IIBMS – Playing Monopoly: Microsoft
Case – 2 Playing Monopoly: Microsoft IIBMS – Playing Monopoly: Microsoft On November 5, 1999, then the richest man in the world, learned that a federal judge, Thomas Jackson, had just issued “findings of fact” declaring that his company, Microsoft, “enjoys monopoly power” and that it had used its monopoly power to “harm consumers” and crush competitors to maintain its Windows monopoly and to establish a new monopoly in Web browsers by bundling its Internet Explorer with Windows. On the day the judgment was issued, Microsoft stock began its decline. The decline was hastened by an announcement in February 2000 that the European Commission, which enforces European Union lows on competition and monopolization, had been investigating Microsoft’ anticompetitive practices in server software since 1997 and was extending its investigation to look into Microsoft’s bundling of its Windows Media Player with Windows. Two months later, on April 3,2000,U.S. judge Thomas Jackson issued a second verdict, concluding on the basis of his earlier findings of fact that Microsoft had violated U.S. antitrust low and was subject to the penalties allowed by the low. The price of Microsoft stock plunged, bringing the entire stock market down with it. Two short months later, on June 7,2000, Judge Jackson ordered that Microsoft should be broken up into two separate companies-one devoted to operating systems and the other to applications such as word processing, spreadsheets, and Web browsers. With the price of Microsoft stock now skidding, Gates, who was no longer the richest man in the world, vowed that Microsoft would appeal this and any similar verdict and would never be broken apart.1 Bill Gates was born in 1955 in Bremerton, Washington. When he was 13 years old, his grammar school acquired a computer terminal, and by the end of the year he had written his first software program (for playing tictac-toe). During high school, he held a few entry-level programming jobs. Gates enrolled in Harvard University in 1974, but quickly lost interest in classes and quit to start a software business in Albuquerque, New Mexico, with a friend, Paul Allen, whom he had known since grammar school in Seattle. At the time, the first small but primitive personal computers were being manufactured as kits for hobbyists. These computers, like the Altair 8080 computer (which used Intel’s new 8080 microprocessor, had no keyboard, no screen, and only 256 bytes of memory), had no accompanying software and were extremely difficult to program because they had to use “machine code” (consisting entirely of sequences of zero and ones), which is virtually incomprehensible to humans. Gates and Allen together revised a program called BASIC (Beginner’s All – Purpose Symbolic Instruction Code, a program written several years earlier by two engineers who gave it away for free), which allowed users to write their own programs using an understandable set of English instructions, and they adapted it so that it would work on the Altair 8080. They sold the adaptation to the maker of the Altair 8080 for $3,000. In 1977, Apply Computer marketed the first personal computer (PC) aimed at consumers, and by 1978, more than 300 dealers were selling the “Apply II.” That year, Gates and Allen began writing software programs for the Apply II, renamed their company Microsoft, and moved it to Seattle, where, with 13 employees, it ended the year with revenues of $1.4 million. In 1979, two hobbyists developed VisiCalc, the first spreadsheet program, for the Apply II, and Microsoft developed MS Word, a rudimentary word processor for the Apply II. With these new software “applications,” sales of the Apply II took off and the personal computer market was born. By 1980, Microsoft, which continued writing programs for the growing personal computer market, had earning of $8 million. In 1980, IBM belatedly decided to enter the growing market for personal computers. By now many other companies had flocked into the PC market, including Radio Shack, Commodore, COMPAQ, AT&T, Xerox, DEC, Data General, and Wang. By 1984, some 350 companies around the world would be making PCs. Because IBM needed to enter the market quickly, it decided to assemble its computer from components that were readily available on the market. A key component that IBN needed for its computer was an operating system. An operating system is the software that allows application programs (like a world processor, spreadsheet, browser, or game) to run on a particular machine. Every computer must have an operating system or it cannot run any application programs. The operating system coordinates the various components of the computer (keyboard inputs, monitor, printer, ports, etc. and contains the application programming interface (API), which consists of the codes that application use to “command” the computer to carry out its function. Application programs, such as a games or world processors, are written so that they will run on a specific operating system by making use of that operating system’s API to make the computer carry out the program’s commands. Unfortunately, a program written for one operating system will not work on another operating system. Most of the companies making PCs had developed their own operating systems, although several made use of one called CP/M, which was written to work on many different computers, applications developed to run on CP/M. This meant that an application did not have to be rewritten for each different kind of computer, but could be written once for CP/M and would then on any computer using CP/M. IBM needed an operating system quickly and approached the maker of CP/M for a license to use CP/M but was turned down. The somewhat desperate IBM representatives then met with Bill Gates to ask whether Microsoft had one available. Although Microsoft at the time did not own an operating system, Bill Gates told IBM that he could provide one to them. Immediately after the IBM meeting, Bill Gates went to a friend who he knew had written an operating system that was a “knock-off of CP/M” and that could work on
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