- With concern growing over the power of Google, Facebook, and the other tech industry behemoths, people have been looking back to the Microsoft antitrust trial for possible insights.
- But an earlier investigation into the company may have a more important lesson, said Rick Warren-Boulton, an economist who served as an expert witness for the government in that trial.
- That investigation, led by the Federal Trade Commission nearly a decade before the antitrust trial, looked into the tactics Microsoft used to maintain its operating system dominance in the pre-Windows days.
- Had the FTC acted quicker, the second trial may have been unnecessary, Warren-Boulton said.
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In trying to figure out what to do about today’s tech giants, many antitrust experts and public policy pundits have drawn on the lessons of the Microsoft trial 20 years ago.
Economist Rick Warren-Boulton thinks there’s perhaps an even more important lesson to be learned from a separate, little-remembered antitrust investigation of the software giant that took place nearly a decade earlier than that momentous case.
That investigation, conducted by the Federal Trade Commission focused on the actions Microsoft allegedly took to thwart DR-DOS, a rival to its MS-DOS operating system, which was its flagship software before Windows. The FTC ended up deadlocked and the government didn’t taken any serious action to combat the software giants’ anti-competitive activities until several years later, by which time it had essentially wiped out all rivals in the PC operating system market.
The lesson from that episode, Warren-Boulton told Business Insider, is that it’s really important to address anti-competitive activity as soon as possible in the tech industry.
"People are always saying things that ‘In tech, don’t worry, it will fix itself,’" said Warren, a long-time industry consultant who served as an expert witness for the government in the Microsoft trial. "And the short answer is, no, it doesn’t fix itself. And it is really important to go early because of the rapid change."
Tech’s quick pace is a double-edged sword
Opponents of government intervention point to the quick pace of the industry as the big reason why regulators should take a hands-off approach. Today’s dominant firm can quickly become an also-ran, thanks to technological change, they argue.
Rick Warren-BoultonBut the rapid pace of the industry has a more dangerous flip side, said Warren-Boulton, now a senior managing director at Ankura Consulting Group. Companies can quickly parlay an edge in a market into dominance and then monopoly power. That’s what happened in the PC operating system market.
"If the FTC had acted back then … we would today have two competing operating systems, and Microsoft would be worth 10% of its current market value," Warren-Boulton said.
Warren Boulton is an economist and consultant who has been a thorn in Microsoft’s side since the early 1990s, serving as an expert witness against the company in numerous antitrust-related trials. After a stint as the chief economist for the US Justice Department’s antitrust division during the Reagan administration, he founded a consulting firm and worked with some of Microsoft’s rivals who were urging government officials to scrutinize its market power and how it was maintaining it.
It was during that time that he got involved in the DR-DOS case. In the early 1980s, as IBM was preparing to launch its first personal computer, it contracted with Microsoft to have the latter provide an operating system for the new machines. Microsoft came up with MS-DOS, largely by cloning an existing text-based PC operating system called CP/M, which was made by Digital Research. The IBM PC became the standard personal computer, in part because IBM allowed other companies to copy its design and market their computers as IBM-compatible. As such devices took over the market, MS-DOS became the dominant PC operating system, because IBM allowed Microsoft to license it to the PC clone makers.
Microsoft tried to box out rivals
Digital Research tried to get back in the game, creating a competitor to MS-DOS called DR-DOS that promised full compatibility and extra features. But Microsoft moved to thwart Digital Research, pushing PC makers to sign agreements that required them to pay Microsoft a license fee for every IBM-compatible computer they shipped, regardless of whether it had MS-DOS installed on it or not. Not wanting to pay two different operating system license fees, few shipped their machines with DR-DOS.
The Federal Trade Commission launched an investigation into Microsoft’s operating system dominance in 1989 then widened the probe in 1991. But the FTC couldn’t come to an agreement over whether to press charges against the software giant. After deadlocking on a 2-to-2 vote, the commission dropped its probe.
The Justice Department later picked up the investigation and got Microsoft to drop its per-processor licensing contracts. But by then, the damage was done. MS-DOS and Windows, which ran on top of it, dominated the market.
The per-processor license deals "were extremely effective and basically killed off DR-DOS," Warren-Boulton said. "The FTC basically dropped the ball," he continued.
That was the "crucial moment"
With Microsoft’s power unchecked by that case, the company went on to extend its dominance from the text-based operating system market to the one based on graphical-user interfaces with Windows. When Microsoft moved to quash the threat to its Windows monopoly from Netscape’s Navigator browser a few years later, government regulators decided they needed to scrutinize its dominance again, which led to the famous antitrust trial.
But that case would have been unnecessary, if the FTC had just taken quick action against the company a decade earlier, Warren-Boulton said.
"That crucial moment, looking back in history, was that FTC decision," he said.
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