Months ago I wrote about Microsoft’s business practices and the difficulty to obtain a student license of Windows 7 for a low price. It turned out that isn’t possible to upgrade to Windows 7 from Windows 2000, so I can’t buy Windows 2000 for € 15 and then buy the upgrade version of Windows 7 Professional for students for € 53,00. I also discovered that the Windows 2000 license offered for € 15 on the most popular Dutch advertising website Marktplaats was an illegal license, because the seller admitted it. If you search on Marktplaats for offers on Windows 7 Ultimate you’ll find many offer illegal versions for under € 20, while it’s at least € 155 for a legitimate OEM-license. I wonder why Microsoft or Marktplaats itself doesn’t crack down on these sellers there, because I’ve been seeing such offers for months.
I can’t even buy an OEM-license of Windows 7 Home Premium for € 84 because you can only buy that with a new computer (Microsoft Netherlands condones it in practice, but in their e-mail communication with me they insisted that it isn’t allowed). I’d have to spend € 157 on a retail license for Windows 7 Home Premium. Sorry, no deal for me. I’d like to buy a legitimate product, but € 157 is very unreasonable. I’d be willing to pay € 50 at most.
If we apply the average (because OEM-licenses sold to manufacturers reduce the average margin because of their far lower price, the margin will probably be even higher on retail licenses which cost far more) profit margin of 86% on Windows here, Microsoft would need to sell it at € 22 to break even (135 ÷ 157 × 100 = 86%). Making only upgrade licenses available to force students like me who never bought a Windows license before punishes them for being ‘disloyal’ customers and forces them to pay a ridiculous amount of money for a retail license.
Microsoft possesses a dominant market position and in certain aspects a monopoly with Windows. I don’t need Windows to browse the web, send e-mails or to create text documents, Linux serves me fine there. However, in certain specific cases Windows is required. My father for example often logs in remotely to his office to access his e-mails, and the company he works for decided in all it‘s wisdom to require ActiveX to log in. That is not an open standard, but a closed Microsoft standard. So he can only log in with Microsoft Internet Explorer, which means he is restricted to using Windows to log in. My problem is that many games only run on Windows, for example Crysis. Crysis uses Microsoft’s DirectX software, which is also a closed Microsoft standard. Microsoft deliberately uses this strategy to create vendor lock-in.
What has been done so far to counter Microsoft’s dominant market position or monopoly? Microsoft has a long history of litigation for anti-competitive practices. Most notable are the recent fines the European Union imposed on Microsoft, € 497 million in 2004 and € 899 million ($1.35 billion) in 2008. How effective was it? The last fine constituted approximately 10% of Microsoft’s net yearly earnings. Microsoft’s net income for 2009 was $14.569 billion according to Wikipedia. I argue the fine isn’t so high at all, of course it is a lot of money, but if it’s only 10% of their net income I doubt if it’s enough of a stimulus to start playing fair. Thanks to their dominant market position or monopoly, their profit probably increased by a lot more than 10%.
Besides the financial punishment, Microsoft had to create a version of Windows XP without Windows Media Player. However, consumers weren’t interested in this Windows XP N edition and it sold only 1500 copies to OEM’s. Windows 7 is also available as an N-edition, but it doesn’t come with a lower price. Another result of the fines has been that Microsoft can no longer charge outrageous prices for selling interoperability information for their products to competitors. More recently in 2009, The European Union demanded that Microsoft would offer a web browser choice screen because the inclusion of Internet Explorer in Windows harms competition with other browsers. The browser choice screen has been implemented in Windows 7 as of March 1.
While I think it’s awesome that the European Union gives Microsoft such a beating, I don’t think this particular approach is fruitful. I, and probably many others don’t want to use an operating system without a media player included by default. Maybe I don’t want to choose a different web browser. When we buy a smartphone, we expect exactly that, a media player included by default and a default browser, without any compulsory browser choice to be made. The essential difference here is that there is no dominant player in the smartphone market, but that Microsoft is a monopolist or dominant on the PC market. It should be evident that it isn’t good Microsoft has such a position on the PC market and I’m very much in favor of the interventions of the EU. But I’m not in favor of how they intervene.
Microsoft should have the freedom to include or exclude whatever they want in their products, every company should have that freedom, monopoly or dominant market position or not. The problem is not in Microsoft’s product, but in the consumer who can’t effectively exercise his power (partly because of a lack of information) and because of certain closed standards in use by Microsoft. Instead of dictating what Microsoft should do with it’s product, I have some better ideas.
First, Microsoft should be forced to open source some of it’s closed standards, like DirectX and ActiveX for example which I mentioned earlier. If DirectX were open source, it would be much easier to port it to Linux for example, thus removing a hurdle to play Crysis and many other games on a different operating system than Windows. The EU could forbid selling PC’s with Windows included, but again this would infringe on the freedom of the consumer. The EU should demand that the process for receiving a refund for Windows be made far more easy than it is now. Instead of having to go through the difficult process to demand a refund from the manufacturer, the seller should be obliged to provide one. Besides that the EU could dictate that the conssumer needs to be informed of the price of the operating system separate from the total price of a PC, a very good idea which I read here.
In fact, I totally agree with Alberto Ruiz’ blogpost. The EU should take care to use interventions which have less restrictions on Microsoft’s product design, but instead provide consumers with more possibilities and freedom to abandon Microsoft’s products.