Good morning, and welcome to our hearing today on Market Power and Structural Change in the Software Industry. This hearing is the second in a series of hearings I plan to have into Competition, Innovation and Public Policy in the Digital Age. I hope that today’s hearing in particular offers an opportunity for industry leaders to inform the Committee, first hand, about some of the more important policy issues affecting the so-called “Digital Revolution” which promises to fundamentally change our economy, businesses, and daily lives. At the outset, I would like to thank our distinguished panel of witnesses for taking the time to appear with us today.

There are, to be sure, a range of issues that we will explore today; and, as we go forward, I think there is a single, basic question underlying our inquiry: is there a danger that monopoly power is being, or could be, used to stifle innovation in the U.S. software industry, today, and, perhaps more importantly, looking forward?

While this examination involves a range of different issues and companies, any credible and thorough review inescapably involves the industry leader. I want to make clear at the outset that neither this hearing, nor any aspect of this Committee’s inquiry into these matters, are in any way, shape or form intended or designed to serve, as some have suggested, as an arena for criticizing or attacking any single company.

There are some hard questions here, and, for that matter, some questions that, in my view, need to be answered. And I am delighted that Mr. Gates -- whom, as he knows, I genuinely admire and respect -- is here to present his views. Frankly, I believe his views are at least as important as anyone else’s. For the reality is that the future of innovation in the software industry depends in large part on the power, practices, and arguably the success, of Microsoft.

Mr. Gates, I know you will protest that Microsoft’s sales make up just a small fraction of the overall computing, or for that matter software industry’s revenues; but, the reality is that Microsoft has been, and will continue to be, front and center of the software industry and the digital revolution generally. This is relevant to our hearing today for two reasons.

On the one hand, Microsoft has been one of the most important success stories in the history of the U.S. economy. Not only has it created a tremendous amount of wealth both within and outside of Microsoft, but it has also established industry standards and thereby played a critical role in spurring innovation across the spectrum of software applications. This cycle has, many agree, driven much of the growth in the personal computer industry itself. PC users, hi-tech employees, and shareholders alike owe much of their successes to the success of Microsoft.

By the same token, Microsoft’s breathtaking growth -- not just in financial terms, but also in terms of the scope and market power of its business -- has, for many, raised serious questions about the future of competition and innovation in the software industry. One software executive, probably responding in part to the bruises he had received in the marketplace, has said that “[t]he question of what to do about Microsoft is going to be a central public policy issue for the next 20 years.”

Whether or not this overstates the matter, many respected industry figures and observers believe that with Microsoft’s tremendous success has come such a vast amount of leverage and power over the software industry, and the personal computing industry generally, that Microsoft can literally dictate which markets it will control and which it will not. Perhaps more importantly, some believe that this power is in the process of expanding significantly as Microsoft extends its control into Internet related markets. More is at stake now than ever.

It is worth emphasizing that there is, in my view at least, absolutely nothing wrong with a company enjoying tremendous growth and amassing tremendous wealth and market power. In a competitive business environment, there will be winners and losers. Indeed, Microsoft will rightly point out that two of the witnesses we will hear from today -- Mr. Barksdale, CEO of Netscape, and Mr. McNealy, CEO of Sun Microsystems -- are his direct competitors. And Microsoft will, no doubt, rightly point out that our antitrust laws are designed to protect consumers, not competitors.

But our hearing today is not about protecting competitors. Nor is it simply about whether monopoly power exists in the software industry. Rather, we are here to examine how software industry market power is deployed, and with what consequences.

Is one firm able to exploit its dominant position to such an extent that it can eliminate new sources of competition?

Is one firm able to use its current power to prevent the successful establishment of new technologies that drive innovation forward? Where this is the case, where a single firm both is able to exploit its market power to prevent competition and demonstrates an avid willingness to do so, there may come a point where potential innovators will be cut off before they even start, where people choose to focus their time and energies to compete elsewhere, and where we come to depend on a single firm for innovation.

This is not a welcome prospect.

Even the mere possibility that we could reach such a point with respect to the most important sector of the U.S. economy merits our attention. Whether we have yet approached such a situation is far from clear, but that we should be examining the question to make sure we never do reach it is, I believe, absolutely certain. To fail to do so would be a failure to live up to our responsibilities as holders of the public trust.

In closing, I would like to extend my thanks to my good friend from Vermont, our Ranking Member, and to the Chairman and Ranking Member of the Antitrust Subcommittee, who all have been working together with me in a dedicated, bipartisan fashion, and whose insights, questions, critiques and support have greatly contributed to our joint effort to begin to come to grips with these terribly difficult but important questions.