The Wall Street Journal Interactive Edition

November 10, 1997

Manager's Journal

Why the Justice Dept. Is Wrong

By WILLIAM H. GATES

If you asked customers whom they would rather have deciding what innovations go
into their computer--the government or software companies--the answer would be
clear. They'd want the decision left to the marketplace, with competition driving
improvements. This is the question at the center of the Justice Department's
recent action aimed at forcing Microsoft to remove Internet Explorer from
Windows. In this instance, the interests of the consumer seem to be less
important than the complaints of a handful of our competitors who want the
government to help them compete--by preventing Microsoft from enhancing its
products. The Justice Department's position is akin to the government telling
personal computer manufacturers that they can't include word processing,
spreadsheet or e-mail capability in PCs because it would be unfair to typewriter,
calculator and courier companies.

New Functionality

Microsoft and the Justice Department anticipated this very issue three years ago
when we signed a consent decree that specifically allowed Microsoft to develop
"integrated software products." At the time, the department was fully aware that
we were planning to integrate Internet capabilities into the forthcoming Windows
95 operating system. Microsoft has a long history of improving its operating
system products and building in new functionality, just as Apple, IBM, Sun,
Novell and others have. These features have included such things as a graphical
user interface, memory management, type fonts, disk compression and networking.
Every one of these was available first as a separate offering and later
integrated to meet customer demand for greater functionality in Windows.

Supporting Internet browsing in Windows is a logical, incremental step in the
evolution of the operating system. For 15 years a core function of Microsoft
operating systems has been to enable consumers to locate and use information from
local sources, such as the hard drive or the CD-ROM drive, as well as from remote
sources, such as local area networks. Windows 95 simply permits users to get
information from the newest remote source--the Internet.

When a PC manufacturer like Compaq, Dell or Gateway chooses to license Windows,
it agrees to ship the whole operating system, including Internet Explorer.
Installing Windows 95 does not prevent computer makers from also shipping a
competing browser, such as Netscape's Navigator, and many of them do just that.
PC manufacturers are free to differentiate their products from one another in
many ways, including by adding their choice of software products--but modifying
Windows is not one of them.

Internet Explorer is much more than just a "Web browser." It provides important
functionality that is the basis for other companies' new software products.
Without a uniform Windows installation, end users could not be sure of the
performance of the integrated operating system, and Microsoft could not stand
behind its product. Furthermore, Windows would become Balkanized, like the many
incompatible versions of UNIX. This would eventually drive prices for PC products
higher as software developers and hardware manufacturers would have to develop
and test their products for all the different versions of Windows. And innovation
would slow because developers would be reluctant to write new programs if they
couldn't be sure that new features would work on all Windows PCs.

I doubt the New York Times would let a newsstand tear out the business section of
the paper just because it wanted to sell more Wall Street Journals. Or that the
Ford Motor Co. would let its dealers replace a Ford engine with a Toyota engine.
Microsoft has the right to preserve a consistent customer experience when using
Windows.

Curiously, while the Justice Department is claiming that Windows should not
include browsing capabilities, Microsoft's competitors are busy incorporating
basic operating system services such as printing and running applications into
their browsers, making them nothing less than . . . an operating system. If our
competitors can integrate an operating system into their browsers in the name of
competition, why should Microsoft be forbidden to integrate browsing capabilities
into its operating system? Enhancing Windows to support Internet standards more
fully is not a frill--it is critical for Windows to stay competitive. Telling
Microsoft that we can't improve Windows is telling us we can't compete.

Since its inception more than 20 year ago, the PC industry has grown incredibly
rapidly and provided real benefits for customers without the government
regulating product designs. Creativity and entrepreneurship are flourishing as
hundreds of new software companies and thousands of new products come to market
each year. Microsoft Windows has played an important role in this innovation,
largely because it serves as an open, integrated platform for software
developers, hardware vendors and solution providers. This gives them the
incentive and the certainty they need to build products for Windows, which
attracts more customers and, in turn, encourages greater demand, more innovation
and new products.

Consumers are the big winners. Today you can buy a PC for under $1,000 that is
more powerful than a PC that just a few years ago was three or four times as
expensive. Prices for software are constantly falling, thanks in part to the
stable development platform Windows provides. In the late 1980s, business
applications such as word processors or spreadsheets typically cost several
hundred dollars each. Now, you can buy a full suite of far better applications
for about the same price. In 1990, CD-ROMs containing games, encyclopedias and
personal finance software cost $80 to $200. Today, it's rare to see CD-ROMs for
home users priced above $49.

And although Windows is by far the most popular operating system on the market
today, the price has remained virtually the same for years, while its performance
has leapt forward. Unlike other operating systems, Windows will always be an open
platform available at a reasonable price, because that's the key to attracting
new software development and giving customers the kind of low-cost, innovative
PCs they want and have come to expect. A high-volume, low-cost approach works
only as long as the platform remains open, so we have a vested interest in
keeping it that way.

Rich Support

The Internet promotes openness and competition more than almost any other
invention of the past 100 years. The government should encourage the rich support
for Internet standards that Microsoft is providing. The popularity of Windows
does not create a chokehold on the Internet any more than a popular word
processor chokes off free speech. Windows PCs allow people to browse the entire
Internet easily. They allow anyone to become a publisher and to offer goods and
services to the global market with minimal overhead and without anyone taking a
fee.

U.S. antitrust laws exist not to prop up competitors, but to ensure that
consumers benefit from the widespread availability of goods and services at fair
prices. And that's exactly what we have today. Microsoft spends more every year
to improve the Windows operating system. This year we will spend more than $1
billion on research and development for future versions of Windows. Over the next
several decades we will enhance Windows so that computers can talk, listen, see
and learn, making it dramatically easier to enjoy the benefits of the Internet.
The PC business has an exciting future--if the government does not hold it back
by regulating product design.

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Mr. Gates is chairman and CEO of Microsoft.