Microsoft's Achilles' heels: Fear and arrogance

News analysis:

(MarketWatch) What Microsoft (MSFT) tried to call a "technical" slip-up has just cost it big. The EU fined the company $733 million for breaking a 2009 antitrust settlement and failing to give European consumers more choices of browsers in Windows other than Microsoft's own Internet Explorer.

Microsoft had failed to maintain its end of the bargain from February 2011 until July 2012. The agreement was the result of more than a decade of legal battling -- a long time. But as long lasting as its antitrust woes, first in the U.S. and then in Europe, is Microsoft's weakness of giving in to a strategy driven by fear and a culture of arrogance. More than a mistake, the slip was an indication that some organizations just don't learn their lessons.

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The timing explains much. Microsoft has a long history of getting into antitrust fights because of its desktop operating system dominance. The company's problems with U.S. regulators, the Department of Justice, and even state attorneys general spanned the 1990s. The big problem: Microsoft was using its market position to gain advantage for Internet Explorer and to reduce public acceptance of competing products. Both sides eventually came to an agreement in 2001.

Towards the end of Microsoft's problems with the U.S., the EU started to investigate the same problem in Europe. Again, it took years to work through and, again, there was an agreement, though after all it went through with the U.S., you might wonder why it couldn't come to an agreement earlier.

It was a sign of two characteristics of Microsoft: Fear and arrogance. Fear of losing the marketing advantage and massive revenue provided by Windows and its business applications, and the arrogance of assuming that it should try to get away with whatever might aid its goals.

In fact, Microsoft at first did what it was required to do: Offer browser options. But most telling is the timing. Roughly two years after the agreement was struck, Microsoft ceased what it was required to do. The company may call it a technical mistake, but that is clever wording. Of course it was technical: Software is a technical business.

But once the processes and practices are created to offer a variety of browsers, it takes an active decision to revert to earlier practice. It seems almost inconceivable that with modern software management, serious legal talent and advice on staff, and a history of regulatory conflict, that the company could accidentally stumble and happen to take all the steps necessary to reverse course.

EU regulators say they took this action as a way of setting an example for other tech companies that find themselves at odds with officials. This could be a backhanded way of warning Google (GOOG), which has its own bubbling legal issues in Europe.