Microsoft's Antitrust Case, 10 Years Later

In the Freedom to Tinker blog this week, Professor Ed Felten started a series of entries marking the 10 years since the Department of Justice brought its antitrust case against Microsoft. The past decade has brought a lot of changes for Microsoft as well as the entire industry. But if you're wondering where things are headed for Microsoft, it might be instructive to look at what happened to IBM.In the 1960s and 1970s, "computers" meant mainframes, and mainframes meant IBM. The company was involved in several antitrust suits as competitors tried to build compatible mainframe products, but were foiled by IBM's attempts to protect its proprietary hardware and interfaces. By the late 1970s, though, minicomputers such as Digital Equipment's VAX line were starting to challenge the mainframe's dominance. But IBM's troubles were just beginning.

IBM started a self-destructive revolution in 1981 by introducing the IBM PC. It was a relatively open platform built of non-IBM hardware, running non-IBM software. PC hardware became a commodity, and IBM didn't have any of the monopolistic advantages that made them so much money in mainframes.

Although IBM never was a factor in PC software, a little company named Microsoft did quite well with it. Thanks in part to its operating system monopoly, Microsoft was able to create market share for its Office suite and elbow competitors out of OEM software bundles. That's when the feds stepped in and started to rein in some of Microsoft's most egregious practices.

If nature abhors a vacuum, technology must abhor a monopoly even more. Just like IBM's computer hardware dominance was brought to an end by the PC, Microsoft's PC software dominance is being challenged by Internet players like Google. When the technology landscape changes, a monopoly in one area can't protect a company from competition in another area.

Microsoft has been fighting its way back into the Internet space with moves like the Yahoo buyout, but what if it isn't successful? Microsoft can be successful as a company even if it isn't a top-level player in areas like Internet search and advertising. Look at IBM; even though it's not the center of the PC universe like it was 25 years ago, its market capitalization is still larger than companies like Apple that have several buzz-inducing products.

The IBM of today is much more focused on consulting services than hardware of any sort. Microsoft seems to be seeking a similar salvation with consulting and subscription-based hosting of products such as Exchange. Microsoft even predicted that within five years, half of the Exchange in-boxes would be hosted by Microsoft. Of course, the company also is hoping that change will come from growth fed by companies switching away from IBM/Lotus Notes. Some rivalries never seem to end.