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May 1, 2000

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Berkshire Hathaway

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Subject:  Re: Buffett's Defense of Microsoft
Author:  cowpatch7

Investorbabe2025: This is a long post, but you said...
"Does anyone here advocate , breaking the laws..."

Goodness no! No one wants any laws broken. But, I request you think about the anti-trust laws for just a few minutes, because that is just the point that worries me as it applies to MSFT.

Now, I am just a country girl trying to produce beef, a cyclical commodity, for a living. However, the profit business model for agricultural production is slim to none. In hopes of improving my small farm profit, I began to explore other, more successful, business models whereon I began to see how computers, technology, the internet, etc., might give my small operation increased productivity, profitability and, most important, a change to get closer to the beef consumer. This study of technology and more profitable business models, has, among other things, enhanced my concern for the eventual outcome and implications of the MSFT case.

In this opinion, what the US Department of Justice, state Attorney Generals, politicians, as well as old line economists, fail to realize that our economy, the world economy, is in a new paradigm, so called the "information age". This new paradigm suggest a complete reversal of the old profitable business model. The old business model suggested that the most profits were made when a product was scarce. The old business model also suggested that once you sold a product, then the opportunities of making a profit from that product was lost forever. The "information age" has reversed both these old line business axioms. If, for example, the product is information, then one must understand that scarce information has no value. Consider one person having conceived a wonderful new information process, but that person keeps that information to himself. It is simple to understand that by no one knowing about the new concept, then that new process has little or no value to the world. Information is only valuable if it is spread around. Thus, the wider an information process is used by the public, then the more valuable that information becomes. The old profit motive of keeping a product scarce does not apply to information products. Consider further the best and/or widest way to spread that information product to the public? In the information business model, the best way to share the information and broaden the use is to GIVE the information away. Thus, the old, "for profit business model" suggesting that once a product is gone, sold, then it has no further opportunity for profit could not and does not apply to information products. If one must have profit to stay afloat, the trick for the profitable information company is to conceive a way that an information product can be given away while providing a process where revenue, profits, can be received for the company absent the free product.

The woods are full of the new information companies which understand this new business model. Think about the internet. One finds companies giving away applications like RealPlayer or Acrobat Reader while selling upscale versions of the product and related products. One finds huge numbers of internet companies giving away an information product while charging for advertising on the site. The examples are abundant. These are the right business models for the information age. Also, the most wonderful part of this new business model is the fact that the new paradigm ACTUALLY PROPELS LOWER PRICES IN ALL PRODUCTS FOR THE CONSUMER. It is the consumer that benefits most from the information business model.

In this mind, therein lies the rub! The USDJ, et al, just don't seem to understand this new paradigm. Just as RealPlayer, Acrobat Reader and so many others have the business model right, MSFT had the business model right. Netscape, in which the suit first started, had the business model wrong. Netscape continued to try to sell their information product while MSFT gave their product away to increase the value of that product. Is it right, is it fair, then, to threaten the break-up of a company that did nothing more than get the new business model right? Further, where will it stop? How many more companies in the US economy understand and are using that same business model? Shall we look forward to the breakup of countless more information technology companies as being a monopoly when a large market valuation is achieved in certain critical areas?

Reasoning in these matters can not be complete until and unless one also considers an equally important new business paradigm. We no longer have "one regional economy" as perceived and used in the old business model. Although it seems the USDJ, the state Attorney Generals and many economists still believe in, base decisions on, write policy for, the ideas from certain old regional economic laws, fundamental economic policy can not be based in the idea of any one regional economy. Consider that information, in and of itself, is invisible and knows no boundaries. Bear in mind also that information flows freely within and across borders. Competition for information companies can, and does, come from anywhere in the world. Likewise, there is no single set of laws, or monetary policy, or tax policy, that can govern information companies simply because when one company stumbles, or is held down, another one pops up to take the place. If one accepts this maxim, then consider the frightening prospect of the USDJ, et al, placing excessive punishments which may deny MSFT the right to innovate new, upgraded products. Think about the prospects of sidetracking MSFT with undue, burdensome regulations. Likewise, should we be fearful of the profound impact to the US, its citizens and economy, when overnight someone from Denmark, Japan, or India replaces MSFT as the leader in the software universe. There must be hundreds of foreign countries that would love to have MSFT within that country to create wealth, create jobs, become a world standard. Further, we must remember that MSFT is not like Standard Oil, US Steel, or even AT&T, who truly may have had no competitors and who had billions of dollars invested in "bricks and mortar". MSFT is mostly intellectual property, creative concepts, and, information that can be moved cheaply, easily and quickly to other parts of the world. It seems to me that this is an apple cart that can be upset very easily.

There are other aspects of the case that are troublesome to me. In the issue of MSFT being a monopoly, how, for example, can the USDJ fail to consider the other available operating systems available? Apple, IBM OS2, Linus, etc., all seem to be highly competitive companies that stumbled, or did not get the business model right from the beginning. If the primary concern of the Justice Dept. was for the consumers, why didn't the USDJ use "just plain computer users" as part of the case in lieu of only highly educated, technical computer users who were usually in direct competition with MSFT? While it is possible that those highly educated in the field of technology often don't enjoy the simplicity of MSFT products, it is also possible that those of us who simply want the productivity of the technology take delight in the simplicity.

My opinion in the matter has been formed. In the matter of MSFT being a monopoly, I believe if the courts had not let the USDJ define the case with such narrow perspective by segregating out certain kinds of computers and software, then MSFT would not have been found to be a monopoly. MSFT has now, and has always had, plenty of competition in the market place.

In the question of MSFT not being good for the consumer and/or over-charging for their products, I definitely believe MSFT, without over-charging, has been good for the consumer, our country and our economy. In my first foray into personal computing many years ago, it took months to read the early thick manuals which came with every computer and every application of software. It took months of devastating concentration to learn how to operate an application with little efficiency. Every new piece of software operated differently and had to be learned anew, so that one was reluctant to get updated software or get new software because one was tired of having to learn something new each time. As well, the software was very expensive. The point, I simply did not have the time, nor did I want to constantly be learning new software characteristics. I felt blessed when the computer industry finally began to zero in on one standard that was easy to use, and, dare say, I even had the confidence to teach that system to my eighty year old father who today is able to enjoy e-mail, the internet, word processors, spreadsheets because of one system that operates in a similar manner.

In the matter of over-charging, with the reduction in computer prices, I was delighted to upgrade my computer for the price of the old software, with a consequence of having MSFT products included with the computer package free, so to speak. At no time, however, did I feel that the new computer, with MSFT products loaded, limited my ability to remove everything from my hard disk and reload any other type systems and software I might desire. I've had that freedom, though not the desire. I use MSFT products because I like them. And, I rue the future when the USDJ and courts may force us back, ten years or more, to the days when computer operation was an extremely complex task.

Having said all this, I sincerely believe that calm, rational reflection, absent the sweet smell of huge monetary fines for government agencies, and, absent the games of political favoritism, must prevail. This is not to say that MSFT may have done no wrong over the years, as they may have, but, this is to say that whatever MSFT may have done wrong could not, and should not, be so severe as to justify the penalty being requested. Most important, it should be understood that MSFT has also done many, many things right for technology and for the consumers. Before we all became so cynical about the US justice system, I always believed the penalty should fit the crime. The penalty ask for MSFT is over-kill. I hope the courts will proceed cautiously so as not to mess up for all America, and the world, something that can not be repaired again. If the courts find that anti-trust laws were broken, but that the laws no longer apply to the new business paradigms, I hope they have the courage to ask the Congress to revisit the laws rather than completely disrupt and ruin another American company. Otherwise, you and I may wake up some day to say, the USDJ, et al, had it wrong, but some of us did nothing to stop their action. I am, then, very glad that WEB and CTM had the courage to speak out in the issue. I hope others will have the same courage.

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