Ladies & Gentlemen, Members of the Committee:
I come here in a somewhat different capacity than my colleagues from the computer industry. I am an investor in small companies, in my full-time job as a partner with a venture capital firm. I am a long-time commentator on and analyst of the computer industry. And I am an individual who has used computers aggressively to benefit my professional and personal lives.
I am a citizen of the United States and proud of the record of success that our economic and governmental system has created, particularly in being inclusive of many cultures and many points of view and in being successful at providing a framework for individual merit and accomplishment. I am proud to have participated over the past 20 years in the remarkable innovation and growth of the computer industry, and believe that it is a key piece of evidence demonstrating the value of the American system.
I am constantly amazed by what the software industry has delivered to me and to people like me. I am amazed that I can use computers to communicate, produce, calculate, entertain, research, and discover in ways that were not available to, much contemplated by, my parents and their generation. I have been personally empowered by the technology developed by the software industry and am thankful to have lived in the time when this technology became available.
I have been observing Microsoft Corp.’s role in the technology industry for the past 15 years and have learned to admire and have respect for the company’s approach to business and to its customers. I do not believe that Microsoft Corp. has knowingly violated the rules of engagement in our commercial sector in order to gain its current position of tremendous power and influence in the technology industry.
But it has, through aggressive business practices, through adherence to a consistent set of principles about what is good for its customers, and through a long-running series of strategic errors made by its competitors, managed to gain a monopoly position in the market for personal-computer operating system software. I believe that it is willing and capable of using that market position to both protect its monopoly in operating system software as well as to extend its market position in adjacent markets for applications software and for programming tools.
I believe strongly that it is a legitimate and proper activity for this committee and for other elements of our federal government to review the power that Microsoft exercises in the technology industry and to develop a consistent and predictable policy regarding that power, whether that policy is to either remain completely uninvolved in overseeing Microsoft business practices, at one end, or to regulate its practices, at the other end, or another position somewhere in between those two extremes.
The purview of this hearing includes the structure of the entire software industry and is intended to investigate issues regarding competition in World Wide Web browsers and new programming tools and platforms. But I have focused my opening remarks on the existing markets for operating system software.
I believe that the operating system business is divided in three different parts: software for operating personal computers; software for operating networked servers; and software embedded in consumer devices.
I believe that Microsoft has an effective monopoly over the sale of operating system software to independent manufacturers of personal computers. Only one manufacturer is currently able to produce and market a full range of personal computers that do not run Microsoft’s operating system software and that company, Apple Computer Inc., is widely considered to be in a weakening positioning with a share of the market for personal computers estimated at less than 3% worldwide and declining. Every other manufacturer of personal computers must buy its operating system software from Microsoft and has no other choice.
I believe that Microsoft does not have a monopoly over the sale of network-server operating system software to corporations, but that it is rapidly increasing its share of that market. It is competing in that marketplace with substantial corporations such as Sun Microsystems, IBM Corp., Hewlett Packard, and so forth. I believe that Microsoft has recently become the single largest seller of such operating systems with its Windows NT product, and I believe it is reasonable to expect Microsoft to eventually sell more than half of the server operating systems in the world within the next five years.
I believe that Microsoft does not have a monopoly over the sale of “embedded” operating system software for other devices such as consumer electronic products, palm-sized organizers, television set-top boxes, and so forth and that it will need to adjust its strategy and product designs to gain significant share in that market. The company has demonstrated the ability to do precisely that in other markets in the past, and it is reasonable to expect Microsoft to acquire a significant and measurable share of the market for embedded operating systems in the next 10 to 20 years.
Given this perspective, I believe that it is a legitimate and proper activity for this committee to review Microsoft’s role in the software industry. I believe that it is not in the best interest of our society to have a single commercial organization – no matter how honorable or legitimate or well-meaning – to have control over such a crucial interface as that between the operating system and the software that depends on the operating system, either to control hardware or applications software. And I believe that Microsoft is now in a position to become the sole vendor of operating-system software for digital computing devices worldwide within the next 10 to 20 years.
At the same time, I believe that it is dangerous and potentially disastrous to invite governmental regulation of the interfaces between different elements of the technology that we are adopting at such a remarkable rate. I have some personal history in this regard: When my mother heard that I had been invited to testify before this committee, she recalled that she had traveled with my uncle when he was called to testify before the Senate Un-American Activities Committee, chaired by Senator Joseph McCarthy in the early 1950s. My uncle and my father made their personal reputations in part by challenging that destructive demagoguery.
I do not compare the activities of this committee to that shameful episode nearly 50 years ago. But I grew up in a time when the government proved itself incapable of judicious or expeditious regulation of the economy as a whole or even of individual industries. And I learned to distrust a centralized government’s ability to regulate itself or to act in the best interests of its constituency over the long term.
But the question remains: If Microsoft is a monopoly and we decide that we do not want an unregulated monopoly controlling these important interfaces, what can we do about it within the constraints of our system and culture of mostly unrestrained competition and entrepreneurship?
I do not believe that the solution to this problem is in existing precedents in the area of anti-trust legislation and law. Existing anti-trust legislation was designed to respond to structural changes caused by the industrial revolution 100 years ago: large-scale manufacturing, railroads, oil & gas exploration, and so forth. The issue we face here is as new as the technologies that underlie it. The personal computer has challenged corporations’ ability to control computing resources centrally, empowering individuals and breaking down hierarchies. Communications technologies have made it nearly impossible for central governments to control access to information. The Internet and the World Wide Web have suddenly removed the structural costs of gaining access to and managing information in a fashion unprecedented in human experience.
I believe that the solution to this problem lies in finding a way to level the playing the field without regulating the activity of any of the players on that field. I believe that the solution will likely be a combination of the model adopted for the Internet, where the players agree to play by a common set of rules, and that adopted for the telephone industries or air travel industries, where the players agree to some form of oversight by one or more federal agencies. I suspect that the federal government must ultimately play a role. If that it true, I hope that that role is the most minimal one possible and that the government will exceed my own, very modest personal expectations.
Thank you for the opportunity to share these thoughts with you and to participate in this hearing.