February 28, 2017

Archives for May 2008

The Microsoft Case: The Second Browser War

Today I’ll wrap up my series of posts looking back at the Microsoft Case, by looking at the Second Browser War that is now heating up.

The First Browser War, of course, started in the mid-1990s with the rise of Netscape and its Navigator browser. Microsoft was slow to spot the importance the Web and raced to catch up. With version 3 of its Internet Explorer browser, released in 1996, Microsoft reached technical parity with Netscape. This was not enough to capture market share – most users stuck with the familiar Navigator – and Microsoft responded by adopting the tactics that provoked the antitrust case. With the help of these tactics, Microsoft won the first browser war, capturing the lion’s share of the browser market as Navigator was sold to AOL and then faded into obscurity.

On its way over the cliff, Netscape spun off an open source version of its browser, dubbing it Mozilla, after the original code name for Netscape’s browser. Over time, the Mozilla project released other software and renamed its browser as Mozilla Firefox. Microsoft, basking in its browser-war victory and high market share, moved its attention elsewhere as Firefox improved steadily. Now Firefox market share is around 15% and growing, and many commentators see Firefox as technically superior to current versions of Internet Explorer. Lately, Microsoft is paying renewed attention to Internet Explorer and the browser market. This may be the start of a Second Browser War.

It’s interesting to contrast the Second Browser War with the First. I see four main differences.

First, Firefox is an open-source project where Navigator was not. The impact of open source here is not in its zero price – in the First Browser War, both browsers had zero price – but in its organization. Firefox is developed and maintained by a loosely organized coalition of programmers, many of whom work for for-profit companies. There is also a central Mozilla organization, which has its own revenue stream (coming mostly from Google in exchange for Firefox driving search traffic to Google), but the central organization plays a much smaller role in browser development than Netscape did. Mozilla, not needing to pay all of its developers from browser revenue, has a much lower “burn rate” than Netscape did and is therefore much more resistant to attacks on its revenue stream. Indeed, the Firefox technology will survive, and maybe even prosper, even if the central organization is destroyed. In short, an open source competitor is much harder to kill.

The second difference is that this time Microsoft starts with most of the market share, whereas before it had very little. Market share tends to be stable – customers stick with the familiar, unless they have a good reason to switch – so the initial leader has a significant advantage. Microsoft might be able to win the Second Browser War, at least in a market-share sense, just by maintaining technical parity.

The third difference is that technology has advanced a lot in the intervening decade. One implication is that web-based applications are more widespread and practical than before. (But note that participants in the First Browser War probably overestimated the practicality of web-based apps.) This has to be a big issue for Microsoft – the rise of web-based apps reduce its Windows monopoly power – so if anything Microsoft has a stronger incentive to fight hard in the new browser war.

The final difference is that the Second Browser War will be fought in the shadow of the antitrust case. Microsoft will not use all the tactics it used last time but will probably focus more on technical innovation to produce a browser that is at least good enough that customers won’t switch to Firefox. If Firefox responds by innovating more itself, the result will be an innovation race that will benefit consumers.

The First Browser War brought a flood of innovation, along with some unsavory tactics. If the Second Browser War brings us the same kind of innovation, in a fair fight, we’ll all be better off, and the browsers of 2018 will be better than we expected.

The Microsoft Case: The Government's Theory, in Hindsight

Continuing my series of posts on the tenth anniversary of the Microsoft antitrust case, I want to look today at the government’s theory of the case, and how it looks with ten years of hindsight.

The source of Microsoft’s power in Windows was what the government dubbed the “applications barrier to entry”. Users chose their operating system in order to get the application software they wanted. Windows had by far the biggest and best selection of applications, due to its high market share (over 95% on the PC platform). To enter the PC OS market, a company would not only have to develop a competitive operating system but would also have to entice application developers to port their applications to the new system, which would be very slow and expensive if not impossible. This barrier to entry, coupled with its high market share, gave Microsoft monopoly power.

The rise of the browser, specifically Netscape Navigator and its built-in Java engine, threatened to reduce the applications barrier to entry, the government claimed. Software would be written to run in the browser rather than using the operating system’s services directly, and such software would run immediately on any new operating system as soon as the browser was ported to the new system. Cross-platform browsers would reduce the applications barrier to entry and thereby weaken Microsoft’s Windows monopoly. The government accused Microsoft of acting anticompetitively to sabotage the development of cross-platform browser technology.

The imminent flowering of browser-based applications was widely predicted at the time, and the evidence showed that top executives at Netscape, Microsoft, and Sun seemed to believe it. Yet we know in hindsight that things didn’t unfold that way: browser-based applications were not a big trend in 1998-2003. Why not? There are two possible explanations. Either the government was right and Microsoft did succeed in squashing the trend toward browser-based applications, or the government and the conventional wisdom were both wrong and there was really no trend to squash.

This highlights one of the main difficulties in antitrust analysis: hypothetical worlds. To evaluate the key issue of whether consumers and competition were harmed, one always needs to compare the actual world against a hypothetical world in which the defendant did not commit the accused acts. What would have happened if Microsoft had simply competed to produce the best Internet Explorer browser? It’s a fascinating question which we can never answer with certainty.

What actually happened, after Microsoft’s accused acts, the lawsuit, and the settlement, in the years since the case was filed? Netscape crumbled. The browser market became quiet; Microsoft tweaked Internet Explorer here and there but the pace of innovation was much slower than it had been during the browser war. Then the open source browser Mozilla Firefox arose from the ashes of Netscape. Firefox was slow to start but gained momentum as its developer community grew. When Firefox passed 10% market share and (arguably) exceeded IE technically, Microsoft stepped up the pace of its browser work, leading to what might be another browser war.

We also saw, finally, the rise of browser-based applications that had been predicted a decade ago. Today browser-based applications are all the rage. The applications barrier to entry is starting to shrink, though the barrier will still be significant until browser-based office suites reach parity with Microsoft Office. In short, the scenario the government predicted (absent Microsoft’s accused acts) is developing now, ten years later.

Why now? One reason is the state of technology. Today’s browser-based applications simply couldn’t have run on the computers of 1998, but today’s computers have the horsepower to handle browser-based apps and more is known about how to make them work. Another reason, perhaps, is that Microsoft is not acting against Firefox in the way it acted against Netscape a decade ago. A new browser war – in which Microsoft and Firefox compete to make the most attractive product – is the best outcome for consumers.

Life doesn’t always offer do-overs, but we may get a do-over on the browser war, and this time it looks like Microsoft will take the high road.

The Microsoft Case: A Window Into the Software Industry

This week I’m publishing reflections on the Microsoft antitrust case, which was filed ten years ago. Today I want to consider how the case change the public view of the software industry.

Microsoft’s internal emails were a key part of the government’s evidence. The emails painted a vivid picture of how the company made its strategy decisions. Executives discussed frankly how “it will be very hard to increase browser market share on the merits of [Internet Explorer] alone. It will be very important to leverage the OS asset to make people use IE”. Often the tone was one of controlling customers and sabotaging competitors, rather than technical innovation.

Probably the most cringe-inducing metaphor in the whole case was “knifing the baby”. Here’s a trial dispatch from Business Week:

In particularly colorful testimony on Nov. 5 [1998], [Apple VP Avie] Tevanian described an April, 1997, meeting between two Apple and two Microsoft officials. Tevanian, who was not at the meeting, said Microsoft officials suggested that Apple abandon its business of providing “playback” software that enables users to view multimedia content on the computers. Instead, they offered Apple the much smaller portion of the market for the tools that developers use to create the content. In Apple’s mind, though, the playback software was its baby.

According to Tevanian, Apple executive Peter Hoddie asked Microsoft officials, “‘Are you asking us to kill playback? Are you asking us to knife the baby?'” He said Microsoft official Christopher Phillips responded, “‘Yes, we want you to knife the baby.’ It was very clear.”

Stories like this shredded the public perception of software companies as idealistic lab-coated technical innovators. It wasn’t just Microsoft whose reputation took a beating – it was Apple who gave us the baby-knifing metaphor. One shrewd observer told me at the time that the difference between Microsoft and its competitors was not motive but opportunity – the other companies would have done what Microsoft did, if they had the chance.

None of these companies were as crude and brutal as they looked in court – litigation has a way of highlighting the extremes – but there was more than a grain of truth to the idea that software markets are driven by power and dealmaking, along with engineering. Another classic moment in the trial came when a Microsoft lawyer was cross-examining Netscape CEO Jim Barksdale about emails written by Netscape founder and Silicon Valley superhero Jim Clark. The lawyer asked Barksdale whether he regarded Clark as “a truthful man”. Barksdale paused before answering, “I regard him as a salesman.”