Mozilla

EC Principle 4: Microsoft’s financial and other incentives to distributors must be browser-neutral

March 20th, 2009

Microsoft has also used a range of techniques to encourage the distribution channel (often known as “the OEMs” for “original equipment manufacturers”) to ship IE. The OEM distribution channel is a funny thing. When I started working in this industry I assumed that the OEMs would pay software vendors for the right to distribute a piece of valuable software. But it turns out that’s backwards. The software maker pay the OEMs to include software on the OEM’s machine. So first the vendor makes the software, then they pay someone else to distribute it. The OEMs get to include software in their distribution packages for less-than-free — they make money by including software. This is because the distribution channel — the ability to actually get human beings to look at a piece of software — is so valuable. Software vendors end up paying for their products to reach people, and hoping to make money afterwards. For many product-focued people I think it is hard to internalize just how critical the ability to get people to pay attention to the product is, and how “distribution” can outweigh product quality in building success.

(This distribution channel is *so* valuable that Microsoft’s early efforts to promote IE in the 1990’s included threatening the OEMs with the loss of their ability to ship Windows (and thus the end of their business) if the OEMs didn’t ship IE exclusively. This practice stopped after the US judicial system determined a set of these sorts of practices to be illegal.)

Historically, software vendors generated revenue on upgrades and the licensing of subsequent and additional products. Today the models are diverse and complex, and may also include revenue-sharing between OEMs and software or service providers. For example, if you use a desktop search functionality, chances are high that the company you bought the machine from is getting a piece of revenue from the search provider.

This principle does not challenge these general business models. Like the other remedies, it is tied to the monopoly status of Windows, which requires all PC OEMs to work with Microsoft. In addition these programs cannot be matched by others because the Windows monopoly gives Microsoft a raft of unique tools. This principle prohibits the use of those tools to promote IE in ways that are unavailable to other browser manufacturers. It asserts that Windows monopoly status cannot be tied to financial incentives that further damage browser competition. Some examples of what this might mean are below.  There are undoubtedly many others.

  • pricing of windows cannot vary based on whether IE is included or not
  • payment for search/ad revenue or other service based revenues must not be conditional on IE being the browser.
  • co-marketing efforts or amounts cannot vary based on the status of IE
  • no financial incentives for OEMs to include links to IE anywhere in Windows

A complication of this principle is that it’s difficult to understand the complex relationships between Microsoft and the OEMs. There are a lot of details involved. It could be that one would agree intellectually, but find oneself unable to implement effectively. That’s again why I’ve separated out principles from remedies and implementation.

In summary, the OEM channel provides a way for a company with a lot of cash to pay to close off competition. This principle asserts that  a monopoly position plus the ability to pay to foreclose competition in related functionality is too much.

Categories: Mozilla | Tags: , ,

7 comments for “EC Principle 4: Microsoft’s financial and other incentives to distributors must be browser-neutral”

  1. 1

    Screwtape said on March 20th, 2009 at 7:29 pm:

    You say “pricing of Windows cannot vary based on whether IE is included or not” – are you sure that’s what you mean? I seem to recall that one of the outcomes of the EU’s similar case with Windows Media Player was the availability of a version of Windows sans Media Player, for exactly the same price as the regular edition. Naturally, nobody bought it – who would choose a fewer features for the same price? – and naturally Microsoft used this as evidence that consumers overwhelmingly preferred WMP to the alternatives.

    It seems more sensible to say that copies of Windows without IE ought to be cheaper than the regular edition by some reasonable amount. In the price-conscious OEM market, there would be great incentive to use the IE-less version of Windows provided they could replace the browser with some third-party alternative, which sounds like exactly the kind of opportunity we’re trying to create.

  2. 2

    Lennie said on March 21st, 2009 at 4:25 am:

    I’m very much in the camp to talk about the OEM-/Microsoft-relationship because I think this is where a large source of the problem is and I’m very glad Mitchell Baker blogged about it now. I’ve expressed some ideas about the OEM-relationship in the past. After reading this post, I’ve had some new ideas. Let’s see. First of all, where does the this-windows-license-is-tied-to-this-machine idea come from ? Is there anything that can be done to get rid of that stilly idea ? It’s really smart from Microsofts perspective, but bad for customers. A lot of corporate custumers with site-license actually end up paying dubble because of it. People buying a new computer after the old one breaks done, pay double as well. This is a really good trick of Microsoft to make sure the price of Windows included with the PC is low and makes sure the price isn’t very clear to users.

    Second thought is, if you buy a PC from HP or Dell, etc., you might get a time-based trial-version of some anit-virus-software included. I’ve always come to understand that OEM gets payed for including this software. Maybe the included Windows-version should also just be a time-based trial-version with activation ? If people would pay by the hour, it would also make sure people powerdown there machines and that would be good for the environment and decline the likelihood of DDOS-attacks. Microsoft seems to want to move to the pay for use model anyway as i understand it.

    Anyway, just expressing ideas. 🙂

  3. 3

    Pingback from Boycott Novell » Links 21/03/2009: GNU/Linux Advances; Free Software Prioritised in Germany

    […] EC Principle 4: Microsoft’s financial and other incentives to distributors must be browser-neutral Microsoft has also used a range of techniques to encourage the distribution channel (often known as “the OEMs” for “original equipment manufacturers”) to ship IE. The OEM distribution channel is a funny thing. When I started working in this industry I assumed that the OEMs would pay software vendors for the right to distribute a piece of valuable software. But it turns out that’s backwards. The software maker pay the OEMs to include software on the OEM’s machine. So first the vendor makes the software, then they pay someone else to distribute it. The OEMs get to include software in their distribution packages for less-than-free — they make money by including software. This is because the distribution channel — the ability to actually get human beings to look at a piece of software — is so valuable. Software vendors end up paying for their products to reach people, and hoping to make money afterwards. For many product-focued people I think it is hard to internalize just how critical the ability to get people to pay attention to the product is, and how “distribution” can outweigh product quality in building success. […]

  4. 4

    Pingback from Boycott Novell » Microsoft’s Very Own “Death Spiral” (on the Web)

    […] “Microsoft has already suspended plans to build a datacentre in Iowa…”Returning to Bloomberg, Bass also wrote this article about Microsoft trying to sneak its way into search using agreements (probably a reference to buying exclusivity, i.e. buying one’s way to market share). Mozilla complained about this tactic only a couple of days ago (direct link). […]

  5. 5

    Ian M said on March 23rd, 2009 at 3:03 am:

    I’m particularly concerned about services being bundled with IE now – just installed IE8 on a company machine for testing purposes, and it bundles lots of Microsoft services by default.

    It doesn’t change your search provider if it’s set to someone else (e.g. Google), but it includes Windows Live services by default for blogging, translation, mapping and email. This is a major issue!

    I think that we also need to allow OEMs to include non-Microsoft services even if they ship IE, and have the same sorts of principles apply (e.g. anyone can pay to be made the default search provider, translation provider, blog provider, etc).

    This looks like a serious attempt by Microsoft to grab web market share, which could eventually lead to yet another monopoly. They are certainly using their monopoly position to gain web services market share.

  6. 6

    Jonas Sicking said on March 24th, 2009 at 2:31 pm:

    By “pricing of windows cannot vary based on whether IE is included or not” I assume that you mean that microsoft must not charge *less* for windows *with* IE included? I.e. they are not allowed to punish people/OEMs for opting out of IE.

    Is this a correct interpretation?

  7. 7

    Asa Dotzler said on April 11th, 2009 at 11:23 am:

    Jonas, yes, you’re reading that correctly. Microsoft may not punish OEMs for offering an alternative browser. They did this back in the 90s to vendors that wanted to ship Netscape.

    – A

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