Microsoft is its own worst enemy

A FEW DAYS AGO, I covered a Bloomberg article noting the challenge Open Source software -- specifically Linux -- presents to the continued expansion of Microsoft's monopoly control and sales revenues. The conclusion was that Open Source has become Microsoft's enemy number one. Having thought it over a bit, I want to offer a somewhat different view and interpretation. You might think I really hate Microsoft, but I don't. I'd just like to see them reform into a real grownup company.

Microsoft is its own worst enemy, and has been for several years now.

This is manifest in several major dimensions: legal, ethical, economic, technical, business, as well as in developer and customer perceptions of the company and its practices. Let's address each of these in turn. It is true than many issues are inter-related, but I'll attempt to mention issues where most appropriate... and make connections where relevant.

Legal The Microsoft Antitrust case is hanging fire awaiting Judge Colleen Kollar-Kotelly's imposition of sanctions. Microsoft has been convicted of violating the Sherman Antitrust Act, so the only real issue remaining is what penalties the Court will impose. Note that the issue wasn't their holding a de facto monopoly on PC desktop OS software, per se, which is not illegal, but rather their anticompetitive activities in extending that monopoly. While it's always uncertain to try to predict what a Federal Judge will do, we can reasonably expect that she will not treat this as minor traffic infraction and will specify conduct remedies and the mechanisms to enforce them: Microsoft will suffer sanctions.

However, Microsoft brought this on itself, through commingling Internet Explorer into the Windows OS, hijacking all its captive OEMs (IBM, Dell, Compaq, and HP), and browbeating major ISPs (like AOL and Earthlink) -- all to "cut off [Netscape's] air supply", destroy their competition.

Well, the strategies worked (Sun owns what's left of Netscape now), but Microsoft will pay a price for it. What's sad is that it wasn't really necessary for Microsoft to destroy Netscape through using such tactics. Internet Explorer matured into a reasonably good product, despite all of its security flaws (more on that later). Microsoft didn't need to whack Netscape like it did because they would have competed well on the merits of their product, eventually. But this also raises an ongoing theme.

Microsoft has always followed a distinct pattern: build a crappy first iteration of some product, but get it sold by hook or by crook and then develop something better. In the interim, no tactic is too underhanded for them, and their objective is to crush all the viable competition in sight. They did this to WordPerfect, Lotus 1-2-3, and countless others including Dr DOS. What they couldn't disable, they stole or bought out (they lost a civil case for stealing Stacker, a great product, and paid the company millions in damages, then bought it). No tactic is too low for Microsoft and the extensive backlog of lawsuits pending shows it.

Crushing potential competitors in their cribs has always been Microsoft practice. But it's been ultimately bad for the company since eventually it led to perilous legal difficulties... not just the US Antitrust case, but also pending scrutiny in Europe as well as many US civil actions.

One may wonder how much of the price of a copy of WindowsXP or Office2K goes to pay Microsoft's lawyers. I guess it's not a negligible sum.

They should have settled for dominance of markets, while allowing their competitors to live. Dozens of software entrepreneurs have gone off to other pursuits, and thousands of developers have been laid off, all just because Microsoft couldn't countenance any competition, not anytime.

Ethical It's not unreasonable to say that Microsoft has the worst record of unethical activities in the history of the software industry. From tearing down competitors' signs etc. at trade shows, leaning on the OEMs to continue illegal preload lockins despite Court rulings against such practices, to commissioning astro-turf letter campaigns and flakey Switcher stories, Microsoft has no peer with regard to playing dirty.

But again, they don't need to do this. They just look oppressive and... dumb. What Microsoft has never and still doesn't understand is that the word "fair" is implied before the word "competition" in this economy.

Economic Microsoft is sitting on $30-$40 Billion in liquid assets (the value fluctuates with the stock market, as much of it is invested), but it doesn't pay any dividends. This is a startup company's model of retaining profits to put to work building up the business. But the size of this cash hoard is staggering! Yet it's something like ten cents on the dollar against their capitalization. This means that, if Microsoft payed all its stockholders off, out of its holdings today, stockholders might realize about $5 for each share of Microsoft stock now priced at about $55 (give or take a dollar or so). Who would buy Microsoft stock given no dividends and the simple fact that they can't grow forever?

Mutual Funds, that's who. Microsoft is (a big) part of the S&P 500 now and that means many Mutual Funds have to hold their stock (in proportion to Microsoft's "value" within the S&P 500). Yes, that is your 401k.

Microsoft also pays it's employees largely in stock options. Nothing is illegal about that, but they're diluting (watering) the stock, and also transferring a lot of their risk to employees and other stockholders.

(These economic considerations might have something to do with why this current Administration tried to backpedal on Antitrust enforcement.)

But Microsoft could charge options as expenses when incurred. It could also pay dividends (handsomely, at that). Redeveloping everything they sell couldn't cost more than a billion dollars or so; why be miserly?

Yet Microsoft is doing whatever it wants, and screw the investor! Major companies don't do this -- they pay dividends -- but, not Microsoft.

Technical Microsoft also has the world's worst record for buggy, unstable, and insecure software. The "blue screen of death" has become a cultural icon, along with many laughable Windows error messages: "Who is General Failure, and why is he reading my hard drive?" Bad security exploits to which Microsoft products are vulnerable are revealed almost daily. Their software enables an astonishing array of viruses, trojans, DDoS zombies, backdoors, and so on, yet Microsoft's customers just seem to suck it up, and not complain. Many of their customers are unwitting hosts for DDoS (Distributed Denial of Service) zombies, nasty malicious worms, etc., and don't even know it. They probably regard that furious activity on their network link as just Windows "phoning home" to update their software (and their license agreement). Isn't Windows so neat?

This is also unnecessary. If Microsoft hadn't built the execrably buggy operating systems and then tried to retrofit into some semblance of good code, well... they might have done OK. But, as it is now, they suck.

And tightening down licenses with software updates, without giving their enthralled customers any choice about it, well... that is abominable.

I mean, everyone with half a clue knows this. Mom and Pop on AOL might not have heard yet... but they are also enabling DDoS attacks on all the root DNS servers, most likely. All provided courtesy of: Microsoft.

Business Microsoft's business practices are legendary for taking no prisoners. It's their way or the highway. They'll do anything for what they want, except compromise. Ask the OEMs. Ask some government IT managers who had the temerity to consider other options. Hard-ball is Microsoft's default approach. It hasn't gained friends lately.

Millions of IT managers are ticked off at Microsoft's rental licensing, and a lot of them have or will be looking at alternatives. The fact is also that Microsoft's contacts don't like it at all when their Microsoft sales reps go over their heads to upper management, suggesting they're incompetent or worse, not doing their job right in looking elsewhere.

This doesn't have to happen either. If Microsoft software might compete fairly, then they shouldn't need to be going around trashing their best customers, the people who earlier bought their software. It is dumb.

Perception Except perhaps for Joe and Jane Consumer, Microsoft is almost universally disliked. They have only themselves to blame for this. Again, this was avoidable... if only Microsoft behaved better.

Customers as Enemies Microsoft started out by providing software that was useful, sometimes better than their competition's products, but not worrying too much about licensing security. They accepted and even welcomed copying -- after all, those new customers might buy their next release after using the previous one. That was a reasonable approach to software licensing. But lately, they've gone all medieval on licensing, what with recovery-only CDs, online "activation" profiling of their user machines (reactivation required if you upgrade hardware), and so on.

The more Microsoft squeezes their customers, the more of their formerly loyal customers will defect. I'm surprise they don't understand it.

Microsoft doesn't need to do these things. They should lighten up, but I'm glad they won't, as they are driving many of their present customers off into the welcoming community-based arms of Open Source software.µ

See Also
Open Source presents Microsoft's biggest challenge