The rising star of the competition czar

Michael Hedges - September 19, 2007

The European Commission and European national regulators celebrated Monday’s court ruling against Microsoft. Big companies with legions of lawyers have met their match. EC Competition Commissioner Neeley Kroes squashed Microsoft like a bug.
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Not quite. Stock traders reacted to the decision by Luxembourg’s European Court of First Instance (CFI) with a shrug and yawn. Microsoft remains a blue chip company and far and away the software giant. “It’s not that big a deal for investors,” said Fort Pitt Capital analyst Kim Caughey to Reuters. “The fines (€497 million) have already been accounted for. None of the stuff had bottom-line impact.”

The court’s “…decision will invigorate the European Commission and national competition authorities across the EU,” said Pinsent Masons competition lawyer Guy Lougher to the Independent (UK). Big companies that have amassed considerable intellectual property will be forced to share with lesser competitors. Bundling products and services, as Microsoft has with its Media Player, may become a passé business strategy, at least for companies wanting to sell those products and services in the European Union. Microsoft’s legal experts are certainly pouring over the CFI’s decision, weighing a final appeal, but so are the legal teams at Google, Apple, Intel and Qualcomm.

It is no secret that Commissioner Kroes would like to see Microsoft damaged. Success, she’s said, would be “a market level of much less than 95%…a significant drop in market share is what we would like to see.” Virtually nobody, save perhaps Microsoft CEO Steve Ballmer, disagrees.

It’s also no secret that Microsoft, through its aggressive (and successful) product strategies, brought on itself whatever pain is felt in the Seattle suburbs. Users and competitors have complained for years about the lack of interoperability with non-Microsoft products. The company has been ripe for a big anti-trust bashing. And that’s what it got.

With blood in the water, the Commission and national anti-trust regulators will certainly chase other targets, most likely lumbering whales that have strayed up the wrong streams. While Google and Apple might be tasty treats, they have learned from Microsoft’s mistakes and if attacked might prove to be like puffer fish, a rather unhealthy meal. Competition regulators say they speak for fair trade and consumer protection, and DG Competition’s ruling against Microsoft clearly did, but early stage innovation – think ‘new media’ - grows best in murky, thrashing, infested water. Microsoft, arguably, hasn’t been leading innovation in years, ASP language and Windows Presentation Format (WPF) notwithstanding. Google has made five innovations in the last 20 seconds. The Commission’s sloth at ‘unbundling’ services and products of state-aided broadcasters and telecoms undermines the credibility of its pro-competition argument.

Upheld by the court is the Commission’s position that vendor lock-in is anti-competitive, an abuse of dominant market position. Neither DG Competition nor national anti-trust regulators go after small fish. When big, successful – and largely American – companies become popular targets the appearance of institutional welfare for the less competent, less competitive and less innovative undermines even more of the authorities’ credibility. Crowing over the “defeat” of Microsoft doesn’t help.

Apple is next in the tank. Denying interoperability to music player owners who might want to use iTunes – locking in the iPod – has the Commission’s attention. So does Apple’s iTunes pricing policies. Today (Wednesday September 20) and tomorrow Apple and the huge music companies answer questions in Brussels about their complicated pricing deals.

The Commission, justified by reality, takes the position that market forces are inherently unfair. In the post-modern 21st century individuals are charting their own reality and choices. Some products and services become popular and successful. Some do not. Hopefully, as the Commission and national regulators turn their attention to the everyday services provided by media producers, providers and distributors, they will be more interested in nurturing than eating the winners.

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