In the US, two Bills look like guaranteeing a good Christmas for
the country’s army of lawyers. But while the first, President Bill
Clinton, continues his battle to fend off impeachment, it is the second,
Microsoft chairman Bill Gates, who is gaining more media coverage as he
finds his company in the dock facing allegations of uncompetitive
In the same US courtroom where Clinton’s nemesis Monica Lewinsky
testified this summer, Microsoft is now facing an anti-trust lawsuit by
the US government.
It is fighting charges over two main issues relating to control of the
World Wide Web.
The first is its practice of integrating its internet browser software,
Internet Explorer, with its Windows operating system, thus effectively
shutting out the main competitor, Netscape Navigator.
In addition, Microsoft faces accusations of applying pressure to America
On-line (AOL) to prevent the promotion of the Netscape browser on its
The lawsuit began in May and estimates suggest it will be January before
a decision is reached. If Microsoft loses, commentators believe the US
Justice Department may push for the company to be broken up into three
operating units, to distance Windows from Microsoft’s software and its
Alternatively, it may demand that Microsoft licenses Windows to its
rivals, turning the operating system into public property.
How big is too big?
Bill Gates and the Microsoft brand are legendary. But what are the
implications of this court case to the UK consumer?
Many observers in the UK believe that Microsoft will win. This view has
gained support since the recent announcement that AOL is to purchase
Netscape (see box).
’One of the arguments in Microsoft’s favour is that there is always one
giant in this marketplace. In the past it was IBM, now it is Microsoft,
but the future is hard to predict,’ says Tony Westbrook, editor-in-chief
of IT Week.
Alex Letts, president of Publicis Technology, an agency specialising in
technology clients other than Microsoft, believes that, should Microsoft
be broken up with Gates losing control of the Windows system, it would
be bad news for consumers.
’If that happened my belief is that Gates would kiss the Windows
operating system goodbye,’ says Letts. ’It would become an open system,
no company would want to develop it.’ Such a ruling would seem
A scan through the internet discussion groups devoted to the case
suggest that the potential benefits to the consumer if Microsoft is
broken up include lower prices and greater choice.
But some UK observers are doubtful. ’Microsoft’s pricing strategy is all
about getting maximum return while making if difficult for competitors
to enter the market,’ says Gary Barnett, an analyst at information
technology and telecoms research specialist Ovum. ’It is by keeping
prices low that it makes it harder for competitors to enter the
Barnett is equally sceptical about claims that Microsoft is damaging
competition: ’From the consumers’ perspective, I struggle to believe
that Microsoft’s activities have significantly reduced competition or
see a way that Microsoft could be forced to do business that would
increase consumer freedom.’
Letts believes Microsoft will win the case but he suspects that the case
may make Microsoft, a company known for continually innovating, more
’The sword of Damocles hanging over Microsoft is that if it becomes too
dominant in other areas it will happen again. Microsoft is aggressive
and this will make it more cautious in the future.’ This, Letts
believes, could be advantageous for its competitors.
Microsoft is anxious to defend its history as a company known for the
development of new products which benefit its customers: ’The court case
is about Microsoft’s ability to innovate,’ says Oliver Roll, the
company’s director of product marketing. ’This is one of the primary
drivers of the brand.’
If the current case turns into a protracted struggle, the company and
founder Bill Gates may feel the impact on their brand image.
As Richard Branson is now discovering, even the most popular brand is
vulnerable to a sea-change in popular perceptions if consumers feel they
are being misled or abused.
Although Roll reports that Microsoft has done no research into UK
consumer perceptions, in the US Microsoft is blitzing TV screens with
new corporate ads which, significantly, make no mention of the company’s
products or Mr Gates. In the UK, advertising spend has held steady; in
the first three-quarters of 1997 it totalled pounds 6.06m, in the first
three quarters of 1998, it reached pounds 6.68.
So far, the brand image seems to be standing up. The US press report
that Americans - particularly the younger ones - are reluctant to
discredit Gates and Microsoft.
Anecdotal US evidence suggests Microsoft has been helped by a growing
’litigation fatigue’ among the public - a phenomenon which has helped
Alex Batchelor, brand valuation director at Interbrand, believes brands
such as Microsoft, which offer clear benefits to consumers, are often
able to weather problems well.
’If, in consumers’ minds, the benefits associated with Microsoft’s
products are still clear, they will put up with a lot. However, if they
perceive they are being shamelessly exploited they will turn strongly
against whoever is doing that,’ Batchelor says.
’The danger for Microsoft is under-estimating how quickly the situation
can change.’ And the longer the case drags on, the greater the chances
it will hit consumer perceptions.
Indeed Microsoft, while frighteningly successful, is not omnipotent.
While the company does have a clear monopoly of desktop systems with its
Office application and the Windows operating system, it has still some
way to go before its gains control of the ’back office’ - the
marketplace which encompasses database systems and server software.
Letts believes Microsoft’s competitors fear that it will overtake them
in the back office arena, and it is this that is the real driving force
behind the court case.
’The core of this case is about front-office systems and applications
but the reason it is happening is that competitors are fearful Microsoft
will overtake them in the back office,’ he says. ’It is a deeply
self-interested attack by Microsoft’s competitors.’ But their concern is
Microsoft continues to grow at a rate of 25% a year.
In the fast-developing computer arena, ’convergence’ is the new
New systems are under development which will enable consumers to access
the internet via the TV, and computers will fit into the palm of the
This convergent future may be driven by new operating systems: ’It is
almost certain that the operating system which drives convergence will
not be Windows,’ says Letts. ’And looked at from this perspective, Gates
can argue that he has no monopoly.’
AOL’S RIVAL COALITION
In a development which proves the free market can move faster than the
US legal system, two of Microsoft’s biggest rivals last week struck a
deal which could radically alter the wired-up world.
Ironically, the deal could also help get Microsoft’s Bill Gates off the
legal hook in his battle with the US government.
The deal saw America Online, a content and internet access provider,
purchase Netscape, famous for its internet browser, for dollars 4.2bn
AOL has a customer base of 13 million subscribers, while Netscape
attracts 20 million visitors a month to its web sites.
Netscape is the market-leading browser, although it has been steadily
losing market share to Microsoft’s Internet Explorer. Netscape is also
strong in providing servers for the business market, access which AOL
has long coveted.
Microsoft immediately latched on to the implications of the deal. A
spokesman said: ’Competition in the computer market can change
overnight, making government regulation unnecessary’.
At the same time, AOL has also signed a licensing agreement with Sun
Microsystems to gain access to its Java software, which can run on any
operating platform. This software is ’operating-system independent’,
meaning it can run on any computer platform, allowing users to bypass