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unstoppable engine of cash, was defending itself in a courtroom in Washington,
D.C. The Department of Justice claimed that Microsoft was a monopoly and was using
this power to cut off competitors. Microsoft denied it all and claimed that the world was
hurling threat after competitive threat its way. They weren't a monopoly, they were just a
very competitive company that managed to withstand the slings and arrows of other
equally ruthless competitors out to steal its market share.
The trial quickly turned into everyone's worst nightmare as the lawyers, the economists,
and the programmers filled the courtroom with a thick mixture of technobabble and legal
speak. On the stands, the computer nerds spewed out three-letter acronyms (TLAs) as
they talked about creating operating systems. Afterward, the legal nerds started slicing
them up into one-letter acronyms and testing to see just which of the three letters was
really the one that committed the crime. Then the economists came forward and offered
their theories on just when a monopoly is a monopoly. Were three letters working in
collusion enough? What about two? Everyone in the courtroom began to dread spending
the day cooped up in a small room as Microsoft tried to deny what was obvious to
practically everyone.
In the fall and early winter of 1998 and 1999, the Department of Justice had presented its
witnesses, who explained how Microsoft had slanted contracts, tweaked software, and
twisted arms to ensure that it and it alone got the lion's share of the computer business.
Many watching the trial soon developed the opinion that Microsoft had adopted a mixture
of tactics from the schoolyard bully, the local mob boss, and the mother from hell. The
Department of Justice trotted out a number of witnesses who produced ample evidence
that suggested the computer customers of the world will buy Microsoft products unless
Microsoft decides otherwise. Competitors must be punished.
By January, the journalists covering the trial were quietly complaining about this endless
waste of time. The Department of Justice's case was so compelling that they saw the
whole trial as just a delay in what would eventually come to be a ruling that would
somehow split or shackle Microsoft.
But Microsoft wasn't going to be bullied or pushed into splitting up. The trial allowed
them to present their side of the story, and they had one ready. Sure, everyone seemed to
use Microsoft products, but that was because they were great. It wasn't because there
weren't any competitors, but because the competitors just weren't good enough.
In the middle of January, Richard Schmalensee, the dean of the Sloan School of
Management at the Massachusetts Institute of Technology, took the stand to defend
Microsoft. Schmalensee had worked for the Federal Trade Commission and the
Department of Justice as an economist who examined the marketplace and the effects of
anti-competitive behavior. He studied how monopolies behave, and to him Microsoft had
no monopoly power. Now, he was being paid handsomely by Microsoft as an expert
witness to repeat this view in court.

Schmalensee's argument was simple: competitors are popping up all over the place.
Microsoft, he said in his direct testimony, "is in a constant struggle for competitive
survival. That struggle--the race to win and the victor's perpetual fear of being
displaced--is the source of competitive vitality in the microcomputer software industry."
Schmalensee even had a few competitors ready. "The iMac clearly competes directly and
fiercely with Intel-compatible computers running Windows," he said without mentioning
that Microsoft had bailed out Apple several months before with hundreds of millions of
dollars in an investment. When Steve Jobs, the iCEO of Apple, announced the deal to a
crowd of Mac lovers, the crowd booed. Jobs quieted them and tried to argue that the days
of stiff competition with Microsoft were over. The scene did such a good job of capturing
the total domination of Microsoft that the television movie The Pirates of Silicon Valley
used it to illustrate how Bill Gates had won all of the marbles.
After the announcement of the investment, Apple began shipping Microsoft's Internet
Explorer web browser as the preferred browser on its machines. Microsoft's competitor
Netscape became just a bit harder to find on the iMac. After that deal, Steve Jobs even
began making statements that the old sworn enemies, Apple and Microsoft, were now
more partners than competitors. Schmalensee didn't focus on this facet of Apple's new
attitude toward competition.
Next, Schmalensee trotted out BeOS, an operating system made by Be, a small company
with about 100 employees run by ex-Apple executive Jean-Louis Gass e. This company
had attracted millions of dollars in funding, he said, and some people really liked it. That
made it a competitor.
Schmalensee didn't mention that Be had trouble giving away the BeOS operating system.
Gass e