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A succinct characterization of the Microsoft problem

Floyd Norris explains an important dimension of the antitrust issue with Microsoft:

For antitrust regulators, the heart of the problem is the changing nature of the personal computer market. Consumers do want new features, as Microsoft says, and they do want them bundled in. Any nonexpert who has ever tried to download and install a program would much rather have it done by someone else.

But Microsoft's pattern has been to wait for others to pioneer a computer application and then to put out its own program. If that program is eventually bundled as part of the operating system in all new Windows computers, the first arrival screams foul, but in the end Microsoft wins.

Netscape pioneered Internet browsers but was left in the dust. RealNetworks, which led the way in music software, could face a similar fate. It is not easy to make money off a product that consumers must install themselves when the consumers already own Microsoft's version, which comes already installed.

There is the tradeoff: simplicity vs. innovation. We want simplicity, and Microsoft delivers it, relatively cheaply. But it may deter innovation by bundling every concept into Windows and aggressively pursuing, indeed extinguishing perceived threats to its dominance.

Microsoft clearly has its eye on a future where a "Media PC" provides integrative functions to household entertainment devices -- TV's, DVR's, sound systems, and so on. Bundling Media Player into Windows is just one step in the process. There is a race to create this technology, and Microsoft has assets which make it a competitor. Antitrust should neither hobble Microsoft, nor allow Microsoft to hobble its rivals in this race. That is a tricky problem for antitrust analysis, which has enough difficulty reaching consensus for a static market, let alone projecting what the future might look like in a dynamic world.

Norris has another observation that gives one pause about the future: "the risk is that Microsoft is becoming the functional equivalent of an old-style utility, with extensive government regulation that could even extend into determining what products it sells and at what prices." That would be the end of Microsoft. Perhaps they should distribute their billions in cash to shareholders, before litigants and regulators loot the whole lot.