Case Studies: Microsoft and Apple (Gates and Jobs)

1. Case Studies: Microsoft and Apple (Gates and Jobs) Monopolies / Trusts?

2. Microsoft and Bill Gates • In 1975, When Gates was 19 years old, he left Harvard University and, with longtime friend Paul Allen, formed a company to produce an operating system for the first personal (small) computer, or PC

3. Microsoft and Gates • Gates and Allen named their venture Microsoft • In 1980, Microsoft received the contract to develop the operating system for computer giant IBM’s new PCs. By 1983, 40 percent of all personal computers were running on Microsoft’s operating system

4. Microsoft and Gates • Is any of this illegal? • No • Gates and other Microsoft employees simply used innovation to become successful and benefited from America’s free enterprise economic system

5. Gates and Windows • In the late 1980s, Gates launched Windows, a new, PC-compatible operating system that used graphics and a mouse to perform computer functions • Microsoft’s market share for operating systems jumped to 70 percent! (Remember that a monopoly is a market dominated by a single seller)

6. Gates and Windows • Windows allowed Gates to capture the market for software such as word processing programs (ex. Microsoft Word) because competitors’ products still depended on Microsoft’s old, less user-friendly operating systems • These competitors began to complain that Microsoft had a “monopoly”

7. Gates and Windows: The “Monopoly” Argument • In 1997, the United States government claimed that by linking Microsoft’s Internet browser (allows people to access websites) to its operating system, Microsoft was unfairly using Windows’ huge market share against rival browser companies

8. Gates and Windows: the “Monopoly” Argument • Microsoft insisted that computer manufacturers that sold its operating system also include its browser. The federal government accused Microsoft of predatory pricing (setting the market price below cost to drive competitors out of business) because the company gave away its browser for free, which would ruin the other browser company, Netscape. • Microsoft’s power in one market gave it a huge—and possibly unfair—advantage in related markets

9. Gates and Windows: The Counterargument • Microsoft argued that companies do compete with Microsoft, and people buy Microsoft software because they like it • Gates: “Any operating system without a browser is going to be…out of business. Shall we improve our product or go out of business?

10. “Monopoly” in Economic Terms • Remember that, strictly speaking, there are no substitute goods available in a purely monopolistic economic system because the barriers that prevent other firms from entering a market are complete • Were /are there other options besides Microsoft products on PCs? • Did / do they work as well?

11. The Result of the Antitrust Lawsuit • In 1999, a federal judge ruled against Microsoft • Microsoft appealed, and in 2001, the case was settled • According to the settlement, Microsoft could link its browser to its operating system but could not force computer manufacturers to provide only Microsoft software on new computers

12. Apple and Steve Jobs: The New Microsoft? • For several decades, Apple / Macintosh was the “little guy” losing the competitive battle with Microsoft • That started to change because of the creativity and genius of Steve Jobs (the co-founder with Steve Wozniak and CEO of Apple)

13. The Difference between Gates and Jobs • Jobs was not a computer programmer and was not the “technological geek” that Gates was • What Jobs did extremely well was know how to cater his products to what consumers wanted; he was a marketing genius

14. Jobs and the Rise of Apple • Jobs led the development of the iPod, iPhone, and iPad, and brilliantly marketed these products; he died in 2011 at the age of 56 after a long battle with cancer • In many ways, Apple is now more powerful than Microsoft ever was, since it controls the hardware, the online store, and the terms by which third parties can do business in its space

15. Jobs and the Rise of Apple • Apple’s share of the market is over 99% for mobile apps and 99% of TV show downloads, 95% of the tablet computer market (iPad), and over 80% of online music sales (iTunes)

16. Apple and the “Monopoly” Argument • In February of 2011, when Jobs announced the terms of Apple’s new subscription service available to all publishers of content-based apps on the App Store, including magazines, newspapers, videos, music, etc. (Apple receives 30% of the profit from each sale a new subscriber to the app makes ), many competitors used the “monopoly” argument to claim Jobs / Apple were unfairly eliminating competition using market power and pricing techniques

17. Apple and Antitrust Lawsuits • Apple currently faces many legal battles, which take a long time to resolve • Many involve music streaming services that argue that Apple, with iTunes, illegally kept competitors out of the market • Do these apps work more effectively than other services? Do consumers demand them? • 2016 – Supreme Court = Apple must pay $450 million = scheme for e-book prices)

18. The Counterargument • Jobs argued that Apple was simply trying do do what was best for its users • Also, is any publisher not happy with Apple’s terms free to reach its customers through other print and digital outlets? • Do you see similarities between the Microsoft and Apple “monopoly” claims and how each leader responded to them?