IP: Will NT Server Be Next On the Firing Line?

[Dave Farber <farber () cis upenn edu>]

From: jspira () basex com
X-Lotus-FromDomain: THE BASEX GROUP
To: farber () cis upenn edu
Date: Sun, 18 Jan 1998 00:50:09 -0500
Subject: IP: Will NT Server Be Next On the Firing Line?


Dave, good evening,


the issues covered by this article from Network Computing are of
significance no matter which side of the fence you are on the present DOJ
v. MS issue, and should be of interest to IP subscribers.


Have a good weekend.


/s/ Jonathan


Jonathan B Spira                    E-mail jspira () basex com
The Basex Group, Inc                URL http://www.basex.com
15 E 26th Street                    Tel +1 (212) 725-2600 x113
New York, NY 10010 USA              Facsimile +1 (212) 532-5406


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   If 1997 goes down in history as the year Windows95 came under fire, then
1998 is apt to  remembered as the year Windows NT and NT Server entered the
fray. Government investigations of Microsoft Corp.'s competitive practices
extend far beyond its browser-bundling practices. Although much attention
focuses on a December preliminary injunction that stops Microsoft from
requiring that its Web browser be bundled with Windows95, the posse
pursuing
Microsoft has grown too large, loud and boisterous to begin and end with
the browser.
   Already there's Caldera, which is asking the courts to open up Microsoft
APIs in conjunction with its charge that Microsoft illegally knocked DR-DOS
out of the OS game. Sun Microsystems, too, has gone to court claiming
Microsoft violated its contract by sacrificing Java portability in favor of
Windows. On the government side, a Justice investigation is augmented by
individual state inquiries-led in large part by Texas, which went to court
to push Microsoft to tell its partners that they are not bound by contract
to consult with Microsoft before talking to investigators. Japan and the
European Commission also have launched investigations of their own.
   One reason for the spate of court actions is the mounting pressure on
governments to address Microsoft's surging server dominance before NT's
competition withers. CIC (Computer Intelligence Corp.) estimates that
Microsoft and Novell are nearly neck-and-neck in the Intel PC server
market, with Microsoft holding a 36 percent share and Novell, 41 percent.
Within two to three years, however, Microsoft will surpass Novell at 51
percent to 42
percent, CIC predicts. And if the entire OS market is lumped together,
according to Dataquest estimates, the 80 percent share of new OS units
Microsoft already commands will jump to 92 percent by the turn of the
millennium. By that time, Unix's share will amount to a piddling 1 percent
of all new units.
   In the midrange-Unix's traditional stronghold-market researcher
Dataquest says it sees Microsoft operating systems outdistancing Unix
new-unit market share 40 percent to 38 percent by the year 2000. In CIC's
server-specific midrange forecast for new and existing units, it's
Microsoft at 24 percent to all the Unix players at 66 percent.
   Why is everyone ganging up on Microsoft? After all, a common school of
thought says Microsoft's muscle has delivered incredible productivity gains
by integrating apps and OS, providing a single point of contact, and


bridging the once-dissimilar worlds of desktop and server. Should a company
be hounded for successfully increasing global business productivity? How
can the government turn on the goose that's laying golden eggs for the U.S.
economy? How can monopoly action be taken against a company that doesn't
yet command half of all PC servers, let alone all servers? And how can
Justice act when its own 1995
Consent Order says NT is not covered?
   To answer these questions, we talked to those in business, the Justice
Department, Microsoft, its competitors and their legal representatives as
well as antitrust experts and economists. For an analysis of the legal
theories under which the Justice Department could pursue Microsoft see


http://www.NetworkComputing.com/online/ms97a.html.
   The Business Perspective  Meet Tom. He's a high-level strategic planner
for a Fortune 100 retail business actively replacing the bulk of its Unix
servers with NT Server, a business decision he supports. Tom is known for
his outspoken stance against government intervention, but he finds himself
in an unusual and ironic position. He'd like to see the government force
Microsoft to open its Windows and Windows NT APIs.
   Tom is afraid of becoming overly dependent on technology from a single
company. He's also chagrined that Microsoft is "already so pervasive that
it can only be criticized by those who can't be fired or don't care that
they get fired." Tom belongs in neither category.
   He wants Microsoft to concentrate on building a server operating system
that gives him confidence, one that scales and is reliable. Instead of
fixing its server problems, he says, Microsoft keeps "putting more doodads
on the OS, adding more working parts to the OS that make it break more
often." Microsoft is bundling applications, Tom says, to take over new
markets. His own company is able to pick applications on a best-of-breed
basis, but Tom believes many companies just take what they are given.
"Microsoft has market share," he
explains, "because it has thrown everything, including the kitchen sink,
into what you need."
   Tom is particularly incensed that Microsoft managed to preempt and
precede applications competitors to market through reports that the group
developing Microsoft IIS (Internet Information Server) played a big hand in
developing the NT APIs used to support that Web server functionality. In
addition, Dataquest says, Microsoft catapulted from ground zero in the 1995
Web server market to a spot second only to Netscape Communications Corp.
after bundling IIS with NT Server at no extra charge (23 percent versus 35
percent for Netscape). Others have long charged that Microsoft applications
can use operating system APIs
that aren't available to third-party application developers, and that some
applications include code that changes the OS to meet the needs of the
particular application. Tom believes these practices give Microsoft too
great an advantage over competitors in the applications market and foster
poor performance. "I'd like for it to unbundle this stuff, the way the
government forced IBM to do," he says.


   Tom joins others who fear that Microsoft will shut down competition and
increase prices, much the way IBM Corp. controlled the mainframe hardware
and software market prior to government intervention and the voluntary
opening of IBM APIs.
   Tom's perspective isn't unusual. Scott Winkler, a vice president at
Gartner Group, says most of his clients have expressed concern or at least
questioned the influence that Microsoft exerts on the entire industry.
Many, he says, tell him they are considering tacks like buying Lotus Notes
rather than Microsoft Exchange "to make sure Microsoft doesn't have it
all."
   The Uneven Playing Field  At issue is Microsoft's penchant for
leveraging its DOS success to Windows to NT to desktop and server
applications and then on to content and media (desktop, the Internet and
TV), and ultimately commerce and vertical industries. Microsoft may not
dominate each and every venture, but it has shown an ability to capture
significant market share through business practices that some competitors
consider illegal and some users believe inhibit innovation.
   For example, Netscape counsel Roberta Katz says Microsoft "came after"
Netscape. She says Microsoft targeted Netscape, which had developed Web
server capabilities on Windows NT Workstation, when Microsoft limited the
license for that server to 10 clients- effectively disabling its use as a
Web server and forcing anyone who wants to use Netscape's software on NT to
buy it on an operating system that includes Microsoft's competing Web
Server. She adds, "It is our understanding that the same kinds of threats
and intimidating messages
have applied in the server context as apply in the client context."
   Microsoft is willing to confirm that resellers are not allowed to remove
IIS from a server's operating system-an issue of product "tying," similar
to the browser issue under legal scrutiny. If Microsoft did not take this
stance, a company spokesman insists, it would  wind up with a balkanized
operating system.
   The fundamental question then becomes whether Microsoft can legally
piggyback on the NT Server operating system to preserve its position and
enter or even control new applications markets.
   Gary Reback, who legally represents many of Microsoft's competitors,
points to Windows NT Server 4.0 and 5.0 as clear examples that "you have
the same issues on the server side as you have on the desktop." For
instance, Windows NT 4.0 Server bundles symmetric multiprocessing, RAM
tuning, clustering, failover, load balancing, message queuing, a
transaction server, defragmentation and backup utilities, IIS, Index
Server, streaming video and FrontPage (used to author Web sites) for a
price tag that can range up to about $9,600. It comes packaged with 25- and
50-client licenses.
   NT 5.0, scheduled to ship in the second half of 1998, adds Very Large
Memory Support, DHCP capabilities, a cluster-enabled distributed file
system, I/O transfer off the main CPU, disk quotas, file encryption,
distributed link tracking, directory services woven with public key server
capabilities (including smart-card support), Kerberos, policy server


capabilities, a Windows scripting tool, snap- in management tools and new
versions of IIS, Index Server, Transaction Server and Message Queue Server.
Two industry analysts say
Microsoft also may bundle Exchange with 5.0, though Microsoft says it has
no plans to do so.
   "These are issues of predation, where you are not only giving away
products free, but in effect, paying people to take them," says Reback,
adding that such "software dumping" practices have long been recognized as
damaging to business interests.
   Theories of Law  While it's widely believed that a server-side case will
be made against Microsoft, fundamental questions remain about whether that
case will prevail in court.
   The 1995 Consent Order, for example, contains specific language saying
NT and NT Advanced Server are "not covered" under the agreement. Such
language would seemingly make it difficult, if not impossible, for Justice
to take the kind of narrow and more easily argued enforcement action it
began with the
browser.
   Reback, however, says that when the Consent Order was appealed, NT was
recognized as falling under it. He adds that the order encompasses any
Windows successor desktop-so, to the extent Microsoft pursues plans to
create an NT- Windows98 single operating system successor and GUI, the
order applies. "And since there is no difference in NT Server and
Workstation, I think they'd be hard- pressed to argue that the order does
not apply," says Reback. Microsoft, however, insists that NT Server and
Workstation are "tuned" to accomplish different tasks.
   At the recent Ralph Nader "Appraising Microsoft" conclave in Washington,
the majority of antitrust lawyers and economists attending suggested
theories of tying, monopoly leverage and essential facility as the optimum
avenues to keep Microsoft within bounds. A December ruling called for
further legal discovery on Microsoft's bundling practices, finding that the
1995 Consent Order, negotiated by Microsoft and Justice, was so ambiguous
that it couldn't readily be used to hold Microsoft in contempt or
compliance- especially when antitrust law prohibits product tying.
   Reback told Network Computing that to the extent it is clear Microsoft
intends to merge Windows95 and NT, the appropriate claim would be "monopoly
maintenance" and "if that's not the case, then it's still attempted
monopolization." Unlike other legal theories for which case law is split,
Reback says the law prohibiting monopoly maintenance and attempted monopoly
is well-established and clear. "In very traditional antitrust analysis, if
you have 30 percent or 40 percent of the market and you are engaged in
practices that make it likely you will monopolize the market, your conduct
is illegal," he explains. "The purpose is to catch it at its incipiency, to
catch problems that would lead to monopoly if not checked."
   Other legal scholars think a tough battle awaits anyone trying to argue
monopoly maintenance and attempted monopolization on the part of Microsoft.
Lloyd Constantine, former chairman of the Antitrust Task Force of the
National Association of Attorneys General, says it is difficult to


demonstrate that a company comes "dangerously close" to having the power to
control price or exclude competitors in a market-which is needed to prove
attempted monopolization. There are cases, he says, when a company held 100
percent of a market, yet wasn't considered in that category because its
hold on the market was so fragile. The other problem, Constantine says, is
that software markets are so fleeting that by the time a challenge is
successfully brought, the market has transformed into a new one.
   Constantine, who says he takes no particular stand on Microsoft's
actions, argues instead that if the government wants to pursue Microsoft
and any other company that takes advantage of the kind of market
snowballing now known as "network effects," Congress needs to rejuvenate
the Sherman Antitrust Act. Constantine says that through judicial
interpretation and administrative inaction that began in the early 1980s,
the Sherman Act has become a somewhat blunt weapon. He would like to see
Congress sharpen it by remedying the current split in judicial opinion over
monopoly leveraging. His suggestion is that Congress votes to clarify that
monopoly leveraging-that is, taking a monopoly in one market and leveraging
it to your competitive advantage in another-is illegal.
   Copyright (c) 1998 CMP Media Inc.


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