Microsoft Dominance Hurts Consumers

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October 09, 1998 (5:20 PM EDT)

By Mary Mosquera,

Microsoft's anti-competitive practices and prices have cost consumers hundreds of millions of dollars in excess charges, two public-interest groups said in a new report.

As computer-component costs have dropped, the operating system, which previously represented 3 percent of the total computer package's price, now gobbles up as much as 13 percent of the total package as Microsoft tightens its monopoly, according to "The Consumer Case Against Microsoft."

"The terms and conditions that Microsoft has imposed on suppliers in neighboring markets are part of a business model that results in overcharging for software, denial of consumer choice, and stifled innovation," according to the Consumer Federation of America and the Media Access Project.

Two other groups, the Consumers Union and the Consumer Project on Technology, joined them in urging Congress on Wednesday to scrutinize competition in the software industry and, if necessary, consider legislation.

The Justice Department slapped Microsoft with an antitrust suit in May, saying it maintains an OS monopoly illegally and uses that dominance to control the Internet browser market. The trial is set to begin Oct. 19 in Washington, D.C.

Microsoft's dominance in browsers is dangerous because the Internet is an engine for economic growth and a new means of expression, said Andrew Schwartzman, president of the Media Access Project. "No government -- and no corporation -- should be able to control how the Internet grows, or to decide whose content or icon gets favored placement," he said.

Left unchecked, Microsoft's dominance of OSes and software applications may increase the cost of Internet access and pre-empt new ways to enhance democracy and creativity, Schwartzman said.

Microsoft (company profile) wants to control Internet standards and influence where users go on the Internet, said James Love, director of the Consumer Project on Technology.

Microsoft uses more than a dozen anti-competitive practices, the report says. For example, the Redmond, Wash.-based company hides higher prices by bundling software in computers, forcing consumers to buy more software than they want. Microsoft doubled its prices after securing a monopoly in the OS market, the report says, and has kept those prices high while prices for other computer parts, like chips, have declined.

As the cost of the OS accounts for more and more of the total computer package, Microsoft's profit margins have accelerated to five times higher than the national company average, the report says.

Meanwhile, an industry group, the Technology Access Action Coalition (TAAC), said the government may be overregulating the high-tech industry, reflected in the antitrust suit against Microsoft.

The Internet should not be regulated like securities or petroleum, according to TAAC's chairman, Jay Amato. "Clearly, the old rules, used to regulate things you can touch, do not apply," he said.

In a TAAC survey conducted last month of 1,000 U.S. households, two-thirds of respondents said the best way to regulate the technology industry is through market forces, and 83 percent said the government's lawsuit against Microsoft was a poor investment of tax money.