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Friday, June 11, 2010

Proprietary products vs competition

Proprietary products, by their nature, can lead to monopolized purchasing, which is obviously the antithesis of competition. They don't have to do so, however, when properly managed.

First, it must be remembered that proprietary products may compete against other products in a given market, in which case the proprietary product may be a distinguishing factor but not necessarily an essential feature of a product.

Automobiles, for instance, are distinguished by their proprietary designs, but that is not the essential feature governments look for when purchasing them. In cases like this, proprietary features should not be considered as a factor in product/service selection.

In other cases a proprietary feature may be embedded in a product to perform a functional task. If the task it performs does not significantly affect the functionality of the product, again, it should not be considered as an essential specification.

Other proprietary products can effectively monopolize a market, to some degree or other. In that case, much closer scrutiny of the truly essential features of a government's need must be articulated to encourage the entrance of competitive forces. Sometimes, the monopolizer must be taken head on, as the following story about IT technology illustrates.

EU Commissioner Warns IT Buyers Against Vendor Lock-in

European Commissioner Neelie Kroes warned governments and businesses to avoid vendors that try to lock them in with proprietary technology.

"Public and private procurers of technology should be smart and build their systems as much as possible on standards that everybody can use and implement without constraints," she said, adding that this is good for the bottom line because it promotes competition between suppliers and prevents vendor lock-in.

She asked vendors to act now to make their products interoperable with those of their competitors, and not to wait for a court to force them.

Now European Commissioner for the Digital Agenda, in her previous role as Competition Commissioner Kroes won a long antitrust battle against Microsoft over its failure to help competitors develop software that could interoperate with its Windows server products.

However, Kroes said, "Complex antitrust investigations followed by court proceedings are perhaps not the only way to increase interoperability."

Instead, the Commission is looking for other ways of making it more profitable for companies to license the information their competitors need to make interoperable systems, and less profitable to withhold that information.

"Any such initiative would probably be limited to certain types of IT products. And it would likely involve some form of pricing constraints," she said.

The European Interoperability Framework V.2 builds on an earlier set of rules and guidelines for cost-effective public sector procurement of IT systems. Kroes hopes that it will help public authorities avoid the dangers of long-term lock-in.

"It would also ensure competition between suppliers for follow-up contracts and for services. Governments should still be able to choose closed, proprietary products, she said, "but on the basis of a clear justification, rather than because it was the easy option."

By making it easier for industry groups to have their standards recognized, she said, "We want to make standard-setting more efficient, not more burdensome.'

Kroes also promised to help government IT buyers identify their real needs, so that they can specify products without reference to particular brands or suppliers.

"The skills of public authorities vary greatly when it comes to this aspect of procurement," she said. "Many authorities have found themselves unintentionally locked into proprietary technology for decades. [...] This is a waste of public money that most public bodies can no longer afford."

That waste can also directly affect businesses and citizens when public authorities' decisions force them to buy specific products to access a public service, rather than any product compliant with an applicable standard, she said. Examples include schools insisting on the use of a specific word processing system, or tax departments' online forms requiring a specific Web browser.

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