The Lingering Costs of the Antitrust Crusade Against Microsoft: Tool Opt-Ins v. Metcalfe’s Law

Great piece by ZDNet’s Edd Bott on How a decade of antitrust oversight has changed your PC. Here are his four categories of costs:

1. Thanks for all the crapware, Judge
2. Competition among browsers? It took a long, long time
3. You’re less safe online.
4. You want software with that OS? Go download it.

He explains his points brilliantly, so it’s well worth reading the article. On point #3. Bott notes:

Microsoft Security Essentials is available to any Windows PC as a free download, but it’s still not available as part of Windows itself. The Windows 7 Action Center will warn you if you don’t have antivirus software installed, but clicking the Find a Program Online button takes you to this page, where Microsoft’s free offering is one of 23 options, most of which are paid products….

I think the mere threat of an antitrust complaint from a big opponent like Symantec or McAfee has been enough to make Microsoft shy away from doing what is clearly in its customers’ best interests. Although Microsoft Security Essentials is free, it’s not included with Windows. And ironically, even though Microsoft’s offering is free and gets excellent reviews, you’re unlikely to find it on a new PC. Why? Because those competitors who sell antivirus software actually pay PC makers to preload their products, banking, literally, on the fact that a significant percentage of them will pay for an annual subscription.

It’s worth pointing out that there are three possible costs to consumers here:

1. The hassle of “forced choice”—of being hounded with pop-up reminders about installing an antivirus program, and then having to go through the initial set-up process to choose and install an antivirus program.
2. The monetary costs to some consumers who end up paying for an annual subscription to a product that they might have found unnecessary if Microsoft Security Essentials had come pre-loaded or if they had simply realized that it offered equivalent functionality for free.
3. Most notably, the huge negative externality created by the possibility that some users may go without antivirus protection, either because they fail to make an initial choice (and ignore pop-up reminders to do so) or because they eventually fail to renew (or to update) a subscription to some other antivirus program.  Unprotected users are a danger not just to themselves, but to all other Internet users because they are computers can be turned into “botnets” used for criminal purposes, like crowd sourcing encryption cracking among machines whose owners don’t even realize their computers have been zombified.

Similarly, Bott hints at, but does not explain, another cost to users of Microsoft’s persecution:

Microsoft is about to release an impressive update to its Windows Live Essentials program, but none of its components are included with Windows…. The good news for anyone planning to buy a Windows PC is that Microsoft is likely to have considerable success getting not just the Windows Live Essentials package but also its Office Starter 2010 onto new PCs. With those pieces preinstalled, you’ll have a pretty decent collection of consumer software, good enough to go head to head with a Mac running iLife. Because Apple isn’t a convicted monopolist, though, they’re free to bundle all those products on the same hardware without any fear.

Bott focuses on how unfair this dual standard is for Microsoft, but misses the hidden cost to consumers here of forcing the company to make these tools available only on an opt in basis: Not preloading Windows Live in Windows reduces the value of those tools dramatically for users even after they themselves choose to install them. That’s because, per Metcalfe’s law, the value of social tools like Windows Live Messenger is proportional to the square of the number of connected users of the system. In other words, an instant messaging program is  hugely more valuable if you know that most people use it. Think about the utility of messaging on Facebook or any other social networking service that allow you to reach many or perhaps even most but certainly not all of your contacts versus, say, email, which is still the ubiquitous medium of choice (although among younger users, Facebook may be taking that place).

To pick another example, Windows Live will soon support access to Office Web Apps, a scaled-down version of Microsoft Office. That sounds hugely useful, especially because future versions will allow simultaneous editing of documents the way that Google Docs currently does. But the utility of this tool depends heavily on the percentage of the population that will actually be able to receive or open an invitation to share and collaborate on a document if you send one. Without approaching something like ubiquity, most users will continue e-mailing documents back and forth as attachments—a positively medieval way to collabrate. I have made similar points about the value to users of social networking sites increasing the value of their services to users by, such as:

• Buzz auto-suggesting followers for new users so that more people will use the service and every Buzz status update will be read by more users, or
• Facebook automatically converting interests that users use to type out in long form lists on their profile into “Interest” pages that can be clicked on as users browse through the site, instantly populating, for example the page for the movie “GATTACA” with everyone who had previously listed that movie under their favorites.

Anyway, Bott’s article offers a great sampling of the long-term costs of antitrust meddling in high-tech markets. I hope policymakers, antitrust enforcers, Microsoft and its various competitors learn the right lesson from the sad story of Microsoft’s antitrust persecution: Even well-intentioned antitrust interventions wind up hurting consumers in ways that are difficult to imagine at the outset. So if we can’t muster the collective patience (some might say cojones) to sit back and let disruptive technological innovation deal with such problems instead of resorting to government industrial planning through antitrust, we should at least expect anyone demanding antitrust intervention in digital markets to make a very compelling case about the long-term costs and benefits before we risk fighting another pointless crusade against the next Microsoft—whether that be Microsoft itself or Google or Apple or Facebook or Amazon or the new kid on the block we’ll kick ourselves for not having seen coming in just a few years.

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