Is Microsoft really a Monopoly - Term Paper Example

 A Study of Monopoly: Microsoft About Microsoft: Microsoft Corporation: a multinational company that was started in over thirty years ago. The company mainly deals with manufacturing, developing, licensing, and support of a number of different software products for computing. The company’s headquarters is located in Washington, U.S.A. Microsoft is one of the most trusted companies for computing products. The biggest and best selling product of the company is the operating system – Microsoft Windows and the Microsoft Office, which is almost used by most of the computer users. The company rose to become the dominating system used within the operating system. It was in the mid 1980s that the company introduced the Window operating systems. The company’s main aim has been to ensure that the Microsoft is used at every computer in every house. The company has been able to create a mark in the other markets as well; it owns the MSNBC cable television, MSN internet portal and the Encarta encyclopaedia. The company also is known for the computer hardware products like the mouse and home entertainment products like the Xbox etc. The first initial public offering was made and the made as many as four billionaires and 12000 millionaires from the employees. The company has always been criticised for being monopolistic in nature, anti competitive and the business has been recognised to be one which does not work with others i.e. deal with others. The business has been described by many as a developer – centric business culture and has created a name for itself in terms of customer support (Microsoft – About Microsoft, 2008). The company as mentioned earlier has faced a number of different criticisms for being monopolistic in nature. The next section of the essay will deal with understanding what monopolistic markets are. This will provide a better view and basis to judge whether or not the company is monopolistic in nature and if the criticisms are in fact true (Microsoft – About Microsoft, 2008). Monopoly: Monopoly refers to a market where a particular individual or enterprise has sufficient control over a product or service and has the controlling power where it can decide the others who can have access to the product. In short it is a market where one firm makes up for the entire market and it is the price setter for the price in that particular market. In these types of markets the competition for the goods and services is normally less and the numbers of competitors within these markets are less. Substitute good and services are generally not available in these markets. These markets generally are comprised of a firm which takes up a greater share of the market when compared to others like in the case of perfect competition. A Monopoly is different from a monopsony where there is normally just one buyer of the products and services. This normally categorises as an imperfect market. Also monopoly should be differentiated from cartel, where a number of providers act together to coordinate services and prices of the goods. The word monopoly was firstly used in Aristotle’s politics (Baker, 2001). After understanding what a monopoly refers to it is also essential to understand a monopolistic market. This is different from monopoly, and is useful to understand to check if the company falls into this category (Baker, 2001). Monopolistic markets are very common and can be considered in various aspects. There are a number of different sectors that fall into these markets. These markets are typically where there are a number of producers and many consumers in a given market, and the consumers feel that there are no price differences among the prices of the various competitors. Also the barrier to entry and exit is very less within these markets and the producers have a control over the prices. These markets in certain aspects are similar to perfect competition markets with the difference of not having heterogeneous products. Also in these types of competition, the product differentiation is very low. Here firms making profits in the short run normally break even in the long run as the demand will decrease and average cost normally increases (Baker, 2001). Microsoft: A Monopoly? There has been a number of different news that has reported the company to in fact be monopolistic in nature. There have been a number of different reports which show that Microsoft plays a very important role in the economic expansion of the country. However there have been numerous arguments regarding this. In 1999 a federal judge in Washington determined that Microsoft was in – fact a monopoly and that the company held a monopoly in operating systems. The judge presented a statement called – ‘Finding of facts’ which did not act as a verdict. This paper included a number of comments by the US District Judge – Thomas Penfield Jackson, and was leaning towards the favour of the Justice Department, against the software giants. The paper had a statement by Jackson which said: "Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market,” (Wilcox, 1999). He also mentioned within this paper that the company had the potential to continue as a monopoly for a longer period and that the company then was surely a monopoly. The report also included the various facts about Microsoft and how the company enjoys so much power in the markets. It also mentioned that with the amount of power the company held in terms of price, the company could charge a price for the Windows which could be much higher than that of its competitors. Also, it could do so without losing out on customers to the competitors, thus proving that the company did hold monopoly in the relevant market. There are however three main facts that clearly show that the company is a monopoly, a) the share of Microsoft for the Intel – Compatible PC operating systems is very high and stable, b) the market in which Microsoft mainly works and functions has high barriers of entry, c) due to the high barriers of entry the customer of the company find it difficult to find an economical and commercially viable alternative (Wilcox, 1999). These in a way prove that the company has monopoly in the markets and also the following information allows proving that the company does so have a monopoly. It has been noted that the company does possess a dominant, persistent and a constantly increasing share of almost every market world wide. Also the company holds up to almost 90% of the market when discussing in terms of the Intel – Compatible PC operating systems. It has also been noted that this percentage has been increasing over the years and has even reached a 95%. This figure has been rising over the years and even with the entry of Apple Mac OS, the company still stands with over 80% of the market. Microsoft has taken a number of steps to ensure that the company remains at the top of the industry (Microsoft Findings, 1999). The company’s size and technology have played a very important role for the company to drive the global economy (Wilcox, 1999). Microsoft has very correctly used the barriers for entry into the market. The market share of the company has allowed the company to use the barrier of entry into the market. If an aspirant entrant tries to enter into the market by trying to set its prices lower than the prevailing prices in the market it would still be quite difficult for the company win against Microsoft since the company’s high market share. Also due to the high market share the company it prevents other PC operating systems apart from Windows from being attractive to customers. This would always be the case even if the other operating systems in the markets slashed their rates much below that of Windows. The brand image and name that has been built up is very evidently the most trusted and most sought after by all customers (Wilcox, 1999). Also with the vast choice that is provided to the customers, the company has created a competitive edge for the Windows operating system. This is simply because customers prefer systems which can be compatible with a number of different applications and not only with the one which is needed immediately but also other which customers might develop interest in later in time. Microsoft has the competitive edge since most of the applications are written for Windows and there is a strong belief for the customers that all if it is a Microsoft product it will be compatible with all applications and all customer needs will surely be met. Also most software is written considering Windows as the primary operating system. After which if the developers of the software think it fit to be written for other operating systems, and then the software is written to meet the requirements of other operating systems (Microsoft Findings, 1999). Microsoft has also created a very large benefit for itself by its aim of being in every computer at every desk in every house. This has ensured that most people are aware of how to use the operating systems and this in turn is the reason why the corporate encourage the use of this operating system. It is taken for granted that almost all the people are aware of how to operate this system, hence it would cut down on the cost for the company on training. Also with the number of people using this system across the globe, the company has also managed to gain a positive feedback loop, as the positive network of a product mainly depends on the number of people using the system. This positive loop that has been created by Microsoft causes one of the biggest barriers to entry into the market for other competing companies. If a competitors aims at betting the Microsoft, it would require to have the huge database and the thousands of applications that are compatible with the Windows systems. This however would not guarantee the customers would buy the product. Also the expenses that the company might face will be way higher than the actual revenues it would earn in the future. Microsoft has also taken the initiative of spending hundreds of extra dollars every year to ensure that all the applications are first written in versions compatible with Windows. If the company did give up this effort then the competitors would find it easier to create a positive feedback loop for them. However at some level Microsoft would still be the leaders as most independent software developers’ focus on developing software to match operating systems that are most commonly used i.e. Windows (Microsoft findings, 1999). Another very good step taken by Microsoft is the fact that the company focuses on providing their customers with new and improved versions of the systems. Every time the company gets a new application the users of Microsoft have a chance to update their system and buy the newest version. And the most applauding fact is that the company pays a lot for the independent software developers’ the company still does not face too many obstacles as the company has been able to build a lot of other barriers of entry which vendors and other to – vendors require to overcome. Microsoft has also invested a lot in the research and development of the systems in the company. Even though the company has the monopoly in the market the company is yet aggressive and innovative at every step. This innovation has helped the company in numerous ways firstly customers are attracted to innovation and are insensitive to prices. Secondly, the aggressive innovation helps the company push the competitors as far as possible and ensures the company does not have any viable alternative in the near future. The innovation within the company is used to delay other potential competitors from coming close by improving its own product and ensuring complete customer satisfaction (Microsoft Findings, 1999). In the recent years, there has been another company which has become a monopolist – Google. Even though Google is not a monopolist in terms of operating systems, the company has created its mark in other terms. Google has monopolized the internet as a whole. Almost every individual uses a Google product, like Gmail Email Accounts, Google Search Engine, You tube, Chrome Browser, etc. These are a few of the possible things Google has to offer. Google has in the recent past become the most widely used and recognized name across the globe. The company has created a monopoly in its own sense and has been able to attract almost every customer to any one of its products. The only company that causes concern and threat for Microsoft is Google (Scatterfield, 2008). Conclusions: Microsoft has been a monopoly over the last many years. The company own almost more than 90% of the market and has had the monopoly power for many years now. Microsoft has built itself very high standards which no company has been able to meet up to. However now there is one competitor which causes the biggest threat to Microsoft – Google! Google as already been mentioned, is a fast growing business and is one which has been able to develop most of the applications that are provided by Microsoft at much lower costs, simpler, and most importantly very convenient to use. Microsoft has over the years been able to build up a database of customers and has always ensured that the customers are provided with the best services and are updated with the latest technologies at all times. Google on the other hand is relatively newer (Scatterfield, 2008). Google was started in 1995 by two young graduate students – Larry and Sergey. The company has grown from simple project that was undertaken by two young graduates to one of the most well known and well developed systems. Google has broken all the records over the years and is rapidly proceeding towards beating Microsoft which has always been considered as the big brother of the industry. Some of the biggest and most important observations that have been made are: a) The products of both of these companies are natural monopolies; b) Both of these companies are profitable widely across the globe. However it is also interesting to note that Microsoft Windows business has operating profits margins of over 75%, and so does Google despite the fact that the company spends in billions for its products with zero revenues c) Google’s natural monopoly is growing at much faster rates than that of Microsoft. Also Google’s search business is proving to become much bigger than the Microsoft business and is expected to over take Microsoft by early next year. Microsoft’s two biggest monopolies – Windows and Office are now also facing competition from Google. Google is yet to develop an Office equivalent however its Ad Sense is catching up (Blodget, 2008). It is very clear from the current situation that Microsoft has had monopoly all these years both in the search engine as well as in the Windows and Office applications. Now Microsoft has almost lost its monopoly in the search engines it still does have an upper hand in other aspects like the Office and Windows applications and the operating systems. The following graphs will help understand better the current positions of the two companies and the current position Microsoft holds monopoly. Figure1: Google Search vs. Microsoft Windows (Blodget, 2008) Figure 2: Google Search vs. Microsoft Windows + Office (Blodget, 2008) It has been a boon for Microsoft for the monopoly held in the Windows and Office. This allows the company to get a breather, however it would be only for a few years before which Google will catch up. Figure 3: Google Search vs. Microsoft Online (Blodget, 2008) Looking at the above graphs and discussions it is very evident that Microsoft has lost its place in the markets in terms of Microsoft Online, and Google seems to be catching up very fast to bet the company in terms of Windows and Office as well. There have also been a number of people who believe that Google products have gained more power than that of Microsoft and that it now Google applications that are preferred than the Microsoft applications. Users believe that Google has been able to provide applications that are cheaper, easier and more convenient to use, when compared to Microsoft applications. Also most companies seem to be moving away from Microsoft products and shifting entirely to Google, with a few exceptions, where Microsoft products are sparingly and selectively used. It is now becoming very essential for Microsoft to improve its products more as it has a very fast growing competitor. The above discussions clearly show the decline of Microsoft’s monopoly and the birth of the new possible monopoly – Google. However in certain aspects it is still apt to say that Microsoft is a monopoly. Bibliography Baker, S.L. Monopoly Price and Output. Economics Interactive Tutorial. 4 December 2008. Blodget, H. Google Search to Surpass Size of Microsoft Windows in 2009. 13 May 2008. 5 December 2008. Microsoft – About Microsoft. 2008. About Microsoft. 4 December 2008. Microsoft Findings. Findings of Judge Thomas Penfield Jackson. 5 November 1999. 4 December 2008. Scatterfield, R. Microsoft Monopoly 1999, Google Monopoly 2008. 24 September 2008. 4 December 2008. Wilcox, J. Judge Calls Microsoft a Monopoly. 5 November 1999. 3 December 2008. Read More