In January last year, and not for the first time, the European Commission sent a statement of objections to Microsoft. This particular objection was to the bundling of Internet Explorer (‘IE’) with Microsoft’s Windows operating system. As Windows is shipped with more than 90% of new PCs, it was the Commission’s view that tying IE to Windows was an abuse of a dominant position in the PC operating system market.
Last month the Commission accepted Microsoft’s commitments (‘the Commitments’) to give Windows users a choice of browsers. Future copies of Windows sold in Europe will include a ‘choice screen’ of the 12 most popular browsers, from which the user will select their default browser. Additionally a Windows update will present this screen to those European users who currently have IE as their browser.
The five most popular browsers will be displayed prominently – though in a random order – on a horizontal menu, with a ‘more information’ button to help users assess each option. To view the other seven browsers, one will need to scroll. Periodic independent reviews of browser usage will determine whether this spilt between the top five and the remainder should be adjusted.
Why the Fuss Over Freeware?
Before looking at the legal background, it may be worth noting that neither Microsoft, Mozilla, Google, nor any of the major players charge for their browser. Indeed, users have been accustomed for some years now to think of the browser as a ‘freebie’, though it was not always thus.
Why then are companies investing so much time and money in developing a free product, and why should the Commission care which of them manages to give away the most, or how they go about it?
In Microsoft’s case, one obvious motive is that IE helps promote their brand in the broader software market, a market in which it also has many products that are decidedly not free. But what of Mozilla? They do not have a more expensive product that they are trying to sell; indeed, they are known almost exclusively for their free products. And, while Google, Yahoo and other search engines generate millions of dollars in advertising revenue, the browser on which their sites happen to be displaying those advertisements makes no odds. Or does it?
In fact, Mozilla receives tens of millions of dollars a year through a deal with Google, with revenue based on the number of viewers who arrive at Google via the Firefox browser. Not for nothing does Firefox default to a Google home page, or have Google as the default engine for its ‘search’ box.
This is just one high profile example of how a browser which is free to the consumer is nonetheless worth a great deal to the company that makes it, and why the Commission would seek to prevent an abuse of a dominant position by someone such as Microsoft.
The Next Step in Browsing
Conventional wisdom has it that opening up a market by unbundling may lead to a broader range of better products, as the current competition invests more heavily, and other competitors decide to enter the fray. But is this likely when it comes to browsers?
While IE’s 60% share makes it the most dominant player by far, it also represents a substantial decline from the 90% share it enjoyed back in 2005. This decline is almost entirely attributable to the 30% picked up by Mozilla’s Firefox during that period. For much of this time, Firefox users could enjoy tabbed browsing, which was not available to IE users until October 2006, with the launch of IE7.
This being the case, the unbundling of IE may well lead to further gains by Mozilla, or the arrival of the next Firefox. On the other hand, it may be that browsers are already keeping pace with most users’ thirst for innovation. While early browsers varied greatly in their reliability, modern browsers – including IE – more than meet their users’ needs. With ever-faster broadband, surfing has never been so quick or easy. Thus, cutting-edge browsers (whatever they may look like) are, in all probability, competing for the very much smaller market of power users – principally the 30% who have already made the switch to Firefox.
Additionally, while Microsoft must include the Choice Screen on Windows, system administrators in businesses throughout Europe will continue to determine which web browser is installed on their network. Thus, there is every possibility that many users will not see the scrupulously fair choice screen at all.
What happens if system administrators and users alike continue to favour Internet Explorer as they do today? From the Commission’s perspective, this will be a perfectly acceptable outcome, so long as its position has been achieved within the terms of Microsoft’s commitments. This is because the Commitments reflect ‘competition on the merits’ – an obscure concept that litters the Commission’s public statements on the subject.
TetraPak: ‘Competition on the Merits’ Illustrated
We can see the Commission’s commitment to the process of competition on the merits, rather than the end result, by examining its position in the TetraPak case.
Tetra is the dominant company in the packaged liquid-foods market, making both drinks containers and the machines to fill them. It required the users of its machines to use only their TetraPak brand, and not to buy cartons from any other manufacturers.
This industrial equivalent of ‘bundling’ meant that other carton manufacturers could set their sights only on the small part of the market that used the filling machines of companies other than Tetra. As a result, Tetra was able to impede entry to the market it dominated.
However, the ‘unbundling’ that resulted from the Commission’s intervention did not significantly reduce Tetra’s position,and, to judge from its subsequent inaction, the Commission was content (and rightly so) with this outcome. Although Tetra maintains its position, it is now doing so ‘on the merits’ of its product, rather than by unfairly preventing entry into the market.
Potential Outcomes in the Microsoft Case
The introduction of the choice screen via a Windows update will, in one fell swoop, present millions of current users with a choice of browsers. For many, it will be their first encounter with a browser other than IE, and most of these users will surely opt for the familiar over the unknown. However, unless every single user in the EEA selects IE, it must take some sort of initial hit, however small it may be.
In the longer run, there are numerous possible outcomes from the Commission’s current intervention, including a combination of one or more of the following.
(i) Home computers:
(a) the newly levelled playing field leads to a surge of competition, and a reduction in Microsoft’s dominance
(b) users presented with the choice screen overwhelmingly elect to stick with what they know, and IE retains its share of the market
(c) a certain percentage of manufacturers elect to select a different browser by default, resulting in a proportionate reduction in IE’s share.
(ii) Business computers:
There is no question of system administrators letting their tens, or hundreds, or thousands of users freely select their browser, any more than they do today. Overwhelmingly, therefore, the choice of browser for networked computers will be in the hands of the administrator, just as it is today.
Although these scenarios may produce vastly different results, the Commission would be satisfied in each case that IE’s market share was now determined ‘on the merits’ of the product, and that the intervention had therefore worked as it should. Ultimately, the Commission is in the business of levelling the playing field, not refereeing the match.
Stephen Hornsby is a Partner and Owen Thomas is a Solicitor (non-practising) and Software Developer at Davenport Lyons
