By William Fellows
The key witness in Microsoft Corp’s defense against US Government antitrust charges revealed some rather embarrassing facts about the software maker’s accounting practices in court yesterday. In answer to government lead attorney David Boies’ questions about the assumptions used in determining that Microsoft, in his opinion, is not a monopolist, MIT professor Richard Schmalensee said he was unable to determine the percentage of profit Microsoft makes from the sale of Windows because Microsoft told him the data does not exist: they record operating system sales by hand on bits of paper, he declared. Moreover, he said, Microsoft’s internal accounting system does not rise to the level you would expect of a company of its size. Schmalensee said his study found that, using a standard economic model, that Microsoft would have to be charging $2,000 for Windows (or 40 times its actual price), to be operating as a classic monopolist. It’s not doing that, even in the short term Schmalensee argued, because of the long-term competitive threat Microsoft would face. Microsoft is maximizing its profits now, Schmalensee concluded. Pursued by Boies about what he was trying to show in his testimony – the implication is that he is Microsoft’s mouthpiece – Schmalensee, who until now had given up very little under this week’s cross examination compared with last week, exclaimed I’m not giving it [the testimony] because it’s in Microsoft’s interest. I’m giving it because it is right. I value my professional reputation very highly.
