Saturday, September 29, 2007

Microsoft: the Innovator?

For those of you Microsoft haters who love to trounce the company as an innovation laggard (which is a false claim in and of itself - but that is for a different post), comes a fascinating article from Forbes. In "Media by Microsoft" Daniel Lyons reviews Microsoft's solution for integrating the consumption of digital media (movies, TV, photos, video, etc), MS Media Center. Guess what. Microsoft is in the lead! The very next issue of Forbe's takes on Apple's version of this, Apple TV, redubbed in the articles title as "The iFlop". Take that, Microsoft bashers!

Friday, September 28, 2007

The Pharmaceutical Industry Under Attack

The Pharmaceutical Industry is one of the last industries where high value innovation occurs (the other being the IT industry). While Pharma is more regulated than IT, it has relative freedom within the U.S. to capture value for its product and in turn to fund development. This is evidenced by the strong Venture Capital market for young pharma companies, where it is still a viable financial bet to invest in companies whose products won't come to market for a decade or more. The only way this sort of investment is viable is if the possible payoff is huge and in Pharma, a successful blockbuster makes billions for its parent.

But witness a string of healthcare legislation, proposals from political candidates, and ongoing debates, all of which, if they make it to fruition will serve to continue to decimate pharma's long term prospects. Here's a round-up:

Drug Re-importation: under the guise of the government acting as an "efficient purchaser" of drug proposed legislation is nothing more than riding piggy back on European socialism. I had a whole post on this, and ARI's great op-ed beat me to it. Europe doesn't get better drug prices because they have access to volume discounts or to some magic to make pharma producers more efficient. They have them because they dictate the prices in their countries. Re-importing drugs through those countries is nothing more than adopting the same dictates, only in a seemingly "squeaky clean" Mafioso money-laundering style.

Post Vioxx increase in FDA's regulatory powers. From a recent article, "The Biggest FDA reform in a Decade", new legislation, quietly moving through congress, and attached to appropriations legislation would increase FDA's powers to meddle in pharmacuetical companies development programs. This includes dictating drug label claims to pharma companies, directing pharma companies to do post launch clinical trials, and forcing drug companies to make public all clinical trial results. All of these measures will serve to bottleneck and already too lengthy clinical trial process, increasing development costs even further.

Hillary Care 2.0. Another veiled attempt at socialized medicine. How many times must we see this kind of crap. ARI's again takes these to task, in both a letter to the editor (which I'll post when available) and a great op-ed by Noodlfood's Paul Hsieh.

Wednesday, September 19, 2007

ARI Speaks on the EU and Microsoft

In a follow-up to Monday's post on the EU Microsoft ruling, I wanted to point out that The Ayn Rand Insitute today issued two press releases on the topic (which I will link to when they are posted on the web site). In the first, EU Has No Right to Punish Microsoft, Yaron Brook, ARI's director articulated that dominant positions are not threats to free enterprise.

“This ruling violates Microsoft’s right to profit from the enormous popular acceptance of its Windows operating system,” said Dr. Yaron Brook, executive director of the Ayn Rand Institute. “Microsoft cannot force anyone to buy its products. If the company sets prices unreasonably high relative to its customers’ interests, then competitors are free to step in and offer a better value.  But if 95 percent of consumers choose to buy Windows software, then Microsoft has a right to profit from that success and not be punished for it.”

In the 2nd, End, Don’t Extend, the Persecution of Microsoft, Alex Epstein identifies Microsoft's persectution rightfully as persecution of the good for being such,

“Of course, Microsoft’s tremendous success is the whole reason it ever fell under antitrust prosecution in the first place. Antitrust law regards any company that has earned substantial market share as a dangerous ‘monopolist.’ Microsoft has suffered almost two decades of government threats and punishment on the grounds that its 90 percent plus market share in operating systems was a ‘threat’ to the consumers who eagerly chose Microsoft Windows over the competition. Microsoft used no force or fraud against anyone; its ‘crime’ was to choose to add a valuable feature, a Web browser, to its popular operating system.

Great articles both!

Monday, September 17, 2007

EU to Microsoft: "You're too good"

That was the main message to Microsoft today as a European Union court ruled against the US software company in an appeal of its previous anti-trust ruling. Fines and penalties against the company could reach over $2 billion.

Microsoft's crime? Bundling it's music software, Media Player, with its Windows operating systems, and failing to instruct competitors on how to make their systems communicate effectively with Windows. So says the ruling, but the real crime is Microsoft's dominance of the operating system software. From today's Wall Street Journal:

European regulators hailed the court decision as a victory for consumers, who, in the words of Competition Commissioner Neelie Kroes, are "suffering at the hands of Microsoft." Ms. Kroes said she would like to see a "significant drop" in Microsoft's nearly 95% market share in operating-system software.

These consumers who are being hurt, when offered a choice by Microsoft between Windows with Media Player and without, voluntarily chose the version with Media Player. The claims are laughable. Microsoft may have Windows on 95% of people's Intel machines, but this in an era when the operating system is becoming less important and web based application hosting such as Google's fantastic suite are sucking the value (i.e. price) out of bundled operating system packages. Microsoft may bundle it's Media Player with Windows, but that doesn't prevent the iPod and its necessary music player software, iTunes, from dominating the segment. Yes, everyone has Media Player on their Intel machines, but those people who are actually listening to music to any degree are listening to it on iTunes, and their iPods. Microsoft is squelching its competition, at least, the competition that tries to be just like it. But that doesn't mean it can stop any competition whatsoever, as Google and iTunes prove.

And how do our politicians respond to the EU's move? With seeming concern,

The U.S. Justice Department's chief, Thomas Barnett, contrasted Europe's approach with America's. He said that in the U.S., even dominant firms "are encouraged to compete vigorously," while Europe's stance may end up "harming consumers by chilling innovation."

This seeming contrast is nothing but a separate forms of the same principle, that the best corporations are a danger to the marketplace and must be stopped, either by being hamstrung by regulations or stripped of their competitive advantage and forced to compete on "level playing fields". Will the real defenders of capitalism please stand up? They are not in this bunch.

Even Microsoft can't properly defend itself, arguing that "traditional anti-trust tools aren't appropriate for fast-moving technology industries." Implying of course that they are appropriate for slow-moving traditional industries, when in fact, slow moving industries became that way due to over-regulation and anti-trust limitations.

There is only one proper answer here: laissez faire. Monopolies which hurt the consumer, cannot exist for long in a free economy where proper rights are enforced. Microsoft has continued to innovate with new generations of its operating system and yet has still seen its revenues stall, and it's share of components (email, music, etc) of its operating system decrease. And this has not been through the use of regulation, but rather through good old-fashioned competition.

I use a Vista machine and I use Media Player with 3rd party music player. However, my email, photos, blogs, maps, and soon calendar and even documents are hosted by Google. My browser is Firefox, my finance software is Intuit's Quicken, and my picture and video editing are all Adobe Elements. All have Microsoft alternatives, and many are already bundled with Windows. No matter. This component erosion means that Microsoft cannot get the same revenue per copy of Windows, and this shows in its stalling top line growth.

Markets don't fail, and it's time our politicians learned that.