Microsoft claims that IE is free. It makes this claim by pointing out that consumers can download IE for 95, NT, Solaris, HP-UX and Apple. But, you still must buy it with Windows 98.
But since when does the ability of someone else to get it free mean that you do not have to buy your copy? Since when does the ability to get a different version mean that when you are forced to buy yours with the OS, you are not being forced to pay for your copy?
Does Microsoft really think that is some consumers get a free piece of gum but others have to buy theirs, that somehow that means those who have to pay money and got gum did not pay for it? That is pure bull. If I give you a tube of toothpaste for free, but each time you go to the store, another tube is added to your bag and your credit card is charged a higher price, is that extra tube "free"? No. It is not. Not a single copy of IE forced upon millions of consumers is free. Not one of them.
Microsoft has spend hundreds of millions in developing IE(that figure is about $500,000,000 as testified to by Mr. Schmalensee). Microsoft in its financial reports required by the SEC indicates that 20% of all operating system income is attributable to "unearned revenue" sources including IE. Steve Ballmer has also been quoted as saying that Microsoft does not give away software. And, Microsoft says that it increases the cost of Windows as "features" are added. Well. IE is clearly a feature no matter how else you might describe it. IE has and will continue to increase the cost of Windows for all consumers.
And guess what? There is no economic reason for a monopolist to give away any product it can bundle with it's monopoly product. None. It just does not have to. It can just jack up the price of the monopoly product or simply bundle IE and raise the price to cover both. Either way, all consumers pay more money because IE is forced upon all of them.
When Netscape initially gave away its browser, there were very strong economics reasons for that. For one, a free product will receive less resistance in the market place. This comes at a cost, but many companies justify this cost as a way of quickly penetrating a market. And, when it can not be bundled with a monopoly product that can just be jacked up in price, this loss of revenue is real. Microsoft simply does not have a similar economic reason or justification. Hint: It has a monopoly product to bundle IE with. It can publicly claim to give it away while forcing all consumers to actually pay for it.
When Microsoft claims IE is free, it is only using deceit to suppress the natural resistance that might otherwise be present as consumers realized they are being forced to buy unwanted products. If consumers thought the price of Windows was raised to cover the half a billion in R&D for it, they might object. This is why Microsoft has falsely claimed to not charge for it.
It is clear that Microsoft has the power to bundle significant products with its operating system and not loose sales. The testimony from economists in the Microsoft trial will clearly point this out. For one, Microsoft has succeeded in forcing Apple to also bundle IE. That precludes competition from any operating system being offered to the market without the added cost of an unwanted application. Many consumers might want an OS without a browser. And, almost all of them would rather pick their own (I.E. even Microsoft supporters prefer to pick all of their own applications).
Just how much does IE cost, anyway? It is clearly not zero. IE cost hundreds of millions to develop(half a billion is the number). And, the development is ongoing at an enormous pace. IE is clearly not a free product tossed in as insignificant bonus. It is clearly a major component of the cost for the OS. And, its inclusion will continue to keep the minimum price paid by consumers higher that it would otherwise be.
I have estimated that up to 70% of the cost for 98 is directly attributable to IE. What figures are published by Microsoft? Well. They are keeping that a secret so that their campaign of deceit retains at least some creditability. If they continue to refuse to publish how much they actually spend on R&D for IE, then they can continue to lie about how much they are charging for it. (Testimony now discloses the half billion dollar figure.) Do they continue to spend R&D on "NotePad"? Certainly not hundreds of millions of dollars. Are they continuing to spend millions on R&D for 98? Hardly. It is scheduled for termination. 98 is the end of the line. But, IE is not the end of the line. Major R&D is continuing to be spent. So is IE the "freebie"? A better case could be made that 98 is the free product and IE is being sold for cash.
So when Microsoft says that the suggested retail price for a new license of the consumer OS and IE is $200 or so, how much of that is attributable to IE? Well. 70% of $200 is $140. The upgrade is suggested to sell for around $100. Well. 70% of $100 is $70. (In court a figure of around $50 is mentioned, but that is the wholesale cost facing OEMs and is not the price paid by consumers.)
So. It is likely that the suggested retail price for IE is $140 for new licenses and $70 for upgraded licenses. What is the damage caused? Billions.
What does Microsoft say it is? They say it is zero. That claim by Microsoft is an intentionally false statement intended for no purpose but to increases sales (consumer fraud). That claim is made my Microsoft for no purpose other than to trick and deceive the consumer into buying IE or to discourage consumers from rejecting the idea of being forced to buy IE. It has no other merit. If Microsoft did not intend to deceive, why not just say that 30% of the 98 product is the OS and 70% of the 98 product is IE? (Or some other figure as appropriate.) Is it necessary to misrepresent what cost of the product is attributable to IE versus the OS? Only if Microsoft thinks that the consumer might complain or that the DOJ might sue for antitrust violations due to bundling. (Actually, a zero price also violates the law. Most of the States joining in this litigation have laws against pricing products at a predatory price to preclude competition).
But, how do I know that? Was I in the board room when the pricing of 98 and IE was determined? No. And, we do not have any e-mail to read either. But. It is the only conclusion or decision that makes economic sense. A monopolist simply does not need to give away any product bundled with the OS that everyone is (all but) forced to buy. Ask an economist. Any economist. If you assume that Microsoft has a monopoly on consumer operating systems, then there is no reason to not just bundle an application with the OS to force the sale of both. Guess what. For the last 10 years Microsoft has continue to add more and more utilities and applications to the OS in the effort to keep the price high and to force the sale of these other applications. IE is just more significant or important than the others. It cost a lot more than any other application bundled with the OS. And, it is much more important to Microsoft to slip into a monopoly position on browsers so that it can control and manipulate all consumers on the internet as well. (This is why Microsoft is betting their entire corporation on forcing the sale of IE. No free product. Just a forced sale for money.) The testimony from Franklin M. Fisher also points out that bundling IE with the OS not only eliminates a potential competitor (Netscape) but also increases the barriers to entry for consumer operating systems.
Is Microsoft making the claim that IE is free to avoid antitrust violations? Or, make the proof of harm to consumers more difficult for the DOJ? Well. Just wait. If Bill Gates has not made the argument yet in public he certainly will. Others have made the claim. "How can a free product possibly harm the consumer?". Well. In California, a free product can violate the laws against unfair competition. I assume that the other States have similar laws. Even the State of Washington might have laws designed to prevent free products from precluding fair competition. And, even free products can violate antitrust laws. Harm to consumers does not need to be direct, financial or even proven to be in the present. Just loss of choice can be consider as sufficient harm. But, we are seeing both current and significant financial harm as well as indirect harm caused by loss of choice.
So. Which is it Microsoft? Do you continue to argue that Microsoft is spending more and more money on R&D so that you can give away the product? (Hint: you are a fool if you really think that because their is no reason to give it away...you can just bundled it and force the sale) If Microsoft does not understand the monopoly power it has, they can call me. I'll explain it them. Or, they can hire an economist, any economist, and they can explain it. Even Mr. Schmalensee can explain it.
Is it hard to force the sale of an unwanted product without violating some law somewhere? The short answer is yes. And, no company should be able to do that anyway. Being able to force the sale of any product is not a right. It is not even a privilege. In fact, it is illegal and it should be illegal. But, the real question raised here is "Just how much is Microsoft charging consumers for IE, anyway?". $140 per copy? It could be. It could easily be.
Lewis A. Mettler, Esq.