Programming Windows: Antitrust (Premium)

In 1969, the U.S. Department of Justice (DOJ) sued International Business Machines (IBM) for abusing its monopoly power in the computer industry. The charges would echo in future cases against Microsoft, which we will discuss here, and in more recent years against Amazon, Apple, Facebook, and Google. IBM, the DOJ said, illegally bundled software and hardware and used false product announcements---now called vaporware---to harm competitors. And as would be the case in subsequent tech industry antitrust cases, the IBM investigation was instigated by complaints made by a competitor, in this case Control Data Corporation (CDC).

IBM’s case is most well-known for its length: It didn’t end until 1982, when the then-new head of the DOJ’s antitrust division finally declared the case “without merit.” But in yet another parallel to future tech antitrust cases, IBM’s experiences deeply impacted the firm internally. It had already long ago unbundled its software from its hardware, and it competed much more cautiously than it did in the past. Indeed, the circumstances that led to IBM linking up with Microsoft to create a Disk Operating System for the first IBM PC were in a part a result of the behavioral changes that IBM had voluntarily enacted while its antitrust case was active.

As noted earlier, IBM eventually came to realize that its one-sided deal with Microsoft and its CEO Bill Gates was the Achilles Heel of its PC business: Microsoft was free to supply MS-DOS to any third party that copied the IBM PC, meaning that as the market exploded, Microsoft benefitted to a far greater degree than IBM did. So by the late 1980s, IBM began plotting to take control of the PC back, both with proprietary hardware that other PC makers couldn’t legally copy, and with a new generation Disk Operating System that it called OS/2. By that point, of course, Microsoft had already created Windows in response to the Graphical User Interface (GUI) craze in personal computing. And the two firms butted heads over which platform would be the standard going forward: Microsoft’s MS-DOS and Windows or IBM’s OS/2 and Presentation Manager (PM).

But it was a 1989 Microsoft and IBM announcement that marked the first time that any governmental regulatory body finally put Microsoft on its radar: The two firms publicly announced a cohesive operating system strategy in which they would collude to divvy up the market, with MS-DOS and Windows targeting only the low-end, and OS/2 and PM emerging as the platform that both would support for the future.

“Beginning in the second half of 1990, IBM and Microsoft plan to make their graphical applications available first on OS/2,” the announcement read. “Windows is not intended to be used as a [network] server, nor will future releases contain advanced OS/2 features such as distributed processing, the 32-bit flat memory model, threads, or long file names.”

The agreement, of course, was a farce: Microsoft eng...