August 30th, 2004
Microsoft music store: Is this what McNealy warned us about?
Initially, after Apple’s started its online music store, Microsoft was resolute in its decision to not do the same. It left the opportunity to compete with Apple to customers of Microsoft’s IT infrastructure offerings and development tools. In May 2003, David Caulton, a manager in Windows Media division, said "We’re still very comfortable with the strategy of enabling lots and lots of partners to build these things, rather than build a closed proprietary service on our own." Eventually however, faced with the smashing success of Apple’s music store, Microsoft wavered. In explaining a reversal of the company’s original position on running its own music store, Microsoft Chairman Bill Gates was quoted as saying in a News.com interview that "The simple fact is we believe in both advertising revenues and e-commerce revenues ….And so as you get people online comfortable with spending money…there will be companies that get to critical mass in terms of having those customer relationships and doing e-commerce."
Now, with the launch of that MSN-based online store only days away, four questions remain:
- Was this what Sun CEO Scott McNealy meant when, during remarks about Microsoft’s Passport service and monopoly position in the beginning of 2002, he predicted that Microsoft would do to its customers what no technology company should do: compete with them?
- If Microsoft is willing to compete with certain customers in the selling of music and videos, will it stop there? Or should other customers in other sectors (eg: financial services) buttress themselves for Microsoft’s entry when and where MSN can play a role (eg: MSN Money Central) and if, as was the case with Apple, Microsoft feels pressured to do so.
- Could this situation have been avoided if, at the very least, the government’s trustbusters ordered MSN to be spun-out as a separate company and forbade Microsoft from operating an online service that is evenly remotely tied to its monopoly in desktop operating systems. As is the case with Apple’s online music store and and its iTunes application that comes with its OS X operating system, Microsoft’s online music store is expected to have close ties to the Windows Media Player that’s bundled with Windows.
- How will this development affect Microsoft’s current antitrust battles? Earlier this summer, in an antitrust ruling, the European Union levied $600 million in fines against Microsoft and ordered that the Windows Media Player be removed from European distributions of Windows. The sanctions have been suspended pending Microsoft’s appeal. Will Microsoft’s entry into the music business cause the EU to stand firm in its decision and will a loss in Europe increase the resolve of other governments to explore their options?
Will Sun’s McNealy dust-off the rhetoric to say I told you so? If he does, it will be with subtle references rather than a direct attack on Microsoft’s alleged monopolistic practices, as he has in the past. There are some things that $1.95 billion can buy. Silence is one of them.
