Here is Mark Thoma and Robert Barro, here is Brad DeLong. You may recall that Barro had claimed that the social value of the company was roughly equal to its revenue; of course many critics objected.
Imprecise questions are being thrown around. It is fine to question Microsoft’s net contribution by asking what other companies would have done in its stead. But then, to be consistent, we should ask what revenue those alternate-universe companies would have earned. The correct comparison is one set of social values minus revenue (that of Microsoft) to another (hypothetical) social value minus revenue (what would have happened without Bill Gates). Would the alternative have been more or less monopolistic, more or less stifling of innovation, more or less able to enforce copyright? And so on. We can speculate but of course we’ll never solve those counterfactuals.
We can, however, assert the nonetheless profound truism that gross social benefits of Microsoft, over time, exceed the gross revenue of the company by quite some amount. The company is a highly imperfect price discriminator and many people rip off its software.
I’ll call the comparisons in the counterfactual (different revenues, propensities to monopolize, social values, etc.) a wash and thus I believe that the correct measure of the social value of the company is much greater than its revenue. It would make more sense to compare the company to a first best if we thought there was a feasible antitrust policy to get us there, but I find that hard to believe.
In other words, Barro probably is underestimating the value of Bill Gates and Microsoft.
Why can you assert and claim as truism that social benefits of Microsoft exceed the gross revenue over time? How does Bill Gates compare with Tim Berners-Lee? With Linus Torvalds?
Surely if you are calling the comparisons with the counterfactual a wash, and that’s a big leap, Microsoft has no value at all?
So if Consumer Surplus had been greater in a non-MSFT world (therefore more money “left on the table” and overall lower revenues), all else being equal, you’re saying that would be BAD?
I’m sorry, I missed Thoma’s contribution to this. All he does is quote two people at length and sorta paraphrase one.
Come to think of it … that’s all he ever does on his blog.
I have to agree with Jack here, as I am left very confused by this post. The social value to Microsoft existing is how much better they do as the, imho, inevitable monopolist making the OS for the ‘winning’ computer system than the other monopolist companies that might have arisen. Tyler himself says this, then says he counts this comparison as a wash, so the social value of it existing is close to zero. Then contradicting what he just wrote, he goes ahead and gives them huge social value.
Surely he isn’t making the mistake of attributing all the gains from the existence of a good produced by the winning monopolist in a natural monopoly to the existence of that monopolist, as if the alternative to that monopolist existing is that the good is not produced at all compared to what actually would likely happen, there simply being a different monopoly firm in that industry. But if he is not doing this, then what is he doing?
Come now. Microsoft’s initial deal was to be the exclusive supplier of OSes to IBM’s nacient PC business. This was when Bill had no operating system. IBM clearly received a less value for that deal than they paid, so the net social gain from this deal is less than the M$ profit. From there they basically purchased and force one inferior product after another on the market using their existing monopoly as a base.
So the primary benefits are clearly far, far less than their profits. What about the secondary?
Again, this is a lot less than you might at first expect. Did you know, for instance, that there were device-independent formats in use in 1979? I recall the big debate brewing in the early nineties over whether or not wysiwyg (What You See Is What You Get) was a good thing.
Yes, we have standardized on the M$ Office format for the most part, but this format was at the time in competition with other formats, and won by virtue of being the default $etting for enough people that the arguement was settled on that basis alone. So what is the net social gain of a monopolist deciding something like this?
Profits are a useful measure of social good only in a free market. Which is why smart businessmen have always (and will always) avoided them like the plague.
I think most people are undervaluing the role of innovator Bill Gates has played. It was his entreprenuerial vision of “computing at your fingertips” applied to the world population that drove the rise of Microsoft.
Computing at your fingertips indeed. Microsoft was dragged kicking and screaming into a GUI.
Well, I for one value BIll Gates low on the innovation scale. He scores extremely high on the competitive scale, and high on the unethical business scale, but on innovation not so much.
Actually, thinking about this more deeply, to the extent that there was any serious chance that an open source standard for OS and office software of similar quality could have been adopted, it’s quite possible that MS *destroyed* a gargantuan amount of value.
I agree with Al.
I first used a Mac in 1987-88 and it was far superior to the MS-DOS machines. I read in Wired magazine that Bill Gates approached Apple offering to license their OS and they weren’t interested, because they were fat with profits from selling the boxes. Gates came out with his first awful Windows clones, but persistence paid off. My wife uses a Macbook in her teaching job – I’ve used it and the practical difference between it and a notebook running XP is not great. The premium for the Mac over a Windows notebook is probably 50%-75%. MS Office for the Mac and PC are identical – files swap easily back and forth. That gives the lie to the claim that users have no choice. I suspect a sizable fraction of people only use Office – they have a choice.
I also remember when Lotus 123 owned the spreadsheet market. Along came Gates with his Excel which could read 123 files (123 did not stoop to read Excel files) – I think it was 1991 or so. By 2000, 123 was toast. Gates and Microsoft are directly responsible for driving the cost of computing way down and putting unheard of computer power in the hands of the masses. That is a huge benefit.
Michael-
I’m not buying it. The existence of a single OS that was machine independent energized competition among the hardware manufacturers and broadened the market. I witnessed this first hand working at various actuarial consulting firms. 1983 – two PCs for 500 employees. 1985 – 3 machines for 30 employees. 1988 – one machine for four employees, 1989 – each employee had his own machine. MS provided the standard.
BTW – MS Excel is $230 at Staples (Full Version). The entire Office Suite is $500 (full version). Discounts are available for students and teachers and upgrades are cheaper, of course.
Your anecdotes aside, MS office is effectively the same on the Mac and PC, for a large segment of the market.
Computing at your fingertips indeed. Microsoft was dragged kicking and screaming into a GUI.
Not true — Microsoft created the first and most important applications for the Mac. Gates wanted Jobs to license the Mac OS to other manufacturers so that Microsoft could sell more copies of Word and Excel, but Apple refused. So Microsoft created Windows as a way of running Word and Excel on non-Apple computers. Yes, there was a character-based version of Word that sold quite well, but there never was a character-based Excel. Without Apple licensing its OS or creating its own GUI, Microsoft had no way of selling Excel more broadly (and competing with Lotus 1-2-3).
Anyway — Microsoft’s willingness to invest the resources to create a GUI version of Word for the Mac and to go GUI-only for Excel shows that it was not dragged into graphical interfaces.
Is Tim Berners-Lee’s social value equal to his revenue over time? Is his contribution really less than 1% of Bill Gates?
The hardware manufacturers don’t get the credit they deserve when this is debated.
Do those who think that Bill Gates contribution is of enormous value think mobile phones would have done better if there had been a similar figure in that market?
If you did not even own a computer prior to 1990, and you haven’t studied the history of what occured, your comments are not likely to be credible.
We were there. We horse laughed when IBM attempted to enter the PC market. We derided M$’s pathetic offerings when they came. We scratched our heads at the warnings that our friends asked us about when M$ Word ran on Dr. DOS. And no, I do NOT accept that any businessman would have done that. That “warning” was a lie, and we have the internal memos to prove it.
I admit being young at the start of this. I didn’t know why my uncle refered to MSDOS as a “toy OS”–but I do now. I do not suggest that the virii that have blessed us are entirely avoidable, but security was a architectural issue for many of the competing OSes. Even since the very real cost (to society) of security has become undeniable, M$ continues to add features in defiance of basic security concerns. “How is java related to active X? Like a fireman is to a pyromaniac.”
Even if I were to agree that if not M$, some other monopolist would have eventually prevailed, every month of delay would be a month in which relatively open competition was driving the market forward at an astounding rate. The IBM-compatible PC market started out way, WAY behind the others, and has not advanced well.
Another M$ tactic that not all businessmen would have tried “Embrace and extend”. Over and over, M$ smashed attempts to create interoperable protocals by adding proprietary extentions. BTW, these extentions often created security problems.
Counterfactual has it partly right: we should ask whether another monopoly (say, Apple), would have produced better products than Microsoft did. The question seems to me to be undoubtedly YES. In fact, I’d go better than Apple– the NEXT operating system was better than either Apple or Windows.
Microsoft’s gross benefit– its benefit compared to nothing– is uninteresting. What is the gross benefit of Castro’s government in Cuba? HUge– it’s much better than not having any schools, roads, courts, or currency. What is the gross benefit of the American public school system? HUge– much better than having no schools at all.
The reason Counterfactual is only partly right is that another realistic alternative to Microsoft would be to not have software copyright or patents and allow free copying. (We could limit this free copying to operating systems, if you like, and perhaps word-processing, spreadsheets, and presentation programs, and exclude other applications.) Does anyone doubt that we’d have better and basic programs as a result?
Actually, Eric, we homeschool. I argue that the gross benefit of public schools is hugely negative.
Comments on this entry are closed.