 for Workgroups. The already popular company began to grow stronger with its demonstrated ability to keep up with the market.
Microsoft formed partnerships with other companies and grew into a surplus of fields such as networking, utility software, common applications, and entertainment. The company formed DirectX Standards which increased the variety and reliability of software and hardware that could work together in the Windows environment(4). This innovative new operating system fostered many new competitive markets in a range of different fields. It also increased the chance for a startup company to make it in the software industry.
Microsoft has frequently been called a monopoly of the software industry, the reality is quite different. Microsoft's annual revenues make up only 1% of the software industry. Their fame has come from their unmatched operating systems. Presently, 80% of the nations computers are running a Microsoft operating system. The increasing quality doubled with decreasing costs have brought Microsoft much success. It is true that Microsoft's net worth is enormous, just as many software and computer companies. Large profits and the software business have long been paired together. The reason revenues are so high is simple, but often over looked. In any industry, no matter the product, there are raw materials needed, as well as labor and manufacture costs to refine them, and then advertising and production costs. In the software industry there is practically no raw materials, except for that of which the program is stored on. A program can be copied a hundred thousand times in no time what so ever, with few mistakes, and extremely low labor costs. This mass production brings in huge profits which sets the software industry off from the rest.
Microsoft enriches competition and innovation in the software industry. The software that is produced by Microsoft is beneficial to the market. Microsoft's monopoly provides products to consumer's at a lowered cost. Microsoft's monopoly does not pressure consumers to make weighted decisions. Microsoft does not use its market strength to attempt to control the internet. What would have happened if Microsoft did not exist, what would be different, what would have stayed the same. The Department of Justice's case restricts Microsoft from aiding competition and innovation in the software industry.
Microsoft enriches competion and innovation in the software industry. Microsoft's own success depends on creating an environment where competion and innovation can flourish, and in which other companies can succeed(5). If other companies products do not work with the Windows environment then there is no use for it. If Windows cannot provide a healthy, product-friendly environment that allows companies to gain from it, then they will use one that can. Approximately 2.2 million independent software vendors in the U.S. and 5 million worldwide design products to work with Windows(6). In a study of 200 randomly chosen companies, 91% said Windows had a positive impact on their business(7). Windows users use the operating system because it is a well designed, reliable environment. The versatility of the environment allows businesses to complete their tasks and do so in a quick and cost effective manner. The average increase in pay for attaining a Microsoft Certification is 25% (8). A Microsoft Certification is often more valuable than a four-year degree and more often required to get a job. The certification tests are computer based and are designed to fail you, targeting your weak areas and asking the majority of the questions in that topic or area. Companies worldwide realize the indepth knowledge needed to pass one of these, and in turn reward employees who obtain one. Microsoft allows individuals to show their acquired skills and prove it to the company in order to land a job. While increasing the spectrum of compatible applications and hardware abroad and setting testing standards for the industry, Microsoft is aiding competion and increasing the ability of innovation.
The software that is produced by Microsoft is beneficial to the market. A DRI/ McGraw Hill study found that, during the past decade, every dollar spent on Microsoft products raised business profits by at least four dollars(9). This statistic shows that the amount invested into Microsoft returns back at least 400 percent in profits. This has reflected into other industries and boosted the economy in many places. In opposition to allegations made against Microsoft, Microsoft products are not designed to crash other programs(10). Microsoft products are designed to allow practically every program created to work with it. They support an open architecture design so that all programs work with it to full capacity. Microsoft released a development program based on Sun's Java language. Microsoft realized the ability of the Java atmosphere and made improvements that they thought would help. In a study by a private company Microsoft's Java development software out performed Sun's, the original manufacturer(11). Microsoft contributed their time and money to the industry to improve other companies products.
Microsoft's monopoly offers products to consumers at a lowered cost. The street price of a Windows 98 upgrade is currently $89, compared with $110 for IBM's OS/2 Warp, and $430 for Sun's Solaris(12). In other circumstances, when a company realizes that they have market strength they raise prices to increase profits. Microsoft lowers costs of products to benefit consumers and offer exceptional products for little cost. Since 1990 the retail price of Microsoft Word (Microsoft's word processing application) has dropped by 25%, that of Excel (Microsoft's finance/spreadsheet application) by 32%, and that of Office (a bundle of Microsoft office applications) by 50%(13). Microsoft's price for Windows is a small fraction-less than 5 percent-of the price that a true monopolist would charge(14). Moreover, just a few years ago consumers had to spend far more to obtain software that provided just a fraction of the capabilities that Windows offers today. In order to keep to the sales strategy of the computer market and offer products at lower costs, Microsoft makes large cuts in profits. Along with cutting profits Microsoft also increases their Research and Development expenses to add new features and improve others to keep the fame of having exceptional products.
"To keep up with the rapid pace of innovation and because our competitors are always investing heavily to displace Windows, Microsoft has made an unprecedented commitment to Research and Development. Our investment in R&D has grown from $350 million in 1992, to more than $2 billion last year and expected $2.6 billion next year...(15)"
At a typical street price of $89, and assuming a buyer uses the Operating System for three years, a Windows 98 upgrade will cost just 8 cents per day(16). For consumers who purchased a PC already equipped with Windows, the cost is even lower. These prices are a small amount to pay for a product that cost the manufacturer $2.0 billion dollars to produce. It must be beneficial for consumers, that a monopoly like Microsoft would charge such low prices when it could be charging much more. Microsoft resembles Ford in the booming automotive industry of the twenties. Instead of making an automobile at a price so low every one can afford, Microsoft creates software everyone can afford.
Microsoft's monopoly does not pressure consumers to make weighted decisions. The information-technology industry is so fiercely competitive precisely because it serves knowledgeable customers who make informed choices about products(17). The consumers who buy products are well aware of the the products that are offered by the computer industry. Those who have a fraction of a doubt go to a knowledgeable sales person or other trained computer user in order to pick the right product for themselves. People are turning to Microsoft products because we listened to our customers and worked hard to make them the best available(18). Microsoft is a very famous company, many people call them a "software giant." They're right, it is, but it got there by listening to customers wants and needs and changing its software to incorporate it. The customers helped Microsoft get to where it's at, and now that it's there it continues to provide unmatched products at a price the average person can afford. Although Microsoft holds the majority of the market, the pressure that a consumer feels to buy its products is minimal. The average consumer spends a reasonable amount of time discerning which product meets his or her needs. Most of the time Microsoft does fill their needs and more for a price they want to pay. If not the consumer would obviously go with the better choice.
Microsoft does not use its monopoly to control the internet or disable other internet providers. It is preposterous to think that any one company could ever control access to the internet. The openness of the internet is inherent in its architecture(19). The internet is a vast network of hundreds of thousands, possibly millions of computers that all use a internet browser. There is no way that one company could attempt to control this conglomerate of computers. Any one browser has no more control over the internet than another, it is only the ability of the browser and the impact it makes on consumers that chooses its success. If Microsoft Internet Explorer 4.0 did not enable such open access to the wealth of information on the internet, it would quickly be replaced by other software that did provide the open access that consumers demand(20). The ability of an internet browser is measured only on its creator's awareness of the internet and how it is designed to work with it. Similar to all the other sectors of the software industry, the strength of a product to persuade a consumer to buy it creates its success or failure. The information on the internet is distributed across thousands of computers around the world, and there are an essentially infinite number of access points to that information(21). If a browser cannot allow such access to a customer it will be replaced. If Windows cannot support the browser that provides the access, it too will be replaced. The internet is the future of computing and all sorts of programs must be changed to agree with that.
What would have happened if Microsoft did not exist, what would be different, what would have stayed the same. It's hard to say what would have happened, because it didn't, but we can say what might have happened. Microsoft was founded back in 1975 when Bill Gates wrote a program for the "first PC", the Altair 8800(22). The company did not really make an impact until 1981 with IBM's first PC and Microsoft's DOS. If Bill Gates had not boosted the software industry with the program for the Altair then the world of computing would not be what it is today. We would be at least five years behind what we are now, technically speaking, and all software industry that sprouted around Microsoft would not exist. DOS was purchased by Microsoft for $50,000, it was changed and labeled M S-DOS(23). This gave Microsoft its real kick start, beginning a history of great achievements and investments. Microsoft produced Windows 3.1 in 1991, the beginning of their Graphical User Interface (GUI) operating sytems(24). Had the name Microsoft and PC not backed up the GUI, then it would be certain that Apple would hold the market and the PC would be close to extinct. Microsoft set high standards of software that consumers became to expect of the industry. If Microsoft had not created such high criteria then there would be a smaller market full of low quality, high priced software. Microsoft strove to build an environment that all software and hardware could work with. Had this not been accomplished the compatibility of software and hardware would be unreliable and the industry would be led by giants that created both software and hardware that could only work with their own products. The ability of a start up company to produce innovations of their own would be close to none. In a whole the industry would not be as popular and consumer friendly as it is today.
The Department of Justice's case, restricts Microsoft from aiding competition and innovation in the software industry. To remain competitive and to continue to provide consumers with high quality, low cost, innovative products, Microsoft and other U.S. software companies must retain the ability to design their products free from government interference (25). If Microsoft cannot successfully create and update their software then the software industry that relies on Windows to be supportive to their products will fail as well. The freedom to innovate and the reliability of products will be lost as well as competition. If the Department of Justice (DOJ) succeeds with its efforts to limit Microsoft's ability to improve Windows, software developers will be less likely to create innovative new products that take full advantage of Windows and consumers will be unsure whether applications will work properly with the version of Windows installed on their PC (26). Microsoft has long since been a competitor and supporter of individual innovations, yet if they cannot continue to adapt then there market strength will deteriate along with the backbone of the software industry. Approximetally five million companies worldwide use Microsoft products, namely Windows, to develop or produce there own products, what would occur if Microsoft were no longer recognized as the popular, competitive company that they are now.
"In short, while I certainly agree that the government should work to ensure that competition is not stifled by collusion or other plainly illegal activities, I think that the government should be extremely wary of interceding in an industry like computer software that is working so well on its own. As I hope my testimony today has made clear, the computer software business is not broken, and there is no need to fix it. It is a thriving and vibrant sector of the U. S. Economy and the envy of the rest of the world(27)."
As described in prior paragraphs, Microsoft is essential to the software industry. The aptness of an individual company or person to create their own innovation in today's software world is incredibly enhanced. Microsoft only magnifies the ease of such startup companies by creating and supplying an environment where these products will work. Microsoft is creating a competitive market where companies can strive to create high quality products that are assured adaptibility with the Windows environment and are appealing to consumers. It cannot be stressed enough of how fundamental Windows is and how it is only used to create a multitude of many products. Many people and companies critize Microsoft of being an "amoeba" of a monopoly and destroying all competition and room for expansion by competing companies. Microsoft is trying to spread their great acheivements and success by giving everyone a fair chance and setting standards that insure high quality. At a consumer stand point, we have never seen it so good. The highly competitive computer industry is driving prices so low that we could not go wrong. It is supplying products of extreme quality for pennies on the dollar.
Microsoft's monopoly provides a competitive market and cultivates individual innovation.
MICROSOFT'S MONOPOLY PROVIDES A COMPETITIVE MARKET AND CULTIVATES INDIVIDUAL INNOVATION
March 3, 1999
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