Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“State licensing rules limits entry into the professions, thereby allowing professionals to charge higher fees than if competition were more open. That (more than the public interest) is why professionals love licensing.”     Milton Friedman

October 22, 2006

Is This a Market Failure?

by Brad Warbiany

Microsoft, who has largely been able to bask in the fact that the new corporate whipping boy is Wal-Mart, is under fire from the usual sources. Microsoft, of course, likes to make all their document standards proprietary, so that the only way you can read or work with it is to buy their software. Since they have such a large slice of the market, that means that most corporate environments must use Microsoft or risk having to spend time and money training their employees on unfamiliar systems and have trouble sending documents to their partners and customers.

But there’s another answer. A consortium of software developers is pushing the Open Document Format (ODF) as an alternative. As Windows slowly loses market share in the browser space, in the network and server OS space, and with the delays plaguing Vista, perhaps eventually in the consumer OS space, this is one more chink in their armor. An open market will eventually break monopolies. But it’s not quite fast enough for this guy:

A handful of thoughtful government officials are trying to require software vendors, including Microsoft, to use this new open standard, in order to achieve a number of important public policy objectives…

This battle, which is often very difficult to follow at the level of the technical details, is quite important. For years we have tolerated the manipulation of data formats to maintain a monopoly that has imposed all sorts of costs of society, in terms of high prices, lack of innovation and poor quality software. One only needs to compare the innovation seen on web publishing to the dearth of innovation you see on the computer desktop. If ODF succeeds now, Microsoft will have to compete on the basis of prices and quality – rather than by being the only product that will not mangle a document. That should be a good thing for everyone in the long run.

State and federal government agencies should be asked to require that software vendors support ODF.

Yes, “thoughtful” government officials know what they’re doing, and they’re only taking away freedom for your own good. And requiring Microsoft to support ODF won’t turn ODF into a stagnant standard, by virtue of making it a defacto monopoly…

Most of James Love’s article is pretty good, from a technical standpoint. The market power of Microsoft is large enough that their refusal to open their document format effectively reduces choice for consumers. That’s certainly not a good thing, but where James and I differ is on what we do about it. At the moment, Microsoft is slowly being punished by the market for their inability to play well with others. It’s not a fast thing, because it’s the sort of environment where you need to reach a certain “critical mass” before widespread change starts to occur.

Microsoft refused to support the open HTML standards, having their own little tweaks in Internet Explorer. Thus, web site designers were forced into a choice of designing sites to work in IE, or work to meet standards. When IE had the overwhelming market share, they simply designed for IE. But over the last few years, Firefox has taken enough market share that web site designers are forced to craft web pages to support it. The effect for Microsoft is that IE7 is reportedly much better about supporting the open web standards than IE6, if for no other reason than that users demanded it and had an alternative product. Primarily Microsoft wants to make money, and if they need to follow a standard to do that, they’re going to do it.

I think the ODF is headed the same direction. Microsoft, right now, hasn’t felt even the first inkling of a sting to their bottom line as a result of not opening their document formats. But the writing is on the wall, and as Apple continues its resurgence, and Linux adoption becomes more widespread, users will begin to demand of Microsoft that they support ODF. Document portability across systems will be crucial to breaking the Microsoft monopoly, and while they’re in no hurry to help their competition, they cannot ignore this forever.

ODF will come, and Microsoft will eventually support it. Would you rather let the market bring it to fruition, or rely on politicians and technocrats to decide that they know better, and force Microsoft into compliance? I, for one, am not a fan of government creating monopolies, and should they force Microsoft’s hand, that will be what ODF becomes. We all see how well that worked for the postal service…


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6 Comments

  1. Would it be wrong, if the government only wanted those requirements in its own software?

    Comment by VRB — October 22, 2006 @ 12:55 pm
  2. No, of course not. The government buys a lot of things, and they often set terms with the supplier as to what they should be getting. Wal-Mart is the same way. If you want to be a supplier for Wal-Mart, you have to basically merge your supply chain with theirs for smoother ordering (for Wal-Mart’s benefit).

    If the government told Microsoft “we’re only going to use Windows and MSOffice if you make it do X, Y, and Z”, that’s fine. And if Microsoft wants to tell them to go pound sand, that’s also fine, and then the government better hope they’ve got a backup plan.

    Comment by Brad Warbiany — October 22, 2006 @ 2:24 pm
  3. Yes, it is wrong. Whenever the government buys software, it has to go through asinine testing that takes years and costs gazillions of dollars. Adding specs past the off the shelf version lengthens that time and cost exponentially.

    In 1996, we FINALLY were able to replace our WANG terminals and printers with a UNIX server and PC that could telnet into the original WANG software. In 1994 we started the process to buy an off the shelf hospitality program and an off the shelf accounting program (Quickbooks). When I left in 2000, the first “field trials” were just beginning.

    Field trials. As if the trials conducted by the hundreds of thousands of businesses using this software for years wasn’t a good enough trial.

    Guess why I left?

    Comment by Brock — October 22, 2006 @ 7:33 pm
  4. “Government” wouldn’t be creating a “monopoly.” It would merely require that its vendors, who of course choose to do business with it, support one file format. Other formats could also be supported. There is no monopoly at any point – one company does not have a dominant or sole market share and there isn’t only one format.

    Also, one does not “support Firefox” the way one “supports IE6.” One supports Firefox by writing to Web standards, as you mention elsewhere.

    Comment by Joe Clark — October 22, 2006 @ 9:52 pm
  5. There will be no monopoly on ODF. It is a open, free to use, published file format, not a software suite. Microsoft, and indeed anyone else, can use it without cost.

    What I, as a libertarian, oppose is for Microsoft perpetuating it’s monopoly via government largess. To the extent that any government persists in a libertarian utopia, it will be using products that allow its citizens to communicate with government officials with a free medium.

    Claiming ODF would be a monopoly is like claiming the alphabet is a monopoly!

    Comment by Howard — October 22, 2006 @ 10:47 pm
  6. Joe,

    The original post is related not to government vendors, but to government requiring every software company (even those it doesn’t do business with) to support ODF. The idea of making a requirement of their vendors is a matter that came up later in the comments. I think standards that succeed on their own merits, where there is a choice to use something else, are fine. But government mandating standards usually doesn’t work out too well.

    Comment by Brad Warbiany — October 22, 2006 @ 11:59 pm

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