Microsoft Corporation is the largest software company in the world. It produces the vast majority of operating systems for all PCs: Windows95, Windows 3.1, and DOS. Microsoft also produces the leading word processors and spreadsheets for both Windows and Macintosh operating systems. Microsoft has an 85% market share of the office suite market, which includes Word, Excel, Powerpoint (a presentation package), Microsoft Exchange (a mail client), and Microsoft Access (a database).

How did Microsoft develop into a giant software monopoly? Monopolies do not sprout up overnight. It is a combination of smart business decisions, mistakes by competitors, and perhaps some shady tactics thrown in that helped the company develop into the market leader and monopoly of today.

Let us go back in time a little to the mid-1970s when IBM was the king of the computer hardware industry. Microsoft started in 1975 as a producer of programming languages for the MIPS Altair 7500. In 1981, Microsoft bought an operating system for the Intel based 8086 chip from a small company called Seattle Computer Products and redesigned its product to license it to IBM for its new personal computer. This was released as MS DOS 1.0. (Microsoft Timeline) IBM, at the time held a monopoly over the hardware of computers - but by allowing Microsoft, an outside source, to develop the operating system of its computers, and Intel to develop the chips, IBM effectively ceded control of the software industry to those up-and-coming companies. Microsoft retained the right to license their operating system to other manufacturers and helped to generate the massive IBM clone business.

When Microsoft first produced MS DOS, it was not a monopoly, but rather another company trying to compete in the new computer software market. But the decade was good to the company, and the 1980s saw both Microsoft and Intel become the leaders of the new computer industry. While companies like Apple had more technologically innovative machines than the DOS-based PCs, the Macintoshes were more expensive and they therefore never gained much market share.

By the late 1980s, Microsoft controlled the operating system market; versions of MS-DOS ran on over 80% of personal computers. Microsoft did not, however, control any applications markets. Lotus had the top spreadsheet, 1-2-3, and WordPerfect had the leading word processor, WordPerfect.

It was the introduction of Microsoft Windows version 3.0 in 1990 that cemented Microsoft's position as a software monopoly. Soon after Windows 3.0 was released, Microsoft released Excel 3.0 for Windows and Word for Windows 2.0. These products received great reviews, and became the top sellers of their categories, surpassing Lotus 1-2-3, and Word Perfect, which were still mired in DOS. Lotus and WordPerfect did not realize the effect that Windows 3.0 would have on the industry and did not plan ahead for the transition. (New York Times, 11/5/95)

It has also been claimed that Microsoft used its control over the operating system and graphical user interface markets to help its growth in the applications market. Microsoft executives spoke of a "Chinese wall" between the systems and applications groups, but they did admit that sometimes their own developers learned to take advantage of operating system features before other companies. (New York Times, 11/5/95) Furthermore, it was alleged that when Microsoft included a new technology called object linking and embedding (OLE) in Windows, it gave Excel 3.0 developers the feature set to incorporate into Excel before the technology was widely available to other developers. (Computer Reseller News, 3/18/91). By allowing the applications developers to have an advantage over third-party developers, Microsoft held a significant advantage that it parlayed into applications dominance.

So, as Windows 3.1 (an update of 3.0) became the operating system on over 70% of personal computers, the Windows versions of Microsoft applications such as Word and Excel and Office started dominating the applications market. At this point, Microsoft was quickly solidifying monopoly status.

This brought Microsoft into the 90s where they began to diversify into other markets, using their dominance and billions of dollars from the personal operating systems and business applications to develop products for multimedia, business operating systems, and now even games and on-line services. At this point, Microsoft began to exhibit some potentially shady practices, such as the attempted purchase of Intuit and the coupling of The Microsoft Network with Windows 95. Such moves are risks to innovation and competition throughout the entire industry.

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