The war on ducument format standards in the EU

Abstract

In this master’s thesis, I have investigated the war on document format standards in the EU that took place between 2003 and 2010. This has been done to understand why IBM and Sun Microsystems (now Oracle) engaged Microsoft in a decade-long war on document format standards when they had no direct financial incentive to do so. Microsoft had a massive stake in the war as roughly 30% of the firm’s historic annual revenue is derived by the sale of Microsoft Office. To understand the effect document format standards have on the market for office suites an analytical framework was developed based on the theories of the godfather of institutional economics, Thorstein Veblen. It was a risky choice to use Veblen because such foundational institutional economics have to my knowledge never been used before to understand business strategy. The analytical framework provided an understanding of the role standards can potentially play in shaping a competitive environment. When applied to the case, the use of standards as a business strategy instrument became apparent, as a significant cause behind Microsoft being able to maintain a virtual monopoly in the market for office suites, was its control over the dominant document format standard. In 2003 the EU requested a new type of standard that would in essence deprive Microsoft of control over the dominant document format by being open source and easy to incorporate support for. IBM and Sun Microsystems jumped at the opportunity and introduced a candidate to the EU that met this request. Microsoft responded by submitting a competing candidate. Although it eventually gained support from the EU on equal terms with the standard presented by IBM and Sun Microsystems, it was in essence not open source and not easy to incorporate support for. The analytical framework facilitated an understanding of this as a purposeful retardation of the standard’s specifications to ensure that Microsoft would not loose control over the market for office suites in the EU by allowing others to easily incorporate support for their standard. IBM and Sun Microsystems lobbied the EU to launch an anti-trust investigation into Microsoft’s specifications of the standard in addition to the tactics employed in acquiring the EU’s initial support. Microsoft conceded and subsequently implemented full support for the standard backed by IBM and Sun Microsystems. The application of the analytical framework has facilitated the following key insight into the war on document format standards in the EU and the use of standards as a business strategy instrument: 1. Document format standards have a significant effect on not only the market for office suites, but also software and services that provide input to be used in those office suites 2. Microsoft used this trait to maintain a virtual monopoly by ensuring that their document format standards excluded others from successfully competing in the market for office suites 3. IBM’s and Sun Microsystems success in forcing Microsoft to include full support for their standard meant that they no longer would be dependant on Microsoft’s standards when their software and services were to deliver input to be used in Microsoft Office