On Wednesday (Europe time), Microsoft is scheduled to begin a three-day trial at the hands of the European Union (EU), which has charged the firm with anti-competive practices on two counts: server interoperability and media player integration. The investigation has been ongoing for four years.
The Commission, in an August press release, said that the company’s integration of Windows Media Player with the operating system “weakens competition on the merits, stifles product innovation, and ultimately reduces consumer choice.”
The Commission also said evidence confirms an earlier finding that Microsoft has leveraged its dominant position in the PC market (95% of personal computers run on Windows) into the low-end server market by exploiting its knowledge (engineering) of how the PC communicates with the server.
These matters are not trivial, despite the light reporting in U.S. media. The EU can fine Microsoft up to 10% of global revenue, which is more than $30bn a year.
The EU’s first statement of objections focused on a refusal to “supply information to allow for the interoperability of rival server products with older versions of Microsoft’s Windows operating systems.”
Mario Monti, Competition Commissioner stated in 2001:
“Server networks lie at the heart of the future of the Web and every effort must be made to prevent their monopolisation through illegal practices. The Commission also wants to see undistorted competition in the market for media players. These products will not only revolutionise the way people listen to music or watch videos but will also play an important role with a view to making Internet content and electronic commerce more attractive. The Commission is determined to ensure that the Internet remains a competitive marketplace to the benefit of innovation and consumers alike.”
The Commission also believes that Microsoft provided interface information in a discriminatory manner (ie, they did not provide full disclosure to all firms competing in the server market).
Specifically, the EU alleges Microsoft designed Windows 2000 so it would function better with Microsoft servers. Therefore, in order to achieve seamless interoperability, corporate customers would need to buy Microsoft servers. This is called “the client (PC) dragging the server.”
Interoperability is key to a competitive market in infrastructure goods. Imagine, for example, that there was no standard way for telephones to speak to a central switch. Without such interoperability, there could be only one phone company (both for service and for hardware). There could be no trans-Atlantic or trans-Pacific calls.
Another example on infrastructure standardization is electrical outlets. In the U.S., when we buy a consumer electrical product, it comes with a “plug.” This is not the case in countries such as Singapore, which have not standardized. Customers there are asked to select a plug at purchase; the product is shipped “plug-less.”
Browser wars redux?
The Commission is also troubled by the bundling of Windows Media Player, providing the product with a distribution channel not available to competitors. This practice was also criticized when the company was charged with illegal practices associated with Internet Explorer.
According to the EU, such bundling “may thereby deprive PC manufacturers and final users of a free choice over which products they want to have on their PCs, especially as there are no ready technical means to remove or uninstall the Media Player product. Competing products may therefore be a priori set at a disadvantage which is not related to their price or quality. The result is a weakening of effective competition in the market, a reduction of consumer choice, and less innovation.”
Links: The Guardian (31 Oct); The Guardian (7 Aug); AP (10 Nov); Reuters (10 Nov); Bloomberg (11 Nov); San Jose Mercury News (11 Nov)
European Union Press Releases: IP/00/906 – Proceedings Opened; 03 August 2000 (pdf); IP/01/1232 – Statement of Objections – 30 August 2001; IP/03/1150 – Final Statement of Objections – 06 August 2003