Is Microsoft a Monopoly?

With new anti-trust charges looming for Google, references to Microsoft’s anti-competitive past are quite common in the news cycle at the moment. Although it is still debated endlessly, the question of whether or not Microsoft is still a monopoly isn’t a question of substance in my opinion. I say this not to be dismissive or rude, but simply due to the fact that Microsoft is most definitely a monopoly both from the perspective of their dominant market share in the OS (77%) and office software (42%) markets and from the legal perspective as evidenced by their litany of anti-trust violations and subsequent fines that they’ve incurred globally for being a bonafide monopoly. But not all monopolies are evil, let alone illegal.

Some monopolies are ethical and perfectly legal because they obtain their market share by virtue of the utility of their products, the quality of their engineering, and the level of efficiency that they can deliver all of this with relative to their competition, simply being the best if you will while others are merely first in their market. For example, Google was by no means first and has an ethical monopoly on search, mobile OS, and productivity now because no one else does a better job for less. Another example is Apple which has an ethical monopoly in phone and high end hardware spaces by virtue of making the best devices sans their most recent keyboard and antenna debacles.

Other monopolies such as your dad’s Microsoft were evil because their products could not compete on a competitive plane with emerging vendors and open source projects alike and had to resort to anti-competitive, subversive, and illegal means to maintain relevance. Where they could not innovate and dominate naturally, Microsoft became notorious for inhibiting their competition from running on their platform or mimicking them until they have to take a comedic write-down when acquisition was not possible. Microsoft was so notorious for acting like a law firm with a software problem that Bill Gates is still seen by many in the open source community as a tycoon due to how he mistreated his employees and industry alike while at the helm of Microsoft despite his extensive philanthropic ventures.

As such and rather than focusing on whether Microsoft is a monopoly, the question of whether or not Microsoft maintained an anti-competitive monopoly or if it has evolved into an ethical monopoly since its anti-trust cases in the US and EU is much more prudent and up for debate in my opinion. So, is Microsoft the anti-competitive type of monopoly that they have historically been or has it evolved into an ethical monopoly whose products naturally warrant their dominant presence in various markets?

At first glance, Microsoft looks like an entirely different company than it did in the 80s, 90s, and 2000s. They have Satya Nadella, a new super-woke CEO running the show now. They also have an authoritative cloud presence, especially in the office productivity market. They finally have the Surface as a viable hardware platform now. Microsoft is even a member of OIN while integrating Linux with Windows and is even writing more applications for Linux as we speak. Although you cannot step in the same stream twice, Microsoft is unrecognizable in many ways.

But while this is most definitely no longer your father’s Microsoft, it becomes evident upon further inspection that old habits are still dying hard there and that the systemic change purported by them may not be as substantial as they would like you to believe.

For example and just as society advances at the rate of one funeral at a time, corporations tend to advance at the rate of one retirement at a time and we would have to see a dramatic shift throughout their ranks in order to rationalize the amount of change that they’re suggesting, especially their executive ranks. Instead one can find the opposite of this happening when looking at Microsoft’s leadership. For example and even though Satya Nadella is their new CEO, he’s been with the company for 28 years. As part of Microsoft’s old guard, he was complicit in the behavior that Microsoft became notorious for and is by no means an injection of new insight and talent into the company.

But Nadella isn’t alone in this regard. With an average age of 51 and tenure of 20 years, Microsoft also depends on many of the same executives, managers, and employees that they counted on during their anti-trust days and Satya is in great company in this regard. On average, executives started at Microsoft in 1999 during the peak of their anti-trust trial with the US, clearly seeing no moral objection with their behavior at the time. Had they have spoken up about such ethical misgivings to Microsoft at the time, they most certainly would have been ran out of the company, if not the industry as a whole.

That said, keeping the same employees and execs around that maintained an evil monopoly doesn’t exactly favor the ethical monopoly argument, especially when they’re peddling the same software they’ve always been peddling. Certainly, their executives could have had a change of heart, but if the republican party has taught us nothing is that changes of heart become rare as we age. With an average age of 51 among its executives, their leadership isn’t exactly predisposed to being open-minded or receptive to the dramatic change proposed by Microsoft and it would be irrational to assume that all of them changed their moral framework and moved away from tactics that made them billions with little to no consequence. Usually, people have to lose everything in order for such behavioral changes to occur while being rewarded for such behavior obviously has the opposite effect.

Another notable hallmark of evil monopolies is that they eventually become guided almost exclusively by their legal team while their executives function mostly as their mouthpiece instead; a figurehead or puppet if you will. To no surprise, Nadella can often be found reading what is prepared for him by the same lawyers and PR people that Microsoft has always had, preparing for curtailed interviews well in advance while avoiding informal ones with the same fervor, and has so much plausible deniability baked into his role that he can’t even read his own email. All of which is consistent with a CEO being more of a figurehead than an actual decision maker or source of leadership as he is credited for being.

Further and with the influence of corporate legal teams in mind, we would also have to see significant movement among the ranks of their internal and external counsel in order to justify the type of systemic change that Microsoft is purporting. But rather than changing their legal team from a crack team optimized for beating back anti-trust allegations around the world, Microsoft kept many of the same lawyers on their payroll that bailed them out of their anti-trust woes both domestically and abroad.

They even promoted Brad Smith, the Jose Baez of anti-trust, to the president role of the company while continuing to retain Bill Gates Sr.’s firm KL Gates which represents other wholesome companies such as Goldman Sachs, Halliburton, Blackwater, Bank of America, and Wells Fargo among others. It simply doesn’t make sense to keep such people and firms around unless you’re behaving the same way that necessitated them in the first place.

On top of needing a new wave of non-figurehead executives, employees, and lawyers to justify the amount of change that Microsoft is purporting though, they would also need entirely new products to justify this as well. Despite what Microsoft’s creative financial reporting may have you believe, it is still dependent on the same old software offerings that it has always been dependent on; Windows, Office, and Server. Ironically, Microsoft hasn’t actually replaced the products that got them in trouble for having to shoehorn into position in the first place, seemingly because the same people are there trying to ride their accomplishments from 2003 into retirement. Sure, they have cloud solutions now, but these are merely a new means to the same old Microsoft end in most cases and could not stand on their own without being attached to their same old legacy solutions that they’re most famous for.

As was the case in the 90s and 200s, these same products also exist as case studies for the market phenomenon known as lock-in where products become so entrenched in an organization that they become too expensive to migrate to better solutions. Functioning more like a glass ceiling, Windows, Office, and Server products masterfully entrench themselves throughout organizations despite objectively better and more cost-effective solutions existing under most circumstances, placing said organizations at a competitive disadvantage when compared to organizations on modern architecture based on Apple or Linux.

Ironically, there are few if any objective measures (quality, long-term costs, ROI, etc) that would predict Microsoft products to exist as clear front-runners in any major market. But rather than building better products, Microsoft has chosen to dope them up so to speak by optimizing them for lock-in so as to prevent customers from leaving their platforms for better ones. As cursory as this may seem, it should be highlighted that Microsoft even encourages their partners to deploy their products in a sticky manner specifically for the purposes of further entrenching solutions and inflating switching costs and that I’m that not saying anything that they haven’t said themselves.

Although engineering products for lock-in isn’t illegal as of yet, the practice is frowned up and Microsoft is notorious among those who study IT finance and lock-in practices as it’s impossible to foster such a dynamic by accident. That said, having to resort to these tactics isn’t exactly a sign of having the best products or a correlate of an ethical monopoly. In fact, such tactics are anti-correlated with an ethical monopoly as one cannot optimize products for lock-in and utility simultaneously.

Further, products of this sort also requires the same partner network to prop them up and install them throughout industry as it’s always needed. Since Microsoft products can’t run on merit and have to resort to lock-in tactics in many instances, Microsoft also offers the greatest returns in the industry to ensure that their network of partner consultants give their products undue priority during the decision making process, creating a conflict of interest among IT professionals in the process.

Since Microsoft products also tend to generate the greatest amount of ownership costs over the lifetime of their products, they are also the most profitable ecosystem for sysadmins and consultants consultants alike to offer management and support solutions for. Although Microsoft only generates 150 billion or whatever a year in revenue, their products create a multi-trillion dollar maintenance and support burden spanning all of industry throughout the world which is eclipsed by the collective productivity loss incurred from using their products in the first place. This creates a massive body of work and is a massive conflict of interest that often goes overlooked, even by those conflicted.

As a result, this multi-trillion dollar market is serviced primarily by Microsoft partners, underfunded and change averse sysadmins, managed services providers and consultants. They benefit directly from the initial commission and management & support contracts spanning the product lifecycle with their clients and employers. In effect though and despite their prominence, Microsoft products and the people that perpetuate them are little more than an idiot tax in comparison to their competition.

Besides losing margin to a partner network and generating an undue strain on industry as a whole amounting to trillions of dollars, another aforementioned drawback to optimizing products for lock-in is that they don’t fare so well in free markets beyond the influence of their partner network that favor quality and value. Their products also tend to flounder miserably in free markets uninfluenced by Microsoft’s partner network; this is by no means a coincidence.

The operational skullduggery required to build products like this is immense and isn’t something that you can easily or rapidly pivot from; it creates a big ship to steer if you will. As such, you can’t just tell all of your employees to engineer products that suck and are optimized for lock-in; engineers won’t do that. Because Microsoft can’t just turn this tendency off like a light or a feature, it’s ingrained into their being and there are countless examples of their attempts at innovation floundering miserably in free markets because they themselves are optimized for lock-in rather than quality. To name a few though, Windows Phone, Health Band, retail stores, Mixer, and the looming failure of Hololens and Surface come to mind; all of which are/were cement feathered birds in viable free markets.

Another consequence of engineering a money machine in such a manner is that as products become more defective, consequently less desirable, and prone to lock-in they also become incredibly expensive to market than they would otherwise be. To no surprise, Microsoft spends more on marketing and sales than R&D by a rather large margin, $18.2 billion compared to $16.9 billion, reducing them to more of a marketing firm with a software problem when measured by their expenditures. And this is still trending upwards.

One last habit of evil monopolies is that they also tend to acquire new products rather than innovating internally. Try as they might, monopolies just don’t innovate well and they have to make desperate acquisitions in order to grow; kind of like the borg. However, not all acquisitions can be winners and there will also be a steady stream of write-downs from failed acquisitions due to this approach; some are even acquired just to squander.

While Microsoft has had many solid acquisitions, they have also had a host of questionable acquisitions just the same. In fact, Microsoft’s dependence on acquisitions is why investors and media make such big deals out of Microsoft’s various write-downs over the years while giving them a pass on their lack of innovation as it is still a minor component of their business model. Meanwhile, you never hear investors complaining about Microsoft’s lack of innovation because that’s never really been their MO.

In summary, Microsoft has indeed changed over the past few decades. But in a world where you can never step foot in the same river twice, even a stagnating company can make a completely rational claim towards change. When also considering that Microsoft still has many of the same executives, employees, lawyers, PR people, investors, products, engineering practices, marketing over-dependence, and distribution channels in place that made them the ruthless money machine that they have become notorious for being though, it’s difficult to see how any of this has enabled them to move away from functioning as an anti-competitive monopoly to that of an ethical monopoly instead.

Combined with their clear lack of innovation, consequent over-dependence on acquisitions and shady practices, and countless blunders in free markets, it becomes painfully obvious that Microsoft is still an anti-competitive monopoly to this day; at least according to Slack. Instead and since Microsoft’s anti-competitive behavior is so blatant and flagrant, it is my opinion that discourse should instead focus on how and why they are still allowed to operate so flagrantly in this day and age rather than focusing on whether or not a monopoly is a monopoly.

One might suggest that if Microsoft were indeed an anti-competitive monopoly that we could depend on the SEC and DOJ to keep them in check. But countless monopolies and the lawlessness associated with them have sprung up under their watchful eye in other industries; wall street, big pharmaceuticals, big banks, big agriculture, and big energy to name a few. That said, suggesting regulatory competence outside of the realm of theatrics is just as laughable as suggesting that Microsoft isn’t a monopoly or that menial fines will curb anti-competitive behavior that result in hundreds of billions of dollars in anual revenue. But I digress and this is ultimately a discussion for another day.

Engineer, Farmer, and Hellion

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Mitchel Lewis

Mitchel Lewis

Engineer, Farmer, and Hellion

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