The New Price Tag for Breaking Up Microsoft? $310 Billion!
Sep 28, 2000, 04:37 (63 Talkback[s])
(Other stories by Kevin Reichard)
Re-Imagining Linux Platforms to Meet the Needs of Cloud Service Providers
[ Thanks to Ted Clark for
bringing this to our attention. ]
Our old friend Stan J. Liebowitz is at it again. Bettah than
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
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
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
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
1. Higher Software Prices for Consumers:
- Computer software prices would rise drastically, costing
American consumers an additional $50 to $125 billion over a
- Worldwide, consumers would be forced to pay an additional $125
to $310 billion in higher computer software prices over the same
2. Reduced Competition in High-end Computer Technology
- 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
- 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
- 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
- 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
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
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
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.