Tangled Webs

    With a Straight Face, Mind You
Issue 4.5
Mar 15, 1999

Opportunities Lost

I was a pre-law major for my first four days of college, and I've never regretted changing my career plans at that point. If fact, every year I become further convinced that I would have been a terrible lawyer. The ongoing Microsoft lawsuits, for example, have shown me that there is simply no way I could keep a straight face while making the statements attorneys are required to make.

Actually, Microsoft's own defense team has been unable to completely contain themselves during the playing of Bill Gates' videotaped. Gates claimed to have no recollection of dozens of critical meetings and conversations, and stated that he was unaware of documented Microsoft strategy towards Netscape, Sun, IBM or Apple. Gates often said he did not remember writing or receiving important email from subordinates, and when shown copies of the email in question, he claimed he could not understand their contents. At points, Gates even claimed to be unfamiliar with key Microsoft products or the existence of non-Microsoft browsers.

On several occasions, Gate's denials, evasions, and creative definitions have resulted in laughter breaking out in the courtroom, and they will undoubtedly continue to amuse in the months to come. However, two other legal arguments provide a more insightful view into Microsoft's position.

No Competition is Good Competition

As almost everyone knows by now, Netscape Communications soon will be no more. On November 24, AOL agreed to acquire Netscape in a stock-swap agreement worth about US$4.2 billion. Under the agreement, AOL will take over development of Netscape's web-portal Netcenter and Netscape Navigator. In a related cross-licensing agreement, Sun Microsystems will take over development of Netscape's server technology. The deal will probably be consummated sometime this spring.

Despite soaring stock prices, incredible consumer and industry branding, and quality, innovative products, Netscape lost over $132 million in its last fiscal year. Netscape's revenues have stemmed mainly from corporate sales of its browser and sales of its Internet servers, and Microsoft's highly effective attacks on these revenue streams has been a major focus of the trial.

I will not repeat Microsoft's entire strategy here, but by including Explorer in every copy of Windows sold, Microsoft ensured that corporate customers had to first purchase Microsoft's browser before they had the option of purchasing Netscape's.

Microsoft launched a similar assault on Netscape's server revenues by rewriting the licensing agreements for NT so consumers were no longer legally permitted to run Netscape's Internet servers on NT unless they first upgraded to NT Server for about $700. This upgrade came with a "free" a copy of Microsoft's Internet servers.

No company, in any industry, can survive when 90% of its potential client base is required to buy a competitor's product before having the option of purchasing theirs. Under these conditions, Netscape had little chance of surviving as an independent entity for long.

Microsoft attorneys responded to the announcement of Netscape's exit strategy by saying that it proved the competitiveness of the high-tech industry, and demonstrated that the government's claims of Microsoft's monopoly power are unfounded. Microsoft is expected to request that the entire case be dismissed on these grounds.

Microsoft as the Victim

Microsoft attorneys have also been working hard to portray Microsoft as the victim in these proceedings, which is no easy task. Late last year, Microsoft leveled collusion charges at IBM, Sun and several other companies. The crux of the accusation was that the companies "colluded" by trying to make Java an industry standard. Microsoft attorneys argued that the companies engaged in collusion by working together to promote Java and to make it easier to use. Oddly, these were precisely the goals Microsoft professed in its own marketing and press releases.

Now it would be disingenuous in the extreme to suggest that Java is not a real threat to Microsoft dominance or that any of the companies involved are not fully aware of this. That is precisely what makes Java so frightening to Microsoft -- in an internal memo, Gates wrote that Java "scares the hell out of me" -- and so appealing to the rest of the industry.

Collusion, however, is a serious charge and an illegal activity, so it's interesting to see this "collusion" from Microsoft's eyes. It's not that Microsoft was excluded from the process. According to representatives from Sun, Microsoft's participation was sought on many occasions, but Microsoft repeatedly declined. It's certainly not that Java itself excludes Windows in any way. Java runs wonderfully on Windows -- in fact, Sun has produced a fully functional Java Virtual Machine for Windows since day one and given it away for free.

Microsoft's collusion charge amounts to the mind-boggling claim that companies working together to create open industry standards (i.e. those Microsoft does not own) constitutes illegal activity. Of course, that doesn't mean that Microsoft considers itself to be a monopoly. In fact, Microsoft lawyers maintained, with a straight face mind you, that Microsoft's 90% market share did not represent a monopoly, but rather was simply "a static snapshot of sales that does not begin to reflect the intense competitive dynamic in the software industry."

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© Copyright 1999, Tim Romero, t3@vanguardjp.com
This article fist appeared in the March 1999 edition of Computing Japan.
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