Bill Gates And Microsoft Monopoly Computer Science Essay

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Many believe that Bill Gates is so rich because Microsoft is the biggest monopoly. Mr. Gates claimed, on the contrary, that he was justly rewarded for the technology Microsoft provides. Who is right, and why?

Here we have the classic case of a double-edged sword. Many people hold the view that Bill Gates is so rich because his successfully established business, Microsoft, is the biggest monopoly in today's world. On the other hand, there are those who believe that Bill Gates has been fairly rewarded for the technology created and maintained by Microsoft. In the first part of this report, I will analyze and address the view that Microsoft is the biggest monopoly. Thereafter, I will present an analysis of Bill Gates' claim that he was "justly rewarded" for the technology Microsoft provides.

Microsoft was founded in 1975 by Bill Gates and Paul Allen. They sold BASIC, the first PC computer language program, to MITS computer, who was Microsoft's first customer. Microsoft made a contract with IBM in 1980 when IBM decided to go into the personal computer (PC) market. With that contract, Microsoft would provide the basic operating software (OS) for all the computers that IBM sold. That OS was called MS-DOS. As IBM grew and dominated the PC market in the 1980s, the result was that Microsoft became the market leader in OS software . By 1998, it was reported that Microsoft had a 90% market share [1] and as of October 2009, it was reported that Microsoft had retained the lion's share of the market, at approximately 91% [2]. At the time of writing, Microsoft is still the largest company providing software solutions in the world.

Today, if you enter any retail store that sells IT products, such as computers, you will find that most of the computers have a pre-installed Microsoft Windows operating system, in addition to a few other Microsoft applications, e.g. Windows Messenger, Internet Explorer, Windows Media Player, etc. Indeed, these days you can hardly find any computer on sale that does not come with an operating system. That is because the operating system is the 'brain' of a computer that ties everything together and generally runs all the processes. If you pay a bit of attention, it is not hard to realize that almost all the computers use Windows as the operating system. Why is that so? Since when did Microsoft become the market leader and how did Microsoft achieve this? These questions, and more, will be addressed in the following paragraphs.

In the 1990s, Microsoft became the dominant player in the computer software industry when its products enabled it to achieve a 90 percent market share. When Microsoft launched Windows 95, it also installed the Internet Explorer with the operating system. The US Department of Justice claimed that the Internet Explorer and the operating system were separable products. Most of the OEMs sell computers with MS-DOS preinstalled in the computers. Microsoft used its pre-dominant power in the OS market with those OEMs and bundled its Internet Explorer with its operating systems, creating a disproportionate market share for its Internet Explorer Program at the expense of the other browser competitors.The US Department of Justice (DOJ) sued Microsoft with this evidence showing that Microsoft had unfairly established a monopoly in the software industry and that Microsoft used its power to gain market share through unfair business practices. Basically, it was put forth by the Department of Justice that Microsoft had the power to threaten or create pressure on independent software vendors who write software for operating systems. The DOJ argued that Microsoft created immense pressure on software vendors and gave these software vendors little alternative but to sign overly protective non-disclosure agreements with Microsoft, so that those software vendors could only develop applications for Microsoft's operating system. The software vendors knew that they had to sign these the contracts, despite the non-competitive business environment that would be wrought as a consequence of doing so. It was an inescapable fact that Microsoft was their biggest client in the industry, and that they would be better off, economically and financially speaking, dealing with Microsoft instead of other operating system developers. Due to Microsoft's dominance in the market, software vendors had to sign these restrictive deals in order to have promising business prospects. In doing so, these software vendors actually helped Microsoft to create an unfair and uncompetitive business environment. In this way, Microsoft played a major role in placing its rival companies at an unfair disadvantage. Also, the software vendors were perhaps too keen or forced by circumstances to sign on with Microsoft in order to sell more of their products and gain greater profits compared with selling to other smaller firms that had smaller market shares. By using the aforementioned tactics, Microsoft has created high entry barriers to new entrants who develop and sell alternative operating systems in the software industry. These firms are unlikely to succeed or exist for very long due to the unfair and uncompetitive environment fostered by Microsoft. Software vendors who develop and sell alternative operating systems would sooner or later find that it is difficult to build a sustainable business in the market and eventually phase out.

The fact is that the average person tends to favor purchasing computers with pre-installed operating systems, so that he or she can save on the cost of purchasing an operating system and avoid the time needed for installing it. It is simply more convenient; when a consumer purchases a computer, it is ready to be used immediately. Microsoft was able to recognize this aspect of the software industry very early on, and has used this business tactic very effectively and aggressively to capture a large share of the market.

Since the 1990s, Microsoft has grown substantially and captured the lion's share of the market t. Its presence in the operating system market has been continuously strong. This makes it difficult for potential competitors to enter the market. In general, large firms have advantages over smaller firms in any industry, especially when substantial economies of scale are taken into account. Large firms are able to draw on more resources and are generally more efficient at using and maximizing them, compared to smaller firms. Due to economies of scale, larger firms, as in the case of Microsoft, are able to achieve lower average total per unit costs, and thereby use resources more efficiently. Smaller firms are simply not able to bring sufficient resources together at low prices. In order to cover the high developing costs for their products, they need to raise the prices of their products, and this already puts them at a disadvantage when their products are competing for sales against Microsoft's products. Normally, it requires substantial capital resources to undertake the development of an operating system. By the time the development is complete, smaller firms may have already run out of resources before they could bring their finished products to the market, and even if they managed to do so, they would find that they were simply unable to compete with Microsoft in terms of product pricing and after sales support.

As a result of having been in the market for so long, having established market dominance, and having created high barriers to entry for new firms, Microsoft has thus been the single biggest operating system provider in the market, with barely any competitors. With a few notable exceptions, for example Apple and Linux, consumers are not spoilt for choice when shopping for operating systems to replace Windows. In fact, consumers may not even want to move away from Windows to try and learn a new operating system, because they view it as a rather costly move.

Firstly, Microsoft bundles its operating system seamlessly with the OEMs. The computers go to the market at a single price, which includes the manufacturing cost of the hardware and the developing cost of the operating system. Consumers would view it as a more appealing choice compared to the alternative where they would have to purchase the computer and operating system separately. On top of that, they would require additional time to install it and possibly troubleshoot any resulting problems that might arise. The average person would not want to spend any effort on installation if he or she already has the choice of a ready-to-use PC for purchase. Generally, consumers would not want to buy an alternative operating system if the computer they purchased already has one pre-installed. This is a fact that Microsoft has capitalized upon to create a high barrier to entry to other operating systems and prevent them from attracting significant consumer demand and establishing their market share, simply because consumers have already been "hooked" by Microsoft in the first place. Therefore, firms who create and sell other operating systems will experience great difficulties in establishing their businesses and making them viable,profitable, and sustainable in the long run.

Secondly, Microsoft's early market dominance has created a snowball effect. As a result of bundling their flagship operating system with almost every computer sold in the world, they have created an environment where consumers have grown so accustomed to their operating system, that over the long term more and more businesses and individuals are generally choosing computers with the Windows operating system because they have grown to be very familiar with it. A sudden transition from Windows to any other operating system would mean a steep learning curve. At the same time, it is very costly and inefficient to do so. People are generally resistant to change [4] [5]. As such, once a person has spent time learning Windows, mastering it, and then using it for study, work, and entertainment purposes, that person is less likely to want to use a new operating system. If a person has to learn a brand new operating platform, he would need to spend extra time and effort to learn how to effectively use the system and slowly pick up the skills and knowledge required. As such, the average person is unlikely to consider purchasing an alternative operating system.

This resistance to using an alternative operating system over Windows applies not only to individuals, but also to businesses. Most companies would choose computers pre-installed with the Windows operating system over other operating systems. The main reason behind this decision is that it would help them to reduce costs. With the prevalence of the Windows operating system in the world today, many people have been using Windows for years and even though new iterations are released every few years, the basic functions remain the same. Thus, as long as companies opt for a globally used operating system such as Windows, they are able to save on training costs and increase productivity early on. There is no initial period where employees are learning a new operating system and improving their own efficiency with using the system. The above would not hold if companies are using other operating systems that their employees are not familiar with.

Thirdly, consumers generally look for computers with an operating system that is able to run or support most of the applications available in the market. A consumer would like to use an operating system that can run all the applications that he or she needs to use. As we know, consumers tend to make decisions based on what is most economical to them . If consumers know that Windows is the most commonly used operating system in the world, they will tend to opt for it. By choosing Windows, which dominates the market and attracts most of the software vendors to develop applications for it, consumers would have greater confidence that the applications they need to use will be able to run and work smoothly. By choosing Windows, consumers could save any potential hassle or inconvenience that they may encounter with other non-mainstream operating systems. Therefore it is more beneficial and efficient for consumers to choose Windows.

To sum up, consumers are very familiar with Windows. There is no significant push factor for them to switch from Windows to other operating systems. By choosing Windows, consumers can enjoy time-saving and cost-saving benefits, and therefore they will be unlikely to move away from Windows.

The main reason Microsoft has been so successful today is that Windows is already prevalent worldwide. Microsoft enjoys great network externalities that play a significant part in strengthening its market position. Microsoft, its consumers, and its network together form a stable trinity, contribute to Microsoft's monopoly.

Of the trinity, where do network externalities fit into the picture? The fact that Windows is the mainstream operating system in the industry and occupies almost 90 percent of the market share compels the software vendors and developers to create software for Windows first. With the help of those software developers, people who choose Windows can enjoy a tremendously large pool of software and applications. In turn, the vast pool of applications strengthens consumer demand for Windows and other Microsoft applications. The more software developers and vendors join this network with Microsoft, the more consumer demand for Microsoft Windows as well as the demand for the products that the software developers and vendors create. The strong network between Microsoft and software vendors helps to reinforce Microsoft's dominance in the market. This is as simple as a snowball effect. On the other hand, the low or almost zero demand for other operating systems means it is extremely costly for potential competitors to develop and create their own operating system. Even if some firms still go ahead and try to compete with Microsoft as their new operating systems can offer more figures, these firms still have to compete with Microsoft to gain some software vendors who would write applications for their brand-new operating systems. Besides the software vendors who have already signed protective non-disclosure agreement with Microsoft, there are hardly any existing software vendors who can survive without having Microsoft as their biggest client. Let us say there are a few software firms exist. The companies with new operating systems will have problem persuading those software firms to write applications to support the new system. The problem is software vendors do recognize that an operating system will attract more consumer demand if there are already plenty of applications that can run on the new system. They would wait until that point of time when the new operating system has more or less established with thousands of application to decide whether they should devote their resources into this business. The fact is that no single firm wants to bear the risk of developing the first thousand applications for the new system. The software firms will wait for someone else to bear the risk first. As long as this situation persists, it will be very difficult for these new operating systems to get a significant market share.

One fine example is Apple's operating system Macintosh. Apple is an example of failure to penetrate the barrier to entry of OS applications. As we can view from the market, Apple was not able to effectively compete with Windows or earn a significant market share even though Apple has thousands of applications that support its operating system Macintosh and a fiercely loyal fanbase. This evidence shows that even a system that supports thousands of applications is not enough for Apple to attract a majority of users from Windows. Consumers make decisions based on the most economical choice. Consumers know that even though the Apple OS could offer thousands of applications, Windows could offer even larger pool of applications. Also, the possibility of a program running smoothly on Windows is higher than the possibility for Apple OS. That explains why Apple was still not able to draw a large group of consumers away from Windows. Since the demand for Apple OS is not sufficient high, Apple probably could not lower its price to compete with Microsoft Windows. This further affected the sales of Apple computers. As of April 2010, Apple's market share stood at 7.2 percent. There is another operating system, Linux, which also fails to come over the existence of applications barrier to entry in this market. Slightly different from other operating systems, Linux is mainly used to run servers and not PCs, and it is an open source operating system. Today, Linux has millions of users. However, many software vendors did not follow Linux to develop sufficient applications to make it an attractive substitute of Windows. Mainstream consumers still favour Windows with its reliable developer support and its future in the PC realm. Linux was not able to compete with Windows' huge reservoir of applications and incentives to attract developers.

Up to here is my essay. Below is just some reference.

For Microsoft, being the biggest monopolist in the personal computer software industry and having established high barriers for new entrants do not mean it can rule the market all the time without any threats. Indeed, there were cases where Microsoft faced challenges and threats from other competitors. In the end, Microsoft was able to defeat its competitors using some smart moves and tactics.

When Microsoft launched Windows 95, it also installed the Internet Explorer with the operating system. The US Department of Justice claimed that the Internet Explorer and the operating system were separable products. Most of the OEMs sell computers with MS-DOS preinstalled in the computers. Microsoft used its pre-dominant power in the OS market with those OEMs and bundled its Internet Explorer with its operating systems, creating a disproportionate market share for its Internet Explorer Program at the expense of the other browser competitors.

What make Microsoft a monopolist?

Staring from IBM 1980s, MS-DOS has occupied a significant share of the market.

Consumers are very familiar with Microsoft products. Too costly to switch to another operating system

More developers write applications for Microsoft.

Maintain its monopoly position.

Microsoft licenses its operating system, copy-right.

When issue new operating system win 98, make sure that people (both suppliers and customers ) make a smooth transition from wind 95 to win 98 before they rise the price.

Since its inception, Microsoft has focused primarily on developing software and licensing it to various purchasers

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