MICROSOFT: THE LONG VIEW May 18, 1998 The NewsHour with Jim Lehrer Transcript

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Many computer industry experts say the case against Microsoft will define how the information age should work. Will Microsoft parallel the antitrust suits that led to the break-ups of Standard Oil and AT&T, or is a better analogy the 1985 case against IBM? Margaret Warner talks to three experts about the historical ramifications of Microsoft's legal problems. Then, join an online forum to discuss the Microsoft antitrust case.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: Join an online forum on Microsoft's legal predicament. May 18, 1998 A background report on the Microsoft case. May 18, 1998 Both sides discuss the Microsoft case. April 14, 1998 Is Microsoft using its power to stifle competition? March 3, 1998 Leaders of the computer industry testified against Microsoft. January 13, 1998 Microsoft's antitrust battle with the Department of Justice. October 21, 1997 The Justice Department charges Microsoft with building an illegal monopoly. December 14, 1995 A report on the joint Microsoft/NBC venture, MSNBC. Browse the NewsHour's coverage of cyberspace and business.

MARGARET WARNER: Now, three outside views. They come from Paul Gillin, editor-in-chief of Computerworld Magazine; Ron Chernow, economic historian and author of the new book "Titan: The Life of John D. Rockefeller, Sr.;" and George Gilder, who writes a newsletter about the world of computers and telecommunications. He's the author of ten books, including "Wealth and Poverty." Mr. Gillin, the New York Times today said that this case is really about how the information age economy should work. Is it that important? Is it that significant?

"The browser is the infrastructure of the Internet."

PAUL GILLIN, Computerworld: It really is that important because the browser is just a basic computing utility, but it really is the infrastructure of the Internet, it's the gateway onto the Internet, similar to the wiring in your house, or the roads in your neighborhood. If one company can own the browser, they can begin to dictate what companies can do on the Internet that will work most effectively with their browser. And then they can specify that those companies have to license certain technologies in order to make those capabilities take form. So it really is a foot in the door, if you will, toward a much greater degree of control over what happens on the Internet.

MARGARET WARNER: Mr. Chernow, how do you see the significance of this case and what it's going to do to define the economy of our future?

RON CHERNOW, Economic Historian: I think this is really the most far-reaching confrontation between the federal government and the states and private business since the breakup of Standard Oil in 1911. I think that this will be the case that will define the rules of competition in the information age, much as the Standard Oil case that culminated in 1911 defined the rules of competition in the industrial age.

MARGARET WARNER: And Mr. Gilder, your view of the significance of this. Do you think it's really that determinative potentially?

Will Java stem Microsoft's powers?

GEORGE GILDER, Technology Writer: No. I think that we're back to 1985 when the whole word thought IBM was a huge, impregnable monopoly, which was stifling creativity in the computer industry, that very moment the personal computer revolution was surging through the economy. And IBM over the subsequent five years lost $80 billion in market share. I think Microsoft is at a similar pinnacle. It seems very powerful today, but software is going to be electronically delivered over the Internet. Software components, probably based on Java will be delivered over the Internet.

MARGARET WARNER: That's a rival-explain Java briefly.

GEORGE GILDER: Java is a platform independent-

MARGARET WARNER: Competing one.

GEORGE GILDER: Competing system that allows you to write software components and run them anywhere on the Internet, so rather than having a bloated suite of programs on your desktop, instead, you have programs all over the Internet that you can download as you wish on your computer and rent them as you need them, rather than buying thousands of programs that you don't really want.

MARGARET WARNER: Mr. Gillin, is it possible that really technology is going to outrun this whole case?

PAUL GILLIN: I don't think that will happen.

GEORGE GILDER: Certainly-

MARGARET WARNER: I'm sorry. I was asking for Mr. Gillin's-Mr. Gilder, I was asking Mr. Gillin to comment on your comment.

PAUL GILLIN: I'm sorry.

MARGARET WARNER: I'm sorry. Your name sounds so similar. But go ahead, Mr. Gillin.

PAUL GILLIN: I don't think that will happen in this case. There are many differences between now and 1985. For one thing, IBM in 1985 did not see the PC coming. The next generation was a monster of its own creation, if you will, that IBM did not realize was going to come along and topple it from power. I think Microsoft is much savvier than IBM was in 1985. They know the Internet is the future platform for communications, for commerce, and yes, for the next generation of software. I think they're dead set on taking control of that as quickly as possible, and I think they're doing a very effective job of it.

Will Microsoft's fate parallel Standard Oil's?

MARGARET WARNER: Mr. Chernow, go back to your historical parallel and flesh it out a little bit more for us. A lot of-well, you heard both what Mr. Klein said and Mr. Raikes said about which parallels they think were most apt. Why do you choose the Standard Oil one and John D. Rockefeller, Sr., versus Bill Gates and Microsoft?

RON CHERNOW: If you go back to the turn of the century, oil was finding new applications in hundreds of different industries. It was acquiring such a pervasive presence in the economy that people said that this is a strategic commodity that is too important to be left to the control of one man and one company. And you hear people making very similar allegations about Bill Gates and Microsoft. The politics of the situation are quite different. With the case of Standard Oil you not only had disgruntled rivals going after Rockefeller and Standard Oil, but you had a militant press, led by Ida Tarbell; you had a crusading president, Teddy Roosevelt, who actually made the decision to prosecute at a cabinet session in the White House; and most importantly, you had millions of irate consumers. There was a tremendous consumer revolt. I think that one difference between the Standard Oil case and Microsoft is while Bill Gates seems to be loathed by his rivals, his popularity ratings remain very, very favorable among consumers, and there probably are a lot of consumers who were very happy with the ease and convenience with these integrated products.

MARGARET WARNER: Mr. Gilder, do you want to weigh in on this historical parallel one at a time?

GEORGE GILDER: I think that you can tell whether a monopoly is bad and oppressive by whether their prices are going down, or whether they're going up. During the--Rockefeller reduced the price of oil by about 90 percent, won a competition with Russian oil, which cost a tenth as much to produce. Prices were going down, and also all sorts of competitors were emerging. Today prices in computers and software are going down so fast that they're fueling the U.S. economy in a global miracle. The dominance of the U.S. economy today is greater than ever before since the end of the Second World War, and it's fueled by software and computers. And it's fueled by the dropping price of software, the plummeting price of software and computers. We're complaining because the Explorer is being given away free and integrated with the operating system. This is not an exploitive monopoly. This is a spur to economic growth. But this spur-this industry is changing so fast that even Bill Gates and his huge dominance cannot persist for the next five years. But Microsoft will continue to be a very successful company. But it will no longer hold its dominance. And we're going to look back on this moment as a really peculiar misjudgment of the position of Microsoft, just as peculiar as misjudgment of IBM before it lost $80 billion of market cap.

"Consumers want manageability. "

MARGARET WARNER: Mr. Gillin from Computerworld, you heard both Mr. Klein and Mr. Raikes invoke the name of the consumer as to why they're acting the way they're doing. Is it clear from your readers, for instance, what they want? Do they want choice, as Joel Klein said, or do they really want consistency and simplicity, as Mr. Raikes said?

PAUL GILLIN: Our readers want manageability. They want software that is easy to configure and easy to control. Of course, they're not getting that with frequent upgrades to the operating system and other products. I think more importantly is that readers want simplicity; they want products that are going to install and are going to work properly. But they also want a choice. They want to know that they have the best of breed products. Microsoft in many cases has the best of breed products, but they're in a situation now where they're forcing out other competitors in their market. They're ten times as big as the next largest PC software company, and they're eliminating competition from many of the core markets-

GEORGE GILDER: IBM.

PAUL GILLIN: -where they now compete. IBM is not a major PC software company.

MARGARET WARNER: Mr. Gilder, were you trying to weigh in?

GEORGE GILDER: IBM is a dominant force still in the computer business, and it is spearheading the Java challenge with Sun to Microsoft. And there are 700,000 Java programmers out there, and I predict their influence is going to become increasingly significant as the years pass.

MARGARET WARNER: Let me get Mr. Chernow back in here. In cases like this, historically, is it ever clear what consumers want?

RON CHERNOW: Well, sometimes it is. What happened-just to comment on what George Gilder said-Rockefeller's most effectively and really most lethal weapon was predatory pricing, that is, to sell oil at or below cost. Crude oil prices were generally dropping at the time and costs of refined oil were dropping. A smart monopolist does not gouge the consumer for the last nickel. A smart monopolist is basically intent upon maintaining market share, so that even in a monopoly situation market forces continue to operate to the extent that Rockefeller was always afraid that if he raised prices, it would draw back in the very competitors whom he had eliminated. This case in certain ways is more like AT&T to the extent that if we go back to the late 1970's, it was the so-called inter-connect companies that were selling telephone sets and also the startup long distance companies like MCI that really prodded the Justice Department into taking action. There wasn't a mass consumer revolt the way there was with Standard Oil. And there doesn't seem to be-at least as this moment-a massive consumer revolt. My sense is that the people who are most computer literate are least satisfied with Microsoft. The people who are ordinary and unsophisticated tend to be dazzled by a lot of the products.

MARGARET WARNER: Mr. Gillin, what effect do you think-briefly, because we are about out of time-the very fact of the filing of this case is going to have on the-on both Microsoft and the industry?

What does the future hold?

PAUL GILLIN: I think it will have a profound effect on Microsoft. If you look back at the IBM example, for 13 years IBM lived in fear, documenting everything with legions of lawyers down in Washington. I think Microsoft is about to go into much the same syndrome. For the industry, I think the effect will be good because in some key areas the government has now told Microsoft you have to watch out, you have to let competitors play with you, you have to level the play field-the playing field somewhat, and I think in the new markets where Microsoft does not yet have a dominant foothold, that will be a good thing for consumers.

MARGARET WARNER: Mr. Gilder, very briefly.

GEORGE GILDER: AT&T was a government-regulated monopoly like the phone company. And phone companies are still paralyzed with regulation. Do we want the computer industry to be paralyzed like the phone companies, still delivering you the three kilohertz line to your home?

MARGARET WARNER: Okay. Gentlemen, all three of you, thank you very much.

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