Monopoly is Not Natural for IT

One of the nuggets from my gleaning exhibits of US DOJ v M$ is a rant by Nathan Myhrvold of M$ about how great M$ was and how misunderstood. He begins with this warped view of reality:
“The computer industry as we know it today is full of examples of positive feedback. The value of a computer to its user depends on the quality and variety of the application software available for it. The incentive to create such software for a particular computer depends on the number of users, since they are the potential customers for the application developer. This creates a similar situation to the video store – the best software is attracted to the most popular platform, making it more popular still. This is not the only source of positive feedback however. If I want to exchange data with you, or get advice from you, then it helps a lot if we are using the same computer am the same software. When a user upgrades to a new version there is a large benefit if existing data files can be used directly, thus favoring whatever software the user had in the past. A user who-invests time learning the interface and commands of a piece of software will be loathe to re learn for a new package unless absolutely necessary.

A more familiar way to say this is compatibility – the laws of positive feedback govern any system where compatibility with other users is either directly or indirectly a key factor in the utility of a product or service. This value is usually instantiated and made tangible by a separate product whose availability or quality depends on the installed base, such as the rental tapes in the case of VHS or software in the case of computers.

The positive feedback effect has been responsible for the phenomenal strength of leading software products in both applications and operating systems. Digital Research, Novell, Apple and Microsoft are among those who have been beneficiaries of this effect at various times and in various market segments for systems software. Micropro international (developer of WordStar), VisiCorp and Software Arts (marketer and developer of VisiCalc), Lotus Development, WordPerfect, AutoDesk (developer of AutoCad), Ashton-Tate (developer of dBase) and Microsoft are examples of companies who have been high market share leaders of specific applications categories at one point or another. The historical situation is that the market share leader in systems software takes about 90% or so of the market, the runner up takes about 90% of what is left and so on. This maps reasonably well to the current world wide market share figures – MS Dos based computers have about 91%, Apple Macintosh computers which run the Macintosh OS have about 8% and the largest variant of UNIX has less than 1% [GET PUBLISHED FIGURES]. Applications software usually gets a somewhat smaller benefit from positive feedback than systems software because the effects which drive the feedback are less central to how someone uses the application. As a result the typical figures are something like 60% to 70% share for the leader, 60% to 70% of the remainder for the runner up and so forth.”

No, Nathan, the world does not owe you and M$ a living. You do not have first place in anything due to the luck of the draw. IBM set you up to monopolize the world of PCs in business back in the days of DOS and you rode into town on the back of Moore’s Law and its corollaries. If it costs you almost nothing to produce a licence and a copy of your software and hundreds of millions are sold, you are not getting positive feedback but jet propulsion. Any positive feedback that came your way came after you achieved a monopoly on PCs, hardly a situation of “first to market”. The world needs IT and the PC is a great way to provide that. Each PC needs software and M$ bullied the world into putting your software on most of them. In the process, you did not make the best software and no one chose the best software, you made the market accept little choice in contravention to the laws as I understand them. You hid your product from the market by bundling it with the PCs rather than competing on price/performance on retail shelves as you should have done.

“It was enacted in the era of “trusts” and of “combinations” of businesses and of capital organized and directed to control of the market by suppression of competition in the marketing of goods and services, the monopolistic tendency of which had become a matter of public concern. The goal was to prevent restraints of free competition in business and commercial transactions which tended to restrict production, raise prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services,”
see Sherman Anti-trust Act

At first M$ required OEMs to pay M$ for every PC produced rather than for copies of the software, pressuring OEMs to ship only M$’s software. Then, as the monopoly grew stronger, M$ required OEMs to ship only M$’s software, conditioning the retailers to buy only PCs with M$’s software.
“Microsoft erected artificial barriers to the entry and growth of competing operating system vendors through its contractual relations with original equipment manufacturers of IBM-compatible PCs (OEMs). These practices included the following:
(i) contract terms that required OEMs to pay Microsoft based on the number of computers shipped whether or not those computers had a Microsoft operating system preloaded (the “per-processor” contract);
(ii) unnecessarily long terms for the contracts with OEMs for the use of Microsoft’s operating system software products; and
(iii) large minimum purchase obligations for OEMs (“minimum commitments”).

..3..
Microsoft’s contractual relations with OEMs had created strong economic incentives for OEMs to deal exclusively with Microsoft. OEMs with a per-processor contract were obligated to pay Microsoft a royalty fee for every computer they sold with a
specified type of microprocessor (e.g., the Intel 486). The royalty had to be paid even if the OEM elected to load an operating system on the machine from a different vendor. As a consequence, OEMs
who did elect to load competing operating system software products had to pay a double royalty – one to the supplier of the software actually used and a second royalty to Microsoft.”

see Declaration of Kenneth J. Arrow

That’s not positive feedback but anti-competitive behaviour. Look at any particular kind of software in IT and you will find that while some may be more popular than others, no one has the kind of monopoly that M$ had on the desktop PC. Wildly popular software like Photoshoptm or QuickBookstm or Oracletm database are not monopolies. The vast majority of PCs or servers do not run those softwares. Their market share might be 10-20% and buyers have lots of choices. That’s the way IT should be, not 95% or so where M$ ended about 1998-2004. Positive feedback and lock-in are tiny forces compared to stacking M$-only PCs on retail shelves.

Fortunately competing technology has found its way onto retail shelves simply because the world demands small cheap computers and Wintel cannot supply them. If positive feedback was all that mattered we would have nothing but small cheap computers on shelves by Christmas. That will not be the case because there is no monopolist excluding large expensive computers from retail shelves. The same thing happened with servers years ago but now one has no problem finding servers with any OS or no OS because there never was a monopoly on servers. M$ managed to get its software on a lot of servers by FUD, compatibility issues and aids to managing that other OS on the desktop but those forces were weak compared to monopoly on retail shelves.

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.
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9 Responses to Monopoly is Not Natural for IT

  1. gewg, thanks for spotting UNIX… I fixed that.

    How many copies of CP/M were sold on PCs from IBM compared to DOS? QED.

  2. gewg_ says:

    UNDK
    The OCR output still needs a bit of attention.
    ——-
    There was a really interesting price structure for the OSes available for the original IBM-PC.
    “Anti-competitive” would cover that.
    …or, as you said, “backroom deals”.
    ——-
    …and, Nathan Myhrvold, if you want data to be eternally available, just use open data formats.
    Of course, that would nullify attempts at lock-in.

  3. oldman says:

    “Money is not a substitute for quality”

    And neither is the fact that something is FOSS.

  4. oldman says:

    “No market forces were involved, just backroom deals.”

    Not to be blunt Pog, but at this point…

    So What!

    If you really get past your blind anger and look at the results, All of the shenanigans that microsoft pulled did’t really add that much to their empire. In fact the case can be made that they probably did themselves more harm than good, in terms of all the bad will they generated from people in your camp.

    Fortunately from them their competitors at the time either were happy in their niche (Apple)or actively shooting themselves in the foot (IBM, Netscape) All the application vendors were using their OS’s and even when you had developers using tools like the borland development tools, those were also targeting Microsoft’s OS’s of the day.

    Perhaps microsoft got there in spite of them selves, but they got there because in the end they more often than not produced the products people wanted at a price that they can live with.

    “We are just digging out from a load of crap that M$ has forced on the world.”

    Sorry Pog, but I deal with more half baked if not outright crap desktop code coming from your preferred world of Linux/FOSS than I ever dealt with from microsoft even when they and their ISV’s were less sophisticated in function and feature.

    Remember Pog, You cut Linux and FOSS a break for ideological reasons. You accept the limitations of desktop FOSS and Linux because you believe that it is “the right way to do IT”

    To someone like my self who is well served by the commercial software that he uses, and who is accepting of the terms and conditions of its use as a reasonable cost for its use. Your endless diatribes about microsoft are nothing but nonsense, and As someone who as been in involved himself in IT for 30+ years it is uninformed bigoted nonsense at that.

  5. oldman wrote, “microsoft became the go-to environment for the bulk of commercial desktop applications development is nothing more and nothing less than a result of market forces pure and simple.”

    Nope. M$ would be just another IT company if they did not get a sweet deal from IBM for the IBM-compatible PC market. That locked in ISVs and made the Wintel monopoly possible. No market forces were involved, just backroom deals.

    “Microsoft erected artificial barriers to the entry and growth
    of competing operating system vendors through its contractual
    relations with original equipment manufacturers of IBM-
    compatible PCs (OEMs). These practices included the following: (i)
    contract terms that required OEMs to pay Microsoft based on the
    number of computers shipped whether or not those computers had
    a Microsoft operating system preloaded (the “per-processor”
    contract); (ii) unnecessarily long terms for the contracts with OEMs
    for the use of Microsoft’s operating system software products; and
    (iii) large minimum purchase obligations for OEMs (“minimum
    commitments”).

    Microsoft’s contractual relations with OEMs had created
    strong economic incentives for OEMs to deal exclusively with
    Microsoft. OEMs with a per-processor contract were obligated to
    pay Microsoft a royalty fee for every computer they sold with a
    specified type of microprocessor (e.g., the Intel 486). The royalty
    had to be paid even if the OEM elected to load an operating system
    on the machine from a different vendor. As a consequence, OEMs
    who did elect to load competing operating system software
    products had to pay a double royalty”

    see Declaration of Kenneth Arrow in the original Microsoft case

    So, the market forces were never allowed to operate from the 1980s until 2005 or so. We are just digging out from a load of crap that M$ has forced on the world.

    Individuals are unlikely to make software for their own use, but businesses, organizations, governments and schools certainly can, do and they share the result we call FLOSS. Any organization with thousands of seats can afford to hire a few programmers instead of buying licences. It works. It’s not rocket-science. SUN effectively did that when they bought StarOffice instead of paying another round of licences for M$’s office suite. The contributors to the Linux kernel effectively did that when they hire a few people each to maintain the kernel. Software is more dependable when a diverse group works on it. That just is not possible with closed-source software such as M$ ships. If M$ had the answer, why did it take them more than 15 years before they even considered the quality of their software? Why did the first re-write of that other OS fail when they tried to make Vista? Money is not a substitute for quality.

  6. oldman says:

    “The idea that putting out a product that is first of its type entitles one to a monopoly/90% share is IMHO nonsensical.”

    With all due respect Pog, it is your words that represent the nonsense here.

    The fact that microsoft became the go-to environment for the bulk of commercial desktop applications development is nothing more and nothing less than a result of market forces pure and simple. It is users like myself who by plunking down our cash for the function and features that we needed who drove the Market Pog in microsofts direction. And we the desktop users of today are those who keep them there, even to the extent of providing the majority user base for the best of your your beloved FOSS applications.

    I would humbly suggest that you consider putting aside you hatred of microsoft in particular to consider the reality of the situation, You have often said that the world can build its own applications. I ask you robert pogson…

    Why should they?

    If I am a citizen of a third world country and I can afford to meet my desktop needs by purchasing western commercial desktop software, be it from microsoft or someone else, why shouldn’t I? It is in the end the least problematic path. the issues are known and remediations exist, and I don’t have the hassle of having to deal with the issues of your preferred desktop solution, which, regardless of anything that you say, create bigger headaches for the non technical users than anything they may run into under windows.

    Remember Pog, the average would be computer user most likely does not share your ideological views on
    software creation. If they have need for a computer of some sort, they look for what they need and go buy it from commercial outlets. The fact that those commercial outlets by and large do not think it is worth their while to carry anything other than desktop software solutions there require the microsoft OS be installed is nothing more than market forces speaking.

  7. oiaohm says:

    Really its not oldman. Part of where Microsoft is today is non competitive actions. This include agreeing with other Office Suites to form a common format RTF then extending it and not documenting. Nicking off with IBM SMB and Extending it and not documenting what they did.

    Digging the entrenched out is a hard process.

    First generations of techs are always rough. http://www.ubuntu.com/devices/android

    This is using 1 core for ubuntu and 1 core for android.

    Of course as the Android kernel merges with the Mainline Linux kernel expect to see more of this.

    The future a mobile phone becomes a thin terminal with key pair matching to the central business server.

    Of course google glasses that are coming by end of year means reading that highly confidential document on a train is no longer a worry.

    Time to welcome the age of the cyborgs. As the divide between machine and human reduces.

    Really does you desk need a screen if the glasses you are wearing make the screen appear in augmented reality. A PC workstation could be reduced to a keyboard(Cause I don’t think people like like typing on virtual keyboard all day its hard on the finger tips. But I might be wrong) Mouse track pad can be done virtual but some people might like still having a mouse and a pair of glasses. So basically 3 items.

    Why carry around a big laptop? You mobile phone can be the track pad or the glasses be the mobile phone.

    MS projections of the future all contain the idea that we will be using screens in the future. Why when we can create glasses of high res than what our eyes can see in proper 3d not fixed view point 3d.

    There is no way to fit a x86 PC into a set of glasses we have minor problems fitting arm systems in there today.

    The future is not touch. No touch device has cured the gorilla arm issue. The future is augmentation of human. This will include brain wave control of devices in time. Proper augmentation also means taking advantage of the fact humans have two eyes and a head that can turn. So augmentation can display what ever size screen the user needs at no extra cost.

    Also augmentation makes computer screens insecure. Since anyone wearing augmentation is basically a walking camera. So what ever they see they can be recording OCR processing and doing what ever they like with the information they saw. Resulting in old PC screens only being usable for non confidential information.

    We are heading into a hardware change. That will result in what we call a PC today not being required by anyone and thought of as such a insecure idea.

    Server room is changing. What users need todo work is changing.

    At this point MS monopoly could fracture badly.

    We are not talk 10 years off for this change. We are talking about 2 to 3.

    Will there be room for a PC in the future. I am not sure. There will be room for a server in a home. PC in a home with the augmentation tech coming most likely not. Augmentation tech is way more private. No more being able to look over someone shoulder when they don’t want it.

  8. oldman, the word, “Go”, does not appear in the post so I assume you mean “from the beginning”. I don’t suppose you could expand a bit on your thoughts… Are you stating my words or Myhrvold’s are nonsense?

    The idea that putting out a product that is first of its type entitles one to a monopoly/90% share is IMHO nonsensical. I remember the Edsel, for instance, and Vista, and now that other OS is less than 80% in share. iPhone was in the lead for a year or so, was a good product well liked and now it’s down below 50%.

  9. oldman says:

    Arrant nonsense from the word Go…

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