Commission fails to level playing field

The European Commission was clear in its judgement that Microsoft had broken antitrust laws, but will the ruling make any difference?

Competition commissioner Mario Monti reminded us of Microsoft's dominance with 95 per cent of the PC operating system market, and said it should have supplied connectivity information to third parties.

He also accused Microsoft of 'tieing', effectively forcing consumers to buy Windows Media Player.

The fine of €497m (£335m) to the EU, the equivalent of €4 (£2.70) per online PC in Europe, looks huge.

But with a war chest of $51bn (£28.3bn), Bill Gates and Steve Ballmer - who will appeal - won't be losing any sleep over the fine.

But how will this affect Microsoft's market position? Original equipment manufacturers can now offer preinstalled alternatives to Windows Media Player.

HP is doing this with iTunes. Apple and Real Networks will be on manufacturers' doorsteps to offer QuickTime and RealPlayer respectively.

This could hurt Microsoft as consumers start to turn their home PCs into entertainment centres that play music downloads and video clips.

But Microsoft need not worry too much. Regardless of the strides made by RealPlayer, QuickTime and DivX, content companies - including Disney and Napster - have already committed to MS DRM and Media Player.

If the EC had given its ruling two years ago, the likes of Apple and Real would have had a chance.

Now it is too late, especially as an appeal will give Microsoft the opportunity to buy another few years of undisturbed Media Player sales.

Consumers will continue to vote with their browser by (unknowingly) downloading Media Player with their first bit of licensed content - just as happened with Explorer a few years ago.

If the ruling doesn't change the dominance of Media Player, why did the Commission bother?

Monti also stated that he wanted to set "principles for future conduct". There's the rub.

This ruling is really about Longhorn, Microsoft's next major consumer operating system scheduled for release in 2006.

Rather than trying to correct Microsoft for the same offences through a meticulous but slow process in 2008, the Commission is launching a pre-emptive strike.

Monti wants Microsoft to develop two versions of Longhorn: a standard one shrink-wrapped with all the Microsoft bells and whistles, and a bare-boned version that other vendors can dress up.

This measure would create the level playing field that the Commission is looking for, to give consumers a real choice of applications such as browsers, streamers and even spreadsheets.

But will the playing field be level? Forrester believes not. First, platoons of experienced programmers will be working together in Redmond to create the integrated pack, while tens of scattered vendors will be struggling to decipher Microsoft's integration manual.

Guess who will be first to market, with the best integrated package?

Second, consumers don't care. Microsoft has a 71 per cent brand recognition among Europeans, and 27 per cent trust the brand.

These consumers will have to choose between a full-blown package from their trusted supplier, or a patchwork of products from unknown and distrusted vendors. Tough choice.

The pre-emptive strike won't work either. As long as the PC maintains its position as the generic utility for work, communication and fun, Microsoft will maintain its dominance.

Only when these functions are spread across devices such as mobiles and set-top boxes (forget intelligent fridges), will other vendors get a chance.

The eventual contenders will be Sony and Symbian, and they'll be moving in fast. Monti's pre-emptive strike might even be unnecessary.

And the European consumer? Well, we'll have saved ourselves €497m in European taxes.

Jaap Favier is research director at Forrester Research.