Philip Brittan's Blog

The Internet Has Been Good to Microsoft Office

Standards, and corresponding monopolies, can occur naturally

Believe it or not, there are times when I feel some empathy for Microsoft. After all, I myself was once a small-time monopolist.

My first company, Astrogamma, had a product called FENICS that provided foreign exchange (FX) options pricing and risk management functions for traders. FX options are a particular kind of financial contract that banks and corporations trade as a way of taking bets on the fluctuations in the exchange rates between currencies or to protect themselves from those fluctuations (if you want a full primer in FX options, feel free to write me :) ).

The important thing for this discussion is that trading FX options turned out to be much, much easier if the traders on both sides of the transaction were using the same software. Our system caught on initially because of our focus on the user experience, our aggressive pricing, and the fact that we were able to seed our product into the brokerage houses (who were important market influencers) early on. But once we started to see widespread adoption of our software, the FX options market started to realize the benefits of having everyone use a standard system, which in turn drove further sales of our product until we had cornered over 80% of the global market of banks, brokerage houses, and large corporations that traded actively in FX options. We became, in effect, a monopoly. There was nothing nefarious about it. We didn�t set out to become a monopoly; we just wanted to create the best system on the market. We didn�t engage in any uncompetitive practices (we were actually a much smaller company than all of our competitors, starting out). It just happened that way.

This is an example of the network effect, where the network is of people trading on FENICS-calculated prices. The more people joined the network, the more valuable it became, and the more important it was for everyone else to join.

In discussing Microsoft, people like to point out their monopolies on desktop operating systems and Web browsers. But these are really by-products of their most interesting monopoly: Office. As David Kennedy pointed out this morning, Office is what drives the Microsoft desktop which in turn drives Internet Explorer.

A couple years ago, there was lots of speculation that Microsoft�s monopoly would be severely threatened by the Internet. Even Microsoft bought into this, which launched them into a furious and ultimately victorious battle to control the browser. The great irony is that, far from hurting Microsoft, the Internet has cemented its desktop domination. The further irony is that winning the browser war probably hasn�t helped Microsoft that much (except that it now allows them to keep Java off the client). The part of the Internet that helped Microsoft the most has been email. As email became more widespread, people began to email documents to one another (rather than printing and faxing or snail-mailing). This of course brought the network effect into full swing, and Office moved from being a �nice to have� (because of feature set) and an �easy to have� (because bundling arrangements Microsoft forged with PC makers) to a �must have� (because of file compatibility).

I doubt that Microsoft really set out to achieve this, but now it has happened, and I�m sure they are extremely thankful for it. Sun has made the strongest attempt yet at breaking the Microsoft Office hold by offering StarOffice, which has a high degree of file compatibility with MSOffice. It�s a bold strategy on Sun�s part, but so far has not really had widespread success. It will be very hard/impossible to compete effectively on Microsoft's own turf of the Windows desktop. Price doesn't seem to have been a big motivator for customers so far (StarOffice was free for a long time). StarOffice does help to make Linux desktops a little more realistic as an alternative to Windows, but really Windows and MSOffice now have such a strong symbiotic relationship that they are likely impervious to direct attack. The best strategy may be to try to change the rules of the game.

Comments

• StarOffice
  I've tried StarOffice/OpenOffice but I bought Office in the end - why?

  I was nervous that in a sweep MS could change a little detail of the Word format in a future release, breaking compatibility and causing me hassle in the middle of a document exchange while I waited for Star/OpenOffice to catch up to Word 2005.

  Secondly, despite their best efforts documents often did look a bit different, and that wasn't something I was happy with. For example, last year I was sending out CVs (I, like so many, used to work in Telecomms!) and really didn't want a layout incompatibility making me look amateurish on the receiving end. I'm sure similar considerations trouble other people.

  I don't begrudge MS Office by the way; in its way it's a decent tool, though I don't find it easy to get it to do what I want all the time... I just get annoyed by the fact that all PCs come with Windows, and usually Office or at least Word installed, so that the market for Word Processors has almost died, and few businesses will take documents in any other format via email or web submission.

  The lack of competition to Word, outside of specialist publishing, worries me. If things were different, what might I be using instead? Something that made me feel in control of tables and figures for example? :-)

  Posted by: david_kennedy on August 22, 2003 at 06:36 AM

• StarOffice
  New to Openoffice.org 1.1/StarOffice 7 is a really cool 'Export As PDF' feature to solve just that 'documents look a bit different' problem. It's really cool and recruiters are *way* more impressed by PDFs than .doc files. For non editable documents like your CV it's a great feature.

  Posted by: nedrichards on August 22, 2003 at 10:44 AM

• OpenOffice for Mac OS X delayed
  You've probably all seen this.
  

  Posted by: pbrittan on August 22, 2003 at 11:56 AM

• another perspective
  In most areas where office software is used the discussion doesn't seem to be MS Office v/s Star Office. The choices that I hear are MS Office, Word Perfect Office or Lotus Office.
  Star Office gets mostly lumped in with MS Works class applications.
  MS Office causes me as much frustration as the next guy. Star Office would meet what I use but because I need to support folks that chose MS Office the choice is made for me.

  We DO need competition in this market but I do not know if Star Office can provide it.

  Posted by: dkurman on August 23, 2003 at 06:37 AM

• not just a monopoly
  I realise it was mainly color leading up to your main point about network effects but no-one has (or at least no-one should have) problems with MSFT being a monopoly as that is a fine thing for them to be, both legally and morally.

  Their use of their monopoly in one market to leverage monopolies in yet more markets and the lying, cheating, and stealing that they indulged in to achieve those aims is however a different matter entirely.

  I would suggest you save your sympathy for Microsoft's victims (and I don't just mean those forced to use their products).

  Posted by: bawjaws on August 23, 2003 at 04:25 PM

• not just a monopoly
  Agreed. Note that I used the word "empathy", not "sympathy".

  - Philip
  

  Posted by: pbrittan on August 23, 2003 at 05:14 PM

• OpenOffice "MS works class" ??
  The aim of OpenOffice is different from the "works" application. OO is intended to replace MS/Office. The result is that where OO does not offer features, they may be included in a next version. MS/Works is intended NOT to be a competitor for Office. Works is intended for the SOHO users.

  Open Office has features that Microsoft does not have. No cost is one; better internationalisation another. These are maybe less relevant for a US market.

  When a comparison is made between the "Offices", price is VERY important for the home user. However he is not reimbursed for NOT choosing Office as it is mostly a "bundled" application. Many home users have illegal versions of MS/Office, however it seems that Microsoft now allows again for a version at home and at work.. Without Office on home computers, the dominance of Office is gone. Without Office on governmental computers the Office dominance is gone.

  As to the other offices, RECENTLY you do not hear that much about WordPerfect or Lotus Office..

  When you state that we need competition, mind which market you mean. With StarOffice - MS/Office you are talking money; does this disqualify OpenOffice for you ?

  Posted by: gerardm on August 25, 2003 at 02:47 PM

• New MS Office locks down documents
  "Office 2003, the upcoming update of the company's market-dominating productivity package, for the first time will include tools for restricting access to documents created with the software. Office workers can specify who can read or alter a spreadsheet, block it from copying or printing, and set an expiration date.

  "Analysts say it represents a badly needed new avenue for boosting sales of Microsoft's server software and an opportunity to lock out competitors, including older versions of Office. It also gives businesses that skipped on the last round or two of Office upgrades a new reason to bite this time.

  "The new rights management tools splinter to some extent the long-standing interoperability of Office formats. Until now, PC users have been able to count on opening and manipulating any document saved in Microsoft Word's ".doc" format or Excel's ".xls" in any compatible program, including older versions of Office and competing packages such as Sun Microsystems' StarOffice and the open-source OpenOffice. But rights-protected documents created in Office 2003 can be manipulated only in Office 2003.

  "As with many Microsoft innovations, the new IRM tools also happen to benefit the software giant's sales in a complimentary market--server software--where there's room for growth, as opposed to the fairly saturated market for desktop applications. Both IRM and expanded XML (Extensible Markup Language) functionality--the two biggest areas of innovation in Office 2003--tap into Microsoft's server software. IRM in particular requires Windows Server 2003, which businesses have been slow to adopt since Microsoft finally unveiled it earlier this year. "

  Full Story on news.com
  

  Posted by: pbrittan on September 02, 2003 at 06:18 AM

• OpenOffice "MS works class" ??
  ...been off cleaning after a few viruses and worms ;-)

  I am not the big Office user. Even though it's my responsibility to support it and give an opinion on alternatives, mine is just one vote.

  Free sounded good in accounting until I set up a demo for OO for them. It seemed they preferred Excel. It went much the same with other folks that use office products. I should clarify that the comparison to MS Works-class products is their perception. Word Perfect and Lotus are names familiar to them. And with the number of pirate copies floating around, free doesn't have much weight at home either.

  As a sysadmin I'd take the "free" stuff any time. I find that most of the comercial products can't compete and I'm not talking money!

  --djk

  Posted by: dkurman on September 02, 2003 at 08:13 PM

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