By Jo Maitland
Microsoft may have been found to be a monopoly by Judge Jackson, but one Wall Street investment bank surprised market insiders yesterday when it said the software giant’s decision to integrate browsing technology within the Windows operating environment has in no way damaged consumers and could, in fact, be the single most important factor to help Microsoft win its case in an appeal court.
Speaking during a conference call with press and analysts yesterday, Credit Suisse First Boston analyst, Michael Kwatinetz said Judge Jackson’s findings in the Microsoft antitrust case did not reflect the benefits Microsoft has brought to consumers. We are shocked that the judge found Microsoft has damaged consumers and we do not believe this to be true, he said. Whether the features in Windows represent technological innovation or integration it doesn’t change the fact that consumers get a better product, for the same price. This is tough on Microsoft’s competition, but great for consumers.
Whether or not Microsoft has abused its monopoly power in the desktop operating systems space to thwart competition and prevent rivals from gaining a foothold in the browser market is central to the DOJ’s case. The government argues that stifling competition – by bundling products together so that one is effectively given away for free – is ultimately bad for consumers because it forces them to go with one technology and not consider rivals’ products.
But Kwatinetz disagrees. He says that practices such as Microsoft tying its Internet Explorer browser to the Windows OS doesn’t represent an applications barrier to entry for new companies. Wall Street is financing whatever it takes to overcome any possible barriers to entry, he said. Specifically, he cites examples including Amazon, Liberate and Red Hat, all of whom he claims Wall Street is essentially propping-up because it recognizes the size of the market opportunity.
According to Credit Suisse numbers, Amazon has reported operating loses of $531m over the last year but has a market capitalization of $25bn and has received $1.7bn from banks and venture capitalists. And Wall Street is likely to take the same initiative with Red Hat which will certainly get a second round of funding soon, Kwatinetz said. He also mentioned Oracle Corp spin-off, Liberate Technologies which reported a $128m loss over the last year but has a market value of $3.2bn. Liberate’s Connect software enables ISPs, telcos, cable companies and network operators to deploy web-based content, for example video- on-demand, to information appliances such as set-top boxes, smart phones and hand-held computers, a key area in which Microsoft is also heavily investing.
Given that, Kwatinetz says he is unsure whether Microsoft will be ruled against when it comes to proving barriers to applications entry. The district court missed this important and relevant fact which may be enough for an appeal court to over rule the district court, if the case goes that far, he said.
Bill Kovacic, an antitrust professor at George Washington University agreed: I believe Microsoft will have great success in proving it does not present a barrier to entry and this point will be left suspended in this air, he said.
