Wednesday, November 12, 2003

Telirati Newsletter #23

Here we looked at the ultimate ridiculousness of the government's pursuit of Microsoft. As the software business gets more mature and as dubious technologies like DRM make regulation possible, in addition to keeping an eye out for the irony of Microsoft forging its own chains, we must continue to look out for government folly in the area of software regulation.

Newsletter #23: Mr. Pot, I’d like to introduce you to Mr. Kettle

Political matters are a touchy topic in business. All the more so in technology which has been innocent of politics for so long. Those of you reading this that come to computer telephony from the telephone operating companies may chuckle a bit at the innocence of computer people. In this light, Microsoft appears naive, and the U.S. Department of Justice involvement in the question of browsers integrated with operating systems signals the maturity of the software business.

There are two reasons to think differently: First, computer software and the Internet share few characteristics of industries, including telecommunications, where anti-trust litigation has been successful (at least by some internally consistent definition of success). Second, the whole idea of thinking Microsoft naïve and incapable just because they are dealing with a new problem is dubious. The argument I put forth here has nothing to say about whether Microsoft is good or bad. All the ill effects I document are purely the creation of the action against Microsoft. All of which is to say that we, the industry, and the high tech economy, are about to shoot ourselves in our collective foot, never mind what we think we are aiming at.

First, the fundamental difficulty of regulating the content of software products:

Software changes faster than anything else. Steel girders are still steel girders. Oil is very much the same oil that was ever pumped from the ground. Even frivolous products, like Coke and Pepsi (which have, nevertheless, attracted the attention of “trust busters�) are eternally just brown, fizzy, sugar water. Even biotechnology, which deals in the business of life, moves slower. Software moves more swiftly than any human endeavor that came before. Software concepts become obsolete before the ink is dry on laws.

In the midst of this tumultuous and rapid change, everybody in the computer industry has the same ambitions: to dominate some portion of the computing ecology and become irreplaceably embedded in desktop computing or the Internet. Calling Microsoft a gang of monopolists is no more sensible than the pot calling the kettle black. So far, except for the fact that Microsoft won against Unix, OS/2, and Mac OS, etc., I have not heard anything different about what Microsoft intended than what the losing players themselves had in their plans. Apple and IBM wanted to retain and regain, respectively, complete control over both hardware and system software. Sun, despite protestations that theirs is an “open� system, finds no significant takers for Solaris licenses, and Sun has control over hardware, software, and the CPU chips in their systems.

To illustrate the futility of the best laid and most viciously executed monopolist strategies, look at video games: Atari, Nintendo, Sega, Sony, and next Nintendo, no Sega, or someone else entirely. Each of these companies build intentionally closed systems, with closed markets for software, and surround these strongholds with platoons of nasty lawyers to sue anyone with reverse engineering on their minds. Game consoles are a nakedly monopolistic pursuit. Nevertheless, no game console maker has remained at the top of the heap for more than a few years.

Set aside the practicality of applying anti-trust laws to software and ask what if it comes to enforcement? Software is the ultimate contraband. Software has no mass, and travels at the speed of light. Better than electricity, you don’t need a billion dollar power plant to make lots of it, and you don’t need a well-regulated power grid to transmit it. Better than oil, there are no fixed wells, pipelines, or gas stations. Better than railroads, there is no track, no locomotives too heavy to move around the world easily. Encrypted, it can hide in plain sight. It has no radar signature, no DNA test can track it, no spectrometer can sniff it out. Making a desirable software product illegal to distribute in the U.S. is probably the purest folly that could be pursued by any body that makes and enforces laws.

These are all reasons to avoid trying to regulate the content of software systems for anti-trust and other reasons. What are the potential consequences of ignoring these indications?

Really Bad Outcome #1, The cancer spreads: Didn’t Apple strong-arm Power Computing, Motorola, and Umax out of the clone business? Sure. Completely intentionally, Apple drove legitimate licensees out of business. They did it to implement a strategy that does not even hold any guarantee of saving Apple. Has Microsoft done anything comparable? I don’t recall anything like it. But it is the prerogative of platform vendors to behave this way. Consequently, there are no bounds to the underlying theories that the DoJ is bringing to bear against Microsoft that prevent Apple and other companies from becoming targets. The back-up tapes of every company with an ounce of ambition are chock full of scheming to crush the competition. And if the Microsoft suit looks like a losing proposition, the government may turn to a secondary target just in order to score a win and bolster the theories under which they pursued Microsoft.

Really Bad Outcome #2, The tables turn: I recall this story starting with some company thinking “Gee, they’ll never figure out how to make a good browser!� Oops. Many critics of Microsoft succumb to believing in the insults they hurl at Microsoft. Now it’s “Oh they’ll never figure out how to play the government regulation and lobbying game.� Imagine Microsoft becoming as canny at enlisting the government’s help in maintaining a monopoly as their Seattle neighbor, Boeing. Yikes! Or a darker outcome would be that Bill Gates turns out not to be the John D. Rockefeller of the 90’s, but rather the Ted Vail of the next century. AT&T used the government to create regulatory barriers to competition and created a truly oppressive monopoly. Is this the lesson we want to teach to Microsoft?

Really Bad Outcome #3 They go nuclear: Factories move to escape direct costs and regulatory costs. Software licenses can be sold from any spot on the planet. The DoJ has not touched he cutthroat game console industry which makes feudal vassals of the software makers not because they see how quickly leadership in this business changes, but because all the game console companies are based in Japan and it would be futile to try. Because of the portability of intellectual property, software can be developed anyplace (much game hardware and software is developed in the U.S.), and sold from anyplace. If software companies change their legal location it will have only minimal impact on development projects under way, but it may have a long term negative impact on the U.S. as the center of the software world.

All this without even discussing the merits of the DoJ suit. Which indicates that if the computer industry is following telecommunications and other industries into the regulatory corral, it is out of a false sophistication, and the results will ill suit the cowboy capitalists of Silicon Valley.

Copyright 1998 Zigurd Mednieks. May be reproduced and redistributed with attribution and this notice intact.