Microsoft Picks Up Tab for $732M Mistake

Microsoft was just handed — and has accepted — a fine by the European Union for failing to offer users a choice of browsers on its Windows 7 operating system, despite a legally binding commitment. The European Commission’s top antitrust regulator, Joaquin Almunia, announced the decision on Wednesday.

Microsoft issued a brief statement accepting full responsibility.

As part of a 2009 settlement with the EU following a competition investigation, Microsoft introduced a Browser Choice Screen option in March 2010, but then it dropped that feature in an update to Windows 7 in February 2011. Microsoft has maintained the omission was a technical error.

The European Commission nevertheless slapped the tech giant with a giant-sized fine — 561 million euros, or about US$732 million. This marks the first time European regulators have punished a company for breaking its antitrust commitment agreement.

“Microsoft and the EU have been negotiating this settlement for months, and the announcement included a fulsome apology by the company,” said Charles King, principal analyst at Pund-IT. “The responsibility to offer users alternatives to Explorer was Microsoft’s, and since they essentially broke a promise made in the EU antitrust settlement, you could argue that the fine could or even should have been larger.”

Microsoft declined to provide further details.

Avoiding Larger Fines

While Microsoft admitted its mistake and has accepted its fine, it could be argued that it got off lightly in this case. For violating the past agreement, the European Commission could have fined Microsoft as much as 10 percent of its global annual revenue, or about $7.9 billion.

To date, the largest fine imposed by European authorities in an antitrust case was the 1.1 billion euros, or US$1.4 billion, levied in 2009 against Intel for reportedly abusing its dominance in the high-tech microprocessor market. Intel is appealing that ruling.

In this case, the European Commission noted that Microsoft took into account the gravity of the infringement and provided cooperation in determining the fine.

“The amount of this fine means the EU believes that Microsoft’s excuse is viable but that the firm was still responsible for compliance,” said Rob Enderle, principal analyst at the Enderle Group. “The amount is to assure they don’t make the mistake again but reflects that they believe Microsoft didn’t intentionally do this.”

The EU apparently also recognizes that the feature is rarely used and that not having it hasn’t had much impact on browser market share, he added.

“They are clearly treating tablets very differently, given Apple’s dominance,” Enderle told the E-Commerce Times. “The company they were trying to benefit with this requirement was Opera, [but] the company that made the biggest gains was Google. That has likely also moderated the EU focus going forward. In the end, it wasn’t a choice problem — it was a product popularity problem, and that wasn’t Microsoft’s fault or problem to solve.”

Browser Wars

Much has also changed in the actual browser wars since Microsoft’s apparent glitch. Back in early 2011, its Internet Explorer was battling Mozilla’s open source-based Firefox for the top browser spot in Europe. Now both companies trail Google’s Chrome.

The EU may have considered this development in levying its fine.

“The EU settlement reflects the evolution in the browser wars, and it also shows the tricky position Microsoft finds itself in these days,” said Josh Crandall, principal analyst at Netpop Research.

“In light of the new mobile-centric world we are in, the OS and browser are very tightly coupled. Android devices and Chrome provide an integrated experience, just as Windows 8 and Explorer 10 offer a seamless experience that users expect,” he pointed out.

“On the other hand, the EU still expects Microsoft to offer users a choice of what browser they prefer to use during the set-up process for desktops and laptops,” Crandall told the E-Commerce Times. “It certainly forces Microsoft into a tough position to navigate.”

This could explain why Microsoft apparently was given a pass in one respect: It doesn’t need to provide that same sort of user choice with its new Windows RT devices.

“The Explorer-only browser issue is different for RT, mainly because of its tiny market share,” said King. “Despite the presence Google has in search and the majority share that Android enjoys in smartphones, the company hasn’t attempted to control markets or users in the overt manner Microsoft employed in the 90s.”

With that history and the importance browsers continue to play, this could be just the first of many fines to come.

“Rumor has it that Microsoft is telling the EU that its own behavior pales compared to Google’s,” added King. “The penalty highlights how critical it is for global companies to pay close attention to the laws and customs of the places they do business. If they can’t, they’re almost begging for the sort of legal and monetary penalties the EU has administered to Microsoft.”