Bushwhacking Microsoft: The Economic Impact
Glenn Yago is the Director of Capital Studies at the Milken Institute. He is a consultant to Microsoft.
The remedy proposed by the litigating states in U.S. v. Microsoft1 would require drastic changes in marketing and design practices that were not found to be anticompetitive by the Circuit Court of Appeals for the District of Columbia. More important, it would undermine both Microsoft’s ability and its incentives to produce software that consumers value.
In particular, the remedy threatens to “break” the Windows operating system – and consequently software that runs on top of it – as well as destroying the value of Microsoft Office2. And in light of the central role Microsoft now plays in the ecosystem of the ubiquitous personal computer, American consumers, businesses, and investors would acutely feel the resulting damage to the company. Consider some key facts:
Software Firms in the United States
Microsoft Resale Partners in the United States
Personal Computer Ownership and Use in the United States
Expenditures on Personal Computers in the United States
Computer-Related Employment in the United States
Holdings of Microsoft Stock
Pension Fund Holdings of Microsoft Stock
Endnotes
1 New York v. Microsoft, Civil Action No. 98-1233 (CKK), Plaintiff Litigating States’ First Amended Proposed Final Judgment, March 4, 2002. The nine litigating states are California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah, and West Virginia. The District of Columbia joined these states in pursuing litigation.
2See David R. Henderson, Evaluating the Litigating States’ Proposed Remedy for Microsoft, available at http://www.davidrhenderson.com/Consumer%20Harm%20White%20Paper%20Henderson%20final1.pdf.
3Data purchased from Corporate Technology Information Services and modified as described in Josh Lerner, “Did Microsoft Deter Software Innovation?” Working Paper, January 2002.
4Microsoft Corporation, http://www.microsoft.com/freedomtoinnovate/industry/fin_us_partners.asp, downloaded March 28, 2002.
5“A Nation Online,” Department of Commerce, Economics and Statistics Administration, February 2002, available at http://www.esa.doc.gov/508/esa/pdf/nationonline_020502.pdf.
6In 2000, Microsoft client operating systems accounted for 85 percent of the total installed base of client operating systems worldwide. Al Gillen, Dan Kusnetzky, Akihito Sayama, and Martin Hingley, “Worldwide Client and Server Operating Environments Market Forecast and Analysis Summary, 2001–2005,” International Data Corporation, No. 25118, Table 5. While precise figures for the United States are not available, there is no reason to believe that Microsoft’s share of operating systems is significantly different.
7IDC, PC Tracker Database. Intel-compatible PCs are defined as all processor categories identified by IDC excluding Power PC, 60830 and below, and 68040. IDC tracks PC sales for the following categories of processors: 386+Below, 486, 5th Gen. 101-149 MHz, 5th Gen. 150-179 MHz, 5th Gen. =180 MHz, 6th Gen. 201-299 MHz, 6th Gen. 300-399 MHz, 6th Gen. 400-499 MHz, 6th Gen. 500-599 MHz, 6th Gen. 600-699 MHz, 6th Gen. 700-799 MHz, 6th Gen. 800-899 MHz, 6th Gen. 900-999 MHz, 6th Gen. =1 GHz, 7th Gen. 500-599 MHz, 7th Gen. 600-699 MHz, 7th Gen. 700-799 MHz, 7th Gen. 800-899 MHz, 7th Gen. >=1 GHz.
8“2000 National Occupational Employment and Wage Estimates,” Bureau of Labor Statistics, available at http://www.bls.gov/oes/2000/oes_15Co.htm. IDC includes all of these occupations in its definition of professional developers. Stephen D. Hendrick and Ludovica Bruno, “The 2001 IDC Professional Developer Model,” International Data Corporation, No. 24765, June 2001, p. 8.
9“2000 National Industry-Specific Occupational Employment and Wage Estimates: SIC 737 – Computer Programming, Data Processing, and Other Computer Related Services,” Bureau of Labor Statistics, available at http://www.bls.gov/oes/2000/oesi3_737.htm.
10As of March 28, 2002.
11As of March 28, 2002.