Re: MSIE Browser

[James Love <love@cptech.org>]

  Matt Mercurio, responding to someone (not named by Matt), wrote:
  >      Excuse me?  You're not giving the average Windows user enough credit.
  > Windows 95 already comes inextricably "bundled" with that nasty MS browser -
  > but the facts indicate scores of people still use Netscape.  
  
  
     I would agree with Matt that if Microsoft bundles an inferior product
  in the OS, users will find a way to obtain a superior product.  Examples
  of this would be Cute ftp, a far superior shareware ftp client, Netterm,
  a far superior shareware Telnet client (all and more available from the
  excellent http://www.stroud.com software review site), or various email
  or fax clients which are superior to the exchange or MS fax programs
  built into Win95.
  
      However, I think it is also the case that if Microsoft wants to
  spend the money, it can create a client which, once bundled with the OS
  will decimate the third party market, as has happened with many
  utilities.  Who buys Stacker (regardless of the patent suit) or Trumpet
  winsock anymore?  Moreover, there are credible (IMHO) complaints that
  Microsoft can create types of OS integration that just are not available
  to third parties, not to mention the reported cases where the OS seems
  to deliberately create problems for competitor's products.
  
  	Some of this concerns the ability of Microsoft to closely control
  access to information about the underlying code (undocumented features
  of the OS), and to closely control information about the future
  evolution of the OS, which creates problems concerning upward
  compatibility.  Indeed, in our interviews with MS competitors in the
  applications markets, they often express fear that public criticism of
  MS will result in their exclusion to developer meetings, where such
  information is shared.  MS is also able to demand that its competitors
  provide detailed plans regarding future products, when it discusses
  issues relating to revisions in the OS.  This is an unnerving experience
  for an MS competitor.
  
  	What is the best evidence that Microsoft benefits from its control of
  the OS environment?  Look at what MS is doing in the browser market.
  
  	Why would MS spend tens of millions (who knows how much) to create a
  multifunctional behemoth application like MSIE 4.0, which takes as much
  as 60 megabytes on your hard disk, and give it away for free, even to
  corporate customers?  This isn't the business model for most MS
  applications.  MS doesn't give away Win95 or MS Office.
  
  	MS is giving away and bundling MSIE 4.0 because it wants to continue
  its monopoly on knowledge of the underlying code for the relevant OS for
  Internet applications.  Why is this monopoly valuable, when the product
  itself is given away for free?  Because it gives MS advantages, big
  advantages, in the applications market, and permits MS to dominate the
  standards setting process.
  
  	It isn't necessary to have 100 percent success for a practice to be
  considered sufficiently pernicious to warrant government intervention. 
  For example, American Airlines had a monopoly on the online system for
  airline reservations.  It sorted fares alphabetically.  This didn't stop
  travel agents from booking flights on non AA flights, but it was
  certainly a great advantage to AA, which always appeared at the top of
  the screen.  The government forced AA to change this to provide a more
  level playing field, and this has benefited consumers.  We could have
  waited for the market to solve (nor not solve) this problem itself, but
  the government's actions (adopting conduct rules) were both appropriate
  and cheap.
  
  	Is there a substantial public interest in conduct rules that inhibit
  MS's natural and understandable motivation to use its monopoly on the OS
  in anticompetitive ways?  I think there is.  Others may not agree.
  
  
  >      The point is that [. . . ] claims about detrimental effects on
  > Netscape/diversity/whatever brought about by OS/Browser bundling are just
  > that: Claims.  Just because you are not a lawyer or an antitrust professional
  > does not exclude you from supplying the relevant analysis from those fields to
  > support your arguments.  So,
  > 
  > -->HOW EXACTLY WILL MICROSOFT'S ACTIONS EXCLUDE NETSCAPE FROM THE MARKET?<--
  > 
  > Please be objective and specific.
  
          Responding to your challenge to another member of this list,
  allow me to suggest that the fact that MS is charging a zero price for
  its product has a non-zero effect on investment in commercial browser
  clients.  My analysis is based upon the theory that investors seek
  returns on investments, and prices which approach zero don't yield much
  return.  As a "Senior Economist" for Economists Incorporated, this must
  have occurred to you, even before this thread took place.
  
  	What is the business model for Netscape, with respect to browsers?  To
  hope that it too can spend millions of dollars on the development,
  update, and marketing of a product that competes with a free MS
  offering?  Of course, the MS offering isn't really free to the
  consumer.  MS itself books the costs of the MSIE development and upgrade
  against the income from Win95 and Win NT sales, in their SEC filings. 
  It is free only in the sense that the cost of using it is zero, once one
  purchases the OS.
  
  	Does Netscape face the same incentives as MS, and can Netscape hope to
  capture future rents from a free browser market, should it succeed in
  fighting of the bundled MSIE?  Not straight up.  MS is the incumbent
  firm defending huge market shares in desktop applications, which
  increasingly are looking at Internet functionality.  To the degree that
  Netscape can reduce the MS monopoly power, by providing an non MS
  controlled platform for Internet applications, Netscape is not in the
  position to capture the rents that MS may lose.
  
  	Finally, do your really deny that deep OS integration with the browser
  can marginalize a competitor's products?  Have you ignored decades of
  research on issues relating to telecommunications, software and computer
  networks?  What is your claim to expertise in this area?
  
    
       Jamie
  
  
  > 
  > Regards,
  > 
  > -Matt Mercurio
  > Senior Economist, Economists Incorporated
  > Washington, DC
  
  -- 
  James Love | Center for Study of Responsive Law
  P.O. Box 19367 | Washington, DC 20036 | http://www.cptech.org
  voice 202.387.8030 | fax 202.234.5176 | love@cptech.org