I got the posts reveresed, this is the beginning of the story...
The following document has been circulating
confidentially across the country.
There are several case studies of companies
that have partnered with Microsoft and
what has happened to them afterwards.
Thought youÿ may be interested in reading it and
creating your own opinion.
The Microsoft Method
"We are challenging old and established businesses like
newspapers, travel agencies, automobile dealers,
entertainment guides, travel guides, Yellow Page directories,
magazines and over time many other areas.ÿ
We must devise ways of working with them
or winning away their customers
and revenue streams."
** Three-year Microsoft strategy memo, quoted by
The Wall Street Journal, June 5, 1997
October, 1997
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The Microsoft Method
Microsoft Corp. is a triumph of American entrepreneurism,
technical knowledge and business savvy.ÿ In just 20 years
it has grown from modest roots to the undisputed international
powerhouse of software development.ÿ Financially the company
is wildly successful; Forbes magazine lists three Microsoft
executives among the six wealthiest Americans.ÿ The net worth
of Microsoft Chairman Bill Gates increased during 1996 at a
rate of $400 million per week.ÿÿÿ
Given this phenomenal record, a logical question would be
how Microsoft can continue to produce results that will
satisfy its shareholders, who have developed extremely high
expectations.ÿ Can the software business sustain the company's
growth, or will Microsoft need to expand its business horizons?
Bill Gates has insisted that Microsoft has no intention of
venturing far from its core software business.ÿ At the same time,
the company has entered other industries including travel services,
automobile sales and media.ÿ In June of 1997 it announced MSFDC,
a joint venture with First Data Corp. for the processing of
electronic bill presentment and payment.ÿ The joint venture
is run by Microsoft's Desktop Finance division, which is also
in charge of the company'sÿ electronic banking, investment
and insurance initiatives.
Microsoft has honed the forming of business alliances as a
tactic for gaining entry into other industries.ÿ This paper
will document cases in which Microsoft has built such alliances,
learned the trade from the "partner" company or companies,
and later either became their competitor or pressured them
into deals favorable to Microsoft by suggesting that
it might do so.ÿ For example:
** Microsoft collaborated with Auto-By-Tel, an online
automotive buying service, for a year-and-a-half.ÿ Then,
after learning the business from Auto-By-Tel, Microsoft
started a competing business.
** Citrix Systems partnered with Microsoft to develop
a computer networking product.ÿ After the product proved
successful, Microsoft notified Citrix that it might develop
a competing product.ÿ Citrix stock plummeted on the news.ÿ
The two companies struck a deal favorable to Microsoft after
weeks of negotiations, and Citrix survived.ÿ Its stock
recovered, though not to its previous high.
** Stac Electronics charged in court that Microsoft tried
to negotiate Stac into an unfavorable position, and then
copied Stac's product when Stac refused to cooperate.ÿ
A jury agreed with Stac, and awarded it $120 million in damages.
** In separate cases, two fledging software companies,
Micrographx and Go Corporation, decided in principle to
partner with Microsoft to launch new products.ÿ In both
instances, Microsoft announced it would develop its own
version of the products after having been shown their
source code by the partners.
** Bill Gates assured bankers in 1995 that Microsoft
wasn't interested in collecting transaction fees because
the business does not offer a significant revenue stream.
However, Nathan Myrhvold, Microsoft's chief technology officer,
confirmed in 1997 that Microsoft hopes to get a 'vig,'
or vigorish, on every transaction over the Internet that
uses Microsoft's technology.ÿ (Vigorish is a slang term
used by bookmakers that means, roughly, the profit made
for bringing bettors together.)
In June of 1997, Microsoft launched MSFDC, which
will collect transaction fees.ÿ
** Gates announced to the media industry in April of
1997 that Microsoft was a software company, not a
media company.ÿ He pointed out that Microsoft was
not hiring reporters and editors.ÿ However, Pete
Higgins, group vice president in charge of Microsoft's
Interactive Media Group, confirmed in a subsequent
interview that Microsoft had hired local reporters
and editors to launch Sidewalk, a series of local
city guides on the World Wide Web.
The intent of this document is to lay these and other
case histories side by side, and allow Microsoft's
competitive strategies and tactics to come into focus.
That way, the reader will gain insight and perspective
by viewing the Microsoft methodology on a case study basis.ÿ
While the technology issues in each case may be complex,
the "method" seems very simple.ÿ As these studies will
indicate, it is a method Microsoft has used repeatedly.
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"In the last year, hardly a week has gone by without an
announcement that [Bill] Gates has entered into a
'strategic partnership' with a television network,
a cable company, a Hollywood studio, a bank or two;
the list seems endless.ÿ In each case the blushing
corporate suitor cannot wait to tell the world about
the mega-deal it has struck with [Microsoft]. What
none of them appears to realise is that their deals
are death-warrants. Gates does not plan to share the
online banking business or any other business with
anyone. These 'strategic partnerships' are means to
a single end: to enable Microsoft to learn enough
about particular businesses eventually to dominate them."
** John Naughton, The Observer, June 22, 1997
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Microsoft and Auto-By-Tel
"When they call you up, you think it's great, but
in reality, the dance will soon turn into a nightmare."
Auto-By-Tel President Peter Ellis ** Business Week,
September 8, 1997
In 1995 Peter Ellis launched Auto-By-Tel, an online
buying service that links car shoppers with dealers
who are willing to make a deal at a set price.ÿ He
put Auto-By-Tel on all the major online services
** CompuServe, Prodigy, America Online and the Microsoft
Network ** and on the World Wide Web.
In 1996, the Microsoft Network went online with its
CarPoint service, providing detailed descriptions of
more than 900 automotive models.ÿ CarPoint's database
included all major car model lines sold in the U.S.,
and even offered a 360-degree interior view of many
cars to subscribers with the adequate browser plug-in.
That same year, Microsoft and Auto-By-Tel signed a
three-year contract whereby Auto-By-Tel's services became
available through CarPoint.ÿ Ellis said he expected the
number of requests over his system to double as a result
of the partnership.
However, in June of 1997 Microsoft launched a new version
of CarPoint, which included Microsoft's own dealer
network, similar to Auto-By-Tel's.ÿ Each participating
dealer under the new CarPoint service pays Microsoft $1,000
monthly ** a practice Microsoft learned from Auto-By-Tel.ÿ
There were other similarities as well.
Ellis complained that Microsoft was "picking our brains"
during the time that the two companies collaborated.ÿ He
moved to end the partnership.ÿ "What seemed to be mutually
beneficial 14 months ago now appears to be less so," he
wrote in a letter to Microsoft.
Currently through CarPoint, subscribers can apply for
online financing and actually purchase vehicles.ÿ Microsoft
also plans to launch an addition to CarPoint: a used-car
listing ** similar to one Auto-By-Tel launched late last year.ÿÿ
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