Thursday, November 29, 2012

Ack! Austrian Economics have Invaded my Computer Magazine

Most every single miss fire by Microsoft has been of their own doing.  Very little(if any) has to do with the largely unsuccessful anti-trust suit filed by the FTC in 1998. But Not according to Preston Gralla.  In his article for computer world called, Will Google go the Way of Microsoft?  Ask the FTC? he blames the anti-trust suit for much of Microsoft's failures and warns that the same could happen to Google.  As this is the perfect intersection of all my interests (technology, politics, and economics) I couldn't let his ridiculous premise stand.

Gralla makes this claim in his article:

These suits, no matter the eventual legal outcome, could cripple Google's ability to innovate and expand. To see why, you only need look back at what happened to Microsoft when the federal Department of Justice launched an antitrust suit against it in 1998. The core of the issue back then was similar to what Google faces now. The issue wasn't whether Windows was a monopoly (it was); it was whether Microsoft used its monopoly power to harm its competitors and dominate new markets such as browsers.
Eventually, Microsoft wasn't given much more than a slap on the wrist, but by the time that happened in 2004, the company had been embroiled in the suit for six years. During that period, it spent an immense amount of time and resources fighting the suit, and it wasn't sure which newly contemplated business actions might be deemed illegal.
It's no coincidence that during those lost years, while Microsoft was distracted, Google locked up the search market and Apple sewed up the digital music market with the iPod. During that time, Microsoft was also unable to capitalize on Windows Mobile, a smartphone platform it had developed years before Apple's iOS. Before the suit, Microsoft practically owned the tech industry. Ever since, it's been playing catch-up in every important growth area.
So the premise here is that the anti-trust lawsuit kept Microsoft from innovating between the years 1998 and 2004.  For this premise to hold up, we would have to see evidence that Microsoft was standing still during those years, and, once released from their lawsuit hell, unleashed their innovation again starting in late 2004early 2005.  So how does the premise hold up on the time line?  Not very well...

First of all, Microsoft did a LOT of things between 1998 and 2004.  Their most successful foray into a new market started.  They started and launched the xBox during this time.  That turned out to be a major success for them and is now a staple of their profits.

Microsoft also made lots of strategic planning during these so-called "lost years".  They layed out their entire .NET framework strategy in 2000 - in the middle of their anti-trust lawsuit.  They even managed to get beta release out that year.  The .NET framework is now one of the most widely used programming platforms.  Also, Microsoft dominated PC gaming with their DirectX gaming engine.  They made good, credible updates to that before, during, and after the lawsuit.

Microsoft also tried lots of things with varying degrees of success during these so-called "lost years".  Windows Media Center for instance was their attempt to turn windowsXP machines into entertainment hubs.  While it didn't catch on it also wasn't universally panned.  Microsoft also had innovation failures like, Project Mira.  Never heard of it?  There's a reason why, it was useless as designed.

If the reason Microsoft couldn't innovate was FTC strangulation, then it must have been successful both before and after those "lost years".  But as we will see that just isn't true.  Even before the lawsuit Microsoft had big, public failures like Microsoft BOB.
Even after coming out of the lawsuit Microsoft has still had failure after failure.  Project Origami was Microsoft trying to improve tablet PCs.  It was a bloody disaster in the consumer market.

Now let's look at the 3 things Mr Gralla blames the government for Microsoft not being at the top.  First up, the ipod and digital music.  Microsoft was caught empty handed.  No one foresaw Apple's giant success with digital music.  But, could Microsoft have succeeded if it hadn't been for the FTC?  Well, evidence points to no.  Microsoft got into the digital music market with the Zune, they poored millions of dollars into it.  for 4 years they struggled.  All of them long after they settled the lawsuit.  They never made any headway or found a way to innovate on top of Apple's success.

Now let's look at phones.  Was Microsoft crippled by the FTC?  Hell no!  They're inability to break ground in the smart phone market was not for a lack of trying.  They had an entire product line of Windows CE devices for things like smart phones going back to the mid nineties.   They launched in 2003(again, middle of their "lost years" Windows Mobile.  They released several version after that trying to get their O.S. onto cell phones.  It never caught on and they abandoned it in 2010 and created "Windows Phone" that was an imitator of the iPhone.

Finally, let's look at search.  No doubt Google dominates the market.  But they didn't steal the entire market from Microsoft.  When Google first came around, yahoo was the biggest search engine.  Google and Microsoft did become the big competitors for a while, but Google just won.  They did it better than Microsoft, and it was never for a lack of trying.  Microsoft is still trying.  Microsoft launched ANOTHER search engine(their third, by my count) called "Bing" in 2009.  This is well after their supposed FTC induced innovation coma.  That search engine has never taken more than 5% Marketshare.  In fact it only went over 4% for a few brief months.  If Microsoft lost the "search" wars because of their anti-trust lawsuit, they should've made a more credible attempt afterwards.  They didn't and haven't.

Another argument is that the anti-monopoly lawsuit distracted Microsoft and lawyers sucked up resources that could have gone to innovation.  If Microsoft's legal bills were a problem, it was their own doing, not the government's.  Microsoft was ridiculously over zealous with protecting their trade marks and violated other company's intellectual property.

Microsoft sued a company named "Lindows" because it sounded too much like "Windows".  (The company was trying to get Windows to run on Linux: hence - Lindows).  Microsoft eventually paid the company millions of dollars to change their name.  Microsoft also sued a 17 year old canadian named "Mike Rowe" for registering the domain name "MikeRoweSoft" for his business.

As if things like that weren't enough for their legal department, the company spent a hell of a lot more time defending itself against private lawsuits brought by other companies.  Note that that link is not an all-inclusive list of lawsuits.

So why did Microsoft lose their innovation?  I would argue that it wasn't the anti-monopoly lawsuit that slowly brought them down a few pegs, I would argue that it was the fact that they were a monopoly.  They got lazy and spent more time trying to protect their monopoly than innovating.  They let Firefox creep on on their Internet Explorer Market.  Gmail took away their Webmail market.  Linux became the cheaper alternative for netbooks and phones.  I might be wrong on why they ultimately were dethroned, but I can safely say that it had nothing to do with the FTC.
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