Summary and

critics of

Winners,

Losers &

Microsoft

Author : A former EMBS student

Date : May the 1st 2009

Optional work for the course of Innovation and

Knowledge Management of the University of Léon within

the European Master in Business Studies 2007/2009.

Innovation and Knowledge

Management

A former EMBS student - European Master in Business Studies 2007/2009

2

Index

Rules 3

Before starting 4

Summary 6

Personal point of view 11

Distribution of Microsoft products 12

Technology's awareness 14

Conclusion 17

A former EMBS student - European Master in Business Studies 2007/2009

3

Rules

Optional reading. You can voluntarily make a report/Powerpoint presentation

of the readings you choose. You can choose one or multiple papers and

journal articles recommended by the instructors. Electronic copies of

reports/presentations should be emailed to the instructor.

A former EMBS student - European Master in Business Studies 2007/2009

4

Before starting

I read as well for this exercise the book called “Information Rules: A

strategic guide to the network economy” which was in the list of the books

suggested for the course of Innovation and

Knowledge Management.

I unfortunately did not make the summary

for the following reasons:

- This is a tremendous book very rich

in term of contents. His analysis and

understanding take a lot of time, practice and

assimilation of many concepts;

- A very good summary of it is

already available at:

http://www.squeezedbooks.com/book/show/7/inf

ormation-rules-a-strategic-guide-to-the-network-

economy made by people which are far more

competent as I where the following issues are well tackled: Prices,

Versioning, Intellectual Property, Lock-in, Network effects,

Cooperation strategies, Standards Wars, Policy implications.

However I clearly recommend people to read this book rather than Winners,

Losers and Microsoft for the following reasons:

- Information Rules is as well tackling the issue of Microsoft domination;

- Its authors are analyzing Microsoft dominance in a more neutral way;

- This book represents almost the bible or book of reference to

understand the digital network economy and is then very appropriate

as a starting point.

A former EMBS student - European Master in Business Studies 2007/2009

5

- Winners Losers & Microsoft is also speaking about topics included

within Information Rules. However I would qualified more Winners

losers & Microsoft as a complement to Information Rules rather than

the other way around.

By experience do not read “Information Rules” within ten days as I did

because the content of the book is so huge that you cannot decipher the

hidden sense of each words.

A former EMBS student - European Master in Business Studies 2007/2009

6

Summary

Winners Losers & Microsoft

This book is composed of ten parts but only 6 kept my attention. The reason

is that the first 5 chapters are more or less the theory and the 5 next are the

practical application of the theory. Here are the most important points divided

by chapter which kept my attention.

Chapter 1:

This chapter is the almost the summary of the book you can get a copy of it at

the following address: http://www.ehrlichorg.com/01f-tebt/Liebowitz%20-

%20Winners%20Losers%20and%20Microsoft.pdf. The part which kept the

most my attention is the issue related to the network effect. Network effect

means that the success of a product or service is due to the fact that the

majority is using such product or service. One assumption which is made is

that free markets are not capable of making good choices among

competing products.

It is not a hazard if the following slogan "Build a better mousetrap and the

world will beat a path to your door" is introducing this chapter.

In order to illustrate this the author is using the case of the keyboard

arrangement. According to some people the arrangement of the Qwerty

keyboard is arbitrary but won the market whereas it seems that a better

product was present at that time: “Dvorak Keyboard”.

'In the world of Qwerty, one cannot trust market to get it right".

Chapter 2:

A former EMBS student - European Master in Business Studies 2007/2009

7

Chapter 2 is dealing with the case study of the Qwerty Keyboard against the

Dvorak Keyboard. Here the author mainly focuses in proving that the Dvorak

Keyboard was maybe not a better product and that many information are

lacking in order to defend the Dvorak Keyboard.

In any case he concludes here that a standard will always win even if it is not a

good one and define then the concept of market failure. Opportunities for

agents to profit from changing to a superior standard.

Chapter 3:

Chapter 3 is dealing mainly with “path dependency”, it means “we saved and

invested last year and then we have assets today”.

It must be possible for someone to have credible information that have a better

allocation is available someone somewhere is likely to figure out how to move

to this better path.

Feasible and superior alternatives exist. Lock in is inevitable if people are

passive.

An equilibrium is defined as a condition such that no change will occur unless

some outside events intrude.

Chapter 4:

When the value of a good changes because the number of people using the

good changes, we call this a network effect.

The knowledge share of total cost is not necessarily greater now that it was in

the past.

Chapter 5:

A former EMBS student - European Master in Business Studies 2007/2009

8

Chapter 5 explains that standards can be fixed or flexible. The competing

standards are fixed. Owners of Proprietary software face a choice.

"If an Operating System can accommodate new features, or an altered

interface, or increased capacity, without making older versions obsolete, or

making users' old skills obsolete, it is a flexible standard.”

Sometimes there is a disagreement over a standard. Some people might

prefer a language that is simple but limited; others might prefer one that is

more versatile, though more complicated. Some might prefer a set of building

practices that is extremely durable, though expensive; others might take cheap,

but less durable. It is in such circumstances that the choice of standards

presents a social problem. We now look at how individuals are affected by

standards, how they choose among them, and how those choices play out in

the market.

No standard win, some standard emerge. Standards facilitate interaction

among individuals. The eventual adoption of a standard often occurs

simultaneously with improvements in technology.

The government might wish to award natural-monopoly franchises, as it does

for public utilities, but the history of publicly regulated utilities does not inspire

confidence that technological advancement would be promoted, or that costs

would be kept down.

A single owner of a technology or standard is capable of internalizing the

impact of consumer's behavior through prices.

It is important to notice here that such pump-priming measures are likely to

look predatory, especially after the fact. Actions to establish a standard may

appear to be actions to defeat, kill, or destroy rivals, inasmuch as the goal of

achieving a contemporaneous market share large enough to push the

equilibrium to a favorable position for the firm may require temporary profit-

losing actions. But they seemingly predatory actions are exactly the

mechanisms that prevent lock-in to inferior standards.

A former EMBS student - European Master in Business Studies 2007/2009

9

Chapter 6:

If everyone uses A, yet each individual regards B as better, but only when

many other people also use B, then we might find ourselves stuck with A; We

argued that although this trap is certainly possible, interested parties are likely

to respond in ways to disable this trap if it is actually causing significant harm.

The beta-VHS standards was is a rich example of a standards battle. It is not,

however, a story of lock-in of the first product to market. Instead, it is a story of

competing formats, consumers' switching when something better for them

became available, and the coexistence of a minority standard that offers

special benefits to a specialized group of users.

Why has it failed? It can not be due to lock-in, for there is no compatibility

issue and no differential network effects.

Washington was aware that the French had gone overboard in their adoption

of metric. The switch to metric time in France after the revolution is a

fascinating example of a case where the costs of switching were far greater

than the benefits The reason that metric time makes no sense is that is makes

obsolete all clocks and provides no particular additional value.

She found that the small coal car was in fact well suited to Brittain's geography

and coal-distribution systems.

Good products win when Microsoft products are inferior to its competitors they

fail.

Where products are differentiated and where consumers have similar

preferences about products, a product that most consumers identify as "best"

can quickly be offered in sufficient quantity to satisfy the entire market.

Users communicate. They send messages and exchange files. They

exchange information about what can be done and they teach each other. In

addition, for software, there is less likelihood that decreasing returns in

manufacturing could outweigh network effects, since software manufacturing

itself may exhibit increasing returns.

A former EMBS student - European Master in Business Studies 2007/2009

10

The origin of the modern operating system took place at the Xerox Palo Alto

Research Center (parc), which developed the idea of putting data in a

resizable windowing interface controlled by a mouse. Xerox never derived

much benefit from this work, but millions of computers users have.

Microsoft wanted to convince consumers that switching to Windows would

provide immediate benefits with useful products. The office suite provided this

assurance, and did so at an extremely attractive price.

Thus, if we want to assess quality in markets that are allegedly subjects to

lock-in, we will have to measure quality in some other way. It seems to us

reasonable to look at the quality assessments of experts writing (mainly) for

computer magazines.

The most natural interpretation of these results is that Microsoft is responsible

for the price declines.

Microsoft lower prices in market after it achieves large market shares. When

we examine prices in individual markets, it will be useful to keep these overall

results in mind as a benchmark.

A former EMBS student - European Master in Business Studies 2007/2009

11

Personal point of view

I have been surprised by the following statements that Winners, Losers &

Microsoft received as an award:

"Henceforth, any judges, economists, pundits or journalists who discuss

Microsoft or technology lock-in without first dealing with the Liebowitz-Margolis

critique should have their wrists soundly slapped by."

- The Wall Street Journal

"This powerful and fascinating books shows with data and logic - not politically

correct illogic - that the market, not the government, has been right."

- T.J. Rodgers, chairman & CEO, Cypress Semiconductor Corp.

I don't know if it is because I already have some knowledge in the field of

Information Communication and Technology or if it is because that I read this

book with a year-2009 perspective (the book being written in 1999) but I found

some critical lacks and gaps of information in this book. I even find surprising

that it has been written by two phds specialized in management.

I would even say that I found this book a bit too much Microsoft friendly

oriented.

If I read properly this book (we have to take in account that I am not an English

native speaker and that I did not analyze each page of this book in detail by

making rereading) I clearly understood that the main argument of the

authors is that Microsoft won the market properly because it was

providing the best products.

A former EMBS student - European Master in Business Studies 2007/2009

12

That the condemnation they have been exposed to was unfair.

Liebowitz and Margolis are raising some interesting points regarding this issue

and this is for sure an interesting book in order to understand Microsoft's

defense. I however would like to explain two points which are for me

fundamentals and that the authors did not developed or at least did in a non

explicit and non exploitable way whereas here is I think the heart of the

Microsoft domination.

Distribution of Microsoft products:

In November 2008 I wrote a 20 pages report on Microsoft Distribution

Channels http://moteurs-de-recherches-

alternatifs.blogspot.com/search/label/Les%20canaux%20de%20distribution%2

0de%20Microsoft where I highlighted the bundling concept (the fact of selling

several products within one without having the possibility of buying the

products separately).

Bundling has been developed in the book and this is not my point.

My point is the following: customers are not and very few of them awarded that

each time they are buying a computer (which is in almost all cases sold with a

Microsoft Operating System) they are buying the Operating System as well.

Here in the book they almost always speak about bundling the computer+the

Operating System+Microsoft other software such as Excel ... whereas actually

the main issue is based on the acquisition of the OS when buying the product.

What is the most striking is that all the customers think that buying the

computer with the Operating System is free of charge. How many times do we

see advertisement saying that "include Microsoft Windows + hundreds of

others software"?.

Just take any advertisement you can find nowadays (19/03/2009):

http://computershopper.com/laptops/reviews/asus-w90vp-x1

A former EMBS student - European Master in Business Studies 2007/2009

13

Price (at time of review): $2,199

Processor: 2.8GHz Intel Core 2 Duo T9600

Memory: 6GB RAM

Storage: 320GB hard drive

Optical Drive: DVD+/-RW

Screen: 18.4 inches (1,920x1,080)

Graphics: Dual ATI Radeon HD4870 (Crossfire) 512MB

Weight: 11.5 pounds

Dimensions (HWD): 2.5x17.4x12.9 inches

Operating System: Windows Vista Home Premium (64-bit)

and you will never find an information telling you that the price of the hardware

is $2,199 - (let's say $200 of OS) = $1,999

The only way today to get a computer free of Microsoft Operating when you

buy a PC is to build it by yourself or to sue the distributor of the product as it is

starting to be the case in France.

Of course and this is always the polemic which is told to mass customers: "

Why people should be interested in a PC without OS?", answers are

numerous:

- You want to use a pirated copy of Microsoft as it is the case on many

computers (you are free to do illegal things until you get caught);

- You may already have a license of Microsoft Operating System, which is the

case when you change from a pc to another;

- You may want to go for another Operating System such as Linux;

- You may just want to buy the computer to take some pieces of hardware.

A former EMBS student - European Master in Business Studies 2007/2009

14

So as you can see there are some good senses reasons for not going for

Microsoft Windows but what I really want to point out is the mass public

exploitation of information.

So before writing a book which is saying that Microsoft fairly won you should

make people awarded that a huge part of the computer they are buying is the

software.

In the example of the computer I gave above price is not very relevant

because the OS is representing 10% of the final price but have you think about

the computer low cost market where computers are sold at 500 €. In that case

the OS goes up to 20% or even more of the final price. So just make people

aware of it and you may be see a raising army of people looking for alternative

solutions to Microsoft Operating Systems.

The authors of this book did not take it into consideration but can you imagine

the mass public reaction if they learn and take conscience that since more

than 20 years they have been charged for something that they were not aware

of and that alternatives were possible.

In order to conclude this first part I would say, yes as we want it or not

we all gave money to Microsoft without knowing it... is it that fair?

Technology's awareness: the Internet browsers market

Here is one more time a part that I am writing taking in account that it may be

possible that Liebowitz and Margolis did not write about this issue 10 years

ago because those information and data were not existent yet.

A former EMBS student - European Master in Business Studies 2007/2009

15

However it may be possible as well that they had the information in front of

their eyes and decided to not going further. In any case I really found this lack

critical and I would like to share with you what I think is fundamental in

Microsoft domination.

The point that I want to make is technology's awareness, the fact that people

are not aware of the existence of new technologies on the market.

The best example I can find is the one of Mozilla Firefox which is a serious

competitor to Microsoft Internet Explorer Browser. Firefox is in fact the

continuous project of Netscape Navigator which according to the authors has

been fairly defeated by Internet Explorer which was recognized as a better

quality one.

The market of Internet browsers is nowadays the following:

February, 2009 Source: http://marketshare.hitslink.com/browser-market-

share.aspx?qprid=0

Microsoft Internet Explorer 67.44%

Firefox 21.77%

Safari 8.02%

Chrome 1.15%

Opera 0.71%

Netscape 0.66%

Mozilla 0.07%

Opera Mini 0.07%

Playstation 0.04%

ACCESS NetFront 0.02%

Blazer 0.02%

Microsoft Pocket Internet Explorer 0.01%

Look at any computers within an university and you will find Mozilla Firefox

installed on in plus of Internet Explorer which is by default installed on all

computers. What does it mean? it means that all universities have made the

effort to install another Internet Web browser. I guess that places where

A former EMBS student - European Master in Business Studies 2007/2009

16

education is thought is the best one to judge what is the best solution to user

needs because they have the knowledge and awareness of better solutions.

I would not be surprised as well to come in any mere household which have a

computer and to not see the presence of Firefox on computers. The reason is

simple, information is not passing through the mass. Most of the mass are not

technologies aficionados and then not aware of other technologies which are

running around. They buy what they buy and they use what they bought.

Which mean provide me a computer with Internet Explorer and I will logically

use Internet Explorer.

So here I am quite astonished that one more time the authors did not

developed this argument deeply. For me here you have a pillar of Microsoft

success, how to make people aware of different and various technologies.

Moreover we should take in account the number of garbage computers which

are still on the Internet. I call garbage computers some old computers which

are not up to date and will never be but are still running around on the Internet

because some people even do not know that computers have to be

maintained and which of course are running under Internet Explorer.

A former EMBS student - European Master in Business Studies 2007/2009

17

Conclusion

As an overall conclusion I would say that I am very surprised that such books

can be published and received at the same time so many positive feedbacks.

For me there are here two critical missing parts which can really reversed the

context of this book.

One thing is sure giving right to Microsoft and monopole to this company is a

serious problem and diversity has to raise up. This is not by writing such

favorable books which will help.

The earlier change will be made the better it will be. The recent news

published those

weeks http://www.zdnet.fr/actualites/informatique/0,39040745,39387636,00.ht

m showed clearly that things are moving in this field (the deactivation of

Internet Explorer will be possible on new computers) but I guess it is one more

time a bit too much in favor of Microsoft. When will it be the time when going to

your vendor you could choose "à la carte" what you want in your computer and

that you do not want.