Microsoft versus Europe: Facts and fiction


— 6:35 PM on September 21, 2006

There's been a lot of trash-talking and a fair amount of misinformation about the European Commission's antitrust case against Microsoft lately. Some people go so far as to accuse the Commission of finding reasons to fine Microsoft simply so it can beef up the EU's funds, and the same people often add that Microsoft should throw its weight around by threatening to pull out of the EU market altogether. Those people are missing some key facts.

First of all, the amount of the fines—while it may appear massive on its own—is only a small portion of both Microsoft's and the EU's funds. The Commission has fined Microsoft a total of €777.5 million ($984.63 million) since March 2004. Between June 2004 and June 2006, Microsoft had revenue of $84.07 billion and net income of $24.85 billion. The fines therefore amount to roughly 4% of Microsoft's profits. What about the EU's own piggy bank? Well, for this calendar year alone, the EU budget amounts to €121 billion ($153.23 billion,) and that's only around 1% of the gross national income of the European Union. I'm not going to look up figures for previous years because you probably get the picture by now: the fines are just fines, and people who think the Commission is using Microsoft as some sort of cash cow are probably smoking something.

Then there's the alleged possibility that Microsoft could suddenly lose patience and threaten to withdraw from the European market. A recent study commissioned by Microsoft itself clearly shows why that's not an option. According to the study, 30% of Windows Vista sales in the year after release will come from six European countries that account for 65% of technology spending in the EU economic zone. If Vista's adoption rate is the same in countries that make up the remaining 35%, the EU economic zone will account for around 46% of all Vista shipments. The EU is obviously a very large source of income for Microsoft, and pulling out of that market would cause the company far more hurt than any fine the Commission can dish out.

So if there's no theatrical way out of the antitrust hot seat for Microsoft, how will this end? The company's recent appeal trial appeared to go pretty well for the company, but a decision about it isn't expected for another six to 12 months. In the meantime, companies like Adobe and Symantec are pressuring the European Commission to bring the hammer down on Windows Vista's new integrated security and PDF file creation features. The Commission and Microsoft are both playing along, and Microsoft may very well have to compromise sooner or later.

That said, forcing Microsoft to strip out features from its operating systems is misguided at best. The Windows Media Player-free Windows XP N Editions were a spectacular failure in Europe, and similar versions of Vista without security or PDF editing software would likely do as poorly. Consumers want more functionality for their money, not less, and crippled software only serves to make companies like RealNetworks happy. The only way to properly satisfy Adobe and Symantec's wishes would be to force Microsoft to release nothing but amended versions of Vista in the EU. However, breaking software interoperability between Europe and the rest of the world is hardly a sensible way to go about the Commission's stated goal, which is to benefit European customers.

In the end, the Commission does have the power to change things, but it needs to come up with sensible sanctions against Microsoft that will both help competition and benefit consumers. I think getting Microsoft to release its internal documentation to competitors was a step in the right direction, but finding other ways to make the company open up its software and file formats—not strip it/them down—would be more helpful than quibbling over feature bundles. This conflict looks to be far from over, though, so the Commission has plenty of time to correct its aim. And of course, Microsoft has just as much time to dodge it.

   
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