Software by the Pound

By Larry Seltzer  |  Posted 2004-03-23

Software by the Pound

News reports indicate that European Union antitrust regulators are likely to order Microsoft to offer a version of Windows without Windows Media Player. Because nobody would want that version at the same price as the full version, the EU will order that version to be sold at a discount to the full version. But at what discount?

This issue was dealt with by the U.S. Justice Department, its clients (Sun, Netscape, IBM, et. al.) and Judge Thomas Penfield Jackson in the U.S. antitrust trial. In the final judgment, using language essentially identical to that proposed by the DOJ, Microsoft was ordered to allow OEMs to remove any piece of "middleware" from Windows, substitute a competitor and receive a discount for the code not used. (Dont get me started on what "middleware" is supposed to be; the term used to have a real meaning before the government got hold of it.)

Calculating the value of one feature of a large work of software relative to another is not an easy thing to do. Windows was always meant to be sold as one product, so theres no pricing history on which to rely (except that many of the so-called "middleware" features are or were available for free download). Without any rational basis on which to set the prices, this is what the government ordered:

The discount for any feature withheld from an OEM installation was to be proportional to the percentage of bits occupied by that feature in Windows. For example, if Windows Media Player were 1 percent of the bits in Windows, an OEM would receive a 1 percent discount off Windows for leaving it out. This notion of pricing software by the pound was invented by the DOJ (or perhaps by Netscape—who knows for sure?), and if the order hadnt been vacated, who knows what nutty consequences might have resulted.

Heres the actual quote from the actual final order of the court (section 3.g.ii):

... when an OEM removes End-User Access to a Middleware Product from any Personal Computer on which Windows is preinstalled, the royalty paid by that OEM for that copy of Windows is reduced in an amount not less than the product of the otherwise applicable royalty and the ratio of the number of amount in bytes of binary code of (a) the Middleware Product as distributed separately from a Windows Operating System Product to (b) the applicable version of Windows.

Next page: Why the EU will take this approach.

Page Two

Un-friggin-believable. But this is the approach I expect the EU to take, for a number of reasons. First, as stupid as it may be, what else are you going to do? There is no rational basis for pricing individual features. Second, it sets a framework, as envisioned by the DOJ, for pricing other features the EU may order Microsoft to remove. Third, it reinforces the precedent set by the vacated Jackson ruling, which Im sure Microsofts competitors would like to set as a model for future rulings.

The mind boggles when considering the implications of such a ruling. Microsoft would be rational, for example, to change the nature of the programs in question in response. Windows Media Player comes with sample videos and numerous bitmaps included in the executable. Time to trim that excess fat. They might change their compiler settings in the future to pack files more tightly, use compression on executables and so on. Incidentally, as far as I could tell from reading the judgment, it is unclear whether the calculations were based on the number of bits on the installation media or the number of bits in the installed system; these numbers could differ greatly, so that needs to be worked out.

And its hard to say that theres even any fairness basis for valuing software by the number of bits it occupies. Big, fat programs are often the worst written and small, tightly written the fastest and most valuable. The number of bits in them is at best a random proxy for value, at worst a direct opposite reading of the work that went into them.

Back during the DOJ case I actually read the proposed judgment and actual judgment, so these provisions caught my eye, but I never saw them discussed anywhere else. Perhaps they will get more attention this time if they are adopted by the EU. Or maybe theyll think of something even more irrational; dont put it past the minds of Microsofts competitors and their partners in government regulation.

Security Center Editor Larry Seltzer has worked in and written about the computer industry since 1983.

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