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T A B L E__T A L K Is free software finally gaining ground in the OS wars? Discuss Linux vs. NT and others in the Digital Culture area of Table Talk - - - - - - - - - - R E C E N T L Y Let's Get This Straight By Scott Rosenberg The New Yorker's portrait of PointCast displays once more the magazine's Internet ignorance (11/10/98) Music industry to webcasters: Pay up! By Janelle Brown Will the new copyright law's rules help Web radio flourish -- or smother the infant medium? (11/09/98) The ghosts in our machines By Andrew Brown "TechGnosis" traces the secret mysticism that motivates our love affair with technology (11/06/98) The god of the information age is a trickster By R.U. Sirius "TechGnosis" author Erik Davis talks about technology's habit of hoodwinking us (11/06/98) Generation byte By Andrew Leonard "Extra Life" recalls what growing up with computers once was like -- and complains about what it has become (11/05/98) - - - - - - - - - - BROWSE THE 21ST FEATURES ARCHIVES - - - - - - - - - - - - - - - - - - - - S A L O N E M P O R I U M FREE! 12-ounce bag of Salon Blend with a purchase of $30 or more. While supplies last.

IS THERE SUCH A THING AS a software monopoly? - - - - - - - - - - - - - - - - - - - - - - - - - - MICROSOFT SAYS NO -- AND ITS ARGUMENTS COULD PROVOKE CHANGES IN THE ANTITRUST LAWS. BY MIKE ROMANO | Just before midnight on the eve of opening arguments in U.S. vs. Microsoft, Microsoft president Steve Ballmer e-mailed his staff to rally morale and outline the basic principles of the company's defense: "When you go home to your families, when you talk to your friends at the kids' soccer games or when you talk to business colleagues, remember how much people admire and respect our company," he wrote. "Microsoft's business practices [are] entirely consistent with the way other companies throughout our industry compete. There is no industry in America today that is more innovative and more competitive than ours." Outside Microsoft, although the company surely has its fans, you have to hunt far and wide to find people who believe that it does not possess some kind of monopoly. But from where Microsoft sits, things look different: Microsoft has no monopoly because, as company spokesman Greg Shaw puts it, the very idea of a software monopoly is "a questionable concept. It's hard to even imagine a monopoly in software." Microsoft's defense against the antitrust charges brought by the U.S. Department of Justice relies on the proposition that the software industry is competitive in the most absolute and technical sense of the word. As a result, Microsoft's defenders maintain, it enjoys unprecedented exemption from basic antitrust restrictions on practices like predatory pricing and bundling. "Hopefully this won't sound like a metaphysical debate," begins Charles "Rick" Rule, who served as assistant attorney general in charge of the Justice Department's antitrust division under presidents Reagan and Bush and now represents Microsoft. First, Rule allows for the paradox that in such an inherently competitive industry it's still nearly impossible, or at least very difficult, to buy a PC without Windows. He concedes further that Microsoft intentionally undercut Netscape by giving away its Internet Explorer browser free. It's a textbook example of predatory pricing, he agrees -- if your textbook was written before the Internet. But Microsoft's lawyers maintain that, thanks to the unique nature of software as a product and the Net as a distribution system, the old rules no longer apply. There is currently no statutory definition for predatory pricing. In 1993, however, the Supreme Court applied a standard test developed by professors Philip Areeda and Donald Turner in Brooke Group vs. Brown & Williamson, a case involving cut-rate generic cigarettes. According to Areeda-Turner, competition in any industry will naturally drive prices toward the marginal costs (i.e. the cost of material and labor in making the last widget, excluding the startup cost of building a widget factory). Pricing below marginal cost, at a loss, serves no purpose except to drive out competitors, and is therefore predatory. Once competitors are driven out of business, a predatory monopolist can recoup its losses by charging supra-competitive prices, to the eventual detriment of consumers. Microsoft admits that it gives away Internet Explorer to cut into Netscape's market share and profit. (Netscape has charged up to $59 for its Navigator browser.) "But there's virtually no marginal cost in software," Rule points out. Making an extra copy of Internet Explorer costs practically nothing, and the Internet allows for free distribution. "What happened with Netscape was that Netscape initially gave away its software until it had a 70 to 80 percent market share, and raised its price," Rule explains in terms of Areeda-Turner. "Then Microsoft came along, providing competition, and drove the price to marginal costs -- zero." By this reasoning, Rule argues that it's virtually impossible to price software below marginal cost -- and therefore, according to established definitions, predatory pricing is essentially nonsensical in the software business. "I think Areeda-Turner is terrifically important," says NYU economics professor Lawrence J. White, who was chief economist for the Justice Department's antitrust division just before Rule took over and remains a harsh critic of Microsoft. "But it does create a dilemma for something like software," he says. "I rarely agree with Rick, but [predatory pricing] is not a useful way of thinking about this." N E X T_P A G E .|.If Microsoft isn't a monopoly under current antitrust law, should the law be changed?