Dueling Think Tanks Debate Fate of Windows on European PCs

Last week's ruling by the European Court of First Instance (CFI) upholding the European Commission's 2004 finding against Microsoft and its subsequent Statement of Objections, may open the door for the EC to take unprecedented action. Commissioner for Competition Neelie Kroes stated she's open to suggestion, and today one response came from the respected Brussels-based Globalisation Institute think tank: Force manufacturers by law to sell PCs without operating systems pre-installed or bundled.

"We decided that the best way to approach competition was simply to insist that operating systems are purchased separately from desktop and laptop computers," reads a white paper published by the GI this morning (PDF available here). "This, we believe, would have a significant effect on the market share of Windows, providing the competitive marketplace that Ms. Kroes has called for. Price conscious consumers, including many students, would opt for cheaper operating systems."

Windows' market share numbers have indeed been on Commissioner Kroes' mind. In a press conference on the day of the CFI ruling, she said, "The Decision upheld by the Court is particularly important because so many people use computers, be they individual consumers, schools, businesses or governments, and because 95% of the world's personal computers run Microsoft's Windows PC operating system." Later, she added, "Businesses and individuals are faced with no more choice than they were three years ago when the Commission adopted its Decision. Microsoft's market share has grown to 80% for work group servers - up from some 40% when the Commission's investigation began."

Kroes' comments have led to some debate over whether the true test of a company's competitiveness is the market share it holds. Although there are many - including the Globalisation Institute - who argue that Windows' dominance is due in large part to a lack of choice in the market, assuming the choice were actually balanced, any law which penalized the maker of one of those choices for holding an 85% share or greater might actually work against successful competition.

That's the point made just last week by the UK's Adam Smith Institute, whose research director Alex Singleton left two years ago to found the Globalisation Institute. In a blog posting last Tuesday, ASI member Alex Williams wrote, "This neo-protectionist economic agenda is forming a policy cloak for the anti-Americanism of many European Commissioners, and it is European citizens who stand to suffer from it.

"At a time when the global competitiveness of European firms is tumbling down the international league tables," Williams continued, "the Commission has decided to make investment in the EU less attractive. They thinly mask the old socialist aim of punishing success under the guise of defending competition. The European Commission thus displays a fundamental incomprehension of the nature of competition. Its insistence that small businessmen be assisted - and thereby competition preserved - by forcing Microsoft to share product information with competitors, demonstrates an unfortunate tendency to try for a pre-conceived economic outcome, rather than a valid process."

One example of a pre-conceived outcome might be a diminished market share number for Windows, which is clearly one aim of the GI's suggestion to the EC. Since computers have already become commoditized, its white paper argues, there's no reason for there not to be as many as ten different operating systems available for them.

In such a market, the ten OS vendors would be compelled to find ways to work together, especially to enable software vendors to continue to develop for a broad base of users. If the market were naturally competitive, compatibility would be a natural outcome.

"Or, to put it another way, if there are ten major operating system vendors, independent software houses are going to write their software using coding tools and 'programming libraries' that will enable their software to work on all the systems," the GI white paper continued, "rather than just one. Competition would encourage open standards and interoperability as vendors would, for competitive reasons, want their products to interact with other vendors' products."

PC vendors would then have the option of distributing any or all of these operating systems with their systems, though the white paper does not describe this form of distribution as "bundling." To activate their computers after purchase, customers would insert the DVD containing the operating system of their choice, and it would automatically install itself. The paper did warn that PC vendors would need to provide the appropriate base set of drivers in order that the DVD containing the operating system could actually be installed.

In this ideal market, the paper concluded, savvy customers - including college students - would choose the "cheaper" operating system, thus driving Windows' market share down. This presumes, of course, that Windows always remains the most expensive choice.

This morning, the GI report was blasted by JupiterResearch analyst Michael Gartenberg. "Unbundling would not reduce costs (and less than 10% of the cost of software over the life of a PC comes from software acquisition costs)," Gartenberg wrote, "and choice is a bit of a myth. Users want choice when what they have is lacking. Users can choose to use Linux or Mac OS, many do and many more don't."

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