Sunday, April 01, 2007


for the monopoly, 'piracy' is still a sale

A poster on Techrepublic opined that "third world countries" are moving away from MSFT because of price alone, and asked "If Microsoft products are inferior, why do people pirate them?"

Germany, Massachusetts, Finland, and Venezuela are hardly "third world countries." Price is only one factor in total cost of ownership. The main argument I see from places that are jumping off MSFT's treadmill is security. MSFT's system simply isn't trustworthy enough to bet your business or your government on. They change their own formats, API's, and protocols willy-nilly, to sabotage "competitors" and create work for MSFT-oriented IT professionals.

The Reagan Pentagon commissioned a RAND study of the real strategic threats to the US. Of course killer malware was one of them. We haven't seen Al Queda's email virus yet, just the relatively harmless ones the spammers commission. A security conscious organization will move off of email systems that remain intentionally vulnerable to that threat. But there was a second threat: proprietary formats let a vendor hold a customer's data hostage. Suppose MSFT announced that starting next year they would charge you twenty cents each time you opened an MS-Word file. What's to stop them from doing that? How do you know MS-Office doesn't already have the mechanism in place to do it? RAND thought that was a bad risk for the Department of Defense to take. That's why the Reagan DoD and GSA kept buying generic unix while the private sector took the risk. It kept unix alive for a decade. Engineering and scientific work wasn't really a big enough market to keep the big manufacturers interested, it was government purchasing. Venezuela and Munich and Massachusetts aren't stupid; when they studied the problem they came to the same conclusion.

I never said MSFT products are inferior. MSFT has one of the best software quality assurance organizations in the world. They ship pretty much exactly what they want to ship. They like to point out that they've never had to re-release the flagships (Office and the OS) because a show-stopping bug made it to production, and it's true. I said MSFT's products are about the last place you'll find technological advances in software. They let everybody else take those risks. With their mindshare, they can get away with taking credit for everybody else's inventions when they get around to imitating or buying them. It's a lot like Edison Electric a century ago.

MSFT enjoys what reasonable economists would call a monopoly, in at least two of their target markets. It's the type of monopoly that depends on what economists call "network effects." In that kind of monopoly, it is far more important to suppress and control competition than to maximize revenue. It really doesn't matter to MSFT whether any particular instance of the flagships was paid for or "pirated." It's one more desktop or small-office/home-office server that's not running Red Flag or Ubuntu or FreeBSD.

Every keystroke someone pounds into MS-Word is another brick in MSFT's wall. That's the primary network effect. MSFT's nightmare is that the International Standards Organization's Open Document Format will cut seriously into MS-Office's share of daily and yearly document production over the next couple of years. It even went to the trouble of creating a decoy (OOXML) to confuse the issue and try to slow ODF down.

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