Case study of Microsoft: ethical issues

i. Abstract

Purpose statement: the purpose of this paper is to analyze these ethical issues Microsoft involved and to offer recommendations to assist the order of the operating system industry. Methods: in this report, we adopt the attracted case as the major reference to analyze and discuss these ethical issue involved by Microsoft. Data collection measures are also most based on the second hand collection means from academic journals, books, internet sources and so on. Conclusion: from the analysis and discussion on the case of Microsoft playing monopoly, we have concluded the misbehaviors and unethical practices made by Microsoft were worth some penalties as the case mentioned.

Key words: ethics, anti-trust law, anti-competition,

  1. Introduction

1.1 Background of the topic

Microsoft as one of the largest computer software makers in the world have been enjoyed a dominant position in the world software market. Its success cant be separate from the efforts of its founder, Bill Gates and his followers. While the successful performance and dominant position of Microsoft in the computer software market even lead to this company to monopolize the discursive power and even the future of other small companies in the computer software market.

Due to the monopoly of Microsoft in the world market has brought several bad effects on small companies in the computer software market, some of which are even death block. It has aroused a furious competition in the computer software market, which still cant move the absolute dominant position of Microsoft. And to protect the absolute superiority in the market, Microsoft has conducted a series of unethical practices. For example, it copied Apple Company’s operation system and renamed it as Windows to the market, it also took the advantage of its discursive power to force suppliers to limit the regular sales of its rival- the Netscape Company and meanwhile, it also fooled Sun Microsystems into giving the right and license to it to sell the Java with the Windows system.

While, with the enforcement of the so called anti-monopoly act and the awareness of Microsofts unethical busiest behaviors toward its competitors, Microsoft had no choice but to abbey the requirement of the law to break into two separate companies, one of which focuses on operating system and the other of which concentrates on some applications soft wares.

1.2 Objective of report

1.2.1 Discussion on these unethical practices of Microsoft.

1.2.2 Investigating on the characteristics of the monopoly market concerning with the operation system field which related with Microsoft.

1.2.3 Discussion on the lawsuits faced by Microsoft and these related issues

1.2.4 Offering suggestions and recommendations referring to some public policies with the consideration of the Microsoft issues.

  1. Findings

Although dropping out from the Harvard University, Bill Gates and his friend named Paul Allen established a small business related to the personal computer software filed. With the first pot of gold gaining from the computer program called Basic and earning from software programming writing to Apple II, Microsoft company has began its prosperous business journey from then on.

The year 1980 was a worth mentioning period for Microsoft. Due to the bad need of IBM Company on the operating system, Bill Gates was so smart that he only spent a small sum of money about $ 60,000 on a potential operating system from his friend and then resale it to IBM as the known MS-DOS, which contributed a large amount of profit for Bill Gates and Microsoft Company later because the MS-DOC system has become the standard operating system for personal computer for a long time.

With the great profit gaining from operating system, Microsoft has introduced a new operating system called Windows to the global market, which was proved to be a copy from Apple Computers operating system at that time in 1987. Although because of the copying activity, Microsoft was sued by Apple Computer, Microsoft has finally won due to some tricks made by it. The beginning year for the Windows operating system wasnt seemed to be popular among the customers. The introduction of Windows 95, 98 and the 2000 series made this company enjoy a good reputation as well as population in the global operation system market for personal computers, which even made Microsoft enjoy nearly 90% market share. And such kind of absolute dominant position of Microsoft was defined as monopoly by many people.

But every business may experience a various challenges in the market full of furious competition (Griffin & Pustay 2010). From the 1990s, Microsoft has faced big challenges from many rivals, two of which even aroused the great attention of Bill Gates. One is the Netscape and the other is the Java from two companies. Worse still the cooperation of the two companies made Microsoft have to adopt a series of revenge measures to regain the market share. These measures adopted by Microsoft were regard as unethical and even illegal later, which even made Microsoft was sued in the court.

Due to the monopoly activity and several illegal and unethical business practices conducted by Microsoft, a federal judge called Thomas Jackson had declared the crime of Microsoft in establishing and maintaining the monopoly in personal computer operating system in 1999. And later in the year 2000, the European Commission also pointed out the crime of Microsoft in its anti-competition practices and activities. Although Microsoft has explained its activities were to assist the standardization of the software industry and improve the convenience of customers, it had paid a large sum of penalty and experienced the decline of its share prices.

Moreover, there are more and more governments in different countries have started to purchase other kind of operating system such as the Linux instead of the products from Microsoft which often hit the business of Microsoft heavily.

  1. Analysis

3.1 Unethical behaviors and evaluations

3.1.1 Copying Apples operating system

3.1.1.1 Evidence

As the case mentioned, in the year 1984, Apple Company had launched its new operating system which adopted graphics as well as pictures to assist customers to give order to the computer with mouse. While 3 years later, Microsoft Company had introduced its new operating systems which was named as Windows and claimed it’s was its original invention. In fact, the Windows operating system from Microsoft looked and felt almost like the operating system of Apple implemented in 1984, which was a copying activity. Although Microsoft had won the lawsuit related to the copy case, we may still find out the copy reality of Microsoft.

3.1.1.2 Evaluation

Such kind of copying practice by Microsoft was unethical. As Trevino and Nelson (2007) pointed out, it is necessary for companies in industries to join together voluntarily to support and promote ethical behaviors. The ignorance on other people and organizations effort, copyright of their products as well as adopting tricks such as steal the key safe ware advantage of Apple Company was a kind of unethical behaviors, which is to take advantage of others resource to achieve the self profit and even lead great loss of the other parties of Microsoft and can be defined as unethical.

3. 1.2 Copying the browser of Netscape

3.1.2.1 Evidence

Netscape as one of the strong and potential rival of Microsoft in the year 1990, it introduced the Navigator to the market which was a newly developed web browsers based on the situation that more and more people have realized the importance of the browsers for personal computers. And meanwhile, due to the proper function and utility of the Navigator browser, which led Netscape to have a great sales improvement during that time. Such kind of market share gaining of Netscape became a big threat for Microsoft. To fast seize the market share from Netscape, Microsoft adopted the old trick of copy which once used in Apple Company. For instance, a short time later after the introduction of Navigator by Netscape, Microsoft carried out its browsers named Internet Explorer, which was developed by borrowing the browser programs from its earlier licensed company with the retaining of many same characteristics of the Navigator browser from Netscape. And then Microsoft had implemented a series of Internet Explorer version, which finally seized the market from Netscape.

3.1.2.2 Evaluation

As we mentioned above the copying activities are defined as the unethical behaviors. Microsoft Company is so keen on taking and stealing others fortune and resources to create its own treasures with the sacrifice others benefit, which is far beyond the regular scope of the business activities. It is unethical (Stair et al. 2010).

3.1.3 Anti-competition activities

3.1.3.1 Evidences

As the big threat from the competitors including Netscape and Sun Microsystems, Microsoft made full use of its position in the market to hit the two competitors.

In the first place, to hit Netscape heavily especially after its refusal of Microsofts proposal of the measures for browsers selling, Microsoft has lured and forced its partners namely many computer makers to adopt the windows operating system only as well as bound its own produced browsers, the Internet Explorer with its operating system to sell it to customers. Such kind of activities finally resulted in the great decline of Netscape in the market. In the next place, Microsoft made tricks to gain the right from Sun Microsystems to license and distribute the Java language in its windows system. And then, it made many changes in this language and finally made it fully fit the expectation of Microsoft. Such kind of activities worked just as the hindrance for the future development of the Java language for Sun Microsystems.

3.1.3.2 Evaluation

Generally speaking, the above activities and practices of Microsoft even violated the antitrust act and can be defined as unethical. Just as the definition in the Judge Jacksons court that these activities of Microsoft was the pattern of the anti- competition practices as the case mentioned.

And meanwhile, based on the theory offered by Ferrell and Fraedrich (1994) as well as Trevino and Nelson (2007) that the stakeholder refers to any person or groups which have relationship or some stakes in an organization, which often have the influence on the organizations business decision making and the implementation of business strategies. The customers, shareholders, business partners, local government, employees, communities and so on are all the stakeholders of Microsoft. The anti-competition activities made by Microsoft were the action to harm the interest of its stakeholders. Firstly, it violated the interest of its customers. As Carroll (2005) advocated it’s the customers right to get the right, complete, accurate as well as trustworthy information on the products they choose and they also have the right to choose the products they preferred. While the activities conducted by Microsoft such as the tried of its browsers and media player with its operating system are the activities to violate the right of customers to choose the products freely. Such kind of activities was treated as unethical by Carroll (2005).

Moreover, the tried assistant products including of the browsers and media players with its operating system and claimed these products were offered for free. It also violate the benefit and interest of the shareholders and employees, it decrease the profit of these products which wasnt responsible for them. Furthermore, the action of Microsoft to force its partners such as these computer makers to sign contact on stopping the selling of other competitors’ products also offended the equal right of the partners in doing their business. Carroll (2005)

By and large, all of the above mentioned activities conducted by Microsoft were unethical.

3.2 Monopoly market and Microsoft

3.2.1 Characteristics of operating systems market and Microsoft

According to Welch (2010, p. 13), monopoly is defined as a market with one seller that maintains its position because entry by new sellers is impossible. Based on this idea, we may infer that Microsoft is in such kind of market and it was the monopolist in the situation of the case mentioned, which was due to the characteristics of the operating systems market for the most part.

3.2.1.1 Requirement on advanced technology

The first characteristic of the operating systems market is its high requirement on the advanced and new technology (Moschella 2001 & Grant 1998). Just as Moschella (2001) pointed out in the market which has high requirements on technology such as the operating systems market, whenever a new and advanced technology has been introduced into the market or begins to enjoy a dynamic growth trend, the first players of this technology often benefits a lot than others because the first players may obtain the experience, capital to invest and human resource prior. In another word, the characteristic of high requirements of advanced technology in the market of operating systems makes competitors in this market have no choice but to catch up these already leading firms before they own the competitiveness to compete.

Microsoft Company is the good example of this that it introduced the MS-DOS operating system and gained nearly 90% market share, which made Microsoft the possible monopolist because it enjoyed the incredible advantages as the first player (Moschella 2001 & Grant 1998).

As a result, this characteristic of the market of operating system become of one of the factors for Microsoft to enjoy the monopoly.

3.2.1.2 Economic rules

As Stallings (2005) mentioned that the so called operating system belongs to communication system which is a group of programs which are often used for computer users to manage the hardware and gain serviced from software, without which users may not be able to run the programs on the computer properly.

And before we go on with Microsoft, lets discuss the other characteristic of operating system market, which owns its unique rule in economic area. This economic rule is that the operating system may be only valuable and worthy according to the number of participations. That is to say the more people participate in the operating system, the bigger the value will be gained by users and the bigger the profits will be obtained by the system promoters (Dhotre 2009). For instance, to make sure the understanding in our every communication, we may try to speak and write under the guidance of a kind of language standard. And the fact for use to adopt this kind of language standard is due to the great advantages such kind of standard owning, which may not only make our life more smoothly, but also make business gain more profit(Dhotre 2009).

And the other factor resulting in the monopoly of Microsoft is this character in economic rules of operating system market. It became the monopolist because it was able to explore and introduce data interaction standard to the area of personal computer successfully (Bick & Julie 2005). For instance, Microsoft Company did that via establishing a set of operating systems including the former one -DOS and the later one Windows and by indentifying a certain type of machine namely the computer to run their operating systems. The successful essence of Microsoft of this lay in its setting up of the nonexclusive standards which can enable anyone to come into the business of computer hard wares and to fulfill the market niche compared with Apple Company and Commodore Companys operating systems (Bishop & Todd 2004). Based on this, the products of Microsoft can then to be able to enter every niche in the operating system market.

Generally speaking, these strategies mentioned above contributed to the monopoly of Microsoft in the market may be attributed to the economic rule characteristic of the operating system market. In a word, Microsoft become the monopolist in the operating market was because it established a most widely useful standard for computers, which was also the most valuable for these participants, namely computer users.

3.2.2 Evaluation on utilitarianism, rights and justice

As Velasquez (2011) pointed out the monopoly owns many ethic weaknesses in the areas including violating the utilitarianism, capitalist justice and negative rights. In the following well develop a further discussion on the three aspects.

3.2.2.1 Utilitarianism and evaluation

According to Trevino and Nelson (2007), as one of the best known theory of consequentialist, utilitarianism indicates that the ethical decision for a business should try to maximize the interest and benefit for the society and to minimize the harms to society as well. But the case of Microsoft in monopoly of the operating system market was seemed to violate the utilitarianism according to this theory that as the monopolist in the operating system market, Microsoft was intended to adopt inefficient and improper measures to allocate, distribute and make use of resources Velasquez (2011).

As the monopolistic in the operating system market, Microsoft Company took advantage of its dominant position to hinder the resources used in the operating system market imbalanced and even tried to shortage of these things so as to sell its products in a high price to profit more. As the case mentioned, Microsoft bundled its browsers, media players and other kinds of products with its windows system and sold it to the customers. Although, it claimed these bundled products were charged freely, we may infer that it may have already added the extra cost to the selling prices of its operating system. Such kind of strategy and activity made many of the consumers had no choice but to accept such kind of offering and paid the expected price to Microsoft for the operating system, which adopting the means of minimizing the benefits and interests of the society to maximize its profit. It went against the ethical theory of utilitarianism (Trevino & Nelson 2007).

In a word, the business practices of Microsoft as the above mentioned in the monopoly market was seemed to violate the utilitarianism.

3.2.2.2 Rights and evaluation

Microsoft in the monopoly of the operating system market also violated the moral rights of these participants. According to Velasquez (2011), it is the responsibility of an organization to protect and ensure the free trade rights which should be enjoyed by these participants in the market. While as the monopolist, Microsoft carried out many activities to limit the practice of the negative rights properly in the operating system market for these participants.

For instance, Microsoft made full use of its discursive power and dominant position in the operating system market to limit the free inflow and outflow of marketing resources. The first evidence of such practice of Microsoft was its refusal to share the codes of Windows 95 operating system with its competitor Netscape, which resulted in this company faced with the dilemma to develop their browser for Windows 95. Such kind of hindrance of the free flow of market resources made Netscape Company have a profit loss.

3.2.2.3 Justice and evaluation

According to the distributive justice theory (Konow 2003) and Velasquez (2011) that what the person gain should equal to the efforts or contributions he or she made. And based on the information from the case, we can find out that many business practices made by Microsoft as the monopolist in operating system market may be seemed to violate this kind of justice for capitalist which imbalance the benefits and burden among the participants in this market.

Lets have a close look as these evidences. As the monopolist in the operating system market, Microsoft forced buyers to use some of its software products including the Internet Explorer, Media Player by the compulsory bundled with the windows system under the price setting by Microsoft. Although there was a claim that these bundled soft wares were for free, in fact the paying of buyers on the windows operating system may more than what they gained in the long run. Because the aim of Microsofts bundling sales was to force other competitors to quit in the market and maintain its monopoly. It may not only limited the right of customers and these business players to enjoy the principle of free market, but also forced the consumers to passively accept the fixed price of the operation systems set by Microsoft, whose value may have a large gap compared with its price.

By and large, from the above discussion, we can conclude that the monopoly market of operating systems which Microsoft was in violated the capitalist justice principle as well.

  1. Conclusion

Based on the information from the case, we will have a further discussion on the lawsuits faced by Microsoft and evaluate the fairness of these verdicts.

4.1 Government aspect

With reference to the government’s action in suing Microsoft for violation of the antitrust laws, we support such kind of decision. The economic function of government often has four aspects concerns including to prevent the business from obtaining unequal profit from its employees such as discrimination and so on, to protect the interest of customers, to minimize these negative influences of businesses on the society such as environmental pollution, traffic accident and so on as well as to promote equal competition principle and enforce the anti-trust laws (Daniels, Radebaugh & Sullivan2007). Since the function of government in business emphasized the equal competition principle and support the anti-trust laws, Microsoft was sued for violation of the antitrust laws by government was understandable.

On the one hand, these business practices including the bundling sales strategy, coping activities and so on all indicated the unethical behavior and messed up the proper competition order in operating system market, which went against the anti-trust law. On the other hand, as the basis of new economy, the backbone for information technology industry lies in the continuous development, competition and introduction of new technology, in which only furious competition can promote the promising future development of this industry. For the U.S government, it is important to maintain the proper competition in the information technology industry to pursue the future profit. The monopoly of Microsoft wasnt fit for the expectation of American government in this area. That’s why it was sued.

4.2 Judge Jacksons aspect

Although Judge Jacksons verdict to order Microsoft to break into two separate companies was seemed to protect the competition order and the anti-trust law, it was a little bit extreme.

Firstly, according to the anti-trust law, it is against not only these anti-competition activities but also unfair practices (Arthur & Sheffrin 2003). In fact the essence of this law is to offer more flexible and comfortable business environment for business organizations. The final verdict of Judge Jackson was seemed to not only kill the promising future of Microsoft but also set up a series of hindrance for the two companies, which was a death block for an organization full of creativity. It may go against the essence of the anti-trust law (Moschella 2001).

Secondly, the finding Judge Jackson got toward Microsoft including the crude activities in taking advantage of the dominant position in operating system market to obtain the absolute control of other related aspects of the software industries may be seemed unequivocal (Moschella 2001). The breakup penalty from Judge Jackson was reversed later may indicated the improper judgment of Judge Jackson in Microsofts case.

4.3 Judge Kollar-Kotelly aspect

According to the case, we get that Judge Kollar-Kotelly pointed out the monopolistic behavior of Microsoft and gave it a tough sanction and accepted most of the items in the settlement agreement of Microsoft. And in this case, Microsoft may have to pay a large amount of penalty for its anti-competition behaviors, to share some vital information with other rivals as well as other kinds of compliant activities.

The finally verdict of Judge Kollar-Kotelly was decided on the basis of a variety of facts and evidences. It was relative fair and reasonable. On the one hand, the anti-trust law advocated that any business actions or practices break the proper competition order and development were considered illegal and worth punishment. The verdict to order Microsoft to stop a series of anti-competition practices, offering much assistance for other companies as well as a big sum penalty were not only helpful for companies in the operating system market to have a better and comfortable development but also proper to work as a warning for Microsoft to behave its future business practices. (Moschella 2001 & Daniels, Radebaugh & Sullivan2007)

4.4 European Commission aspect

The decision of the European Commission on Microsoft in 2004 includes these aspects. At first Microsoft should pay a large sum of penalty nearly 497 million Euros. Secondly, Microsoft should share some of the vital information with its competitors. Thirdly, Microsoft should also offer its own version of the digital media player.

Based on the verdict from the European Commission above, we thought it may be seemed relatively severe. Just as the objection from Americans for Technology Leadership, the big sum of penalty for Microsoft would largely decrease its confidence and enthusiasm as the leading giant in the operating system market, which would arouse several side effects. One possibility was the bad influence on the working morale of many companies in the information technology industry to seize the market share and business opportunities in the European market. And meanwhile, such kind of sanction may also make many foreign countries to worry about their global expansion strategy in the European areas which may hinder their developing pace. (Daniels, Radebaugh & Sullivan 2007)

5.0 Recommendation

5.1 The victims

As we mentioned above, Trevino and Nelson (2007) pointed out that the stakeholder refers to any person or groups which have relationship or some stakes in an organization, which often have the influence on the organizations business decision making and the implementation of business strategies. The monopoly market that Microsofts operating system has enjoyed may do some harm to its stakeholders.

5.1.1 Employees

According to Trevino and Nelson (2007), employees are one of the important stakeholders of an organization and the organization should afford many responsibilities to their employees. Based on the information in the Microsofts case, we can also infer that employees in Microsoft were its key stakeholders that they enjoyed a variety of rights in Microsoft Company. For instance, they owned the right to have privacy, the right not to be sacked without a reasonable explanation, the right to work in a safe place, the right to get equal treatment and promotion stage, the right to have free speech, the right to work in the environment which is free of discrimination (Trevino & Nelson 2007).

And meanwhile, from the case, we can see that these practices especially the anti-competition activities conducted by Microsoft had violated the right of its employees. On the one hand, it violated the right of employee to work in a safe place. Lets have a close look at these practices made by Microsoft. In 1987, Microsoft introduced its Windows operating system to the market which was coped from Apples system. During the 1990s, Microsoft adopted some tricks to gain the license and right to use Java and copied the idea of Netscapes browsers. And at the same time, Microsoft made full use of its position in the monopoly market to attack its competitors such as Netscape via bundling package and secret contract tricks. All of these practices were anti-competition, which put Microsoft to the court.

For employees, its employer was faced with lawsuit so many times and was fined or a large sum of money, which not only made their working environment lack of safety and secure but also decreased their profit gaining.

5.1.2 Government

As we have already mentioned above, government’s economic functions including four aspects such as preventing the business from obtaining unequal profit from its employees such as discrimination and so on, protecting the interest of customers, minimizing these negative influences of businesses on the society such as environmental pollution, traffic accident and so on as well as promoting equal competition principle and enforce the anti-trust laws (Daniels, Radebaugh & Sullivan2007).

These anti-competition practices made by Microsoft including the bad influences on its own employees as the above discussed, shareholder and other stakeholders of this business all violated the function and responsibility of the government which was set as a protection basis for its entire citizens. Generally speaking, as the monopolist in the operating system, Microsoft hurt the interesting of many parties which was a hurt to the government.

Moreover, one of the negative consequences of the monopoly market was that with one competition, Microsoft as the monopolist may operate its business in a less inefficient way or at a higher average cost than the average, which may finally lag the smooth and proper development of the entire industry and decrease the profit all the whole country (Welch 2010).

In a word, as the above discussed, Microsoft also had bad influence on the interest of the government.

5.1.3 Shareholders

Trevino and Nelson (2007) also pointed out that organizations also have several ethical obligations to their shareholders and other owners. For Microsoft it also has the obligation to serve the shareholders interests as well as to try its best to have a better performance both in the short time around but in the long time around. It means that Microsoft had better not involve in practices which may put the organization out of the business and not carry out the short term decision which may jeopardize Microsofts health in the future development.

And from the case, we can infer that these misbehaviors or unethical behaviors such as these anti-competition practices not only put Microsoft to the court but also brought enormous economic loss to this organization, which was the violation on shareholders interest and profit.

5.2 Suggestions

With reference to the case on Microsoft, we may realize the importance of the awareness on some policies making to protect and restrict industries like the operating system industry. In the following, we will recommend some public policies aimed to help the proper operation of such industry.

5.2.1 Ethics related training and guidance

It is necessary for government to introduce some policies to force bosses or leaders in industries such as the operating system industries to attend some public programs related to the ethics and legal training and guidance in the organization and business (Bhaskar etal. 2005). These principles and rules can order business participants to accept some general training on how to foster the ethical culture in organizations which should with more respect to business ethical beliefs and practices.

Such kind of rules and principles may work as an impetus for organizations to pay great attention to the ethical issues when they conducting their business. For instance, in the operating system industries, business participants may get the training on how to compete with other competitor ethically and healthy, what the importance of equal competition for the healthy development of both their organizations and the whole operation system industry, what kinds of business practices will violate the ethical code or even violate the law such as anti-trust law (Bhaskar etal. 2005). With a better understanding on both the ethical issues and legal issues, these participants in such kind of business like the operating system industry may behave more and perform in a more ethical and legal way.

5.2.2 Requirements on establishing corporate guidelines and policies

It also suggest that some public policies towards organizations especially those business organizations in industries such as the operating system industry to set up corporate guidelines and policies for both the global business ethics (Trevino & Nelson 2007). Some organizations may lack such kind of principles or rules to guide their business activities in the world market. The public policies are suggested to require firms must build up these guidelines and policies with the wide concern from the diversified opinions among managers, the ambiguity of legal requirements on competition as well as the continued existence of cultural differences and corruptions.

And these firms are required to operate their business both domestically and international under the guidelines and policies as the above suggested. With such kind of policies and guidelines’ direction, firms in industries like the operating system industries may act more clear-heartedly and properly and avoid some ambiguity in the business ethical aspects.

5.2.3 Policies on restriction

We also recommend government and these related industries to carry out some useful restricted policies on firms to operate their business. For example, these restriction on package selling, at fire sales price promotion and other kinds of improper competition measures in the operating system industries are suggested, which may help this industry to standardize the order and avoid some disputes in this industry (Daniels Radebaugh & Sullivan 2007 ).

2 thoughts on “Case study of Microsoft: ethical issues”

  1. Just wanted say I’m a student in college currently doing a business class and have to write a paper on ethics and this helped me tremendously! Excellent job I’d say. Definitely answers the questions I need to address in my own paper. I enjoyed and understood what was going on from your writing. Thanks

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