THE SPIDER AND THE FLY

You may have read recently that Novell and Microsoft agreed to implement a jointly administered system for shared customer support to assist their common customers.

This is a big deal. These firms are fierce competitors and, for most of their existence, have had a "take no prisoners" attitude on virtually every issue. But there are literally millions of customers who depend on Microsoft and Novell (including WordPerfect) software working together. I rely on those products . . . you probably do, too.

So, I should be happy about this development. Happy (did I say happy?) . . . I should be ecstatic! But, strangely, I'm not. Instead, I'm wary.

You see, I think I've heard this same song before in a different musical. More than anything else, the relationship between Novell and Microsoft reminds me of the trade relationship between the United States and Japan.

Bear with me here. As everyone knows, Japan has enjoyed a huge trade surplus with the U.S. There are lots of reasons for this. In my non-economist's view, not the least reason has been the unwillingness of many American manufacturers to take the effort to understand Japan and produce goods it wants. But Japan has also put up artificial (and unfair) barriers to foreign products, the simplest example of which is rice. U.S. rice is better and cheaper. But the Japanese government generally bans it and than enforces a domestic producers' monopoly. Similar policies exist in many other industries. Simply put, we're "free traders" (as we should be) and the Japanese aren't. And they've been playing us for chumps (to their great benefit) for as long as anyone can remember.

With that digression, let me come back to Microsoft/Novell. Because Microsoft produces DOS and Windows, it exercises monopoly power in the personal computer industry (note, I didn't say it violates antitrust laws--it apparently does not). This monopoly power gives it a very significant advantage over rivals such as Lotus and WordPerfect in user software, which forced the Novell buyout of WordPerfect and now imperils Lotus.

So when I hear the monopolist agreeing to "cooperate" with its principal victim, I'm reminded of the many U.S./Japan trade agreements. Japan finally agrees to some cooperative export limits to the U.S. and then it "plays" for a while as if it's going to abide by them. But, within a year or so, it finds some technical loophole in the agreement, resumes whatever activity the agreement sought to stop and claims it never violated anything. Will Microsoft play this same double-dealing game on Novell? Will Lucy pull the football away from Charlie Brown's foot at the last second? Will the spider eat the fly?

CONTENTS OF BULLETIN 95.3

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