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The New Price Tag for Breaking Up Microsoft? $310 Billion!

Sep 28, 2000, 04:37 (63 Talkback[s])
(Other stories by Kevin Reichard)

[ Thanks to Ted Clark for bringing this to our attention. ]

By Kevin Reichard

Our old friend Stan J. Liebowitz is at it again. Bettah than evah.

Liebowitz, as you'll recall, is the academic responsible for a rather reviled tome called Winners, Losers & Microsoft, where he argued that the costs of breaking up Microsoft could be catastrophic to the American economy. Along the way, the publisher of Winners, Losers & Microsoft -- the Independent Institute -- was actually in cahoots with Microsoft, receiving financial assistance from the company in several different forms. Liebowitz, by the way, was never accused by directly profiting from his pro-Microsoft stand.

We will now need to reconsider the Liebowitz/Microsoft link, as Liebowitz has surfaced with a pro-Microsoft study funded by the Association for Competitive Technology (ACT), an industry trade association whose membership includes -- surprise! -- Microsoft and a few other smaller firms (Symantec, Intelliseek, Clarity). ACT has been active in the U.S. case against Microsoft, filing an amicus curiae to the court arguing that the case should have been thrown out of court. (Not surprisingly, Microsoft links to the brief here.) And most of you remember when Oracle and Larry Ellison were caught going through the garbage of industry groups that they suspected were mere fronts for Microsoft; Ellison admitted that $1,200 was offered to janitors for the nightly trash from the Association for Competitive Technology, but the janitors refused.

At that time, The New York Times called ACT a "pro-Microsoft trade group," while Salon went a bit further and called ACT " little more than a front group, organized at Microsoft's behest, which does little else but reflexively parrot the company line." Microsoft has acknowledged that its support of ACT (as well as other think tanks like Americans for Tax Reform and the Cato Institute) has run into the millions of dollars.

So it was perhaps inevitable that the pro-Microsoft Stan Liebowitz and a rather blatant Microsoft front organization would join forces -- to the point where Microsoft was shilling the results of the supposedly "impartial" study in its "Freedom to Innovate" propaganda e-mails. The ACT study, An Expensive Pig in a Poke: Estimating the Cost of the District Court's Proposed Breakup of Microsoft, raises all the familiar objections to the U.S. Government advocating action against Microsoft. Among the highlights:

The government's proposed anti-trust "remedy" before the Supreme Court would split Microsoft into two companies - one would sell software applications and one would sell operating systems. This misguided, federally imposed breakup would have a number of disastrous effects:

1. Higher Software Prices for Consumers:

  • Computer software prices would rise drastically, costing American consumers an additional $50 to $125 billion over a three-year period.
  • Worldwide, consumers would be forced to pay an additional $125 to $310 billion in higher computer software prices over the same three-year period.

2. Reduced Competition in High-end Computer Technology Sectors:

  • Instead of enhancing competition, the breakup would actually reduce competition and cause prices to rise in the server, database, and game console markets.
  • Ironically, the government's breakup plan will work against the best economic interests of consumers, businesses, public organizations, and even local, state, and federal government agencies, who will be forced to pay higher prices for their system and application software.

3. Higher Costs for Software Developers:

  • Computer software developers will also face higher costs - perhaps as much as $25 billion for U.S. companies and $55 billion worldwide.
  • Some of these additional costs will be passed on to consumers, but much will be borne by software developers, and some will be driven out of business.

4. Fewer Improvements to Windows Operating System:

  • The breakup will weaken the financial incentives to improve Windows, and even prevent the two new companies from working together to improve the software, resulting in an inferior Windows product. (Resulting in an inferior product? Microsoft managed to do this without the aid of the U.S. Government.)

5. More Confusing Marketplace and User Environment for PC Consumers:

  • The government breakup encourages computer manufacturers to remove components of Windows before shipping new PCs rather than shipping a consistent, standard version of Windows, creating a chaotic marketplace with multiple versions of Windows.
  • Consumers will be faced with a more complicated and bewildering challenge when choosing, setting-up and using a new PC.

OK, so we have more of the same FUD here: everyone will suffer if they're not forced to buy Microsoft products, it will cost more for developers to develop for multiple platforms, blah, blah, blah. The inflation rate must have been hellacious in the last six months: in February, Liebowitz pegged the cost of breaking up Microsoft as being $30 billion to consumers, which makes the $310 billion he now cites even more outrageous. I did actually read the study -- you can do so here -- and it is full of howlers. Like page 7, where Liebowitz argues (with a straight face!) that Microsoft does indeed have a monopoly, but has never abused the pricing power that inevitably comes from a monopoly. Or page 11, where Liebowitz says that the prices of word processors and spreadsheets have come down in recent years because of the goodness of Microsoft, minimizing the fact that Microsoft has faced more competition in the apps space than in the OS space in recent years (that is, the period between the fall of OS/2 and Apple and the rise of Linux).

Or page 19, where Liebowitz concludes that a Microsoft applications company would be highly unlikely to port any applications to Linux, arguing that since Corel is at the brink of bankruptcy (which doesn't appear to be the case, according to the most recent Corel financial statements), it must be because it ported its applications to Linux, and that any company that would port applications to Linux would undoubtedly go bankrupt as well.

And here's the biggest howler of all, from page 20: Liebowitz argues that even if Microsoft were to port Office to Linux, it is highly unlikely that Linux would have significantly more market share.

Think that over for a second.

"Even if [Microsoft] did port its applications to the Linux market, that wouldn't make the OS market significantly more competitive."

Amazing.

Now, realize that this really isn't new behavior for Liebowitz: he's been issuing "studies" on behalf of ACT since early 1999. And that he does so on behalf of Microsoft front groups shouldn't be a surprise, either.

The surprise is the sheer brazenness of Microsoft in all this. You'd think that after the company was caught with its pants down in trying to influence public opinion in such a hidden and underhanded manner it would step back and realize that such actions would be counterproductive. I guess not, and this brazenness is why we in the Linux community can never underestimate to what extent Microsoft will go in protecting its Windows/Office monopolies.

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