Microsoft As Victim

Microsoft wants the government’s help in breaking a vicious monopoly, and the case could set a powerful precedent for electronic commerce.

You read that first sentence right. Microsoft is reportedly joining a complaint by online travel agents against the nation’s airlines, which have cut commissions and are trying to move customers to buy tickets on their own Web sites.

Over the years airlines have had a schizophrenic relationship with the Web. In the mid-90s they tried to protect the franchise of their travel agents by giving sites like Microsoft’s Expedia lower commissions than those given conventional agents. More recently, Delta Air briefly imposed a surcharge on tickets bought outside the Internet.

Between those two events, American Airlines developed the most comprehensive strategy. Decades before the Web was spun, it ran Sabre, the largest online reservation system. Once the Web’s potential became real, it bought Travelocity, one of the first big travel sites, then spun Sabre out as a separate entity in 1996, while retaining 82% of the equity.

It isn’t easy to compete against a company that controls its own distribution channels, and has huge incentives to favor those channels. Microsoft says it’s unfair, that the government should find a way to police such a market. This could provide a great test case for all suppliers who are moving to the Internet and want to control their distribution channels.

The source of the complaint makes for a delicious irony. But once we stop laughing the question is serious. Every product and service must be distributed, and the Internet lets the makers of those products and services handle their own distribution. All suppliers also have great incentives to favor their own company-owned distribution channels. The question is when should the government step in?

What do you think? Let’s talk about it.

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