Bundling and operating systems

[Eric Lee Green <elgreen@iname.com>]

Some interesting notes:

1) Every modern operating system currently being shipped comes with a web
browser, generally integrated into the OS in some way. Even hoary old SCO
Unix, last of the "old line" Unix systems, now comes with a bundled web browser.
Even for people who do not use the Internet capabilities of the browser, it is
still being used for viewing help files, filesystem browsing, etc. I am
currently typing this within the "K" Desktop Environment under Linux, which
comes with (yes) a web browser built-in as its primary user interface, fully
Internet-integrated (e.g. I can haul an icon out of a window opened onto an FTP
software directory, drop it onto my text editor icon, and voila, I'm editing
it!). 

2) Every modern operating system currently being shipped comes with a network
stack built-in, due to customer demand for the Internet. At least half of the
customers out there want Internet capability.  In fact, the iMac's main reason
for success is its easy Internet connectability -- without Internet capability,
or with more-diffficult Internet connectability (i.e., that required installing
extra-cost software), it wouldn't sell. That's reality.

There is something called "incremental costs" that applies here -- when a
large percentage of the customers wants an add-on to the product (let's say
50%, a reasonable estimate of computer users who want Internet access), it is
cheaper  from a manufacturer's point of view to integrate the two and sell them
as one product, due to the accounting, packaging, and stocking costs associated
with keeping the second product separate.  This, for example, is why SCO now
bundles Internet connectivity into their Unix -- it was once separate, but
keeping it separate after more than 50% of customers wanted it caused immense
stocking and accounting problems, as well as being an inconvenience to
customers. In addition to saving money for the software manufacturer, it
also saves the average consumer money. If the incremental cost of the second
component is $5, I have to charge a minimum of $29.95 on the retail market in
order to cover the costs of packaging, charge-backs, returns, etc.  If I
instead raise the cost of the final product by $10, I both make more money on
average, and the average computer user saves $20. 

In short: When Lewis A. Mettler states that bundling harms consumers, he is
correct only when said bundling reduces consumer choice. And bundling only
reduces consumer choice when no alternatives are allowed. For example, Red Hat
Linux comes with not one, not two, but THREE browsers -- Lynx, Netscape, and
the KDE "Konquerer" file manager/web browser.  And as an OEM, I could bundle yet
another browser (Opera?) as the default browser in place of, or in addition to,
the other browsers.  Bundling in order to serve the customer is just that -- a
service to the customer, and one which, for much-demanded components, saves
customers money on the average due to the lower packaging, stocking, and
accounting costs. 

Which points to Microsoft's licensing policies as the problem, not their
bundling of Internet Explorer.  I've always been puzzled by the emphasis on
the bundling on the part of the news media, because that hasn't been the main
problem. By refusing to allow computer manufacturers to include Netscape
Communicator as the primary browser (i.e., the one that comes up by default
when you click on a bookmark or that comes up on the "first page"), Microsoft
has engaged in anti-competitive acts. But the bundling of IE itself was not the
anti-competitive act -- rather, the restrictive contracts that Microsoft places
upon its OEMs are the anti-competitive act, since they prevent said OEM's from
responding to the desires of their customers (some of whom wanted Netscape as
the primary browser).

It is possible to have an integrated browser and a non-integrated browser, both
on the same system. I did it myself when I was technical lead for Linux
Hardware Solutions. Every laptop that we shipped came with the "K" Desktop
Environment pre-configured, built-in web browser and all -- with the icon for
Netscape prominently placed upon the front page and entered into KDE's MIME
registery as the program to invoke to view web pages. I did this because that's
what the customers wanted, and the Linux licensing agreement allowed me to give
the customer what he wanted. Microsoft is not allowing their OEM's to do
this kind of thing, and thus is interfering with OEM's ability
to serve the customer. That, and not the bundling itself, is what is causing
consumer harm. 

In short: At a minimum, Microsoft should no longer be allowed to negotiate OEM
contracts. Rather, they should have a fixed price and fixed contract, approved
by the Justice Department as not containing anti-competitive clauses (the most
prominent of which is the "First Screen" requirement in the current OEM
contracts), and all OEM's get the same prices and the same terms. This removes
Microsoft's ability to retaliate against OEM's that don't toe the line or that
place consumer's desires over Microsoft's desires. Compaq's customers really
did want Netscape Navigator as their default browser.  Microsoft should not
have been allowed to retaliate against Compaq (i.e., drop their OEM contract)
just because Compaq placed the customers' desires over Microsoft's. 

-- Eric Lee Green    mailto:e_l_green@hotmail.com
     Software Engineer, Enhanced Software Technologies Inc.
     Former CTO, Linux Hardware Solutions
     http://members.tripod.com/e_l_green