A man goes into town every Saturday night to play poker. Every week he comes home skint, and frequently with a black eye or torn clothes. One day his wife asks him why he never wins. The game is crooked, he explains. It’s fixed by the local mob. Then why does he play it? she asks. The man replies: ‘I know it’s crooked, but it’s the only game in town.’
The story’s not mine – I lifted it from Kurt Vonnegut. He was using it as a metaphor for capitalism, and I want to use it to talk about the biggest abuse of capitalism in the technology market today: Microsoft.
No one can dispute that Microsoft operates a monopoly. The US courts ruled as much in their investigation of the company’s practices. Yet that investigation, which found multiple instances of the firm abusing its dominant position at the expense of smaller firms and the software consumer, produced practically nothing in the way of sanctions against Microsoft.
Partly that was the result of judicial mistakes in the first trial and the weediness of the US states, which were willing to accept paltry remedies. Partly we can surmise that the incoming Republican administration was loath to pursue the punishment of such a profitable business.
And what has happened? Well, Microsoft has gone ahead exploiting us all, just as it always has. Take this summer. The company raised the licence fees on its software. It was done under the guise of introducing new licensing terms. Microsoft would like us all to move from buying a single licence to a piece of software that we can merrily use for ever to buying a subscription to use the software that must be renewed every year or so. You can see how that’s good news for Microsoft. The company says it’s good news for users too, as they’ll get access to more frequent upgrades – more like access to more frequent headaches as they struggle to get to grips with constantly changing software.
The company will still sell perpetual licences, but is charging more for them. From 31 July a perpetual licence on Office rose from £325 to £600. Gartner Group, the IT analysis firm, estimates that companies could end up paying between 35 and 107 per cent more for their Microsoft software.
Maybe Microsoft needed to raise the prices to invest more in R&D to make its software even more wonderful. Or maybe not. What do you think its margins are on Windows? A whole 85 per cent. Office, the productivity suite, produces nearly as much. No wonder Microsoft boasts $40bn (£25bn) profits.
Most companies can only dream of profit margins so astronomical. Because most firms operate in markets where competition drives down prices.
But Microsoft holds a monopoly. With 95 per cent of the desktop PC operating system market, and nearly as strong a hold on the productivity suite market, it can charge what it likes. Alternatives to Windows are few: the Mac and Linux. Switching your organisation away from Windows and Office would be an enormous task for which most companies lack the stomach. And the company is not content with owning the desktop. Microsoft is expanding in every direction: mobile phone handsets, televisions, high-end servers, PDAs, financial software, games consoles.
When the US anti-monopoly authorities proved so reluctant to call time on Microsoft’s bad behaviour it began to look as if Microsoft might continue to enjoy its enormous returns, at our expense. But there is one more hope. The EU is investigating Microsoft over allegations that it is using its dominance on the desktop to achieve similar dominance in server software.
A group of its software rivals have even called on the EU to seek the break-up of Microsoft, separating operating systems from other software. They argue that ownership of Windows enables Microsoft to tie its software more closely to the operating system, giving it an unfair advantage, and that the firm stifles competition in every area it moves into by bundling many pieces of software, from browsers to multimedia players and graphics software, into the operating system.
The EU has promised to make a preliminary ruling on the case by the end of this year. Even if it doesn’t take the extreme step of breaking up Microsoft, let’s hope it shows more guts than the US. We need regulatory intervention either to free up the operating system from Microsoft control or to keep Microsoft from unfair practices, because the company’s dominance of the desktop means we have little choice but to hand over as much lolly as Bill Gates feels like demanding. It also means that as soon as other companies look like showing the tiniest competition, Microsoft moves in to squish them.
It’s crooked, and it’s still the only game in town for most companies and home PC users. If the EU fails to use its teeth all we can do is ask for copies of Linux for Dummies this Christmas.