Defending Bill

Folks,
Hit the reply to all button if you want your answers to go out to the whole
group...
...a point came up..will Asia's woes really effect us? Well, even if the
world goes 30% off, our foreign trade is only 20% of our economy, so 30% of
20% is what? less than 6% net net? Sure that would be felt..but no big
deal...but that is not the question the Austrians are asking...they are asking
are the Asian policies identical to ours..and will we in time see identical
results, that is USA off 30%? Next Monday is the last monday in October, a
traditional date for these shakeouts...
Next...I love these kinds of articles..in making another case, we learn trade
secrets on pricing and strategy...

What's Good for Microsoft...

By T.J. RODGERS



SAN JOSE, Calif. -- The Justice Department is suing Microsoft for the

antitrust offenses of "tying" and "predatory pricing." It claims that

Microsoft illegally tied its Internet browser to its Windows software

because the company sells them only as a package, and that it was selling

the package below cost because it didn't raise the price of Windows when it

added the browser.



If Microsoft loses this antitrust case, every high technology company will

be in the Justice Department's gun sights, because we all do business just

like Microsoft. The Silicon Valley C.E.O.s siding with the Government to

one-up a rival should be supporting Microsoft on basic principles.



In 1994, my company sold for $12.31 all the silicon chips needed to run a

small computer: the memory to store programs ($4.16), the memory to store

data ($3.99) and the "microcontroller," a small stand-alone computer that is

the brains of the system ($4.16).



But a few months ago, we "tied" all of those chips together, to use

antitrust jargon. We created a chip that performed the functions that

previously required three chips, and we cut the price by a "predatory" 92

percent to just 95 cents. We would not have survived without "tying" (which

Silicon Valley refers to as creating a "system-on-a-chip") and "predatory

pricing" (known to us as "learning-curve pricing," also known as "Moore's

Law," named after Gordon Moore, a co-founder of Intel, who predicted that

the price of chips is cut in half every 18 months).



Tying and price cutting -- adding more value for less money -- is what

high-technology companies do. Apparently, the lawsuit against Microsoft is

its penalty for being too successful at it. To consumers, however,

"predatory pricing" means that a computer that costs $700 today has 50,000

times the power of a $5 million 1951 Univac mainframe computer.



Jim Barksdale, chief executive of the Netscape Communications Corporation,

has complained that Microsoft competes unfairly in the Internet browser

market. Yet Netscape itself is a master of predatory pricing. When we were

evaluating which browser to use on our company computers, I favored

Microsoft's Internet Explorer because it is more compatible with the

Microsoft spreadsheets and word processors we already use. But I lost out on

that option because our engineers had already downloaded and begun to use

more than 200 free copies of the Netscape browser and that meant we were

committed.



Once they had us (and 85 percent of the browser market), Netscape couldn't

have been more predatory: it charged us $152,000 for 1300 copies of their

browser. It turns out that their real software -- not the version they give

away, but the software for which they provide technical support -- isn't

free at all. If Microsoft violated the law by giving away browsers, why

didn't Netscape?



Illogic abounds in the case against Microsoft. The company is in trouble for

selling its product below cost at the same time that the Senate Judiciary

Committee has castigated it for making a profit of more than 20 percent.



But can Microsoft really be cheating customers when, at a price of only $99,

Windows 98 delivers a more complex program than many million-dollar

mainframe software packages do? For years, Microsoft has enhanced Windows

with new features -- spreadsheets, word processors, fax utilities, etc. --

but somehow it crossed an arbitrary line by adding a browser.



The Justice Department has a point when it complains that Microsoft has a

big marketing advantage when it adds features to Windows. But Microsoft

earned that advantage with years of work and billions of well-invested

dollars. Its only mistake was to fight against the tide of the Government's

trustbusting.



Consider the seminal case against Alcoa, the Aluminium Company of America,

which set the antitrust agenda that remains largely intact to this day. In

1945, Judge Learned Hand ruled that Alcoa had a monopoly on aluminum

production purely because of its size and its ability to anticipate and

satisfy demand faster and at a lower cost than its rivals. The Government

broke up the company because, according to Judge Hand, it excluded

competitors by "[embracing] new opportunity as it opened." In other words,

it was punished for being competent.



It's hard to believe that Silicon Valley executives would embrace the logic

of the Hand decision, but they have. Scott NcNealy, the chief executive of

Sun Microsystems, a Microsoft rival, said , "Government has to come in and

discipline [Microsoft] until the rest of the world catches up." What if it's

our Japanese competitors that do the catching up while the Justice

Department is hobbling Silicon Valley?



Scott McNealy is not alone in supporting litigation. Lawrence Ellison, the

chief executive of the Oracle Corporation, the second largest software

company behind Microsoft, failed with a plan to replace PCs with network

computers so that Oracle's software could replace Windows.



Ellison now wants the courts to take from Microsoft what he was incapable of

earning in the free market: he recently told an audience at Harvard

University that "every American of voting age should file a suit against

Microsoft."



But using the courts to regulate the marketplace -- what Ayn Rand called "a

free market, enforced by law" -- brings on debacles like the antitrust case

against I.B.M., which wasted 13 years and billions of dollars for both the

company and taxpayers. During that period, the free market succeeded where

the lawsuit failed: companies like Sun Microsystems, Netscape and Oracle

were founded and became important competitors, solving the I.B.M. "monopoly

problem" at no public cost. Winning by politics is antithetical to the

free-market competition that underpins Silicon Valley's success.



The Justice Department isn't just attacking Microsoft; it's attacking the

way Microsoft does business -- and, by extension, the way most successful

high-technology companies do business. I deplore this unwarranted action and

hope that my fellow Silicon Valley C.E.O.'s will put aside their short-term

competitive urges to stand together against the Government's intrusion into

our enterprises, which, if successful, will make all Americans less well

off.



T.J. Rodgers is president and chief executive of Cypress Semiconductor.
....So leave Bill alone!
John Spiers

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