If Microsoft sets monopoly standards that aid innovation on the Internet, then more power to it says Mark Beachill

Bill Gates rules cyberspace, OK?

Only three years ago Microsoft seemed to have missed the Internet take-off. But after refocusing its 20 000 employees - starting with Gates' memo 'The Internet tidal wave' - the company has turned things around. The key to this has been the 'browser', the software that links people's machines to the Internet. To capture the browser market Microsoft has been giving its software away free of charge and tightly integrating the browser with its Windows software.

By giving away its browser and e-mail software - an idea Gates resisted at first, calling the originator a communist - the company hopes to establish an 'embrace and extend' system of control over existing Internet standards; as more developers create web pages that use the corporation's new 'extended' standards, so Microsoft will be the one to set the rules. Rivals say Gates wants to embrace and extend like an anaconda.

The US Department of Justice is now engaged in a wide-ranging investigation of Microsoft. Last December the authorities started fining Gates' company $1 million a day until it stopped integrating its browser software with Windows 95. Microsoft complied via a slight technical modification, but the row will continue over the forthcoming Windows 98 and over other Internet-related technologies.

Within the IT community, Microsoft is seen to go against the 'counter-cultural' origins of the technology. The personal computer and related software industries partly grew out of the counterculture of the 1970s. The Home Brew computer club, a hobbyist organisation for techies based in California and linked to the DIY hippie culture, was the hotbed around which the PC revolution started. These young men were dropouts, nerds and hippies. Gates, himself a college dropout, was one of those pioneers, producing programming software for an early home computer. However, he was noted even then for his insistence that people must pay for the software he wrote.

Today, the old scene cannot stand Gates the big businessman. Howard Rheingold, author of the seminal Virtual Communities, complains that 'the Net these players are building doesn't seem to be the same Net the grassroots pioneers predicted back in the "good old days" on the electronic frontier'. On the Internet itself there are hundreds of sites dedicated to Bill-bashing, most of which show a rather insane hatred for the software company and its CEO.

Leading academic and business figures too condemn Microsoft's Will To Power. For example, the court-appointed 'special master' Larry Lessig - a Harvard law professor who is expected to report his legal and technical findings on the Microsoft case in May - was found to have sent an e-mail to a friend at Microsoft's rival Netscape, in which he likened installing Microsoft Internet software on his Apple computer to selling his 'soul'. In an interview with Time magazine, Scott McNeally, CEO of Sun Microsystems (a computer outfit with over $1 billion turnover), argued that 'there are two camps, those in Redmond [Microsoft's HQ] who live on the Death Star, and the rest of us, the rebel forces'.

The accusations that Microsoft is too interested in profits and market share, too keen to eliminate and dominate its rivals - in short, too obsessed with power - have a purchase on the popular imagination; a Fortune poll of US households online revealed that only 17 per cent disagreed with the statement that Microsoft has too much power in the marketplace. Even Microsoft seems to have some sympathy for the critics of Microsoft. Unsure of how to defend itself, it weakly asserts that it has no monopoly, painting itself as a relatively small player in a ferociously competitive market.

But is there a problem? Might it not in fact be a great thing if Microsoft, or somebody else, went even further and really did come to dominate the market?

A green activist like Ralph Nader might present himself as the defender of the consumer in his attacks on Microsoft, and many consumers do say they are uneasy about the company's influence. But in the marketplace, the bottom line is that consumers seem to like the products. Nearly 80 per cent of those asked thought the products good or great. In this case it seems that big is better. Perhaps more Microsoft might be in order, not less.

The US government's attack on Microsoft's monopoly position does not make sense. It was not Gates who determined that there would be a monopoly; it was the market, in the shape of software developers and consumers. Despite hundreds of competitors, systems software of the sort Microsoft makes is a natural monopoly. Having one supplier makes perfect sense.

When good application software (the programs that actually do things, like accounts, production control, educational tutoring etc) is available for an operating system such as Windows, more people buy Windows. When a lot of people use Windows more developers make application programs that work with Windows. And the virtuous circle continues. Software suppliers create most for the biggest market and use economies of scale to sell their products more cheaply. Companies that use software standardise with the default system in order to reduce training and running costs, to get good, cheap software, and to ensure that their suppliers remain in business.

Microsoft is beneficiary and prisoner of the monopoly it has created. Because of the popularity of its earlier standards, Microsoft has to build compatibility with three generations of software into its new technologies. So the latest versions of Windows have to run software created for the earlier versions, and the original early-1980s DOS software. Having established a Windows programming environment that thousands of companies use to create software, Gates must stick with that standard. Windows can be extended, to include for example a computer-telephone interface, but it cannot be scrapped.

The slower evolutionary changes to system software might be a brake on innovation at one level, but the big plus is that Microsoft's standards have built up a stable base of users and appli-cations, leading to faster innovation at every other level.

Now that Microsoft has established standards at the level of the desktop, extending the monopoly to the Internet is a logical progression. By standardising communications on the Internet, and having standard tools for developers to link their programs with the Net, the company can make it easier for others to innovate using what communication on the Net does best - from home banking to research. Even if Microsoft's software does not provide the right tools, another company can fill the gap, and most likely Microsoft will continue to buy up the new technology.

Like the railways, many elements of the computer software market form a natural monopoly. So why the bother?

The reaction against Microsoft's monopoly reflects an underlying fear of power in the 1990s. Once the US government organised the computer industry. Through the Cold War, IBM's key contracts were with the defence department, and the standards to make the Internet work came out of a military project. In our uncertain post-Cold War decade, however, those at the top appear to have lost their decisive grip on events. At a time when an inability to make decisions and set standards has permeated everywhere from the cabinet office to the corporate boardroom, many seem uncomfortable with a private company stepping in to fill the leadership vacuum and show how it should be done.

The Gates success story is undoubtedly built around dodgy competitive practices, reminiscent of the leverage that IBM salesmen used in the past. And Microsoft software has many flaws. But rather than criticise Microsoft for having too much power, I would say the problem is that they are not using their muscle enough, are not going for it in a way that could really give us the basic infrastructure we need in software appliances.

Gates' business has much in common with the rest of corporate America in the nervous late 1990s: a big cash mountain that it cannot, actually dare not, invest in new technologies. There is a brake on investment because the hostile US government might block the further expansion of Microsoft. However, by setting up a separate enterprise Gates could take on the fragmented big-business IT market and establish the basis for faster innovation in a market that makes the sales of Windows look tiny.

If anything, the world could do with a bigger, badder Bill Gates.