Microsoft: Monopoly or Oligopoly?


Webster's Dictionary defines a monopoly as "a company that has exclusive control of a commodity or service that makes possible the manipulation of prices." In economic terms, a monopoly is a company where the firm and the industry are the same; the company has a unique product where there are no close substitutes, and it is a price maker because it has considerable control over price. However, entry into this type of economic system is blocked.

Some of the Entry Barriers into a monopoly include high start-up fees, many legal barriers, patents are only good for seventeen years, and some companies need a monopoly license. These licenses allow the company to act as a monopoly in certain areas granted by the government. There are two types of monopolies: Illegal monopolies and legal monopolies. Good business skills and the ability to be very productive brings about illegal Monopolies.

Legal Monopolies are industries that had competition been around would have put them out of business. They are industries like Gas, Electricity, Public Water Works, etc.1

Conversely, Oligopolies are "a market situation in which prices and other factors are controlled by a few sellers," as defined by Webster's Dictionary. In economic terms, an oligopoly is a market in which a few firms sell either similar or different products, where entry is difficult, the firm has limited control over product price because of Mutual interdependence, and there is non-price competition.1

Some of the barriers to an oligopoly include high start-up fees because of economies of scale, non-price competition like advertising, and patents, which are only good for seventeen years. Other problems with oligopolies are that if you raise the price on your product and your competitors don't you lose out and if you lower the price on your product they will too and everyone looses out. There are also Illegal things to Oligopolies. Collusive Oligopolies are illegal because then they act as a monopoly. A collusive oligopoly is when the heads of the big firms meet and decide that they are all going to raise/lower their price by some amount.1

Bill Gates, Co-Founder of Microsoft, was born to William and Mary Gates on October 28, 1955. He was from a well to-do family, his father was a respected Lawyer, and his mother was a Schoolteacher. Bill liked Science and showed a particularly strong aptitude for math. He liked to read Biographies of famous men such as Franklin D. Roosevelt, Napoleon, and other great inventors. He believed himself to be more of a scientist then a philosopher.

Academically Bill was a gifted student, always at the top of his class. He scored a perfect 800 on the math portion of the SAT and his English teachers said he had a remarkable memory. He could memorize long paragraphs in one reading. At age 13 Bill used a computer for the first time when he discovered a passion for computers. In 1972, Bill and his Friend Paul Allen open their first company, "The Traf-O-Data", the main purpose was to build a computer with a program to analyze traffic data. During the 1972-73 years, the company earned $20,000 for delivering traffic analysis to states.

In 1972's presidential election of McGovern vs. Nixon Bill bought 5,000 McGovern Badges for 3 cents each and when McGovern dropped out he sold them for $20.25 stating that they were a collectors item. In 1973 Bill entered Harvard Law School where he studied to be a Lawyer and quitting 3 years into his studies.

In 1982 Bill Gates appeared on the cover of Money Magazine. In April of 1984 Time Magazine features Bill Gates on their cover.

In July 1975, Bill Gates (21 years old) and Paul Allen (23 years old) create Micro-Soft (Microcomputer Software) in Albuquerque, New Mexico. The goal of Microsoft was to develop software for the Altair (the first microcomputer) and other microcomputers soon to appear on the market. By 1976 the company had six programmers on its staff and was making software for at least four major companies. By 1978 Microsoft Spread to Japan. In November 6, 1980 Microsoft signed a contract to develop the operating system and programming languages for IBM's first personal computer. By July 1981 MS-DOS (Microsoft Disk Operating System) was ready. A year later Microsoft was developing the operating system to almost all the leading computer manufacturers. By June of 1986 half of Microsoft's revenues ($60.9 million) came from MS-DOS. Ninety-nine percent of computers at the time used MS-DOS.

In August of 1982 Microsoft entered the Application Market by introducing a spreadsheet program called Multiplan to compete with SuperCalc and VisiCalc. The strategy was that SuperCalc and VisiCalc only ran on one platform but if Microsoft can adapt their program to all the platforms, they could make money. In January of 1983 InfoWorld chose Microsoft's Multiplan as software of the year. In April of 1983 Microsoft introduces Microsoft Word, a word processing program that simulated a typewriter, and the idea of a mouse. In November of 1983 Microsoft introduces Microsoft Windows. By now Microsoft has grown to about 383 employees. In May of 1984 Microsoft introduces Microsoft Project, a program for managing and tracking projects. By June of 1984 Microsoft becomes the first software publisher to breach the $100 million annual sales figure. By July of 1984 Microsoft employs 608 employees. July of 1985 Microsoft numbers 910 employees and announces a 140 million dollars in fiscal sales. March 1986, Microsoft joins the stock market and Gates becomes the world's youngest Billionaire. Microsoft's 1989 fiscal year revenues reach $803.5 million with profits of $170.5 million of which 55% of the earning came from outside the United States. 1990, Microsoft is the first company to achieve over $1 billion dollars in sales.

At this time Microsoft employs 5,200 employees through out the world. Also in 1990 the FTC (Federal Trade Commission) began investigating Microsoft for alleged anti-competitive practices, but was unable to reach a decision and dropped the case. In April 1992 Microsoft releases Windows version 3.10 and has a fiscal year earnings of about $2.7 billion. In July of 1993 Microsoft released Windows NT, a version of windows for the business market to compete with Novell, and ends its fiscal year at $3.7 billion in fiscal earnings.

In August 1995 Windows 95 and The Microsoft Network, an Internet service provider was introduced ending the year with around $5.9 billion in fiscal earnings. In 1994 after further probing of Microsoft's practices by the United States Justice Department an agreement was reached that called for Microsoft's Distribution methods of its operating system to computer manufacturers to change. Unfortunately, both Microsoft and the Justice Department appealed this decision. In May of 1995 Microsoft announced an arrangement with NBC (National Broadcasting Company) to develop interactive television.

In 1996 fiscal earnings went up to $8.6 billion and in 1998 they were $14.48 billion in Net revenue and $4.49 billion in Net income. In 1998 Microsoft launched Windows 98 and at the time has over 28 thousand people employed worldwide in over 57 countries worldwide.

According to a research done by PC WORLD Magazine, a computer information magazine, in 1997 there was some type of a Microsoft operating system on 88.6% of all computers in the world. This magazine also predicts that by 2001 Microsoft's operating systems will be on 91.8% of all computers worldwide. If you were to go out today to purchase Microsoft Windows 98 the price for a full version of their software would be around $90 for a one user license of the software, $60 for Microsoft Windows 95, $120 for Microsoft Windows NT 4.0 Server edition, and $85 for Microsoft Windows NT Workstation edition. As of September of 1998 Microsoft stock was at around $134 per share. Now it has dropped to around $76 per share.

Microsoft Corporation is now facing anti-trust cases against a few like Netscape, AOL, Sun Microsystems, Apple Computers, Compaq, Intel, and Intuit. Professor at Massachusetts Institute of Technology, Franklin Fisher, told federal judge Thomas Penfield Jackson that Microsoft had maintained a 95% market share of the PC operating systems sold thanks to a variety of anti-competitive practices. In a 100 page written testimony Fisher stated all kind of anti-competitive accusations against Microsoft including a remark about the extent of windows into the browser market in a way that killed off all competition. Microsoft has one thing to say according to Fisher, "we saw a threat to windows so we acted to our best interests." Microsoft, in the Internet market actually had no chance in the beginning.

In 1995 Bill Gates decided to enter the Internet Browser Market. The only problem is that Netscape at the time with its Netscape Navigator software owned 82% of the market. Nevertheless, Microsoft did enter the market and struggled through playing catch up when now it is the one holding 70-80% of the market. Some people have questioned this dramatic change in a three to four year span; from owning 5-7% of the market to owning 70-80%. Even the Justice Department had suspicions enough that it took Microsoft to court about it. As for the rest of the companies they have anti-trust cases with Microsoft as well. For example, America Online (AOL) it now says that it was forced to use Microsoft Internet Explorer as its browser or else Microsoft would not put their software on the installation CD of Windows 95/98. Then there is Apple Computers, makers of QuickTime Movie Player, they were bribed by Microsoft to stop development of their software so that Microsoft Media Player would only have one competitor Real Networks, maker of Real Audio Player. Apple Computers was offered $150 million back when they were on the way to bankruptcy when everyone thought Mr. Gates was doing it for a tax right off he had alternative motives. Next comes Compaq, maker of inexpensive computers for the home user, they removed Internet Explorer from the Windows 95/98 software and replaced it with Netscape Navigator and Microsoft threatened to take away its license agreement.

Now we have Sun Microsystems, inventor of the original Java, at one point Java was the future because it could run on any machine no matter what it was running which threatened the Microsoft Windows monopoly. To counter Microsoft took Sun's Java and changed it creating Microsoft Java which only ran on Microsoft Windows and also forced Apple to adopt it as another part of the $150 million deal. As for Intuit, maker of Quicken, a banking program, they refused a merger with Microsoft and its banking program, Microsoft Money.

Therefore, Microsoft decided to just destroy them or as the phrase goes if you can't buy them bury them. Microsoft when making their next version made it almost impossible to convert a Microsoft Money account to a Quicken account so that you will not always transfer everything. This of course discouraged clients from switching to Quicken.

In my opinion, Microsoft will go threw many anti-trust cases in the next couple of years. It will end up being split but by then it really would not matter because Bill Gates and his company would already own close to 99% of the market where no one will be able to stop him.

Work Cited
Ichbiah, Daniel, The making of Microsoft: how Bill Gates and his team created the world's most successful software company. California: Prima Pub, 1991.
Edstrom, Jennifer and Marlin Eller, Barbarians Led by Bill Gates. New York: Henry Holt and Company, 1998.
"PC World - Cover Story : Windows Marches On: OS Market Share." 1998.
"Fisher: M'soft Practices Anti-Competitive." 5 Jan.1999.
"Microsoft - PressPass." January, 1999. "Microsoft-Corporation-Antitrust." CD-ROM Readers Guide FT Mini 1/95 -11/98.

This issue is dedicated to contemporary Turkish artist Erol AKYAVA┼×.
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Winter 2001
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