Microsoft Corporation Monopolies Analysis

The term monopoly (from Greek monos, alone or single + pole in, to sell) can bear two main definitions:

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  1. In Economics, monopoly (also “Pure monopoly”) exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Monopolies are thus characterized by a lack of economic competition for the goods or services that they provide and a lack of viable substitute goods. Alternatively (a modern and less common usage), it may be used as a verb or adjective to refer to the process (monopolism) by which a firm gains persistently greater market share than what is expected under perfect competition. The latter usage of the term is invoked in the theory of monopolistic competition (Wikipedia. Monopoly).
  2. In political discourse, the term monopoly is frequently invoked as a blanket generalization in criticism of firms with a large market share or lack of what’s perceived as “fair” competition (Wikipedia. Monopoly).

Microsoft Corporation is often accused of being a monopoly. It was founded in 1975 and now is the worldwide leader in software, services, and solutions that help people and businesses realize their full potential. For the fiscal year ended June 30, 2007, Microsoft announced revenue of $51.12 billion, a 15% increase over the prior year (MSFT Investor Relations). It is headquartered in Redmond, Washington, USA. Its best-selling products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software. These products have prominent positions in the desktop computer market, with market share estimates as high as 90% or more as of 2003 for Microsoft Office and 2006 for Microsoft Windows. One of Bill Gates’ key visions is “to get a workstation running our software onto every desk and eventually in every home” (Wikipedia. Microsoft).

Microsoft has footholds in other markets besides operating systems and office suites, with assets such as the MSNBC cable television network, the MSN Internet portal, and the Microsoft Encarta multimedia encyclopedia. The company also markets both computer hardware products such as the Microsoft mouse and home entertainment products such as the Xbox, Xbox 360, Zune, and MSN TV. Known for what is generally described as developer-centric business culture, Microsoft has historically given customer support over Usenet newsgroups and the World Wide Web, and awards Microsoft MVP status to volunteers who are deemed helpful in assisting the company’s customers. The company’s official website is one of the most visited on the Internet, receiving more than 2.4 million unique page views per day according to Alexa.com, which ranked the site 18th amongst all websites for traffic rank on September 12, 2007 (Wikipedia. Microsoft).

DOS (Disk Operating System) was the operating system that brought the company its first real success. On August 12, 1981, after negotiations with Digital Research failed, IBM awarded a contract to Microsoft to provide a version of the CP/M operating system, which was set to be used in the upcoming IBM Personal Computer (PC). For this deal, Microsoft purchased a CP/M clone called 86-DOS from Seattle Computer Products, which IBM renamed PC-DOS. Later, the market saw a flood of IBM PC clones after Columbia Data Products successfully cloned the IBM BIOS, and by aggressively marketing MS-DOS to manufacturers of IBM-PC clones, Microsoft rose from a small player to one of the major software vendors in the home computer industry (Wikipedia Microsoft).

Despite all marketing campaigns, Microsoft did not grow through “innovation” or by offering the best product available. For a monopolist, it is much cheaper to wait for a small company to come up with a good product and then simply to buy them. A company called WebTV brought the Internet to television sets. Fearing a market shift from personal computers to digital TVs, Microsoft bought WebTV in 1997 for $425 million, thus removing a potential competitor. Some months later Microsoft saw the threat of free email services, in particular Hotmail, so they bought it (Vanheuverswyn).

Another point in the case was the infamous “browser wars” between Microsoft and its then competitor Netscape. Even today, despite numerous security problems with Microsoft’s browser program Internet Explorer (viruses, spyware, exploits), many people falsely assume Internet Explorer is the Internet, not knowing that there are numerous browser alternatives available to surf the World Wide Web. However, the overwhelming dominance of Microsoft’s Internet Explorer is only a fairly recent phenomenon. In the early nineties another company, Netscape, held around 90% market share and was the de facto standard browser. Microsoft saw Netscape’s success as a threat to its dominant Windows operating system and in 1995 launched an aggressive campaign to establish control over the browser market. They licensed Mosaic, another browser at the time, as the basis of Internet Explorer 1.0 (Vanheuverswyn).

Microsoft with lots of cash had strong advantages over Netscape. Thus, Netscape may have had nearly 90% market share, but as a relatively small company, it lacked financial backing. Another significant advantage was that Microsoft Windows had a monopoly in the operating system marketplace that was used to push Internet Explorer to a dominant position. The trick was to bundle Internet Explorer with every copy of Windows. Hence, even though its browser was technologically inferior, Microsoft was able to enlarge its market share with some sly marketing tactics and a great deal of cash. In the end, Netscape was pushed out of the market. Internet Explorer became the main browser. (Vanheuverswyn ). This is a power of monopoly. Bill Gates and his managers always have a winning strategy. They buy their competitors, brand new technologies and thus generate more and more profits and maintain their world monopolistic position.

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After bundling the Internet Explorer web browser into its Windows operating system in the late 1990s and acquiring a dominant position in the web browser market, the antitrust case the United States v. Microsoft was brought against the company. But, later, the proposed remedy (dividing Microsoft into two companies) was overturned on appeal. While new penalties were under consideration, the Clinton administration ended and the Bush administration took office. The new administration announced that in the interest of ending the case as quickly as possible, it would no longer seek to break the company up and that it would stop investigating claims of illegal tying of products (Wikipedia. Criticism of Microsoft).

On February 27th, 2008 the European Union (EU) competitions commission has announced its decision to fine the Microsoft Corporation €899 million (US$1.35 billion), approximately 1/10th of the company’s net yearly earnings, for failing to comply with the 2004 antitrust order. It is the highest ever fine charged by the EU (also being the largest fine of its kind ever imposed upon a company), and the first time that the EU has fined a company because of non-compliance with an antitrust decision (Wikipedia. Criticism of Microsoft).

For several past decades, Microsoft is a constant player in many anti-trust suits in different parts of the world. Most of these suits (if not all) are class action ones. They receive a huge resonance in the world and will be definitely among the brightest examples in the “anti-trust policy” chapters of the economics books for many years ahead. None of these suites can be treated as simple. The irony is that it can not be stated that Microsoft has worked out its monopolistic positions through the wrongdoing or illegal action of practices. In fact, the current global economic system doesn’t have any substantial regulation tools to prevent any company like Microsoft to grow to a monopolistic position in a global niche market. The only obvious tools are… suites and fines. But they can never be applied as prevention measures.

At the moment what can be stated more or less clear is that Microsoft’s software is by far not better than that of the competitors. In many cases, it is even inferior. But monopoly doesn’t deal with the quality. Monopoly deals with the market story – as Godin Seth described it in his famous All Marketers are Liars. The story told by Microsoft has happened to be the best. After acquiring a monopolistic position at one stage it is a natural business to protect it and gain more monopolistic positions at the next stages. This is what happens with Microsoft – its next monopolistic position at some market is determined by its previous monopolistic position on another. For example, having a monopoly on the operating system market helped Microsoft to obtain a monopoly on the internet browser market. Suites and fines can not cope with that – they deal with the consequences and are not meant to prevent. Any other company in the position of Microsoft would do the same. This is just a business strategy.

Some time ago there were suggestions to split Microsoft into two separate companies. Definitely, this won’t help. The story would be the same as with Standard Oil many decades ago. No more. Even if Microsoft would be split it hardy would give up on its monopolistic positions.

There is a certain nature of Microsoft’s monopolistic position for many years to date which can not be resolved by current regulation actions, whatever they are. Microsoft always acts as a very wise market player. The company constantly monitors its potential rivals, doesn’t matter how big or small they are, and if there are signs the rival possesses a technology with huge potential, Microsoft simply buys it – the rival or the technology. This strategy has started long ago – almost from the very beginning of Microsoft and its fate buying of QDOS for $50000, which later became multi-million MS-DOS, which eventually turned to be multi-billion Windows. No wonder the company is a monopolist nowadays. Looking ahead is always rewarding.

At the same time, there is good news to those wishing Microsoft’s monopoly vanish one day. First, is that all over the world Microsoft’s software is among the top software which suffers from piracy. Global piracy is Microsoft’s headache. Fighting against it costs a lot of money, which in turn drives the company out of cash or forces it to… lower the prices. Whatever the action from Microsoft is it undermines its monopoly. Second, despite very wise action in predicting technologies’ potential in the past years, Microsoft has overlooked the potential of a technology a decade or so ago.

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The technology is called the “Internet”. Microsoft wasn’t the first with the web browser. Though it quickly picked up and came up with the Internet Explorer, the momentum has been lost and today when we talk about Internet Microsoft doesn’t come to mind as the top player. Google comes to mind first – a company that even didn’t exist in times of the first Internet Explorer’s release. If the Internet is something, which, as predicted, is going to change our lives and whirlpool the entire software industry in the years to come, then Google is Microsoft’s headache and a threat to its current monopolistic position. Under such circumstances, the recent Microsoft’s bid of more than $40 billion to buy Yahoo! has little in common with Microsoft’s past purchases of perspective technologies. It seems the move is dictated by Microsoft’s will to protect its monopolistic position in the new software industry which changes dramatically. But will it help?

Works Cited List

Godin, Seth. All Marketers Are Liars. New York: Portfolio, 2005.

MSFT Investor Relations. “Microsoft Fourth Quarter FY 2007 Earnings Release: Microsoft’s Annual Revenue Surpasses $50 Billion”. 2007. Web.

Wikipedia. “Criticism of Microsoft”. 2008. Web.

Wikipedia. “Microsoft”. 2008. Web.

Wikipedia. “Monopoly”. 2008. Web.

Vanheuverswyn, Maarten “Bill Gates, saviour of the world?” 2005. Web.

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