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I. Introduction

To get a perspective on the issue at hand, it makes sense to go into flashback mode, and travel back
to the dawn of the internet, if you will, about ten years or so. These are those ancient times when,
believe it or not, Microsoft did not have a monopoly in areas where it is almost a generic leader now –
namely, Internet Explorer in browsers (or IE as we lovingly call it).

The Browser Wars – To achieve its top position, MS didn’t really tread the path of the virtuous as it
would have us believe. The fight for top position was dirty and lowdown, as it usually is when big
business and huge stakes are involved.

Internet Explorer vs. Netscape – The Early Days -

By the mid 90s, internet usage had really exploded, & browsers were accepted as the best way to
access this wondrous new world. Netscape Navigator was the numero uno browser, and Microsoft had
just released its first browser, IE 1.0. The following years saw intense competition, each trying to
outdo the other, and IE gradually ate into Netscape’s share.

Fall of Netscape – Bundled IE Takes Over

Microsoft’s decisive strategy to encroach into Netscape’s dominance was to “bundle” its IE software for
free with its Windows software, which dominated the OS marketplace with a 90% share. This was seen
an unfair trade practice by the authorities, and the historical USA v. Microsoft case ensued where it
was established that MS was in fact unfairly using its clout in the OS market. The trial ended in a
settlement wherein Microsoft agreed to be more open. But it was too late for Netscape, and by 1999 it
had lost its market to IE, and gradually dwindled away into obscurity.

History’s Lesson

Microsoft was able to use its vast dominance in the OS market to covertly force consumers into using
its IE browser. Since the product was prepackaged with its OS, and competing products had to be
downloaded, consumers were pre-inclined to use IE, and were virtually blinded to the existence of rival
products, even when they were vastly better. Once the abovementioned suit was settled, one would
think this would never happen again. Think again.

The Present Day – Collaboration Wars?

OK, enough of history. Fast forward to the present day. Although it may have missed the radar of
most, Microsoft is up to its old tricks again. Recently, it has stealthily taken a step that may be likened
to its actions during the browser war days.

The rules of the game have changed since those days though. With the advent of the web 2.0 wave,
the action has moved to platform independent, thin client web applications, & all companies are
rushing towards the relatively untapped small and mid sized business (SMB) market.

Microsoft Live Workspace

Microsoft too has a product wedged in this market, namely Microsoft Live Workspace, which was
launched rather belatedly in late 2007 as a beta release. Workspace is offered under the MS Office Live
banner and is an online storage and collaboration service for MS Office documents and most other
common file types. Its core functionality is that of an online document management system, but it
offers other functionality such as shared contacts, tasks and calendars.

The Controversy
Traditionally Microsoft has lagged behind in both the SMB and web app arenas, and Workspaces wasn’t
really going great guns. Solutions like HyperOffice, Caspio, Buzzsaw had dominated the SMB
collaboration domain because of many years of serving this domain and a more comprehensive feature
set offering not just online document management features but also providing for other SMB
productivity/collaboration needs like business email, intranets/extranets, forums, access control,
mobility, shared contacts/tasks/calendars and so on.

Knowing that this was the segment where big battles would be fought in the future, Microsoft played
its trump card – It silently rolled out an update bundling Live Workspaces with all its MS Office
products. MS Office products like Word, Excel etc now have tabs which allow users to upload and
download files to and from their free Workspaces account from the desktop software itself. Reeks of
history eh?

II. What is the Workspace Controversy All About?

Microsoft – Software’s Big Brother?

Microsoft’s strategy has always had Orwell’s Big Brotheresque overtones. No matter what domain,
Microsoft’s presence always looms large. It has long ruled almost every PC on this planet with its
Windows OS. Thanks to its dominance in the OS market, it controls the browser market with Windows
bundled Internet Explorer (though Firefox has lately been breathing down its neck because of superior
functionality). Further, it also controls the productivity suite market with MS Works (MS’ rudimentary
productivity software often bundled with Windows), and its more popular cousin MS Office which is
almost everybody’s default purchase because of its widespread use and compatibility with Windows. Is
it then a wonder that word processing is almost automatically associated with .doc, spreadsheets with
.xls, and presentations with .ppt.

Microsoft’s Incursions into the Online Collaboration Software Market

Ever since the IT war went online, Microsoft could never quite get a foothold in this market, except
perhaps with Internet Explorer. Yahoo trumped it in online mail and instant messaging; Google
trumped it in search and online advertising. It never even got close to Facebook and Myspace in social
networking with Windows Live Spaces.

Although Microsoft has done well in enterprise class collaboration and messaging software with
Sharepoint & Exchange, these products have not been suitable for small to mid sized businesses
because of being expensive, difficult to implement and have the peculiar problem of being a little “too
powerful”, which is really wasted in an SMB context.

The heat has been on lately in the “online collaboration software” market, an approach that fits well
with SMB needs and budgets. The competition in this market is robust with solutions like HyperOffice,
WebOffice, Caspio, Zimbra, Zoho etc. Microsoft’s entry in this market, Live Workspaces, apart from the
MS tag (and being free), wasn’t really anything special, so understandably uptake wasn’t too great.

Hence the decision to tie it in with MS Office – specifically allowing users to upload and download files
to and from their Workspace account directly to and from their Office software.

The Implications

This seemingly nonchalant update has the power to shake the online collaboration industry at its very
roots. MS Office holds an overwhelming 95% share of the office suite market, and is used extensively
in almost every company. Now a couple of harmless looking tabs on the toolbar which allow you to
upload and download files directly from your word, xls, or ppt document, to your free online
workspaces account, virtually guarantees that users will not go elsewhere for document collaboration
services. In other words, with this simple change, Microsoft is using its dominance in the Office suite
market to sweep away all competition in the online collaboration market. Apart from hurting
competition, it would ensure that consumers never look elsewhere to collaborate on documents, no
matter how superior other products in the market may be.

What about the Little Guys?

The first thing out of place with this whole matter is that it gives Workspaces such a tremendous
advantage that smaller companies with lesser budgets just cannot compete. Microsoft knows the first
bait to attract customers is a “free” tag. Offering this service free is no big deal for MS as it can easily
borrow from its massive revenue streams elsewhere. This is reminiscent of classical economics where a
monopolist sells below cost to completely push out competition. But this is still acceptable with the
internet its “free” economics.

Adding functionality to directly upload and download from a free workspaces account virtually blocks
out competition from the consumers’ vision. There are many paid solutions which have a feature set
much more extensive than Workspace, for example HyperOffice has integrated email, an
intranet/extranet publishing and customization feature, mobile access (very important and not
available with Workspace), & IM amongst other things. But with the visibility factor and the free price
tag, no one will even be looking.

How are Customers Impacted

Generally speaking, monopolies have never been considered good for the consumers. It ultimately
results in sub optimal products as would have otherwise been available if there were robust
competition in the market.

Secondly, with Workspace hogging all the mental space, consumers will never really get to get a fair
look at other options, which in many cases are much better.

Thirdly, at this point when Workspace is in beta, it might be risky for any company to commit to it,
because the exact pricing structure after a full release cannot be ascertained with surety. Currently
Workspaces also have certain restrictions – a 1000 document limit and 500 MB storage limit. Future
pricing could be storage related, free for basic features and a price attached to premium features, price
for customer support, or a multitude of other pricing methods. Recent comments have indicated that
Microsoft would make revenue from ads – which would mean a cluttered interface which doesn’t go
well for business purposes.

Fourthly, with a free service, the first thing that suffers is customer service. Smaller companies have
the advantage of knowing their customers well, and offering personalized human service, and often
free training and consultation as well. Customers can certainly forget this with Workspaces.

Proposed Solution

Whether or not the current step will result in litigation as with the Browser Wars is yet to be seen. As
always, the onus is on the wounded to make a noise. Whether any action is taken will largely depend
on the awareness of the issue in the part of affected companies and customers, and the resulting furor.

The solution could follow the lines of the settlement reached in the Justice Department vs. Microsoft
trial. To ensure fair play, Microsoft should open its platform, in this case MS Office, to competitors, so
that they can develop competing products, and have a fair chance of beating Workspace based on
merits. In other words, just as users can link directly to Workspace directly from Office software,
competitors should also be able to embed direct linkage from MS Office to their collaborative solutions.