Judge Colleen Kollar-Kotelly's Friday ruling in the Microsoft antitrust case is a far cry from her predecessor's original verdict. Where once it seemed the company would be split into two parts, now it's merely been instructed to settle with the Department of Justice out of court. Even as the public's interest of the case has faded, so too, it seems, has the vehemence with which the government initially pursued it.
Is that it, then? In light of the market downturn, are we now willing to let bygones be bygones, turn the page and hope Microsoft does its part to return our economy to its former glory? I hope not — because if you think about it, Microsoft's market dominance is an even larger issue today than it was when the antitrust case began.
The high-tech industry hasn't stood still for the last two years, and neither has Microsoft. What's at stake now involves far more than just who has the winning Web browser, or whose operating system is found on the most desktops. Now they're playing for the whole ball of wax.
Think Convergence
Over the past few years, computers have evolved into much more than processing machines; they've become digital media devices. Someday soon, we're told, all the communications and media we use today will become part of a larger, digital whole. Already, for example, e-mail is supplanting postal mail for many purposes. Soon your telephone, radio and television transmissions — and even motion pictures — may all be delivered using digital technologies.
This idea is what's known as convergence, and it's great news for content creators. Digital data formats are far more flexible, in terms of the number of ways in which they can be packaged, processed, compressed, delivered or stored, than their analog forbears.
The potential certainly isn't lost on traditional media giants like Sony, Universal or Bertelsmann. Despite the costly slap in the face from file-sharing networks like Napster and Gnutella, all the major music conglomerates are now scrambling to find a way to turn digital media to their own advantage.
The result has been a veritable market explosion: An entire cottage industry has sprung up around digital media. A full roster of all the various companies vying for a spot in the new-media hierarchy would be an impressive list indeed, but, when you consider the amount of work there is to be done, this should come as no surprise.
Building Blocks of Digital Media
A lot of components go into an all-digital media-delivery system. First, you need data formats for encoding the analog source into a digital form. A number of proprietary formats have been developed already for all kinds of media, ranging from Liquid Audio's MP3 killer to the Sorenson video technologies to Adobe's PDF for the printed page. Still other formats exist as open standards, developed by consortiums or as open-source projects.
Next, you need methods for delivering the data, including networks and streaming protocols to transport data over them in real time. The pioneers in this area were companies like Real Networks and Apple's QuickTime, though there's still more work to be done.
If you're building a business around being a major provider of online intellectual properties, you'll want a security infrastructure to protect those properties from theft, including some form of encryption. You'll also want digital rights-management tools to define how consumers will be allowed to use them. InterTrust and PlayMedia are two of the leading companies in this space.
If you're selling licenses to your media, this of course implies you'll need an e-commerce component as well. How else to collect your fees? A whole host of companies, ranging from IBM to PayPal, have been jockeying for position in that market.
Finally, digital media isn't much good without a device to play it back on. The PC is a no-brainer here, but the long-term plan is to move these media formats onto a whole range of devices, including handheld devices like those from Palm Computing and Nokia, or television set-top boxes like AT&T's or some kind of portable e-book reader.
A playing field this wide and diverse is usually considered good for a market. But in this case, it's both a blessing and a curse. With so many options available at present, consumers are having a hard time figuring out which technologies offer the best value. In some cases, the terms aren't familiar at all. Most analysts agree that in order for new concepts like digital rights management to gain widespread adoption, the leading media providers will have to arrive at a single standard.
The need for standardization suggests that a shakeout in the digital-media market is imminent. When that happens, the smart money bets on the 800-pound gorilla.
Microsoft Steals the Show
While most of the smaller ventures have struggled to carve out a niche for themselves in one area or another of the market, only one company owns a piece of every link in the digital-media supply chain at once, and that's Microsoft.
The Windows Media format, for example, has become a serious contender as the preferred audio and video encoding format. Its codecs are widely regarded as producing better-quality files at smaller sizes than MP3 or Real Media. Where delivery is concerned, Microsoft boasts that its streaming-video technology produces better results than the latest versions of Real's technology. Microsoft even has its own eBook digital format for the printed word.
Platforms, obviously, have been Microsoft's forte all along. It already has one market — the PC — covered, and it's competing strongly against the market leaders in others. The PocketPC version of Microsoft's Windows CE operating system is gaining ground on the Palm OS platform, while another version of CE is making its way into set-top boxes for cable-TV programming.
When it comes to digital rights management, Microsoft is no slouch, either. Using technology from ContentGuard as its foundation, it's deployed its own security architecture both for the Web and for mobile e-book devices. And, of course, where commerce is concerned, businesses need look no further than Microsoft's Commerce Server software package, built around its IIS Web server platform.
The New Market Dominance
The insidious part of this is not that Microsoft is trying to offer best-of-breed technologies in all the areas of digital media delivery. You might expect that of a software company of its size. The problem, as usual, is Microsoft's unique ability to make its technologies the de facto standard — whether they're superior to their competitors or not.
Windows Media, for example, is now a standard feature of the operating system, which enjoys a reported installed base of some 350 million systems. Real Networks, by comparison, must rely on each individual user to download its software.
Microsoft also has the enviable position of being able to control the underlying operating system itself. By closely tying its digital rights-management technology to low-level features of the OS (as it's reported to have done), Microsoft can give its technology a significant edge over its competitors, which are less able to prevent zealous pirates from devising workarounds.
Media file formats, delivery systems, platforms, security and commerce systems: Microsoft is in the unique position of being able to corner the market on all of them. It's only one step further before Microsoft owns the content itself.
So what's wrong with that? Well, a lot of things. It sacrifices media integrity for the sake of commerce, for one. Is an MSN-operated business news site like CNBC really likely to give fair coverage to Microsoft's competitors? Would you be reading this article on such a site? Are strong competitors to Microsoft-owned sites likely to emerge if every piece of media on them sends more money into Redmond's coffers?
Don't think this is just paranoia, either; Microsoft already has a strong presence on the Web. In fact, according to Jupiter Media Metrix, in August 2001 only the combined online muscle of AOL Time Warner managed to command more total page views than Microsoft-owned sites. And that survey counted NBC's considerable online presence as a separate line item, despite the network's close online ties with Microsoft via the MSN network.
So leave software aside for a moment and think about the bigger picture. It's far too early to forget about the antitrust trial, and the issues remain far too important to let Microsoft get off with an easy settlement. Whatever the ultimate judgment, its effects should be dramatic, punitive and lasting — and even then, we may not be out of the woods yet.
