Of standards and monopolies By Richard Volkman

While U.S. District Judge Colleen Kollar-Kotelly ponders the remedies facing Microsoft as a consequence of its practices in restraint of trade, the software giant has once again courted controversy, this time by excluding users of competitors’ products from certain online content. And once again, Microsoft’s best defense is to appeal to the value of “standards.” While there is no doubt that widely accepted standards offer real value to consumers, it is difficult to take Microsoft’s defense seriously in light of its own past history.

In conjunction with the release of Windows XP on October 25, the company revamped the content of its MSN.com website, which is tightly integrated with many of MS’s software products – including its popular Office XP suite of applications. The trouble came when users of some non-Microsoft web browsers discovered they could no longer access the site. Users of Opera, Mozilla, and other competitors to Microsoft’s Internet Explorer were redirected to a page explaining that their browsers would not be able to access the MSN.com site and offering them the ability to download the latest version of Internet Explorer.

Microsoft’s explanation? It’s all about standards. A c|net article quotes Bob Visse, director of MSN marketing, as saying, “All of our development work for the new MSN.com is… W3C standard…. For browsers that we know don’t support those standards or that we can’t insure will get a great experience for the customer, we do serve up a page that suggests that they upgrade to an IE browser.”

Were it not for MS’ past history, this would be a reasonable explanation. After all, much of the value of the Internet comes precisely from its openness and accessibility, and these properties are the direct result of open standards. The economic value of standards is well-known; it is analyzed in terms of “network effects.” The value of a thing sometimes relies almost exclusively on its being part of a broader network. To take a concrete example, if my modem is the only one in the world, then it is virtually worthless. If there are a hundred modems in the world, then each has some fairly modest value. But when there are millions of modems across the world, and they all speak the same language, then my modem is the ticket to a network worth billions. Similar points apply to software development and use. Part of the value of Windows (perhaps the biggest part) is its ubiquity. In light of this, it is obvious why having Windows on (almost) every desktop computer creates real economic value, and why compliance with W3C standards is a Good Thing.

But there is reason to be suspicious of Microsoft’s explanation, especially in light of their documented history of crushing competition by leveraging the proprietary standard they created. For many users, it looks like MS is once again using its dominant market position as a club to knee-cap competitors. As Judge Penfield Jackson documented in his “Findings of Fact” (which were NOT vacated by later appeals), MS’ more troubling marketing tactics have specifically included degrading performance of competitors’ products – regardless of their standards compliance, one might add. In some cases, MS has actively sought to undermine a de facto standard in order to advance its own proprietary technologies. (Witness JavaScript.) It is precisely this sort of combat that harms consumers and violates the law. It is not illegal to have a monopoly, or to benefit from the network effects associated with a standard one has created and owns. However, it is illegal to restrain trade by creating an artificial barrier to entry for competitors.

The benefits of robust competition stem from strong incentives to innovate, so it should come as no surprise that such benefits tug in a direction opposite to standardization. Nor should it be surprising that a dominant player like MS would use “standardization” as an argument against its competitors. But economically valuable competition is not combat. One should like to win market share by being the best, not by preventing the best from coming to the market.

The case against MS looks even stronger when one discovers that the pages in question did NOT, in fact, comply with the standards after all. As a press release from the makers of Opera points out:

The irony of Microsoft’s claim to standards-support is complete when you check the MSN.com site for compliance with the XHTML standard. Anyone can go to the W3C’s standards validation service at http://validator.w3.org/ and type in “www.msn.com.” The document returned demonstrates clearly that not a single document on their site adheres to W3C specifications, and many of their documents do not use XHTML at all, e.g. http://careers.msn.com/.

Add to this Opera Software’s claim that “Opera is internationally acclaimed and renowned for its strict compliance with all international Internet standards,” and one becomes very suspicious indeed of MS’ actions.

Whether MS was trying to crush Opera or not, it is easy to understand these suspicions. Having earned the reputation of being a bully, MS will find it very difficult to earn the benefit of the doubt. I suspect that this will make it more difficult for them to earn dollars too.