Microsoft’s big fine from European regulators a sign of broken trust for tech firms

When large corporations can shrug off financial penalties and seem indifferent to reputational damage because they’ve captured the consumers, you might wonder about the true cost of broken promises in high-tech global markets.

That’s one question arising from the announcement that the European Union competition regulator has imposed a $US732 million penalty on Microsoft, equivalent to 1% of the software giant’s annual sales. (The main Australian regulator, the Australian Competition and Consumer Commission, by comparison, has a budget of around $A180 million.)

The EU indicated that Microsoft had failed to uphold the terms of a 2009 antitrust settlement, in which Microsoft promised that it would provide European Windows users with alternative browser options. In an outbreak of collective amnesia, Microsoft forgot to comply and the regulator forgot to check until prompted by Microsoft’s competitors.

The penalty signals that Europe’s regulators are getting tough. It’s a message to Google and Facebook, which dominate the EU markets for online search and social networks, pay derisory amounts of tax and have been unresponsive to requests by provincial, national and EU-wide regulators.

The penalty is an echo of the “Microsoft Wars” – major litigation over software – of the last decade, in which competitors complained that Microsoft was abusing a tacit monopoly and the US government had indifferent success with antitrust litigation.

High-tech enterprises – vendors of computer software and devices, pathology laboratory equipment, even photocopiers – are often able to exploit markets because of consumer lock-in. Consumers may be reluctant to shift to a competitor because of switching costs – in other words, they’ve invested so heavily in familiarisation and training in use of a particular product/service that a move is not viable. Use of a cheaper part from a competitor may be impractical, with a product for example being designed so that only ‘genuine’ parts (with a premium price and protection under patent law) fit as a replacement.

Software design may mean that applications from a competitor perform poorly, do not work at all or cannot be integrated. That is particularly important in enterprise computing, where corporations and government agencies have invested hundreds of millions in large scale systems and can not switch without major disruption to a new service provider or add a specialist product with superior attributes.

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