The meaning of the
government’s proposal to break Microsoft into two separate companies,
the one confined to producing Windows, the other confined to producing
application software, is that one or the other of these two major branches
of personal computer software is to be closed to the productive genius of
America’s most successful software innovator: Bill Gates. As The New
York Times reports, “Under the government plan, Mr. Gates, the
company’s chairman, would have to choose one of the two companies and
divest himself of any
financial interest in the other.” (April 29, p. B4.) In other words,
Gates is to be prohibited from producing and competing either in a major
area which he has been responsible for creating from the ground up,
namely, Windows, or in an
area which he has been responsible for advancing beyond what other
suppliers had achieved, for example, word processing and spreadsheet
Thus, in the name of freedom of competition and the combating of
monopoly, Gates’s freedom of competition is to be blatantly violated and
one or the other of the two branches of software is to be monopolized
against him—i.e., it is to become an industry, or part of an industry,
reserved by means of the government’s initiation of physical force, to
the exclusive possession of others.
branches of software production are to be open to everyone, except to
Gates (and also, as The Times reports, his two most important
associates, Steven Ballmer, the current president of Microsoft, and Paul
Allen, its co-founder.) The result is that freedom of competition in
software is to apply to everyone except to those with the ability to
revolutionize software. It is though the automobile industry were to be
legally open to everyone except to Henry Ford. Or the electric power
industry were to be legally open to everyone except to Thomas Edison.
underlies such an incredible outcome is the utterly mistaken belief that
overwhelming competitive success, to the point that one man or one company
dominates an entire industry, constitutes monopoly. This, of course, is
the kind of success that Gates
and Microsoft have enjoyed.
is that such an outcome of free competition is not monopoly. But it is
monopoly when those capable of bringing about such an outcome are forcibly
excluded from an industry, or any part of an industry. The accompanying
forcible reservation of an industry or part of an industry even to a mass
of less capable producers is the real monopoly, as much as if the industry
had been forcibly reserved to the possession of one man or one company.
The essential element in monopoly is forcible exclusion and forcible
reservation, not the number of producers.
The destructive nature of the government’s proposed breakup of
Microsoft is further indicated by one of the major reasons for advancing
it. Namely, what The Times article describes as “A requirement
that Microsoft share with other companies any technical information about
Windows, including software interfaces that the system engineers are
sharing with other people at Microsoft.”
What this refers to is the fact that an important reason that
Microsoft’s application software is so often better than that of others
is that Microsoft, as the creator and proprietor of Windows, has greater
access to and knowledge of Windows than its competitors. This gives
Microsoft an important competitive advantage when it comes to producing
applications that run under Windows, because it knows better how to
integrate them with Windows.
What the government does not see, and what Microsoft’s
unsuccessful competitors apparently to do not care to realize, is that
this competitive advantage that Microsoft enjoys in application software
was a major reason for its having developed and improved the Windows
operating system in the first place. The prospect of profits from
application software is a powerful motive for improving operating system
software. But it is such a motive only when the producer of the operating
system is free to produce application software too. Only then can he
directly and most substantially profit from the resulting improvements in
the application software.
It follows, of course, that to break up Microsoft must undermine
the incentives of the surviving Windows portion to continue to innovate.
For it will not be in a position directly to profit from any major new
applications that can be based on those improvements. That will be the
monopoly privilege of others.
same time, the surviving applications portion of Microsoft will be
deprived of the benefits it would have derived from a free and motivated
course, the supporters of the government’s proposal expect that once
others have the same access to Windows that Microsoft now has, those
others will be in a position to produce and innovate more effectively.
Indeed, they will—in the same way that buggy makers and gas companies
would have had greater ability to innovate if they had not been put out of
business by Ford and Edison or if they had been in a position to forcibly
appropriate the advances made by those great innovators as of the
mid-point of their careers.
consumers of computer software need the freedom of Bill Gates and
Microsoft to produce and innovate in any branch of computer software they
choose. That is, they need for them to enjoy the full, unbreached freedom
of competition. They do not need the hobbling of this man by the breakup
of his company, which would serve only to reduce the efficiency of both
surviving parts and provide monopolistic protection
to less capable producers, whatever their number.