Department of Justice Threatens Colorado’s High-Tech Future

By Dave Kopel

Boulder and Colorado Springs don't see themselves as having much in common. Yet both are enjoying an economic boom fueled by high-tech entrepreneurs. So is much of the rest of Colorado, and the United States. Not by coincidence, the most productive sector of our economy is the sector least controlled by Washington, D.C. But the glory days of the high-tech boom may be coming to an end, thanks to recent actions by the federal Department of Justice (DOJ).

This month, a federal court in Washington, D.C., is hearing motions on an unprecedented attack by the federal government on the computer software industry. The case involves the DOJ’s attempt to use the antitrust laws as a basis for a government veto on how software is designed.

The immediate target of the DOJ attack is Microsoft, a company in Washington state which might seem to have little to do with Colorado’s economic health. But Microsoft has contracts with numerous Colorado companies, and many Colorado businesses and other entrepreneurs use Microsoft software.

More significantly, if the Department of Justice beats Microsoft, the Department will have established the precedent that the government, not the marketplace, will determine what kinds of features that computer companies can put in their products.

Despite Attorney General Janet Reno's e sound bites about "monopoly," the Department of Justice has not formally alleged that Microsoft is breaking any antitrust law. Instead, Justice claims that Microsoft is violating its 1995 settlement of an earlier, untried antitrust suit.

In 1995, Microsoft bought its peace from the Department of Justice by agreeing not to condition the licensing of its Windows operating system on the licensing of other products. Now Justice charges that Microsoft requires manufacturers to install Internet Explorer, Microsoft's world-wide web browser application, if they want to install Windows 95.

Microsoft replies that it offers Internet Explorer as an integrated part of the Windows 95 operating system and notes that the 1995 settlement specifically allows the integration of new features into Windows. Justice need not worry that consumers will be "force-fed" Microsoft products. In the fast-paced market of consumer software, products must succeed or fail on their own merits.

While Internet Explorer has won attention because about a third of web surfers have started using it, other Microsoft Internet products have not done nearly as well. Along with the new Windows 95, Microsoft introduced the Microsoft Network. The software for accessing MSN came free with every new computer's Windows 95 operating system. America On-Line, primary competitor of the budding MSN, warned Justice that Microsoft would soon overwhelm all the other online service providers.

Today, AOL has acquired CompuServe and holds the overwhelming share of the on-line service provider market. The MSN has withered because AOL offered the features that consumers wanted and has worked hard to keep improving them. Just because an inferior product like MSN came preinstalled on new computers did not mean that computer users would start using it.

The lesson: Microsoft products get used only to the extent that consumers find them useful. That's why few people bothered with Windows 1.0 and 2.0, whereas Windows 3.0 became hugely popular. Existing market share provides no guarantee of future success in the fast-breaking computer industry.

Operating systems have evolved rapidly ever since the invention of personal computers. To stay competitive, operating system manufacturers must now provide features, such as access to a local computer network, that once had to be bought as separate products. Microsoft’s constant efforts to make its computer products do more things—such as access the Internet--shows that Microsoft is under intense competitive pressure.

The latest DOJ assault on Microsoft came not long after several powerful Senators, egged on by Microsoft’s competitor Netscape, began applying pressure on the DOJ to do something about Microsoft. Netscape has every right to be concerned about Microsoft; Netscape used to have about a 90 percent market share of world-wide web browser software. Microsoft’s first browsers (Internet Explorer 1.0 and 2.0) barely dented Netscape’s market share. But as Microsoft’s browser software has gotten better, Netscape’s lost over thirty percent of the market to Microsoft.

Of course Netscape could fight back the old-fashioned way, by doing what Netscape used to do: building a better browser than Microsoft. Unfortunately, Netscape has taken the fight into the political arena, so that software design decisions will be made by Senators and by Janet Reno’s ultra-politicized Department of Justice.

Should DOJ get its way, we will see the beginning of a major change in the computer industry, away from the free-market model, and instead towards the military procurement model, in which political influence becomes more important than building the best product at the lowest price. Such a change will be nothing but harmful to Colorado’s economy, and to the freedom of choice of Colorado consumers.

Dave Kopel is Research Director at the Independence Institute, a free-market think tank in Golden,

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