WEBVTT - Tech's Antitrust Problem 0:00:04.400 --> 0:00:07.800 Welcome to Tech Stuff, a production from I Heart Radio. 0:00:12.080 --> 0:00:14.800 Hey there, and welcome to tech Stuff. I'm your host, 0:00:14.960 --> 0:00:17.920 Jonathan Strickland. I'm an executive producer with I Heart Radio 0:00:17.960 --> 0:00:20.760 and a love of all things tech. And in the 0:00:20.880 --> 0:00:24.000 last few years, there have been an increasing number of 0:00:24.000 --> 0:00:28.840 discussions around the world really regarding the reach and practices 0:00:29.480 --> 0:00:34.040 of certain big tech companies, you know, the ones like 0:00:34.280 --> 0:00:39.199 Google and Facebook and Amazon Apple, And this has been 0:00:39.280 --> 0:00:42.960 leading to allegations that companies like these are using their 0:00:43.000 --> 0:00:48.240 size and influence to suppress competition from others. And anti 0:00:48.240 --> 0:00:53.159 competitiveness is a big no no, particularly for large companies, 0:00:53.200 --> 0:00:56.080 and it puts these companies in danger of being deemed 0:00:56.160 --> 0:01:01.160 a monopoly, which is an even bigger no no. So 0:01:01.880 --> 0:01:04.479 Google and Facebook have been on alert for a few 0:01:04.560 --> 0:01:09.680 years now, but more so and increasingly so in recent years. 0:01:10.240 --> 0:01:13.600 And today I thought I would talk about antitrust issues, 0:01:14.040 --> 0:01:17.160 explain where those ideas kind of come from, talk a 0:01:17.240 --> 0:01:21.000 bit about an earlier case involving Microsoft from a couple 0:01:21.080 --> 0:01:24.200 of decades ago, and then chat a bit about the 0:01:24.240 --> 0:01:27.480 current situation. So this episode is less about the actual 0:01:27.560 --> 0:01:32.280 technology and more about how corporations can dominate an industry. 0:01:32.400 --> 0:01:37.200 So thoroughly that they become the center of scrutiny. So 0:01:37.280 --> 0:01:41.759 to start off, let's learn about monopolies and antitrust laws. 0:01:41.880 --> 0:01:45.320 And I'll warn you learning about antitrust laws on its 0:01:45.319 --> 0:01:48.400 own is not enough, because interpretations of the law have 0:01:48.520 --> 0:01:51.600 shifted over the more than a century since they were 0:01:51.640 --> 0:01:55.240 first drafted in the United States. The courts might interpret 0:01:55.360 --> 0:01:59.240 laws one way in one generation and a very different 0:01:59.240 --> 0:02:02.760 way later on, which makes this a lot less straightforward 0:02:02.800 --> 0:02:06.280 of a topic than technology tends to be. Before I 0:02:06.360 --> 0:02:09.440 dive in too far into this whole thing, I have 0:02:09.520 --> 0:02:12.560 to give a shout out to Laura Phillips Sawyer, who 0:02:12.560 --> 0:02:17.520 wrote a great paper titled US Antitrust Policy in Historical 0:02:17.600 --> 0:02:21.480 Perspective for the Harvard Business School. The paper is available 0:02:21.520 --> 0:02:24.520 to read for free online and it goes into great 0:02:24.560 --> 0:02:30.200 detail about how antitrust legislation and its enforcement have evolved 0:02:30.240 --> 0:02:33.520 in the United States over the years. I highly recommend it, 0:02:33.720 --> 0:02:36.200 and most of what I have to say in this 0:02:36.360 --> 0:02:39.320 section of the episode is kind of a high level 0:02:39.480 --> 0:02:44.040 overview of what Sawyer has to say. Our story begins 0:02:44.280 --> 0:02:46.880 in the United States in the latter half of the 0:02:46.960 --> 0:02:51.280 nineteenth century. Throughout the eighteen hundreds. Certain industries in the 0:02:51.400 --> 0:02:54.840 US came to be dominated by a small handful of 0:02:54.919 --> 0:03:00.239 increasingly large businesses. Some of these businesses banded to other 0:03:00.400 --> 0:03:05.880 with one another, combining their interests into a single entity. Now, 0:03:05.919 --> 0:03:10.359 these entities were called trusts. The idea is that multiple 0:03:10.440 --> 0:03:13.720 property owners create a trust in an effort to build 0:03:13.760 --> 0:03:18.000 a unified management structure. The owners appoint one or more 0:03:18.120 --> 0:03:22.560 trustees to serve as a manager of the owner's interests, 0:03:22.600 --> 0:03:26.520 and each owner retains shares in the trust. From a 0:03:26.560 --> 0:03:31.240 structural standpoint, a trust could either be a single unified company, 0:03:31.440 --> 0:03:34.040 or it could be set up as a conglomeration of 0:03:34.120 --> 0:03:38.680 multiple firms or even a cartel. Now, on the face 0:03:38.760 --> 0:03:42.160 of it, there's not a lot here that immediately jumps 0:03:42.200 --> 0:03:46.720 out as being an enormous problem. Just at at casual glance, 0:03:46.720 --> 0:03:51.160 we're talking mainly about the organizational and leadership structure of 0:03:51.240 --> 0:03:55.720 a business. But some particularly enterprising business owners were forming 0:03:55.760 --> 0:03:59.880 trusts in an effort to dominate an industry and fix 0:04:00.120 --> 0:04:04.120 prices without fear of any competition. Because they were already 0:04:04.200 --> 0:04:08.880 so big they could out compete everyone else. They could 0:04:09.120 --> 0:04:12.360 suppress competition. There will be no external forces in the 0:04:12.360 --> 0:04:16.560 market to affect the business owner's decisions, and so they 0:04:16.560 --> 0:04:21.839 could practice predatory and unethical price fixing strategies with impunity. Now, 0:04:21.880 --> 0:04:25.600 to use a simple analogy, let's say you grow up 0:04:25.640 --> 0:04:29.359 in a small town and it has a single candy 0:04:29.440 --> 0:04:32.840 shop in the entire town. There's no other place in 0:04:32.960 --> 0:04:36.960 town that sells candy. The next closest candy store is 0:04:37.560 --> 0:04:40.160 a hundred miles away. So if you want candy, you 0:04:40.279 --> 0:04:43.640 got one place you can go to. The candy shop owner, 0:04:44.360 --> 0:04:47.960 let's call him slug Worth, realizes that he has a 0:04:48.000 --> 0:04:52.240 monopoly on candies in this town, and so he marks 0:04:52.320 --> 0:04:55.080 up the price of every candy to five times what 0:04:55.200 --> 0:04:59.160 it would normally cost in a competitive market. But there's 0:04:59.200 --> 0:05:01.920 no alternative for you in this small town. You either 0:05:02.040 --> 0:05:05.279 pay five times what you should pay if you were 0:05:05.320 --> 0:05:09.919 somewhere else, or you just go without. That would stink. Now, 0:05:10.120 --> 0:05:15.400 candy is arguably anyway a frivolous and an important concern, 0:05:15.520 --> 0:05:18.800 But in the late eighteen hundreds, the United States was 0:05:18.960 --> 0:05:23.240 seeing industries that were far more critical consolidate under this 0:05:23.440 --> 0:05:27.320 trust strategy. And just to be clear, concerned about anti 0:05:27.320 --> 0:05:31.280 competitive business practices dates back much further, but the late 0:05:31.279 --> 0:05:34.760 eighteen hundreds is where it became a crisis, and there 0:05:34.800 --> 0:05:38.440 were many contributing factors that made this possible. For one thing, 0:05:38.760 --> 0:05:43.000 the United States was enjoying the benefits of the Industrial Revolution, 0:05:43.080 --> 0:05:47.680 which had taken place earlier that century. Transportation and communication 0:05:47.720 --> 0:05:50.600 networks were connecting the various parts of the country together. 0:05:51.120 --> 0:05:54.160 In addition, in the eighteen seventies, the United States went 0:05:54.160 --> 0:05:57.719 through an economic recession on the market side, with a 0:05:57.760 --> 0:06:03.120 deflationary spiral that lowered demand and thus lowered prices, and 0:06:03.160 --> 0:06:06.920 this forced several smaller companies in various industries out of business. 0:06:07.000 --> 0:06:12.200 They couldn't cover operating expenses and stay viable. Arguably, forming 0:06:12.279 --> 0:06:15.800 trusts was a necessity in that kind of economy, as 0:06:15.880 --> 0:06:20.039 individually companies were finding it difficult to stay afloat. Banding 0:06:20.080 --> 0:06:23.159 together increasing the scale and scope of the business was 0:06:23.200 --> 0:06:26.880 a potential solution to this problem. For American consumers, things 0:06:27.040 --> 0:06:30.599 weren't nearly so bleak because wages were on the rise, 0:06:30.800 --> 0:06:33.599 prices were low, and there was an abundance of goods 0:06:33.640 --> 0:06:36.640 on the market. There was a general feeling that big 0:06:36.680 --> 0:06:40.039 business could be a potential problem down the road, but 0:06:40.320 --> 0:06:42.960 there was a lot of disagreement regarding how to protect 0:06:43.000 --> 0:06:49.039 citizens and politics from that outcome. One particularly important industry 0:06:49.040 --> 0:06:50.880 in the United States at this time and still to 0:06:50.920 --> 0:06:55.359 this day, was oil. John D. Rockefeller founded the Standard 0:06:55.400 --> 0:06:58.920 Oil Company in the eighteen seventies and his business was, 0:06:59.440 --> 0:07:04.839 to put it lightly, phenomenally successful, and in eight two, 0:07:04.960 --> 0:07:09.800 an attorney for the company named SCT Dodd created a 0:07:09.880 --> 0:07:13.960 trust of oil refiners. The goal was to set prices 0:07:14.080 --> 0:07:17.480 and to control supply and at the same time find 0:07:17.520 --> 0:07:22.640 ways around pesky tax laws and regulations. Other trusts and 0:07:22.720 --> 0:07:26.400 other industries started to follow suit, and the United States 0:07:26.400 --> 0:07:31.200 saw a trend of large companies consolidating economic power. Now, 0:07:31.240 --> 0:07:35.320 generally speaking, this can be a bad thing. Consolidating economic 0:07:35.320 --> 0:07:37.960 power means that more of that economic power goes to 0:07:38.080 --> 0:07:41.920 a smaller number of entities, and it leaves many others 0:07:42.160 --> 0:07:45.200 without very much power. And companies do not tend to 0:07:45.240 --> 0:07:48.960 be the most egalitarian with their profits or their power. 0:07:49.440 --> 0:07:52.640 A company's purpose ultimately is to make money for the 0:07:52.680 --> 0:07:56.400 company's owners, whether it's a private company or a publicly 0:07:56.440 --> 0:08:00.680 traded one. On top of that, the consolidated hour would 0:08:00.720 --> 0:08:03.320 mean that these companies would be able to push around 0:08:03.640 --> 0:08:07.880 smaller companies, forcing them to either follow suit or go 0:08:07.960 --> 0:08:11.240 out of business. For example, Standard Oil might tie up 0:08:11.360 --> 0:08:15.760 enough oil refiners with exclusive agreements that would leave smaller 0:08:15.760 --> 0:08:19.240 oil companies no oil refiner companies to work with. They 0:08:19.480 --> 0:08:22.160 wouldn't have anyone that they could partner with because they 0:08:22.200 --> 0:08:25.640 were all tied up with this much bigger company. That 0:08:25.680 --> 0:08:29.360 would be an anti competitive practice. There was also a 0:08:29.440 --> 0:08:33.440 very real fear, and as it turns out, a justified fear, 0:08:33.920 --> 0:08:36.760 that wealthy companies would start to pour some of that 0:08:36.880 --> 0:08:40.559 wealth into influencing politics in an effort to make things 0:08:40.640 --> 0:08:45.640 even more beneficial to the company and its shareholders, often 0:08:45.679 --> 0:08:48.640 at the expense of others, like I don't know, the 0:08:48.679 --> 0:08:53.800 average taxpayer. The sense was these companies would dedicate resources 0:08:53.840 --> 0:08:58.720 to fight back politically against various restraints and regulations that 0:08:58.760 --> 0:09:02.559 were meant to protect fair or trade practices. Some states 0:09:02.840 --> 0:09:06.400 began to pass antitrust laws in an effort to reverse 0:09:06.800 --> 0:09:09.920 or at the very least slow this trend, calling for 0:09:10.000 --> 0:09:13.640 the need to support competition, which would prevent any one 0:09:13.760 --> 0:09:17.600 company from controlling the price and supply of critical commodities 0:09:17.640 --> 0:09:22.880 like oil or steel. But these were local responses. As 0:09:22.920 --> 0:09:26.880 I mentioned, the United States had recently transformed as railroads 0:09:26.960 --> 0:09:31.520 crossed the country and telegraph lines crossed state lines. Business 0:09:31.640 --> 0:09:35.600 was not confined to within a state's borders, and so 0:09:35.720 --> 0:09:39.360 responses to this threat needed to go beyond the state level. 0:09:39.760 --> 0:09:44.160 This led to the Sherman Antitrust Act of eighteen ninety. 0:09:44.520 --> 0:09:47.319 The United States federal government passed the Act in an 0:09:47.320 --> 0:09:51.360 effort to put some restrictions on trusts. The Department of 0:09:51.480 --> 0:09:55.400 Justice could pursue litigation against companies that were practicing anti 0:09:55.400 --> 0:10:00.840 competitive strategies or attempting to monopolize markets. The Sherman Act 0:10:00.920 --> 0:10:05.559 also allowed for private litigation cases and civil lawsuits against 0:10:05.600 --> 0:10:08.920 these companies. As it would turn out, the Act didn't 0:10:09.000 --> 0:10:14.160 quite go far enough and mostly restated common law and 0:10:14.320 --> 0:10:18.960 became more of a mild inconvenience to many of the trusts. 0:10:19.320 --> 0:10:22.280 The US government would go on to pass multiple amendments 0:10:22.360 --> 0:10:24.920 to that law to make it more effective and robust, 0:10:25.360 --> 0:10:27.960 and the US government would also recognize that needed an 0:10:28.000 --> 0:10:31.600 agency with more authority to oversee trade within the country, 0:10:31.960 --> 0:10:35.600 and the Federal Trade Commission, or FTC, would be formed 0:10:35.640 --> 0:10:40.040 in nineteen fourteen. The US government would add more laws 0:10:40.080 --> 0:10:44.000 to deal with trade issues like anti competitiveness and monopolies, 0:10:44.240 --> 0:10:46.960 and on more than one occasion, the U. S Government 0:10:47.000 --> 0:10:51.520 has forced certain companies to break apart in two separate entities. 0:10:51.920 --> 0:10:54.840 There are numerous examples, but a really big one in 0:10:54.840 --> 0:10:57.719 the tech sector was A T and T, which in 0:10:57.760 --> 0:11:01.120 the nineteen eighties was forced to spin off its local 0:11:01.200 --> 0:11:06.520 telephone service companies into seven Baby Bells, so called baby Bells, 0:11:06.520 --> 0:11:08.720 since A T and T was also known as mob 0:11:08.800 --> 0:11:12.320 Bell Bell because of Alexander Graham Bell, who was often 0:11:12.360 --> 0:11:15.800 credited with inventing the telephone, though that story itself is 0:11:15.800 --> 0:11:19.679 complicated and off topic. By the way, most of those 0:11:19.720 --> 0:11:24.199 companies that were split off would over time, through mergers 0:11:24.200 --> 0:11:27.280 and acquisitions, come back together with A T and T, 0:11:27.559 --> 0:11:30.840 So I'm not I'm not really sure what good it 0:11:30.880 --> 0:11:34.280 did in the long run. By the nineteen seventies, the 0:11:34.400 --> 0:11:38.920 interpretation of antitrust law had changed. Like I said earlier, 0:11:39.240 --> 0:11:42.000 the courts have taken a different approach to interpreting what 0:11:42.200 --> 0:11:47.520 antitrust law is over the various generations, and part of 0:11:47.559 --> 0:11:50.520 the reason for this is that the original laws were 0:11:50.640 --> 0:11:55.720 fairly vague and thus open to multiple interpretations. For many years, 0:11:56.120 --> 0:11:59.640 the main focus on antitrust law was that large companies 0:11:59.720 --> 0:12:04.120 could practice anti competitive behaviors that could hurt smaller businesses, 0:12:04.160 --> 0:12:06.800 and that's a bad thing. That's something that we should prevent. 0:12:07.280 --> 0:12:11.800 So think of a company like Walmart or more recently Amazon. 0:12:12.040 --> 0:12:15.760 A company like that with enough scale and resources could 0:12:15.800 --> 0:12:18.400 come into a region and offer up goods at a 0:12:18.480 --> 0:12:21.960 lower cost to the consumer than smaller businesses in the 0:12:22.000 --> 0:12:26.000 area which don't have the deep pockets of the bigger corporation. 0:12:26.600 --> 0:12:30.040 The big companies might even sell certain products at cost, 0:12:30.440 --> 0:12:33.360 or even below cost, at a loss in an effort 0:12:33.440 --> 0:12:37.360 to get people into stores. The really big companies can 0:12:37.400 --> 0:12:40.480 afford to do this, and the goal is to get 0:12:40.559 --> 0:12:43.800 more folks into these big stores to not just buy 0:12:43.800 --> 0:12:46.760 the mark down goods, but other stuff as well. And 0:12:46.920 --> 0:12:49.800 a consequence of this is that the big companies are 0:12:49.920 --> 0:12:56.040 luring customers away from smaller independent businesses that can't compete 0:12:56.040 --> 0:12:58.680 on this level. And if the big companies can wait 0:12:58.720 --> 0:13:01.760 it out long enough, those smaller businesses are likely to 0:13:01.840 --> 0:13:05.240 fold entirely. And thus we can see the main street 0:13:05.360 --> 0:13:07.800 of some small towns like the one I grew up 0:13:07.840 --> 0:13:11.720 in North Georgia become ghost towns as the local businesses 0:13:12.000 --> 0:13:16.439 shut down. But if the focus was on anti competitiveness. 0:13:17.160 --> 0:13:21.960 How the heck did we change from that? What happened 0:13:22.280 --> 0:13:25.520 well in the nineteen seventies the courts began to shift 0:13:25.760 --> 0:13:31.120 the interpretation away from this anti competitive nature that can 0:13:31.200 --> 0:13:37.280 hurt smaller businesses and more toward what affects the consumer benefit, 0:13:37.440 --> 0:13:41.360 what what is best for the consumer, rather than what's 0:13:41.520 --> 0:13:45.200 fair for small businesses. The general feeling was that the 0:13:45.280 --> 0:13:50.559 US government shouldn't be so interventionist with business in general, 0:13:51.120 --> 0:13:54.160 and this philosophy had a strong link to the University 0:13:54.200 --> 0:13:58.319 of Chicago, so economics experts call it the Chicago School 0:13:58.480 --> 0:14:02.640 of antitrust policy. Now I'm not saying that this is 0:14:02.760 --> 0:14:06.719 better or worse, but it is different from a consumer perspective, 0:14:07.080 --> 0:14:11.480 though Walmart or Amazon model doesn't, at least initially seem 0:14:11.600 --> 0:14:15.360 bad because as a consumer, you can get the goods 0:14:15.400 --> 0:14:19.680 you want at a lower price than elsewhere, so in 0:14:19.680 --> 0:14:22.560 other words, you save money, which means you can actually 0:14:22.560 --> 0:14:26.520 buy more stuff. So from the consumer standpoint, things seem 0:14:26.640 --> 0:14:30.000 pretty okay. But in the long run this can be 0:14:30.080 --> 0:14:34.080 a very dangerous game to play. If enough smaller businesses 0:14:34.120 --> 0:14:39.280 go put than Amazon or Walmart or whatever becomes the 0:14:39.320 --> 0:14:43.600 only source for goods like our candy store example, and 0:14:43.600 --> 0:14:47.560 then there's nothing really stopping those companies from hiking up prices. 0:14:47.640 --> 0:14:49.800 After all, it's not like you can head over to 0:14:49.840 --> 0:14:52.040 the mom and pop store that went out of business 0:14:52.080 --> 0:14:56.080 ten years ago. That's long gone. With this new focus 0:14:56.160 --> 0:15:01.040 on consumer benefit rather than market competition, we saw companies 0:15:01.040 --> 0:15:04.800 like Walmart really take advantage of the political and legal 0:15:04.840 --> 0:15:09.280 climate of the times. They flourished in the nineteen eighties. 0:15:09.320 --> 0:15:12.800 We also saw a new era of mergers and acquisitions 0:15:12.800 --> 0:15:17.240 and hostile takeovers, and golly, I do not miss those 0:15:17.320 --> 0:15:23.160 days at all, But antitrust laws and sentiment still existed. 0:15:23.280 --> 0:15:26.040 You couldn't go too far with this stuff, or else 0:15:26.200 --> 0:15:28.160 you would get called out for it. After all, the 0:15:28.200 --> 0:15:30.880 breakup of a T and T was a rare example 0:15:30.880 --> 0:15:33.800 of the courts going after a corporation like that. That 0:15:33.880 --> 0:15:37.240 happened in the nineteen eighties kind of at the height 0:15:37.680 --> 0:15:41.760 of this Chicago school of thought. The Chicago School dominated 0:15:41.760 --> 0:15:47.680 antitrust policy thinking until around nineteen when economists began to 0:15:47.720 --> 0:15:54.080 suggest that maybe it wasn't on track. The rather reckless 0:15:54.200 --> 0:15:57.680 mergers and acquisitions of the nineteen eighties, some of which 0:15:57.720 --> 0:16:02.120 had pretty awful consequences further down the road forced people 0:16:02.200 --> 0:16:04.920 to think about things another way and acknowledge that the 0:16:05.000 --> 0:16:09.160 Chicago School of thought didn't take certain variables into account 0:16:09.600 --> 0:16:13.479 and perhaps put too much faith on market based solutions, 0:16:13.760 --> 0:16:17.960 two problems that might require more government intervention. See from 0:16:17.960 --> 0:16:20.880 the Chicago School. The idea is that the market itself 0:16:20.880 --> 0:16:23.320 will sort everything out if you leave it alone enough. 0:16:23.400 --> 0:16:26.280 It's a very kind of loss, a fair approach, but 0:16:26.840 --> 0:16:29.520 these economists were saying, you know, that didn't take into 0:16:29.560 --> 0:16:35.040 accounts stuff that really also are factors here that mean 0:16:35.160 --> 0:16:39.520 that the market can't you know, account for them. And 0:16:39.560 --> 0:16:42.120 there are still proponents of the Chicago school out there, 0:16:42.600 --> 0:16:45.320 and even in this climate, we haven't seen the more 0:16:45.400 --> 0:16:48.720 robust interpretation of antitrust laws that were present decades ago. 0:16:48.840 --> 0:16:52.360 Even as more people are are kind of rejecting or 0:16:52.400 --> 0:16:56.560 at least partially rejecting, the Chicago School, there's the potential 0:16:57.040 --> 0:17:00.320 for a more progressive movement to take the stay age, 0:17:00.760 --> 0:17:02.920 but that's still in the very early days. And as 0:17:02.960 --> 0:17:05.520 I record this, the United States is going through an 0:17:05.520 --> 0:17:09.480 election process that will largely determine how likely that will be. 0:17:10.359 --> 0:17:13.280 And that sets the stage for our next section, where 0:17:13.320 --> 0:17:18.440 I'll talk about a specific case, the United States versus Microsoft, 0:17:18.760 --> 0:17:22.000 but before we get to that, let's take a quick break. 0:17:29.520 --> 0:17:33.280 In the nineteen seventies, Bill Gates and Paul Allen, two 0:17:33.280 --> 0:17:37.440 old friends, started up a company called Microsoft, named after 0:17:37.680 --> 0:17:41.760 micro computers and software, and originally the two would develop 0:17:41.840 --> 0:17:46.160 and sell versions of the programming language Basic for different 0:17:46.200 --> 0:17:48.639 computer platforms, so you can think of it as different 0:17:48.720 --> 0:17:54.359 flavors of Basic. In nineteen eighty, IBM hired Microsoft to 0:17:54.600 --> 0:17:57.679 develop an operating system for what was to become the 0:17:57.760 --> 0:18:02.639 IBM PC, the person Old computer, and Microsoft went and 0:18:02.720 --> 0:18:07.000 acquired software from a different company. They took that software, 0:18:07.240 --> 0:18:10.040 they changed it around a little bit, and they named 0:18:10.040 --> 0:18:13.200 it MS DOSS. Now the story behind that is pretty 0:18:13.240 --> 0:18:16.600 fascinating in its own right, and it gets really cutthroat 0:18:16.840 --> 0:18:19.600 right off the bat, but it's outside the realm of 0:18:19.640 --> 0:18:24.919 this episode. One thing IBM did not demand from Microsoft 0:18:25.040 --> 0:18:28.760 was exclusive rights to the operating system that they developed, 0:18:29.040 --> 0:18:32.119 so Microsoft would actually go on to make versions of 0:18:32.240 --> 0:18:37.119 MS doss for other computer manufacturers. And since IBM was 0:18:37.200 --> 0:18:41.640 relying heavily on off the shelf components for its PCs, 0:18:41.920 --> 0:18:44.879 it meant that any other company could potentially make a 0:18:44.920 --> 0:18:48.080 machine that works in pretty much the same way as 0:18:48.119 --> 0:18:52.320 the official IBM PC, and moreover, they could license an 0:18:52.359 --> 0:18:56.600 operating system from Microsoft that would allow these other machines 0:18:56.640 --> 0:18:59.280 that were built by other companies to run the same 0:18:59.320 --> 0:19:03.080 software that was developed for IBM PCs. This was a 0:19:03.119 --> 0:19:08.320 move that would make the Microsoft founders insanely wealthy, pushing 0:19:08.359 --> 0:19:12.359 the company on the path to operating system domination, and 0:19:12.760 --> 0:19:16.480 ultimately it would also spell doom for IBMS consumer products 0:19:16.480 --> 0:19:21.440 division many years later. Microsoft would then later develop an 0:19:21.440 --> 0:19:24.920 operating system with a graphic user interface or g u 0:19:25.040 --> 0:19:28.879 I or gooey. This was, of course, the Windows operating 0:19:28.920 --> 0:19:32.800 system that you know still dominates today. It took a 0:19:32.800 --> 0:19:36.480 couple of versions for Windows to really catch on, but 0:19:36.600 --> 0:19:39.919 Windows over time would become the main operating system on 0:19:40.000 --> 0:19:44.439 personal computers. There were alternatives. Apple was running a totally 0:19:44.440 --> 0:19:48.240 different operating system for Mac computers, for example, and other 0:19:48.280 --> 0:19:52.879 operating systems would emerge that allowed for alternatives to Windows. 0:19:52.920 --> 0:19:55.639 But it would be disingenuous to say that Windows was 0:19:55.680 --> 0:19:59.439 anything other than the dominant os on the market. It 0:19:59.480 --> 0:20:04.160 absolutely really was, at least for business and personal computers. 0:20:04.160 --> 0:20:06.600 So if you get into things like servers, well, that's 0:20:06.600 --> 0:20:10.119 a different story. But for like personal computers and for 0:20:10.200 --> 0:20:12.679 the stuff you would find in offices, Windows was the 0:20:12.760 --> 0:20:17.280 dominant os. Now that position meant that software developers were 0:20:17.400 --> 0:20:20.399 far more likely to focus on building out software for 0:20:20.560 --> 0:20:25.000 Windows based machines. After all, if the vast majority of 0:20:25.040 --> 0:20:29.240 computer users are relying on Windows as their operating system, 0:20:29.320 --> 0:20:32.840 it makes sense to focus development efforts where the market is. 0:20:32.960 --> 0:20:36.480 You go to where your customers are. You could create 0:20:36.520 --> 0:20:39.680 software for other operating systems, but you would do that 0:20:39.920 --> 0:20:43.280 knowing that there are fewer users that are relying on 0:20:43.440 --> 0:20:47.159 alternatives to Windows, which means your potential consumer base is 0:20:47.200 --> 0:20:50.440 already much smaller than it would be if you had 0:20:50.520 --> 0:20:53.800 developed for Windows. You could argue, and I think you 0:20:53.840 --> 0:20:57.960 could do so pretty persuasively, that the space was largely 0:20:58.040 --> 0:21:02.159 anti competitive even early on, though some platforms like the 0:21:02.200 --> 0:21:05.440 Mac had a decent amount of developer support behind them. 0:21:05.520 --> 0:21:08.399 But keep in mind we're talking about the nineteen eighties 0:21:08.440 --> 0:21:12.160 and early nineties here. This is before Apple had its renaissance. 0:21:12.840 --> 0:21:16.960 In nineteen nine, a lawyer for the FTC named Norris 0:21:17.000 --> 0:21:21.880 Washington had attended a computer trade show called Comdex, where 0:21:21.920 --> 0:21:27.360 IBM and Microsoft announced a collaboration that raised his eyebrows. 0:21:27.720 --> 0:21:30.720 The announcement sounded like it was treading a little too 0:21:30.720 --> 0:21:33.840 close to collusion in an effort to control the PC 0:21:34.000 --> 0:21:38.240 and operating system market. It wasn't until nineteen ninety that 0:21:38.359 --> 0:21:41.679 the FTC would begin its official probe into the matter, 0:21:41.800 --> 0:21:45.600 because the U S Department of Justice was initially reluctant 0:21:45.600 --> 0:21:50.320 to authorize an investigation. At this stage, the matter revolved 0:21:50.359 --> 0:21:55.040 around OS two, which belongs in the Doss family of 0:21:55.119 --> 0:22:00.320 operating systems. However, in the gap between the announced meant 0:22:01.040 --> 0:22:04.479 that IBM and Microsoft were going to work together and 0:22:04.560 --> 0:22:07.960 the actual investigation, there had been something of a falling 0:22:08.000 --> 0:22:11.720 out between Microsoft and IBM, and Microsoft was looking to 0:22:11.760 --> 0:22:15.840 push its Windows operating system over OS two, which means 0:22:15.840 --> 0:22:19.360 that it was no longer really interested in this approach 0:22:19.400 --> 0:22:22.639 with IBM. But by that time other third parties were 0:22:22.680 --> 0:22:26.480 coming forward to complain about Microsoft to the government. They 0:22:26.480 --> 0:22:30.200 were saying that Microsoft was making changes to its operating 0:22:30.200 --> 0:22:35.159 system that would make third party software incompatible with computers 0:22:35.160 --> 0:22:39.240 that were running that operating system, among other charges. The 0:22:39.359 --> 0:22:43.159 FTC was in a political deadlock over the matter, and 0:22:43.200 --> 0:22:45.360 there was a great deal of pressure from the Department 0:22:45.359 --> 0:22:49.879 of Justice to go very narrow and focused and small 0:22:50.119 --> 0:22:53.120 with the probe. The thought being that the US software 0:22:53.160 --> 0:22:55.960 industry was a really important one to the United States, 0:22:55.960 --> 0:22:59.199 and so you know, maybe we could, you know, just 0:22:59.440 --> 0:23:04.560 not break up Microsoft for some little anti competitive monopolistic behaviors. 0:23:04.600 --> 0:23:08.560 You know, what's a little what's a little illegal behavior 0:23:08.600 --> 0:23:12.520 among friends, I guess. In the end, the FTC and 0:23:12.600 --> 0:23:15.679 Microsoft would come to an agreement in which the company 0:23:15.720 --> 0:23:20.919 would sign a consent decree that was intended to limit 0:23:21.040 --> 0:23:25.240 how Microsoft might lockout competition from the PC market. But 0:23:25.400 --> 0:23:28.080 later on Bill Gates himself would claim that the consent 0:23:28.200 --> 0:23:32.159 decree amounted to nothing at all, so it might as 0:23:32.200 --> 0:23:36.280 well have been political theater. One important part of this 0:23:36.400 --> 0:23:40.480 decree was that Microsoft agreed that it would not integrate 0:23:40.640 --> 0:23:45.040 other Microsoft products into Windows as a tie in. So, 0:23:45.080 --> 0:23:49.240 in other words, Microsoft shouldn't tie you know, like productivity 0:23:49.280 --> 0:23:53.000 software like the Office Suite directly to Windows, because that 0:23:53.040 --> 0:23:56.600 would be unfair to companies that are developing third party 0:23:56.680 --> 0:24:00.679 productivity software as competition. The company would be allowed to 0:24:00.680 --> 0:24:04.840 create new features in Windows, that's okay, to make Windows 0:24:05.040 --> 0:24:09.440 more feature rich, but things that were products that were 0:24:09.440 --> 0:24:12.680 meant to be, you know, a separate thing in addition 0:24:12.760 --> 0:24:16.439 to Windows that was supposed to be separate. By the 0:24:16.480 --> 0:24:19.880 time we get to the early and mid nineteen nineties, 0:24:19.920 --> 0:24:23.960 a new complication emerged the Worldwide Web and the Internet 0:24:24.000 --> 0:24:27.240 in general. But the web is really where our story coalesces, 0:24:28.040 --> 0:24:30.960 is the point I'm making here. Now we all know 0:24:31.600 --> 0:24:34.680 that to access the web you need an Internet browser. 0:24:35.000 --> 0:24:38.000 You know, a program that interprets your commands, It fetches 0:24:38.080 --> 0:24:41.760 pages from servers, it displays those pages in a way 0:24:41.800 --> 0:24:45.680 that you can navigate and understand. And here's where things 0:24:45.800 --> 0:24:50.679 really escalated. So an early popular web browser, the dominant 0:24:50.720 --> 0:24:56.320 one was Netscape Navigator. It debuted in and quickly became 0:24:56.400 --> 0:24:59.960 the most popular web browsing platform. It held about seventy 0:25:00.119 --> 0:25:02.920 five percent of the market before the end of the year. 0:25:03.480 --> 0:25:06.080 Now keep in mind this is in the very early 0:25:06.200 --> 0:25:09.399 days of the web, when awareness of the web even 0:25:09.480 --> 0:25:13.200 being a thing was largely contained to stuff like college 0:25:13.240 --> 0:25:17.199 campuses and research centers. One thing that Netscape aimed to 0:25:17.280 --> 0:25:20.880 do with the Navigator browser was to create a standardized 0:25:20.960 --> 0:25:26.239 browsing experience across all operating system platforms, meaning that at 0:25:26.320 --> 0:25:29.760 least in theory, no matter what type of computer or 0:25:29.800 --> 0:25:33.200 what type of operating system you were, depending upon your 0:25:33.240 --> 0:25:37.240 experience on Netscape should be the same from computer to computer, 0:25:37.680 --> 0:25:41.080 and anyone who has used the quote unquote same software 0:25:41.200 --> 0:25:45.119 on different operating systems knows how unusual that can be. 0:25:45.320 --> 0:25:48.639 You know, just finding options can be a totally different 0:25:48.680 --> 0:25:52.800 experience from one to the other. Perhaps Microsoft was worried 0:25:53.200 --> 0:25:58.040 that more software developers would follow netscapes lead. And if 0:25:58.080 --> 0:26:02.800 the same program works same way across every operating system 0:26:02.840 --> 0:26:06.400 on every computer, it levels the playing field and other 0:26:06.480 --> 0:26:10.399 operating system developers could potentially gain some ground on the 0:26:10.440 --> 0:26:15.480 monolithic Microsoft. If Microsoft Windows is not providing a superior 0:26:15.560 --> 0:26:19.880 experience because the software just works better on it, well 0:26:19.880 --> 0:26:22.440 that could be a problem. So the company had its 0:26:22.480 --> 0:26:30.280 own strategy. In Microsoft unveiled Internet Explorer, a competing Internet browser. 0:26:30.760 --> 0:26:34.119