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Yet another article today. The EU is saying that it’s going to take another approach. Instead of fines, or forcing Microsoft to ship without Internet Explorer, they are going to try to force Microsoft to include other browsers in Windows. This means that most likely Firefox and Opera would ship inside Windows.

The EU is Picking Winners?

Forget for a second that I work for Microsoft and let us just look at this pragmatically. I have talked about this a lot, and I know it’s getting old, but we are very close to a complete reversal of roles and the EU using Microsoft’s supposed monopoly position to decide which browsers do and do not succeed. The concept of product tying, is what the EU is upset about. Windows the platform gives Internet Explorer an unfair advantage in the marketplace. I’ll get off my “who cares and who said business is fair” soap box for a minute and ask a logical question. If the EU chooses which browser would be included, are they not tying themselves?

Does The Customer Get Screwed?

Contrary to popular belief, there are other browsers than Opera and Firefox. Are they going to force Windows to ship with 25 browsers? Is your desktop going to look like circa 1999 Dell with 40 shortcuts on the desktop to different browsers? Is Microsoft going to be required to support these browsers? If so are they going to be compensated for having to support a competitor’s products? I can’t imagine calling Microsoft for a problem, only to be told that I had to call Mozilla for my issue.

Care to know what your support options are for Firefox? You can post something to a bulletin board, you can browse their knowledge base (probably not much help is your browser isn’t working properly) or you can download an IRC client and go into a big chat room and try and find help. I am afraid that to the average user, that isn’t support.

If you want more support than that from Opera, you are going to have to sign up for Premium Support and pay for it. See, that’s the problem with free software, it’s usually extremely poorly supported. Now you are asking Microsoft to take a product from an organization that wants nothing more than to see them fail, with little to no support, and ship it with their product. WHAT!?

Who Really Wins Here?

This whole situation is rife with conflict of interest, my biggest question is this: If they pull this off, is Microsoft allowed to change the default landing page and search engine for those browsers? If not… I mean…why not just force Microsoft to write Google a check. Let’s make it a tidy 20 billion or so.

Think about it for a second, it’s very obvious. The only way that Firefox makes money, is that Google pays them a referral fee for every search initiated through the search box or default home page of Firefox as it ships. That is other than the obvious huge payment they get for making Google’s search engine the default landing page.

Now, last time I checked, Google had a ridiculous advantage on all of the other search engines when it comes to Market Share. In 2007, and it’s increased since then, Google had 65% and the closest competitor was Yahoo with a shade over 20%. Microsoft was about 8.5%, Ask.com had around 3.5% and everyone else made up the rest. That means every other search engine on the internet combined for 3%.

It’s no secret that Yahoo is crumbling from within, and with an already declining market share, is likely to fall out of the running completely unless someone intervenes. The only problem is that they think to highly of their value and seem determined to fall apart than take an offer that isn’t well above actual value.

That leaves Microsoft, struggling to stay in a business that built Google into a multi-billion dollar behemoth seemingly over night. Microsoft is making some moves, most recently with bing.com appearing as the rebranding of live.com, but it’s no secret that being the bundled browser and search engine in Windows is the only thing keeping them at a still declining 8.5%.

So where is the monopoly here? If being in Windows is such a huge advantage, why is Google absolutely dominating this industry?

If the EU succeeds in this change, they will be further cementing one monopoly while trying to thwart another in an industry that they clearly are not the leader in.

The graph above is the one the EU will have you look at. 66% in favor of Internet Explorer for Browser market share. But the numbers that source the revenue don’t back it up. The obvious math would prove that the end users are either savvy enough to, or tricked into switching the default search engine for the operating system 80% of the time!

Google is not beyond striking deals that subtly switch your browser search provider when you install one of dozens of third party applications. Yahoo has pulled the same dirty move. These days any number of applications from little apps to ones as large as Adobe Acrobat.

The point is that shipping with the operating system doesn’t ensure a victory by any means.

The Dodge Ball Analogy

Imagine if you were a kid again, playing dodge ball in PE class. Before the game started, the coach came by and pulled the biggest kid aside and said “You see all of the smaller kids? You aren’t allowed to try to hit those guys.” Then, that same coach goes to all of the smaller kids, gives them two balls each and says, “You see that big kid over there? Everyone aim at him.” Then, to make things extra fair, announces to the class, “Every hit on the big kid counts as two, and every hit on a small kid counts as one half.”

I know, it’s extreme isn’t it? Or is it? And what kind of message does it send? We are already at a place where everyone gets a trophy. Kids are taught that you can get a black belt in a couple years at the age of 10, and that if you want something, all you have to do is keep complaining until you get your way.

The Mythical Monopoly Gauge

The sad truth is in the name of competition, competition is dying. Companies like Apple are benefiting from the restrictions being placed on their competitors by using the same (or worse in many cases) tactics that are the cause for many of these lawsuits. Don’t believe me? iTunes, the only media player that you can really use if you have an iPod or iPhone, default installs QuickTime with iTunes. OS X ships with Safari by default. iTunes tries it’s best to install Safari on your PC over and over, you have to diligently reject it every time there is an update.

These practices would be absolute cause of lawsuit for Microsoft, several of them already have been. These restrictions stifle and suffocate innovation at Microsoft.

So what is the lesson we learn here? It almost seems to me like the lesson is “Don’t get too big.” If you are small enough to avoid a target, then you can lie and cheat like everyone else and it’s ok.

The title of the article that proves my point? “Is Google’s Chrome the New Internet Explorer?” The gist of the article? Microsoft thinks that bundling Chrome in Windows will give Google a search monopoly because of it’s speed and security.

The Battle for the Box

Let’s make one thing absolutely clear. Microsoft’s concern with the EU case concerning bundling IE has zero to do with Chrome, Firefox, Opera and the like. It should be called “The battle for the box.” Microsoft doesn’t want that little search box you see at the top right of your browser to fall into the hands of Google. Think about it, it’s THE reason that when you do use IE, Google really wants you to install their toolbar, not for the features, for the SEARCH BOX! Don’t get me wrong, Microsoft wants people using IE8. In a perfect world to them, the internet would run on Explorer and they wouldn’t have to worry about all these silly standards (note sarcasm).

The reality, however, is that Microsoft wants to make money, something that Google is very good at. They made all that money by selling ads in their search engine, you might have used it before. If you look at the monopoly numbers that have been used against Microsoft in recent years, you will see that they are quite similar to Google’s dominance in the search market.

Microsoft is David to Google’s Goliath

Microsoft is still trying to get into the search market. The Live Search product isn’t totally mature, but it’s getting better. Right now, the only thing really keeping them in the game is that Windows ships with Internet Explorer 8 and it’s set by default to the MSN.com homepage and the default search engine is Live Search. This, my friends, is the battle ground.

Forget which browser got you there, they money is in the search. Microsoft doesn’t make money when you use Internet Explorer, and they don’t lose money when you use Firefox or Chrome, at least not directly. They lose money when you use the search tools that are set up by default by those browsers.

I know that some of you might have a hard time seeing Microsoft as the underdog, but in the world of search, that is absolutely the case.

Think of it more bluntly. If the EU wins this case, it’s the rough equivalent of the EU forcing Microsoft to just hand money to Google, millions of dollars on a daily basis.

Keep Your Eye On The Ball

I know what you are thinking, and I hear what you have said in the past. “The customer needs choice.” The argument against Windows has been that the market share keeps other OSes like OS X and Linux beat down. Get ready boys, the same game is coming and it’s going to define where and how you search the internet. I use Google too, and I think it’s a great search engine, but it’s all but consumed every other search tool. Yahoo is on it’s last legs and Microsoft is not far behind them in market share. As much as they sing “Don’t be evil.” around the corporate campus’ campfires, Google has an eye on your personal information. The ads they sell are only as valuable as the information they can get about you before they serve them.

Look at this problem closely, and don’t take sides too quickly. Microsoft may have a bad rap over the OS Monopoly issues, but it’s also 100% responsible for building a platform that crossed oceans and united the world through the internet. If you think that you would have the technology at your fingertips without the ground that Windows 95 broke, you are sadly mistaken. Now there is a vast landscape in cyberspace, it will be these types of steps that hand the keys of the internet to Google.

I am addressing a subject which has become quite the hot topic this week, and that subject is the European Union’s stance towards antitrust, and the big tech firms it goes after for ‘breaching’ it. This isn’t the first post I’ve written on the subject this week, but after several heated conversations with my friends in the tech industry, I thought I would clarify my position a bit.

Disregarding my entire philosophy on competition, free market and survival of the fittest, I believe I can make a strong case for the EU taking steps to prevent monopolistic activities within its borders while keeping itself from appearing like an empire on the make.

So here it is Neelie Kroes, the top four things you can do to keep the European Union from looking like a global bully.

1. Stop making decisions that affect technology products

If you read my previous article chronicling Microsoft’s battle with the EU, you’ll see the European Union has certainly not been shy in telling companies what they may and may not do with their own products. The reality is the EU doesn’t actually have any business making technology product decisions for any business. Microsoft is a software company and Windows is an Operating System. When you realize that every other OS available includes an internet browser, why should the EU have the right to bully Microsoft into shipping without one? This isn’t anti-competitive legislation, it’s simply crippling a company to allow other, smaller firms to benefit from governmental knee-capping of a larger company’s product.

2. Levy your penalties through legitimate means

The very fact the billions in fines the EU has been collecting goes directly to its tax budget, where it’s used for agriculture, infrastructure and internal expenses doesn’t even pretend to be ethical. It’s not new either.

If you look back at the European Union’s history, import restrictions have occurred in markets other than the technology industry too. When the EU was unhappy with the quality of beef it was getting from Brazil and Argentina, Brazil, the world’s #1 beef exporter was hit with a month long import ban. Now, I know beef isn’t software or CPUs, but the penalty to the offender was clear enough. A month of lost sales to the entire EU is a huge hit. Of course, it may have had a negative impact to companies within the EU which needed the beef (or hardware and software), but that negative business relationship, as well as the increased opportunity for the competition, are just a few effects companies like Microsoft and Intel would be bending over backwards to avoid.

3. Stop filing lawsuits on behalf of other companies

Novell isn’t exactly a pauper. Neither is AMD, or the plethora of other companies which have lodged complaints leading to lawsuits against US technology companies. AMD claims it has been damaged by Intel’s ‘unethical’ practices, a line swallowed by many in the media, including the INQUIRER’s Sylvie Barak. But I say, let AMD and Intel fight it out in a US court.

I am of course biased in this opinion, but Microsoft appears to have become a punching bag and anyone who thinks their product is superior (and, lets face it, who doesn’t?) yet is still failing, is now able to blame Microsoft for its woes, turning my company into nothing but an open purse to pull money from.

That’s not to say the EU shouldn’t police firms with unethical business practices, but if the commission wanted to make the point AMD was being damaged by Intel, it should have handed over any fines incurred to AMD, instead of channeling it all back into its own treasure chest.

4. Make the laws written and consistent

Who decides who is and isn’t a monopoly? What is and is not an ethical business practice? All companies, regardless of their revenue and market share, should know that the moment they start operating businesses within the EU’s borders, there are certain clear cut rules to abide by. I hate the idea of a magical market share gauge which determines the side of the line you sit on and therefore also sees fit to decide what that status does and does not allow you to do.

A significant problem arises when one tries to define the term monopoly and quantify it. The EU has considered firms with as little as 39.7% market share “dominant” and has gone after them with vigor. The obvious solution is to write laws preventing predatory pricing, tying, product bundling*, limiting supply, price discrimination and exclusive dealing practices. One law to rule them all, so to speak.

All of this will happen when…

pigs fly out of my butt, unfortunately. Nobody is really policing this and there is little recourse for those I consider to be the real victims. Today AMD was given a great opportunity to grow its business and I do applaud that.

I would, however, have felt a whole lot better about the situation had Intel been made to write AMD the check, rather than having to make it out to the EU instead.

* Product Bundling is particularly tricky. The EU is using this to allow other companies significant advantage over more established products by preventing them from providing products to customers that are competitive with like offerings in identical categories. The practice of software bundling is predatory when companies practice “pure bundling” or “product tying.” These rules are especially sensitive to having a single rule for all companies. The current inconsistent implementation is the root of the EU’s latest problem with Microsoft that could potentially prevent them from shipping Internet Explorer 8 with Windows 7.

Twitter is alight these days with discussions about the European Union and the fines they seem to dole out so nonchalantly. I regularly talk about how much I am frustrated with them because they effect my job so heavily. But like any good blogger, I decided to do a little reading and post some facts about the EU in order to add some validity to my position.

So What is the EU as it relates to Antitrust Laws?

In a word, scary. Imagine if you will, an organization that accounts for $18.4 Trillion, or 30% of the Gross World Product. It is comprised of 27 member states, mostly in Europe, and maintains common policies on trade, agriculture, and regional development. It also seems that it’s reach exceeds it’s member states’ borders significantly. The laws and fines they regulate apply to any company that operates within their bounds.

The mind boggling part is that not only is there little to no recourse for US companies, but there is really no accountability for the European Union and they don’t seem to fine based on the business being done within their borders but the value of the overall company in question. The amazing part is the countless billions that they assess in fines are not in any way used to help the markets that they are protecting competitiveness within, but kept and used to fund it’s own projects.

The Competition Commissioner, Neelie Kroes, is considered to be in one of the most powerful positions in the world, notable for the ability to affect the commercial interests of trans-national corporations. In 2001 the Commission for the first time prevented a merger between two companies based in the United States (GE and Honeywell) which had already been approved by their national authority. Another high profile case against Microsoft, resulted in the Commission fining Microsoft over $1 Billion following nine years of legal action.

Microsoft: The Big Target

Since 2000, the European Union has raised 42 lawsuits against Microsoft, but it’s not just about the money. Originally Microsoft was being sued because Novell said that we were blocking competitors out of the market using anti-competitive practices. The complaint was based on Microsoft requiring computer manufacturers to pay a royalty for the operating system even if the machine shipped without it. Microsoft settled in 1994 ending some of these licensing agreements.

In 1998, Sun Microsystems got involved complaining that Microsoft did not properly disclose interfaces in Windows NT. Somehow the European Union also reached out to look into how streaming media technologies were included in Microsoft Windows.

In case you are keeping score, we are in trouble at this point for trying to uphold licensing agreements that hinged on discounts provided to manufacturers for agreeing to only sell Microsoft’s product (a common practice), not completely documenting the inner workings of proprietary software, and allowing the customer to stream video over the internet with our operating system, but wait, there’s more!

To please the EU, Microsoft shipped Windows XP N, a version of Windows without Windows Media Player included. Of course the customer could still download it voluntarily, but somehow making us take it out and requiring the end user to go find, download and install (or potentially purchase) software to stream media (which nobody really did with Media Player at this time) is a better solution. You will see this pattern over and over, screw Microsoft, screw the customer, and help the competition.

At the same time, Microsoft released the source code, but not the technical specifications to Windows Server 2003 SP1 to members of it’s Work Group Server Protocol Program.

But Wait, There’s More

In 2005, the EU announced that Microsoft had not complied with the ruling by not completely disclosing all the details of it’s server products. The EU threatened to fine Microsoft roughly 3.2 million US dollars per day until it felt they had completely complied with the ruling.

In 2006, the EU fined Microsoft another half a billion dollars ($2.39M per day from 12/16/05 – 05/20/06) and threatened to increase the fine to $4.8M per day if Microsoft did not comply by July 31st, 2006.

In 2007 Microsoft lost their appeal against the EU case and nearly $800M in fines were levied. Along with this were requirements on interoperability information and bundling of Media Player. Adding insult to injury, Microsoft was forced to pay 80% of the EU’s legal fees.

Luckily it was rejected, but the EU also attempted to require that an independent monitoring trustee have unlimited access to Microsoft’s internal company organization in the future.

In 2007 Microsoft announced intent to comply and did not appeal the decision further. In 2008, the EU fined Microsoft an additional 1.44 Billion dollars for failure to comply with the March 2004 decision, representing the single largest penalty ever imposed in the 50 years of the EU Competition Policy.

The 2008 Microsoft Annual Report stated:

The European Commission closely scrutinizes the design of high-volume Microsoft products and the terms on which we make certain technologies used in these products, such as file formats, programming interfaces, and protocols, available to other companies. In 2004, the Commission ordered us to create new versions of Windows that do not include certain multimedia technologies and to provide our competitors with specifications for how to implement certain proprietary Windows communications protocols in their own products. The Commission’s impact on product design may limit our ability to innovate in Windows or other products in the future, diminish the developer appeal of the Windows platform, and increase our product development costs. The availability of licenses related to protocols and file formats may enable competitors to develop software products that better mimic the functionality of our own products which could result in decreased sales of our products.

I can personally attest to the validity of this statement. Shake the monopoly war stick if you want, but show me another company that is required to so publicly document the inner workings of proprietary products at the detriment of their value and at the same time struggle against these kinds of technical handcuffs while still staying relevant and innovative in such an incredibly competitive marketplace. Who is protecting the investors in Microsoft?

$2.5 Billion Dollars Later

Currently the EU is investigating potential fines against Microsoft for it’s Microsoft Office Open XML file format as well as for bundling Internet Explorer with the Windows Operating system. My last blog post about browser fairness is a good read if you are curious about the impacts that could have on Microsoft.

The questions I pose are, should an organization have this much power over what results in the products, services and developments of companies in today’s marketplace? Is there some argument to be made for Corporate Darwinism? I often ask my friends and colleagues, “Who is in charge of the Monopoly Gauge?” meaning who decides when we are no longer big enough to have to comply with these rules? It’s the logical question since other very powerful companies like Apple, Sun, Oracle and many more gain significant advantages by the restrictions placed on Microsoft by the European Union.

Although some of my friends at AMD will shift uncomfortably in their chair when I say this, it looks like Intel is next on exclusive list of US companies fined billions of dollars by the European Union. I for one am a capitalist and a Darwinist. I believe that with a few exceptions (life sustaining services for example) this country and it’s businesses were built on competition, and if companies can’t create products and services compelling enough to compete, no government organization should create what is in effect “big business affirmative action.”