IP: Microsoft (surrebuttal for some complaints)

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

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> Date: Fri, 13 Oct 2000 21:15:37 -0700
> To: Dave Farber <farber () cis upenn edu>
> From: "Robert M. McClure" <rmm () unidot com>
> Subject: Microsoft (surrebuttal for some complaints)
>
> More for the good IP'ers.
>
> Quite a number of comments have been sent in response to my paper on
> Microsoft.  Some of them were very well reasoned and some others were
> from people who didn't seem to actually read what I wrote.  Without
> attribution I will provide a little additional commentary on some of
> the points.  (Supportive posts have been ignored as redundant.)
>
> > Let's, whether we agree with the pro or anti-Microsoft's position, be
> > somewhat fair when we consider Microsoft's rise to success. Microsoft has
> > been the business success story of the last 50 years and, while one may
> > deride the technical innovation of the firm, no one can take away from its
> > ability to capitalize on a business opportunity and to be constantly on
> > the right side of business decisions requires real "VISION" -- a quality
> > often missing in other business or political leaders.
>
> No one is arguing with this.  In fact, I made the point that Microsoft's
> most significant innovation was in the arena of business policy.
>
> > 1. Gates and Allen formed a company to develop software for a machine that
> > had just been developed by a company that could not meet the demand for a
> > few hundred. Gates dropped out of Harvard (in what had to appear a really
> > dumb move to his friends and family) and, according to he and Allen,
> > talked of having "a computer in every home and office running Microsoft
> > software" -- at that time, there were about 20 of these computers and
> > there was no Microsoft software.
>
> Microsoft Basic was a significant software engineering job.  Squeezing a
> useable language, which had been developed at Dartmouth and which enjoyed
> widespread usage, into the tiny machine was indeed a tough job, but did
> not require invention.
>
> > 2. Digital Research could not cut a deal with IBM to make the CP/M
> > operating system the IBM standard (the only seemingly viable choice since
> > the other industry stand was Apple DOS, a proprietary Apple
> > product). Microsoft was there -- to license OS86 from Seattle Products and
> > then to buy the company.
>
> Licensing an operating system from one firm and then licensing it to another
> was a good business move, but not innovative in the technological sense.
>
> > 3. IBM chose not to demand an exclusive licence or an outright sale. This
> > was the beginning of its demise as the "setter of standards" and Microsoft
> > was there as Compaq, Tandy, HP, AST, etc. produced the early clones and
> > MS-DOS (really Microsoft) became the standard.
>
> Bad mistake by IBM.  But Microsoft does not deserve kudos for this one.
>
> > 4. Lotus and WordPerfect did not choose to develop quality applications
> > for the Macintosh; Microsoft did, thus positioning itself for the eventual
> > success of Windows.
>
> Lotus and WordPerfect did not, but others did.  It should be noted, though,
> that Microsoft's products for the Mac never have achieved the penetration
> for the Macintosh that they achieved for Windows.  What they have obtained
> has largely been subsequent to the success of Windows.
>
> > 5. Visicorp put its eggs in the Graphical User Environment basket -- a GUI
> > that was not part of the Operating System -- Gates said from Day 1 that it
> > belonged in the Operating System.
>
> To what does "it" in the previous paragraph refer?  When Visicalc was first
> introduced (on the Apple II) there was no GUI on the Apple.  *Apple* saw
> from the very first that a good user interface was essential, long before
> Gates ever thought about Windows.
>
> > 6. Lotus and WordPerfect put all their eggs in the OS/2 basket and did not
> > develop quality Windows products (if ever) until it was too late and the
> > game was over.
>
> Another (possibly) bad business decision, not a bad technical decision.
> Almost all unbiased observers believed that OS/2 was a better Windows than
> Windows.  It was more stable, more efficient, etc.
>
> > So, if it were not for error, Digital Research, Visicorp. Lotus, and
> > WordPerfect would be the leading software firms --= instead they are out
> > of business (or owned by someone else) -- and IBM would control the
> > hardware world.
>
> This needs to be shown.  Simply claiming it does not make it true.  In fact,
> that so many firms have not been able to compete helps make the case that
> Microsoft disadvantaged the competition and thereby harmed consumers. (I
> don't believe that, but it is just as good an argument as that all of these
> august firms fell on their own saber.)
>
>
> > It seems to me that Microsoft deservers credit for capitalizing on
> > opportunity rather than derision for lack of innovation
>
> I give them full credit for capitalizing on the business opportunity, but
> still deride them for lack of innovation.
>
> Another writer sent the following:
>
> > I read through Bob's text. I had a bit of a problem with:
> > "Windows was basically copied from the Apple operating system
> > (which itself was copied from Xerox). The first two versions of
> > Windows were disasters. Only when MS reached version 3 did they
> > succeed in producing a system that was workable."
> >
> > "Word was derivative of numerous word processing systems (Word
> > Perfect, Word Star, Borland, etc) then on the market. Excel was
> > similarly derivative of already available spreadsheets (Lotus 123,
> > etc).  It was widely believed in the industry that Microsoft used
> > secret hooks into their operating system that were not published
> > for use by other application software houses.
> >
> > Everything else was easily justified but this stuff represents
> > unsupported opinion.  In the para about windows he says Microsoft
> > copied Apple but took 3 versions before they made something useful.
> > if it was a copy why wasnt it workable first time out.
> > Does not really compute.
>
> The primary reason for this was Gates' stubborn inssistence that
> "tiling" of windows was the only way to go, in spite of the view
> of most observers that overlapped windows were preferable.
>
> On the matter of opinion, I agree that what I said was my opinion.
> It was stated as opinion.  Supporting evidence was introduced abundantly
> before Judge Jackson.  Those were the facts.  We are all entitled to
> our own opinions, but not our own facts.
>
> > And I would disagree that word was a derivative of wordperfect. It was
> > soooooooooo different from wp people had trouble doing training. it was
> > simply too user friendly for the secretaries that had mastered the arcana
> > of alt-this and shift-that.
>
> The statement was "Word was derivative of *numerous* word processing
> systems..."  WordPerfect, as was true of most early word processing
> software, was not graphically oriented.  Neither were any of the other
> major word processing programs of the day.  Nevertheless, they had
> substantially all of the features of early day Word.  I am not trying
> to imply that Word was not a good, or even excellent, engineering job,
> only that it was not innovative.
>
> Yet another reply:
>
> > 1: Price
> > A monopoly provider would sell at a much higher price than $50 to maximize
> > revenue.
>
> Even a monopoly finds that there is a limit to pricing.  Too high a price
> both discourages consumption and provides a price umbrella in invite
> competition.  I do not know how the price was originally determined.  I
> just observed that it had not changed significantly while the underlying
> hardware did.
>
> > A rational business cannot sustain selling at or even near marginal cost,
> > particularly for a product with such large development costs.
> > Microsoft priced to sell, not to gouge.
>
>
> Correct.  However, it was noted that the marginal cost was nearly zero.
> A reading of Microsoft's financial statements indicates that profits
> were higher than normal.
>
> > 2: Innovation
> > Word, Excel, Access, Windows, IE - love them or hate them, they are all
> > significantly better than their competition - that is why they sell so
> > well. Microsoft may not get it right the first time (Remember the first
> > version of Excel - on the Mac - so buggy that you were lucky to type a
> > paragraph between crashes)
> > Cisco also buys innovation - as does Intel (have you seen their investment
> > portfolio?) and any other rational player in this fickle market.
>
> Every single item of software mentioned in the previous paragraph was
> developed following established software.  I was not trying to make the
> case that Microsoft did not have good programmers (they do) but rather
> that innovations originated elsewhere.  This statement remains unrebutted.
>
> Nor was I trying to make the case that other companies do not buy innovation
> or even steal it, but rather that Microsoft has an underserved reputation
> for innovation.
>
> > 3: Irresponsible Behavior
> > If the products were so buggy and wasted productivity - then why did
> > *everybody* buy them? Because like it or not, they were each rated better
> > than their competition by the only judge that matters - the market
>
> First, *everybody* does not buy them.  Nor can it be argued that market
> success goes only to the better product.  There are entirely too many
> counter-examples that I am prepared to recite.  If the "market" had
> perfect information the picture might change, but it does not.
>
> > Lets not forget those tens of billions of dollars toward global causes that
> > Bill has donated.
>
> I also did not claim that Bill Gates was not a good citizen and had not
> donated to worthy causes.  I was merely supporting the case that the
> government had not persecuted Microsoft unjustly.
>
>
> > >         In short, given the volumes of software shipped with personal
> > > computers, if there were true competition, the price would more likely
> > > be one-quarter to one-third of the current price.
> >
> > Obviously Robert is not a business person.
>
> Wrong.
>
>
> > Price is not set by marginal cost of production, which he admitted is near
> > $0 for software.  The price to charge is what people are willing to pay.
>
> Absolutely correct, but willingness to pay does not mean that no gouging
> is occurring.  To wit: OPEC.  Note previous comment above on price limits
> for monopolies.  (Even OPEC has a limit: the cost of converting coal and
> shale to fuel.)
>
> > Microsoft does not have an obligation to charge a low price for their
> > software, and who is he to say that 1/3 to one 1/2 is a reasonable price.
> > What about the cost of a Siebel seat or an Oracle license?  Maybe they
> > should be charged for gouging the customer too?
>
> I agree that they do not have an obligation to charge a low price, but under
> the rules of the game as written by the Congress and signed by the President
> they do have certain obligations.  They are not permitted to discrinate
> between equivalent buyers, they are not permitted to bundle (in certain
> circumstances), and they are not permitted to cross-subsidize.  Dragging
> in Siebel and Oracle is a canard since neither have the market share needed
> to be a monopolist.
>
> > They are not because their customers to an analysis and determine that 
> $2000
> > is a fair price for their software.  I suggest that if he doesn't like
> > paying Microsoft prices, he pay Linux prices for something else.
>
> That is equivalent to arguing that if you do not like the price of gas
> you should buy an electric car.
>
> > This kind of flawed logic about what is in the public good is not a service
> > to the community.  The real interest of the consumer is free markets with
> > market prices.  If the economics of the computer industry is to 
> gravitate to
> > monopolies until the next Microsoft comes along, then that is probably
> > better than having centrally planned software prices.
>
> Again I see a failure to read my original article.  I stated quite clearly
> that the entire issue of antitrust legislation is a completely separate
> issue, and that I tend to favor doing away with all of it.  However,
> since these laws *are* on the books, I think they should be enforced.
> Having laws that are not enforced is an invitation to disrespect for the
> law as a whole.  I hope this writer is not suggessting that.  If someone
> would like to mount a campaign to have the issue reconsidered in Cogress,
> please let me know.
>
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