Global Business
References Environment Case (Last Item)
July 22, 1994
That's the uncomfortable question being asked by many in the industry, following a controversial settlement among U.S. software giant Microsoft Corp. and U.S. and European antitrust regulators. In both the U.S. and Europe, Microsoft rivals complained that the accord, announced Saturday, won't clip the wings of the industry's dominant player. But in Europe, 'the issue is almost academic: Even if the regulators had been tougher on Microsoft, there isn't much of a local PC-software industry to care.
"There's only a handful" of significant European PC-software houses, says Marco ,Boerries, president of Star Division GmbH, the second-biggest publisher of word-processing software in Germany, after No. 1 Microsoft. He and others blame lots of factors for the European weakness: a late start, a market fragmented by different languages, insufficient venture capital and hardball tactics by Microsoft 'and other big U.S. software houses.
"The American software vendors are slowly but surely strangling the European 'market," says Roger Fulton, a London software-industry analyst for Input Europe, a market-research company.
The numbers are striking. U.S. software houses last year sold $1.82 billion of PC-software packages in Europe - more than three-quarters of the market, according to the Software Publishers Association, a trade group of U.S. publishers. Of the Top 10 PC-software houses operating in Europe, nine are American and one is Canadian, according to market-research company Dataquest Inc. The biggest, Microsoft, had 31.8% of the market for PC applications - word processors, spreadsheets, graphics programs, and the like. Lotus Development Corp., based in Cambridge, Mass., came in second with a 15.6% share.
More typical of European PC-software , houses are small companies like Britain's Sage Systems Ltd., or Germany's Star Division and KHK Software GmbH - all specialized players that stay close to home.
They thrive in market niches that, until recently, the big U.S. software houses had ignored, such as business-accounting software tailored to each country's language and tax peculiarities.
And few contemplate expanding far beyond their home markets. "It wouldn't be profitable to sell an accounting product out of Germany into France," says a spokesman for Germany's KHK. "In France a good range of financial software is already available," he adds.
In analyzing their weaknesses, European industry officials identify two types of problems: Those they blame on inefficiencies in Europe, and those they pin on their U.S. rivals.
The Microsoft case highlighted the anti-U.S. complaints. On Saturday, the U.S. Justice Department and the European Union Commission announced simultaneous settlements of their long-running anti-rust probes of Microsoft. On both continents, the allegations were nearly identical: that Microsoft used anticompetitive software-licensing and marketing practices to dominate the markets.
As reported, the near-identical EU and U.S. settlements require Microsoft to end a few of its disputed practices, such as making PC makers pay it a fee for every PC they sell - regardless of whether that particular PC was actually shipped with Microsoft software.
But many European software officials contacted Monday berated the EU Commission for letting Microsoft off easy on the main issue: its alleged practice of using inside knowledge of its MS-DOS and Windows operating systems to give it a leg up in the market for applications software that uses them. An operating system is a PC's most-elemental software that controls how other, so-called applications programs such as word processors or spreadsheets, will be executed.
"The real problem is the unfair practices which are happening inside Microsoft," rather than its licensing terms to outsiders, complains Star Division's Mr. Boerries. With a grip on both parts of the market, "they really have everything tied up."
Microsoft officials deny such claims. "We've bent backwards to let people understand what we do in operating systems long before we cast plans," says Bernard Vergnes, president of Microsoft Europe. The proof of its innocence, he says, is that the EU and Justice Department settlements stuck to some specific licensing issues.
Following the settlements, Mr. Vergnes says, "competitors can still be frustrated at the size of Microsoft, and at the fact that those antitrust judgments don't change the face of the world. And they might still believe Microsoft should be destroyed - that is their privilege. What can I say? We are more open as a company than we have ever been before."
But while attacking Microsoft, most European industry executives acknowledge some of their problems start right at home.
Then too, the PC industry was born in the U.S. - and European companies were tardy in forming global ambitions to make PCs or write software for them.
And as most new ideas in PCs continue to come from California's Silicon Valley, European companies are forever behind in getting the latest, inside technical information about where the industry majors are headed. Bigger European companies, such as Star Division, now have Silicon Valley offices to get the latest insights, but that's a luxury most European startups can't afford.
But perhaps the biggest problem, many say, is geographic. Unlike the U.S. market, where the same word-processing or accounting program can be sold across the continent, in Europe different languages, tax systems and business cultures fragment the market. That makes it tough for a German or French company to get American-style economies of scale, says Hannes Keller, founder of Hannes Keller Witch Systems AG, a small Zurich-based PC-software house.
One of Mr. Keller's programs, a so called utility package that performs some housekeeping tasks for Windows, is a bestseller in Germany. But even so, he says, it doesn't generate enough sales to pay for Germany-wide newspaper advertising - an important marketing tool that archrival Microsoft can easily afford in Germany because of its world-wide economies of scale. What's worse, as software prices fall, such economies of scale grow more important and the handicaps to small European companies swell.
Mr. Keller likens his industry's problem to that of a European pop singer trying to get noticed over the world-wide din of the American Top 40 tunes. In Europe, he says, "there are an abundance of girls who sing, who look beautiful and who want to make a career - but how can they make the world know that they're there and have wonderful voices?"