Windows Vista and the European Community
Finding a Balance to Avoid a Launch Delay
By Roger L. Kay
The European Community continues to argue with Microsoft about what should and shouldn't be
in Vista.  This argument is an extension of a longtime dispute that essentially has no real
solution.  It would be an oversimplification to say that it's just a matter of Old Socialist Europe
putting up artificial barriers to Unfettered Capitalism as represented by Microsoft, or that with
malevolent intelligence a rapacious behemoth is intent on looting a helpless region.  Both sides
have a point.

Europe has not exactly been a hotbed of innovation in information technology, particularly in the
PC business.  Over the years, the national PC champions have fallen, one by one.  At one time,
Britain had ICL (sold to Fujitsu), Netherlands had Philips (withdrew from the PC business, but
remains in various electronics sectors), Sweden had Ericsson (left the business, continues to
focus on phones and other electronics), France had Bull (sold to NEC), Germany had Siemens
and Nixdorf (merged with each other, then sold to Fujitsu), and Italy had Olivetti (withdrew from
the market).  To be fair, the region does have some notable non-PC winners like SAP,
Schlumberger, and Capgemini as well as a host of smaller firms focusing on one or another
aspect for the information technology business.  For example, with U.S. export rules that cover
encryption reducing the export, and even the development, of encryption products, European
firms have stepped into the vacuum with world-class offerings.  But Europe has no indigenous
PC business.  So, what is this protectionist sentiment that keeps the regional government in
constant bickering with the American software company?  

On its side, Microsoft is a convicted monopolist, although that sounds worse than it is.  Primarily
via its Windows and Office franchises, the company will extract $20 billion in profit from its
worldwide operations this year.  Its gross margin on its PC business is 85% and its operating
margin is 77%, figures that are almost incomprehensible to mere mortals.  The company created
a super highway system in the form of a de facto desktop standard and charges everyone a toll to
drive on it.  In many countries, a company with that kind of market power would be nationalized,
but the United States chose to leave the business intact when given the opportunity to rule on the
matter.  Nonetheless, due to various governmental pressures, Microsoft has had to take a more
responsible stance and not just crush its competitors outright the way it did in the past.  In its own
self-interest, the company has arrived at a policy that obliges it in some instances to help
competitors or at least not to destroy them.  The playing field is much more even than it used to
be.  Microsoft has to operate its piece of infrastructure so that many of its own innovations run on
a track no nearer the inside than the one on which any viable competitor runs.  The tacit
agreement is that if the company operates under this generous arrangement, it can continue to
collect a monopoly rent.  An example of a company taking full advantage of this pact is Google,
which in former times Microsoft could have shut out any number of ways, but in today's world
flourishes.

However, we come down to the wire on the Vista launch with the EC and Microsoft still bickering
over what will and will not be in the final package.  The sides are not too far apart, but a gap,
sufficiently large to cause a potential delay in the European launch, still exists.  This outcome
would be unsatisfactory for Microsoft's European partners and customers.  The partners,
primarily distributors and hardware OEMs (e.g., Acer, HP, Fujitsu-Siemens), would experience
delayed revenues.  The customers could fall behind overseas competitors that have earlier
access to the new software and related hardware and services.

According to Microsoft, only a half dozen issues separate the parties, the most hotly disputed
being security.  The company has offered a number of concessions and reasonable adjustments
to various bones of contention, and in certain instances they have been accepted.  In some
cases, the company has indicated a willingness to go further, even accepting the EC's
suggested remedy outright.  In others, Microsoft is arguing that it is already offering the best
solution.  This last applies to Vista's security features.  

Microsoft appears to have addressed the substance of at least one aspect of the security dispute.
 The EC didn't want the Security Center to ship bundled.  Microsoft agreed to make the Security
Center into a "neutral dashboard."  As of this writing, it will recognize the presence of whatever
security software is there and not steer the end user toward Microsoft products.  Of course, this
affects mostly consumers.  Most commercial PCs, two-thirds of the market, are sold with
whatever security software the hardware OEM loads or the customer's own IT department installs.

On another front, however, the EC is concerned about BitLocker, the full hard-drive encryption
utility now bundled with some versions of Vista.  BitLocker is a highly useful function.  It can keep
corporate secrets safe if a laptop is stolen, and many corporations are likely to appreciate its
presence.  However, the EC is concerned that indigenous security companies may lose
business if the utility comes with Vista.  Microsoft's position is that BitLocker is offered on two
versions, Enterprise and Ultimate, which are more expensive than the main business and home
versions, and so, even if BitLocker is bundled physically, it is not bundled financially in that the
company is charging more for the versions that include BitLocker.  An enterprising supplier could
put its own encryption software on Vista Business or Vista Home Premium and charge for it.  
This stance may not entirely convince the EC because, for practical reasons, most enterprises
would rather buy an integrated product than a kludge.

The real problem, from the company's point of view, is that the EC has been slow to respond.  
Some breakthroughs in communications occurred in April and May, and the company met its
August filing deadline for responding to remaining outstanding issues.  However, the EC has yet
to come back.  Microsoft wants to make any changes in the software now.  With the
release-to-market (RTM) schedule set for November so that the company can make published
launch dates (November for commercial; January for consumer), the final code needs to be
baked sooner rather than later.  Code is infinitely malleable, and changes can be made from now
until Armageddon, but the company has made it clear that after a date that's hard upon us, any
further changes will cause a delay in the launch.  The delay may not be long, possibly only a
month or two, but it will be material.  From the company's point of view, the worst possible
outcome would be to get to RTM in November without a clear response from the EC and then find
itself facing more questions in December.  If that happened, not only would the launch be further
delayed, but the company would risk being exposed to more fines despite its trying to address in
good faith the EC's concerns.

The parties are scheduled to meet next week in Brussels, and things may yet be worked out in
time.  Microsoft feels that it has addressed the EC concerns.  It has said it can make changes,
but must know whether these changes will be required or not as soon as possible.  Otherwise,
the European launch could be delayed.  The company would much rather solve the problem than
cast blame.  The challenge of antitrust is that real benefits to consumers may negatively affect
competitors.  There's no avoiding it.

In the long term, what will and will not be in Vista will be decided by the Court of First Instance in
Luxembourg.  However, now is the time to make compromises.  The company can back out any
changes required after the decision.  Microsoft wants to ship Vista.  It can make changes, but the
later it receives guidance, the more delayed the introduction will be.  The company is not
punishing the EU for not cooperating, but certain realities of the software business are
inescapable.  Changes take time, and there's precious little of it left.

© 2006 Endpoint Technologies Associates, Inc.  All rights reserved.
Time to Stop Bickering