Microsoft and the EU's Experiment in Socialism
By Scott M. Fulton, III, BetaNews
September 28, 2007, 5:00 PM
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During the days leading up to the Court of First Instance's decision, and for a few days afterward, EC commissioners including Neelie Kroes were quoted as having invited companies anywhere in the world that compete with dominant players that do business in Europe, to bring their cases to Europe for a fairer hearing.
It would be a novel concept in world history: a competitive market in law, where prospective plaintiffs shop around for the countries or venues where they feel they may have the best chance for success. Making such a market possible is the Internet - specifically, the notion that if you sell your products on the Web, you do business under the laws of all your customers everywhere in the world.
SCOTT FULTON, BetaNews: Well, just prior to the decision last week, Neelie Kroes made a statement that sounded like she was flexing her muscle a bit, saying if we get a verdict in our favor, here, one of the possibilities that we might look at is breaking up the company. Now, last I checked, this company was established in America. They could make a law saying, if you do business, you must do it as several companies.
CARMI LEVY: Yes, in theory they could've made that a prerequisite of doing business in Europe, so if Microsoft chose to have any presence in the European market on an ongoing basis, it would either do it by the EU's rules or it wouldn't do it at all. Truth of the matter is, at this point in time, there is no real, feasible means of forcing Microsoft to break itself apart within the European context. But just the fact that it's being said is an indication of just how big the EU's bluster has become.
...Really, that's what's happening: Microsoft happens to be in the unenviable position of being the first major American company that the EU decided to put in its place as a means of sealing its newfound political pedigree.
From here, the European Commission could keep right on swinging. It's taking on Google by questioning whether its intention in merging with DoubleClick is to absorb a colossal database of private information; taking on Apple by calling into question its right to charge iTunes customers in different member states different rates per download, even though Apple pays different royalty rates for each of those countries; taking on Intel by examining whether it had the right to enter into exclusive contracts with German retailers, rewarding them for not selling AMD parts.
But in dictating the behavior of manufacturers, will the European Commission inevitably be managing the behavior of customers - or more accurately, attempting to do so?
CARMI LEVY: But ultimately, companies like Dell, HP, Lenovo, they're market-driven companies. So what may very well happen is, they will respond to market demand, and if their customers increasingly demand one kind of operating system versus another, then they will move in that direction. It's interesting that Dell has now begun providing Linux as an option on some of their client machines. It'll be interesting to see, in the months to come, whether that will in fact continue and grow. In other words, the proof is in the pudding; let's see if Dell's experiment is borne out by sufficient market demand to keep it going.
At some point, you can legislate all you want, but you can't legislate end-user behavior. And if end users have shown a taste for Windows, and just like "I Want My MTV!" they don't want to give up their Windows, then no matter what the EU says or does, it's going to be very difficult to break that. Because let's not forget, at an operating system level, Windows' dominance comes with a price. There are already massive investments in infrastructure that supports the Windows operating system both at a server and a client level. And to move away from that is a very expensive and risk-prone proposition. And a lot of businesses, even if the legislative landscape changes significantly over the next couple of years, may be very reluctant to do that, to dismantle what they've already spent years and billions of dollars investing in, and training their people [in].
It certainly wouldn't be an overnight change, but it's the kind of shift that still leaves companies like Microsoft - that are in a dominant position - vulnerable because it opens up the door for more open and open source-type solutions to at least gain a foothold where previously they might not have had that foothold.
SCOTT FULTON: Yea, but assume they get that foothold, and assume that the EU's law were perfectly fair and balanced, to borrow a poorly-used term. That goes both ways. If you think about this, in the development of Web services, surely the open source people would agree with me that Microsoft is not the only innovator here. What if Europe stands up and says, "Okay, you guys developing Web service #X have not been sharing enough with Microsoft, and it's time that you guys be interoperable, so play nice and turn over your stuff to our special handler so we can turn it over to Microsoft."
CARMI LEVY: It'll be a lot more difficult for the EU to enforce that kind of behavior, because as soon as you move these services online as opposed to selling them in a shrink-wrapped box, your ability to control the market behavior becomes much less.
SCOTT FULTON: It hasn't stopped them before.
CARMI LEVY: No, it hasn't stopped them from trying, but the practical implications of it are much more difficult to police and enforce than they are with conventional software development, delivery, and deployment.
This may very well be the EU's last chance to enforce this kind of behavior, because the market is increasingly moving toward a Web-based paradigm. Whereas up until now, it's been almost exclusively shrink-wrapped; but at some point, you lose your ability to police that kind of behavior.
In other words, as the software market evolves to become less and less discrete, where the boundaries between "software products" become more vague than we've been accustomed to, maybe neither the European Commission nor the US Justice Dept. will be able to adequately regulate manufacturers' behavior, at least at first. The dominant players at that point may be the market concerns that are able to pool the most resources, that interoperate at a much tighter level, so as to become a kind of "virtual conglomerate."
And who will want to step up to the plate to regulate corporate behavior in that environment? Carmi Levy believes it may be the legislative body that, by that time, has had the most success with driving new efficiencies in corporate and manufacturing processes. Companies that are more aware of government oversight, he says, institute tighter controls on their own processes, expenditures, and strategies than they would have otherwise, even if those companies aren't quite certain it's all that fair.
In many ways, these quasi-government authorities might be doing companies like Microsoft and companies unlike Microsoft a favor by making life more difficult for them, and forcing them to tow a more narrow line.
SCOTT FULTON: So socialism is good.
CARMI LEVY: In the sense that it forces honesty in how companies conduct themselves, and it forces introspection, and it forces transparency. And it forces the kind of behaviors, like multiple forms of checks and balances, that in a purely capitalistic regime simply wouldn't exist. So what it does is, at the extreme ends of the envelope, it tends to blunt the kinds of behaviors that really do turn some people off of capitalism - the extremes of sales and of competitiveness that can sometimes turn ugly. This forces companies to back away from the precipice, and really question how they can achieve success in a more balanced manner.
Unfortunately, sort of where we're at in the period of evolution is, I think the EU is just using it as an opportunity to grandstand, and we're probably going to see more grandstanding in the years to come as the EU establishes itself on the world stage. Unfortunately, by virtue of the fact that many of the global targets are American companies that have innovated and dominated their markets for the better part of the last generation, unfortunately, it's American companies that are going to stand in the way while the EU gains its footing on a global scale.
SCOTT FULTON: A very, very different world.
CARMI LEVY: Very much so, and it's going to continue to evolve. The concept of unabashed, unabridged American dominance in a global marketplace in many respects no longer exists, and this is yet another proof point of that.
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