Bookshelf The Truth
About Marketplace Battles
By LEE GOMES
In the affairs of nations, it's the
winners that get to write the history books. But in the affairs of
companies, at least high-tech ones, the opposite seems to happen,
and with perverse frequency. That's the view of two economists, Stan
J. Liebowitz and Stephen E. Margolis, who believe our understanding
of Bill Gates and Associates has been largely shaped by his
company's carping competitors. They set out to rectify things in
"Winners, Losers and Microsoft." (Independent Institute, 287
pages, $29.95)
Messrs. Liebowitz and Margolis are best-known for debunking the
oft-told tale of the "Qwerty" keyboard, the typewriter standard
that's named for the top row of letters. The story has it that
Qwerty is an ergonomic disaster that persists in the face of the
allegedly superior "Dvorak" alternative, which is said to have a
finger-friendlier arrangement of keys. Supposedly, Qwerty enjoys a
self-perpetuating popularity; it stays popular only because, as the
first key arrangement, it is the one everyone is used to.
But the two economists did what no one who repeated the story
seems to have ever done -- i.e., a little digging. They discovered
that the claims of superiority for the Dvorak keyboard originated
with one August Dvorak, inventor of same. More disinterested
observers consistently found not much difference in ergonomic
efficiency between the two key maps.
The professors had been drawn to this controversy in the first
place because, during the 1980s, the Qwerty tale had been embraced
by a group of economists who used it to argue, in effect, that Adam
Smith was wrong -- that markets can't be trusted. Instead, said the
Qwertyists, we can, with alarming ease, get "locked in" to inferior
technologies that achieve their dominance because of some
long-forgotten historical accident. The policy implications of the
Qwerty idea were obvious, and included a much lower bar to
government intervention in the economy in the form of antitrust
suits.
Qwerty was one of a triad of examples usually put forward as
briefs for the "lock in" case; the others were the VHS-Beta and
DOS-Macintosh sagas. Messrs. Liebowitz and Margolis took them on as
well. They found that VHS beat the technically similar Beta for a
very good reason: It routinely had a much longer recording time. And
in the case of computers, the two agree that while the Macintosh may
have been the more "elegant" bit of software, elegance is hardly the
only element of marketplace success; if it were, we would all have
Sub-Zero refrigerators in our kitchens. There are also such matters
as price, speed, compatibility and general availability.
Not surprisingly, the work of Messrs. Liebowitz and Margolis came
to the attention of a friend-bereft Microsoft, which in the past few
years has hired them for a couple of consulting gigs. That shouldn't
be held against them; the pair has been working this turf since 1990
-- a year, by the way, when Apple made 70% more in annual profits
than did Microsoft. They wrote this book not to serve a paymaster
but instead to affect an important policy debate.
As the two economists see it, the Justice Department is using Son
of Qwerty logic in its pursuit of Microsoft. That approach, popular
in Silicon Valley, goes something like this: Microsoft takes
advantage of its market power to cram crummy products down our
throats, using the money it makes in the process to grow even more
powerful and thereby expand its catalog of crumb. The professors
checked out this story with the same technique they used in the
Qwerty case: by spending a lot of time in the library. They read
every software product review from the past 15 years they could find
and came up with a different conclusion. Microsoft, their evidence
says, wins market battles (word processors, spreadsheets, browsers)
when its products are better, and loses such battles (financial
software, on-line services, palm-sized computers) when they
aren't.
The two authors don't argue with the idea that Microsoft
dominates computing, but they maintain that Microsoft's position is
that of a "serial monopolist": The dynamics of the technology
industry tend to produce a single big winner at any one time. But
far from being locked in, that winner is constantly defending his
perch in a high-stakes game of king of the hill. Messrs. Liebowitz
and Margolis have a message to Microsoft's rivals: Stop whining and
start writing code.
It should be said that though Justice Department economists have
indeed advanced the Qwerty-like lock-in case, there is more to their
courtroom pleadings. Regulators have charged Microsoft with behaving
badly in quite untheoretical ways, notably by bullying computer
makers into accepting Windows on Microsoft's terms. Microsoft says
bunk, and it's a factual issue the courts will decide.
Still, the two authors have gone a long way toward reshaping the
Microsoft debate. Henceforth, any judges, economists, pundits or
journalists who discuss Microsoft or technology lock-in -- much less
repeat the crusty old Qwerty tale -- without first dealing with the
Liebowitz-Margolis critique should have their wrists soundly slapped
by, let's say, an invisible hand.
Mr. Gomes covers technology in the Journal's San
Francisco bureau. |