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How Would the Breakup of Microsoft Affect the Economy and Consumers?

Aired April 28, 2000 - 7:30 p.m. ET


MARY MATALIN, CO-HOST: Tonight, the government recommends that Microsoft be split in two. How would a split affect the economy? How would it affect consumers?

ANNOUNCER: Live from Washington, CROSSFIRE. On the left, Bill Press; on the right, Mary Matalin. In the crossfire, Green Party presidential candidate and consumer advocate Ralph Nader, and in Los Angeles, James Glassman, host of, and a fellow at the American Enterprise Institute.

MATALIN: Good evening. Welcome to CROSSFIRE.

The ubiquitous Justice Department filed a proposed antitrust remedy that would split technology and innovation giant Microsoft into two companies: One would sell the operating system Windows that runs most of the world's personal computers, and one would handle application software, such as the Office suite, which includes Word and Excel.

The applications company would own Microsoft's browser, which is what triggered the government's antitrust crusade. Microsoft insists no laws were broken, labels the breakup extreme, and will appeal.


BILL GATES, CHAIRMAN, MICROSOFT: These proposals would have a chilling effect on innovation in the high-technology industry. Microsoft could never have developed Windows under these rules.

Looking forward, this kind of regulation would make it impossible for Microsoft to develop the next generation of great software.


MATALIN: Government prosecutors heralded their reach into the world of technology and the economy it fuels.


JOEL KLEIN, ASSISTANT ATTORNEY GENERAL: As these other computing platforms grow and proliferate the operating system business will face real competition for the first time. The result will be an exciting and innovative set of new products with more choices and lower prices for America's consumers.


MATALIN: Tonight, the new economy and the old laws collide. Do 19th century antitrust laws apply to 21st century business? What impact will the government's regulatory reach into the technology industry have on the economy, and what about us, the consumers?

Sitting in for Bill Press, among the last living leftists, Mr. Big Government himself, Democratic strategist Bob Beckel, with your presidential candidate, Ralph Nader.

BOB BECKEL, GUEST HOST: Yes. "Ubiquitous," I don't know what it means, but it was a big word for you to use.


Jim Glassman, welcome, my old friend. Let me ask you: I can understand why you think this is bad for Microsoft -- and by the way, I thought Bill Gates was just stunningly attractive in that piece he read there. I know you think it's bad for Microsoft, bad for shareholders. And by the way, I'm one of them. But what in the world could be wrong for consumers by breaking up the greatest single monopoly in the last century?


BECKEL: What in the world -- what -- can you tell consumers why this is a bad idea, to break up an anti-competitive company?

GLASSMAN: Yes, I'll tell them very simply.

BECKEL: OK, good.

GLASSMAN: I'm a fairly cautious and conservative guy.

BECKEL: Really?

GLASSMAN: The regime that we've had so far, the system that we have had so far, where Microsoft -- after some very tough competition with Apple with Unix, with lots of other systems -- ended up on top has produced the following: 53 percent of Americans now own computers, 38 percent are on the Internet. The prices of computers are dropping. They are now, if you control for quality, they're now 90 percent less than they were 10 years ago.

What this decision does is it puts into jeopardy not just high technology, but I think the entire U.S. economy that's been booming. You're taking a major, major chance, you're taking a huge risk in disrupting a regime that has worked extremely well so far for consumers

BECKEL: You know, Jim, you know, you still dress well, man, but you're still wrong.

(LAUGHTER) I heard those same arguments when I was working on behalf of MCI in the breakup of AT&T in the early '80s. What happened when AT&T was broken up? MCI grew, became MCI WorldCom. You had Global Crossing, endless companies that wouldn't have been there without that breakup. That means we wouldn't have the Internet revolution we're having today if we hadn't broken up AT&T.

So what's good for AT&T is not good for Microsoft: How do you explain that?

GLASSMAN: Bob, there's a big difference between AT&T and Microsoft.

BECKEL: Oh really

GLASSMAN: And Bob, I completely agree with you that we would not have the revolution we have today without -- without the breakup of AT&T.

BECKEL: Good, thank you.

GLASSMAN: AT&T -- AT&T was a government-regulated, government- controlled monopoly. The breakup of AT&T threw AT&T into the private sector, opened it up to competition. It was wonderful. So we got away from government regulation.

Here we're doing exactly the opposite. We're taking a private company which started in a garage by a couple of college dropouts, and we're turning it into a government-regulated company. That is a huge mistake, and it is exactly the opposite of what happened in the AT&T case.

BECKEL: Jim -- Jim, we're going to let Mary ask...

GLASSMAN: As you know!

BECKEL: One thing I want to point out, when AT&T was broken up, it had 80 percent of the phone market. Today, Microsoft has 90 percent of the computer industry. Go ahead, Mary.

MATALIN: And this is fueling the economy. We'll get to that in a minute. But first, let's go to your constituency. Ralph, you're a consumer advocate, you're also a presidential candidate. Consumers our your constituency. Let's review what Jim has said.

Prices have fallen; the economy is soaring; Nasdaq has pulled up the S&P and the Dow indexes; the software development has exponentially increased. No where in the 75,000-word finding of fact conclusion of law did Judge Jackson find that consumers have been hurt or that Microsoft has used its market power to increase prices.

Where's the harm to consumers that are going to be your base for your run?

RALPH NADER, CONSUMER ADVOCATE: Let's make sure we don't give Microsoft credit for the sun rising tomorrow. (LAUGHTER)

MATALIN: I will.

NADER: Let's focus on the operating system and the applications. The operating system is clearly a monopoly, and they have been gluing the applications to this monopoly.

Let me ask you a question: A PC user today using Microsoft software. Right?


NADER: All right. How often does Microsoft crash, how often does it require forced upgrades, how often does it waste your time? If a car operated that way, people would be berserk. It's like a refrigerator that defrosts itself every day.

Let me ask Microsoft out there the question: What innovations has Microsoft applied to any of these areas? Word processing, spreadsheets, presentation graphics? What innovations in the last five years?

MATALIN: Let me answer your question. As a -- as a -- as one of the sector of the largest-growing sector of users, which is women, who want it for convenience, has Microsoft Windows has never crashed. I like the integrated systems.

Let me read something to you that a consultant has said in addressing your -- that issue there. Joe Clabby says today: "A breakup would be really bad news for Microsoft. Microsoft has been successful because they have integrated the applications with the operating systems. Now, I as a consumer am going to have to do that myself, and each of the companies is going to have its own overhead -- that's going to jack up costs."

Let me go back to convenience. Mine has never crashed. I don't know how to go do this for myself. I'll have to hire somebody now to integrate systems for me.

NADER: Well, look at the -- the Web, right? That's competitive now. That has all kinds of innovation, right? There's no problem of monopoly standards controlling the Web. Microsoft's actually trying to move in to control the Web and the Internet.

Ask yourself this question: How often do you think consumers should go to the OEM, manufacturers, like Compaq and Dell? They go and they want to buy a computer, and they say, OK, you've got to buy the Microsoft operating system. You say, I don't want to buy the Microsoft, I want to by Linux, I want to buy, you know, OS/2. You know what they say: It's too bad.

We wrote letters to all of these. This is the funniest story of all. We wrote a letter to IBM, and we said, "We'd like to buy your computer and we'd like to have it with your own operating system, OS/2." IBM writes back, saying "No, you have to buy the Microsoft operating system and then you buy our own operating system."

MATALIN: Wait...


NADER: You know what this means? IBM stands for "Intimidated by Microsoft."

MATALIN: Oh please.

Linux has broken into the market. I want to say something about Ralph's consumers, because by 71, 83 percent of the users say that Microsoft has been good for them.

NADER: Who funded that poll?

BECKEL: Well, it doesn't matter, because 95 percent said AT&T was good for them.


BECKEL: Jim Glassman, let me bring you back in here. Let's talk about anti-competitive practices, OK?

Now, RealNetworks, which invented really streaming video on the Internet, goes into business with Microsoft. They marry to Microsoft's platform. They have a falling out. Microsoft does a -- they pay $30 million for a lease for their software. They fall out with Real.

Microsoft takes their technology, puts it on Windows 2000, renames it "Microsoft Streaming Technology" -- whatever the hell they call it -- and they give it away for free. And Real is sitting out there having invented it, and they are now in a terrible position.

If you don't call that anti-competitive practices, you think Muhammad Ali played baseball.


GLASSMAN: Bob, Bob...

BECKEL: But answer my question! I mean, what about that example?

GLASSMAN: First of all, I don't know all the facts, but you know what's interesting is Real controls a huge part of the market in which they operate. And you know, one of the things that's interesting about this suit and one of the reasons it's had a chilling effect not just on Microsoft, but on the entire Nasdaq market, is that there is -- is the question of who's next. Joel Klein has a license to kill now.

You've got companies like Intel with bigger than an 80 percent market share, EMC -- I can just name them -- AOL. And certainly, RealNetworks is another one. BECKEL: Jim, Jim...

GLASSMAN: So these companies are in serious jeopardy, and it's one of the reasons that the market is going down.

And you want me to answer your question: I will very simply. These companies -- a company like Real that feels that it was hurt by Microsoft in some way has a recourse. It can go to court. But what's happened here, is you've had companies whining to the Clinton Justice Department to go to court on their behalf.

And so we now have the full weight of the federal government, 19 attorneys general, and their pals, who are the plaintiffs' lawyers -- now there are 100 class-action suits filed against Microsoft.

BECKEL: Jim...

GLASSMAN: That's the problem.

BECKEL: That's -- my (UNINTELLIGIBLE) taking lawyers up against yours, I'd get killed. But let me just ask you...

GLASSMAN: No. You sue -- if you believe you've been hurt, you sue. That's what you do. You don't go whining to the federal government.

BECKEL: We're about to go to a break, but one fast question, Jim.


BECKEL: What do you want? Do you want a United States of America, technology century, called U.S. of Microsoft? I mean, what would you do?

GLASSMAN: Oh come on, Bob, that's baloney.

BECKEL: Would you let them continue to do this?

GLASSMAN: There is no, Bob, there is no faster-growing sector of the American economy and faster-changing sector than high technology. There are 250,000 software programs out there today. And...

BECKEL: And how many are Microsoft's?

GLASSMAN: Listen, Microsoft indeed has a large share of one part of the market, which is in operating systems. And they know at Microsoft they better not just stick to operating systems and applications. They need to get out on the Internet. That's what they're doing.

This is a very, very fast-changing market, and certainly it's not -- Microsoft's not going to dominate this market for five years, 10 years. Already, the absurdity of the original charge against Microsoft about integrating a browser with an operating system, everybody has integrated a browser with the operating system. Apple has just integrated a browser with the operating system. Everybody does that.

BECKEL: Jim, as you know...

GLASSMAN: Things are changing. You've got to understand that the government doesn't know that, because it doesn't know how to run a technology company.

BECKEL: You're getting too technical for me. You know, I used to be a football player, and you lost me the last two sentences.

GLASSMAN: OK, very -- OK, OK, I'll state it really simply.

BECKEL: OK, wait. No, no, no, we'll take a break.

GLASSMAN: The government doesn't know how to run a technology company.

BECKEL: OK. Very good.

GLASSMAN: It's very simple.

BECKEL: Very good. That's good, Jim.

When we come back, though, we want to talk about what impact this might have on the political year, 2000.


BECKEL: Welcome back to CROSSFIRE. I'm Bob Beckel sitting in for Bill Press. The government asked Judge Jackson today to split Microsoft into two separate companies. We've talked about the impact this will have on Microsoft and the consumer, but what, if any, impact will this decision have on the 2000 elections?

Our guests, Green Party candidate, presidential candidate -- sorry, Ralph -- Ralph Nader. In Los Angeles, James Glassman, host of and best-dressed man of -- Mary.

MATALIN: All right. I'm going to get into politics. This one, you've been critical of Microsoft. But what Microsoft has said, and even judge -- Judge Jackson didn't agree with this, but he did never say that their monopoly obtained -- was not illegal. It was because of a superior product.

And what Windows did -- and this is the critical contribution to the new economy that Microsoft provided -- is standardized applications and systems, which allowed networks to grow, which made mass markets. Who benefits from mass markets? Consumers enjoy that economy of scale.

Won't you give Microsoft that, that they catapulted us into a new paradigm?

NADER: No, because it's a great imitator. The refutation to what you said about the standard is the Internet itself, where there's competition, there all kinds of exciting things going on, because there isn't one company dominating it, although Microsoft is trying to move in to dominate it.

Just look at this: Prices for Microsoft products have been going up. It's ridiculous. Even the operating system is up. The Windows system is $300, $400, $500. It's going up.

GLASSMAN: Ralph, what does the operating system -- what does the operating system cost? Do you know what it costs? 85 bucks out of $2,000 computer.

NADER: Well, just a minute. And what is Microsoft's profit margin, Jim? What is -- the highest in the history of the world in terms of an industrial company. What is it?

GLASSMAN: So you as the Green -- as the Green Party...

NADER: How high is it?

GLASSMAN: ... candidate, you as the presidential Green Party candidate, you're going to set a kind of a limit on what profits a company can make?

NADER: No, I'm saying...

GLASSMAN: That's not the purpose of antitrust law. Sorry.

NADER: I thought -- I -- the reason I asked you that question is because it shows its monopoly position. It's about 85, 90 percent profit margin. Wouldn't any company drool on that? If you break it up...

GLASSMAN: It doesn't have an 85 percent profit margin, and you know that.

NADER: Gross profit, yes. If you break it up into operating and into applications, there will be all kinds of computer developers, software developers, all kinds of companies coming in, and the consumer can still have their choice, if they want to go to the Microsoft way, but there will be far more companies on the railroad track. They won't be switched off by the codes not being given to them in due time.

How can you oppose that?

GLASSMAN: Ralph...

NADER: There are all kinds of creative software developers that can't get in. It's so stagnant.

GLASSMAN: Ralph, I was just saying there were 250,000 software programs to choose from.

Ralph, let me tell you a little bit of history, which I think you know. In the early 1980s there were two big operating systems companies. One was Apple; one was Microsoft. They decided to go different ways. What Apple decided was to have closed architecture. They wouldn't allow other companies to write applications for their operating system. They said, we'll do it all. OK? And Microsoft did exactly the opposite. They said, we'll have open architecture, we'll allow other companies to write applications for our operating system.

BECKEL: But Jim...

GLASSMAN: Luckily -- luckily for the consumer, Windows won, Microsoft won, open architecture won. I don't see how you can object to that, Ralph.

NADER: Monopolies won, just as a judge found in the antitrust trial.

BECKEL: Hey, Jim, first of all, maybe I'm missing something, but when somebody has 90 percent of a market it seems to me to be a monopoly. That's OK. Let me ask you this. You keep talking about...

GLASSMAN: Bob, a -- monopolies are not against the law, and you know it.

BECKEL: Wait a second, Jim. Jim -- oh, it's not against the law?

GLASSMAN: A monopoly that is acquired by having a superior product...

BECKEL: That's fine. That's fine. Let's keep Standard Oil...

GLASSMAN: ... is not against the law. No, Standard Oil...

BECKEL: Jim...

GLASSMAN: Just a second, Bob. Let's just settle this. Standard Oil was a trust. Standard Oil went around intimidating other oil companies and bought them up. That's how they created the monopoly.

BECKEL: OK, Jim, all right, well, then let me tell you how Microsoft -- I'll take your analogy. You talk about the 250,000 software makers out there, if they don't make that software compatible with the Microsoft platform, they will not have the reach across 90 percent of the computers in this country. That is monopoly. That is exactly what the oil companies did. And you just for once finally let me beat you on a business question.

GLASSMAN: Well, listen, Bob...

BECKEL: Is it true? Do they have to make it compatible?

GLASSMAN: Just a second, Bob. Just one second.

If a movie company does not make its movie compatible with VHS, then it's going to have a hard time distributing that movie, isn't that right, to video? Isn't that right, Bob?

BECKEL: And didn't -- VHS -- Beta should have won the battle with VHS because it's far better than VHS, but VHS had more money and more muscle and more smart people like you to put out their line. NADER: And Microsoft operating is the worst of four operating systems. Macintosh, Be, huh, and OS/2 are better operating systems, but they don't have the -- they don't have the lock on the application monopoly monopoly stream that Microsoft has, and that's why it lost in court.

GLASSMAN: It's very interesting, Ralph. You are supposed to be a consumer advocate, and Mary just brought up something which you kind of tried to brush aside, which is that poll after poll has shown that consumers are happy with what Microsoft is doing. Bob Samuelson, who writes a column in "The Washington Post," certainly is not a partisan on this issue, quoted statistics that show that Microsoft -- that the customers say, that consumers say that they like Microsoft by a vote of 67 percent to 8 percent. They say Microsoft has been good for the consumer.

Now I don't know, is your phoning ringing off hook, Ralph, because consumers are saying, oh man. I would really like to pay for Explorer, please don't give it to me free, please make me pay for it.

NADER: That's the story any monopolist. Just like when General Motors dominated auto design people were polled, gee, we like it, because they didn't know what kind of cars they could have, and fuel efficiency, and safety, and pollution control and ease of maintenance -- this is what you have to go into.

I want to ask you, do you think Microsoft's operating system is the superior operating system of all available today, yes or no?

GLASSMAN: You know, I...

NADER: It's inferior. Yes or no?

MATALIN: Not consumers, not users.

GLASSMAN: Let me answer that question. I use both Apple and Microsoft. I like Microsoft slightly better, but I think that my vote is not as important as the vote of lots of consumers. I do -- you do have a choice.

NADER: You like the forced upgrades, the overcomplication, the time you waste.

GLASSMAN: Ralph, I don't think the forced upgrades...

BECKEL: Jim, wait a minute...

GLASSMAN: Not only that, Ralph. That is not the question here. We're talking about an antitrust suit where the government is trying to break up a company which isn't really doing anything wrong, and in the process, is helping to destroy technology throughout the country and knocking the stock prices of companies which really have nothing to do with this.

NADER: They'll liberate incredible innovation and drive prices down. You know it, just wait and see, wait and see, Jim. MATALIN: All right, Jim, unfortunately, we have to give last word to the Green Party presidential candidate, but that's OK, because we want him to get that 9 percent in California.

GLASSMAN: Well, I think we're taking an enormous risk in doing this, an enormous risk.

MATALIN: You are right, so you have the last word, we have could have done another whole show on if these laws are even applicable to today's new economy, but we don't have time. When we come back, Beckel and I will arm wrestle for final word. Stay with us on CROSSFIRE.


BECKEL: We didn't talk about politics -- we wanted to. How do you think this impacts on, if at all, on politics?

MATALIN: Gore is running on the economy. The government, Big Brother, reaching in, strangling new economy cannot be good for Al Gore.

BECKEL: Well, first of all, I know he didn't invent the Internet, but he did help it along a lot.

But I'll tell you something, I think the idea of George Bush coming to defense, when you talk about these polls, 67 percent for Microsoft, I'd like a poll question, say, OK, Microsoft -- name the other four or five in the business. Of course they're going to say Microsoft -- it's the only one they know.

MATALIN: George W. Bush is for free markets, free enterprise, entrepreneurs, all of which have been fueling this economy. And you know what that's been good for? Consumers, consumers.

BECKEL: Those are the tobacco and the National Rifle people.

MATALIN: That Big Brother -- go ahead, strangle it. They've got your money in the bank. You don't care about the rest us, huh?

BECKEL: No, you guys -- look, we want to open things up, free market -- that's what you all have been talking about.

Thanks. It's been great to be here.

Again, and for from left, I'm Bob Beckel good night for CROSSFIRE.

MATALIN: And from the right, I'm Mary Matalin. Join us again. Well, have a great weekend and join us next week for many more additions of CROSSFIRE.

It is Friday.



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