Is Microsoft a Monopoly? Essay Example

Microsoft is arguably the most successful business enterprise in the world. From its inception, Microsoft has created a brand that is associated with innovation, efficiency and relevance. The company has built a reputation of creating software that is widely accepted by the market and is considered quite efficient and effective. This only aims to show how the company has dominated the world of operating systems for computers for the past 2 decades. Microsoft has been the subject of antitrust litigation in both the U.S. and abroad, often accused of using its monopoly of the Windows operating system to drive potential competitors out of business, manipulate suppliers of both hardware and software, and deny consumers a choice of alternatives. Some economists have argued, however, that the rapid pace of innovation in the information and communications technology industry, as well as the unwillingness of users to abandon older software platforms, mean that Microsoft actually has considerably less market power than it might at first seem. The debate on whether Microsoft is or isn’t a monopoly has solicited mixed reviews. This paper will critically analyse Microsoft, its internal and external environments and look at points that either prove or disprove Microsoft as a monopoly.

Antitrust Litigation

In order to identify and understand the arguments agreeing that Microsoft is indeed a monopoly, we have to first understand the antitrust litigation against Microsoft, as proposed by the government of the United States. The 2001 US antitrust law case against Microsoft was triggered by the fact that Microsoft was growing at an exponential rate, amassing great wealth, resources and power (Carlton). Microsoft’s tight grip and control in the market made Microsoft executives want more control beyond its industry to control a new and emerging industry.

Predatory Strategies

Merging Internet Explorer (IE) and Windows Explorer

Microsoft was accused of abusing the power of monopoly on personal computers that came from Intel. Microsoft was accused of improper, unfair and unjust handling of web browser and operating system sales. The issue at the centre of the debate was the fact that Microsoft had decide to place its web browser, Internet Explorer (IE), together with its operating system, Windows (Gilbert and Katz). This was alleged to be Microsoft’s strategy for monopolizing a new market, while monopolizing and controlling the operating systems for personal computers. Owing to the fact that Microsoft controlled the operating system industry, the introduction of the Internet Explorer as part of the Microsoft Operating system Package would mean users would be promoted to use Internet Explorer as their default web browser.

In its defence, Microsoft attributed the merger of the Internet Explorer into Microsoft Windows to competition and innovation. Microsoft stated that it was purely innovative to make Internet Explorer and Microsoft windows one product. That way, consumers get to enjoy the regards of using Internet Explorer for free. Microsoft was accused of double standards in its definition and perception of distinct products. The plaintiff argued that Internet Explorer is a distinct product as a different and distinct version for Mac OS was available in the market. Furthermore, the plaintiff argued that Internet Explorer was not a free product. I essence, they held that the costs of production for Internet Explorer are in the end factored into the selling price of Microsoft Windows operating system.

Manipulating Microsoft Windows

It was found that all other browsers, such as Opera and Netscape, were slower in performance as compared to the internet Explorer. This formed the basis of arguments of an underlying plot to sabotage other browsers’ performance by manipulating, altering or tweaking its APIs (application programming interfaces (Liebowitz and Margolis). By undermining the performance of other third party browsers, Microsoft had started engaging in a culture that would intentionally create an unfair playing field by controlling different aspects of a growing industry and manipulate conditions in a new industry to gain the upper hand. Microsoft had also been found to have formed very restrictive licensing agreements with OEMs (original equipment manufacturers) (Liebowitz and Margolis). This also aimed to limit access and control of the market by competitors questioning the intent of Microsoft in its corporate culture and course of conduct. Another interesting finding was that the performance of Microsoft windows operating systems was reduced when one uninstalled Internet Explorer.

Influencing the PC Market

Windows have management to create a sort of cartel in the PC market. Windows have managed to convert the increasing demand for their popular Microsoft Windows operating system to influence what the PC vendors should include within their systems. For example, the introduction of software that is only compatible with a given kind of processor. This creates a limit in the number of options that a vendor has in assembling a computer. They will be forced to assemble computers in a manner that will favour the use and operation of Microsoft Windows operating systems. At a given point in tie, about 90% to 95% of all personal computers had Intel Processors running a given version of Microsoft Windows operating system (Gilbert and Katz). In this manner, Microsoft had denied users of options and manipulated the market to suit its own vision, mission and goals. Intel powered computers running versions of the Microsoft Windows operating system were in high demand had created an environment that barred entry.

The amount of control Microsoft has on the PC Market cannot be rivalled by any of its competitors. The company affects the content to influence the sale of their operating system and supporting software. Leading PC vendors such as Dell, Lenovo, HP and other PC vendors have been found to be selling PC with different versions of Linux. However, these cannot compare to the amount of sales realized by selling PCs with the Microsoft Windows Operating System. Though it may appear indirect, Microsoft have tight control of the PC market.

Influencing the Prices

This conglomerate control that Microsoft has on the market, gives them the ability to alter prices at will, affecting all the areas of the market. This can be seen in the manner in which an increase in the price of computers does not slow down sales. PCs such as Lenovo, Dell and HP have become best sellers as a result of customizing their PCs to accommodate the Microsoft Windows operating systems. By customizing these PCs in this manner, they provide different levels of performance to the market at different prices (Gilbert and Katz). Microsoft appear to be running a cartel in the computer technology market.

During the case Microsoft executives clearly showed no intent of cooperating fully, taking evasive measures when responding to questions and requests. At one point in time, when question about the functionality of internet Explorer in Microsoft Windows, the company blatantly refused to provide a working version of windows that could be used to test the accusation that the deletion or uninstallation of Internet Explorer would reduce the performance of Microsoft Windows.

Microsoft No Longer Monopoly

At the given time, the US Antitrust litigation case against Microsoft was blinded to the underlying factors influencing the technology industry. The arguments upon which the Judge made the decision and ruling appear to be unfounded, based on facts that were not proved. The Justice Department believed that without government intervention, the market would be left to the control of one Microsoft by limiting consumer choice.

Deceptive Barriers to Entry

The Introduction of New Technology

When Microsoft had up to 90 to 95% of the PC market, it presumed that the computer, the PC, would remain to be the biggest technological invention of the century (Gilbert and Katz). However, the introduction of new technology in the form of smartphones and tablets led to the decline in Microsoft’s control of the computer technology industry. These new technologies are closely related to each other, others however, indirectly.

As the graph shows, the introduction of new technologies has gradually slowed the increase in the use of personal computers and the control Microsoft has on the market. The introduction of smart phones has not directly harmed PC sales, but they have not helped it in any way. Google have failed to stamp their authority in the smartphone industry. However, they have recently launched windows mobile that is an attempt to gain market share.

The Introduction of tablets has directly affected the balance of power in the computer technologies industry. The market now responds to the tablet as opposed to netbooks and laptops that Microsoft dominated. Tablets offered the consumer the opportunity to have a high-processing, high-speed, high-performance computing device that is compact, light, sleek and classy. The devices’ parts were state of the art encompassing the latest slim technology. The touch screen feature was also a huge hit in the market as the market responded positively to the experience of using the tablet as opposed to that of using the PC. Microsoft was unable to respond to this shift in technologies, forcing it to adapt to the shift as opposed to pioneer the technology.

The graph above shows how the introduction of the iPad affected PC sales. The iPad introduced a better, lighter and classy way of computing. This is evidence that the shift in shift in technologies has affected the balance of power in the market. However, it is important to note that the iPad did not affect PC sales on its own, it is a combination of factors and events that have led to this.

Shift in Computing Platform

The introduction of new technologies in the form of smartphones and tablets necessitated the use of an operating system that was light enough to processes huge commands. Windows was designed to be used on personal computers that could have huge parts that could accommodate power to processes huge commands. However, the tablet required a much smaller and lighter operating system that performs at a level close to that of a personal computer. The introduction of Android solved this problem as android represented a platform that could execute huge commands at a relatively fast rate while maintaining high performance levels.

Microsoft’s share of the global consumer computing market has been declining in the recent past. In 2005, Microsoft Windows powered over 95% of all the personal computers in the world. However, as of 2013, Microsoft Windows powers only 20% of the world’s computers. This can be attributed to the tough competition that Android and iOS platforms have posed.

Competition

While Microsoft continued to employ predatory strategies in ensuring their control of the market, other competitors came up with new technologies that have not only proven to be useful in daily life, but have also generated considerable income for these companies. The introduction of new players in the market with the ability to match or surpass the quality of Microsoft Windows introduces a new dimension to the market. Competitors have opted to create their own signature brand in new technologies that Microsoft has failed to completely grasp.

Android

The android platform allowed for free coding and code editing with the platform. This created the ability to create free source applications for android powered devices. The prospect of a huge number of applications for android powered devices such as tablets and smartphones, serves as an attractive offer to the customer. Android powered devices make up the highest number of devices connected to the internet at any given point in time.

Apple

After facing challenges breaking into the market due to Microsoft’s control, Apple opted to venture into making smartphones, tablets and high-end, high-performance persocal computers and laptops. This has helped Apple etch out their own image of class, performance and status. This has made Apple products luxury products owned by the rich. It is certain that Apple’s R&D and marketing strategy have helped them to edge out Microsoft.

Blackberry

While Blackberry had once been associated with the business class, it has slowly lost its share in the market as aggressive new competitors have driven it out of its market segment.

The Internet

The internet is probably one of Microsoft’s biggest undoing. The introduction of the internet limited the era of the PC’s domination as the computing device of choice. The internet affected all aspects of human life, from communication to education and business. This new phenomenon required users to be able to access information at any given time. The PC was once the device of choice in connecting to the internet. However, that changed when Smartphones and tablets enabled users to access the internet from any given location. Tablets and Smartphones are now replacing the PC and the laptop as more powerful processors are developed. Tablets and smartphones allow the user to access the internet, keep up with social media, news and entertain themselves using a comfortable compact device with the performance to match or surpass that of a personal computer.

Microsoft Windows’ Security

In the 2002, when Microsoft launched Windows Vista, it received bad reviews on the product. The operating system had very any flaws that it had to be recalled by the CEO. This highlighted the problems that Microsoft Windows operating systems had. They were prone to attacks from hackers, making it an unsafe product for many corporate users as their information is paramount to success. Corporate clients have opted to either use high-end software, such as Mac OS, or free source software, such as Linux, that are stable and secure. Such software is not prone to virus attacks.

In conclusion, even though Microsoft had initially been perceived to be a monopoly, it is not. During a surge in technological innovation, the business entity that has instigated that change will stand to reap the benefits of that innovation for as long as they control the market or industry within which they have pioneered. However, as time goes by, innovation is bound to generate newer, better, faster and more efficient technologies that would render the previous technology obsolete. Microsoft were at the pioneering of the computer operations system to allow them control over the industry. However, the changes in technology have led to the creation of other segments within the market that have been possessed by other competitors. This trend will continue in the foreseeable future an new technologies arise, companies will be forced to adapt to the rapidly shifting technological environment. In order for Microsoft to keep up with the current market conditions, they have to invest considerably in R&D. In the 2011 financial year, Microsoft’s budget of the R&D department was $9.6 billion. As a matter of fact, Microsoft’s R&D department outspent its fierce rival’s, Apple’s, R&D 2.8:1 in the 2012 financial year. The Microsoft R&D stable has produced innovative technologies and software in the past three years. Such innovations include:

• LightSpace
• OmniTouch Project
• SkinPut Project
• Kinect Fusion
• Kinect Track
• SuperKid
• Kinect Glasses

This only serves to show that Microsoft is not a Monopoly and that it is attempting to keep tabs with a rapidly changing technological environment.

Works Cited

Carlton, Denis W. “The Lessons from Microsoft.” Business Economics 36 (2001): 47-53.

Gilbert, Richard J and Michael L Katz. “An Economist’s Guide to U.S. v. Microsoft.” Journal of Economic Perspectives15 (2001): 25-44. Internet Source.

Liebowitz, Stan J and Stephen E Margolis. Winners, Losers and Microsoft: Competition and Antitrust in High Technology. Oakland: The Independent Institute, 2001, 2001. Print.

Shughart, Wiliam F. “Barbarians at Bill Gates.” The Freeman 1 April 2000. 27 April 2014. <http://www.independent.org/publications/article.asp?id=155>.