-continued from previous post...
Christos Cotsakos, president and chief executive officer of
E*Trade Group Inc., predicts Microsoft, now a partner, will
eventually become a competitor.
"They learn, they assimilate, they copy," says Mr. Cotsakos.ÿ
"Once they get done with all the other blips on the radar screen,
you become the blip."
** Wall Street Journal, June 5, 1997
****************************************************************-
Microsoft and Online Travel
"The Internet will reduce cost to suppliers [the airlines].
It's a much better channel for airlines to sell direct, and
they will.ÿ We want to work with suppliers and help them go
direct, but when on-line customers want to shop around they'll
come to [Microsoft] Expedia."ÿ John Neilson, Microsoft's
vice president for interactive services, media division
** Travel Weekly, May 8, 1997
Microsoft announced its intentions to enter the airline ticket
business as far back as 1994.ÿ At the end of 1996 it launched
a Web site called Expedia, which included hotel reservations
and car rental services on top of the airline reservations
and ticketing service.ÿ To launch Expedia, Microsoft partnered
with Worldspan, a computerized reservations system (CRS)
company partly owned by Northwest and Delta Air Lines.
Expedia sells over $1 million in travel services a day.ÿ
It already is one of the three largest online travel agencies.
The others are Travelocity, part of the Sabre Group, which
is 80 percent owned by American's parent AMR Corporation;
and Preview Travel, whose major stockholders include America
Online and US West.
Originally, all online travel agencies received a 10 percent
commission for each transaction generated through their sites.ÿ
However, five major airlines decided earlier in 1997 to cut
commissions for online travel bookings in half.ÿ Analysts
say the move could result in the collapse of smaller online
travel agents, leaving this potentially lucrative market in
the hands of the three major companies.ÿ
Northwest was the first carrier to cut the commission paid
for online bookings.ÿ Some observers believe Microsoft egged
on Northwest ** whose Worldspan CRS is Expedia's booking engine
** to lead the airline industry in making online commission cuts.ÿ
They claim that because Microsoft has deeper pockets than its
competitors, it can survive longer with lower commission rates
than others, and will benefit from new online agencies being
discouraged from entering the business.
Richard Barton, general manager of Microsoft's travel business
unit, declines to comment on these charges, stating only that
Microsoft "said out of the gate that we'd take an aggressive
leadership position in cost reduction.ÿ We've had conversations
for a couple of years with major suppliers about the business
model for compensation, and part [of them have] been about
reduced commissions."
John Neilson, Microsoft's vice president for interactive services,
admitted that Microsoft might have gotten the ball rolling but
said that "the commission cuts would've happened anyway."ÿ Neilson
said the drastic commission cuts might ultimately hurt the
airlines, who have a stake in seeing online sales grow.
****************************************************************-
"The question of what to do about Microsoft is going to be
a central public policy issue for the next 20 years," says
Mitchell Kapor, the founder and former CEO of Lotus Development
Corporation.ÿ "Policy makers don't understand the real character
of Microsoft yet ** the sheer will-to-power that Microsoft has."
Mr. Kapor believes that Microsoft lives according to a
"thin ethics," as he sees it.ÿ "Anything not a direct lie
or clearly illegal is okay to do and should be done if it
advances Microsoft's tribal cause.ÿ This licenses the worst
sorts or manipulations, lies, tortured self-justification
and so on."
** James Gleick, The New York Times magazine,
November 5, 1995
****************************************************************-
Citrix and Microsoft
"In retrospect, what happened next doesn't surprise anyone
who knows Microsoft well.ÿ But it certainly shocked the socks
off Citrix."ÿ ** USA Today, June 11, 1997
Ft. Lauderdale-based Citrix Systems partnered with Microsoft in
1992 to develop a computer networking product eventually called
"WinFrame," that allowed the Windows NT operating system to work
on networks with old and/or disparate computers.ÿ Microsoft saw
potential in the product, and acquired 6 percent of Citrix.
WinFrame started shipping in 1995.ÿ Aided by strong sales and
momentum investors, Citrix stock soared to a high of $56.75.ÿ
When Microsoft saw that WinFrame was booming, it notified Citrix
that it might build similar networking capabilities into Windows NT
on its own.
In February 1997, Microsoft gave Citrix official notice, as its
contract required, that it might develop a competing product.ÿ
Microsoft says the notification was not an attempt to force Citrix
into selling out or otherwise capitulating.ÿ Because competition
from Microsoft could materially affect Citrix, Citrix had to
disclose publicly that Microsoft might enter its market, that
the partnership would end and that Citrix's performance would be
affected. Citrix stock plummeted, to around $11, even though
Microsoft had not developed any technology in the area of network
computing.
"It finally happened: they've been Microsofted," said Kevin Compton,
partner in venture capital firm Kleiner Perkins Caufield & Byers,
upon learning that Citrix received competitive threats from partner
Microsoft.
Citrix chairman Ed Iacobucci believed he could convince Microsoft
not to attempt to develop a competing product.ÿ He went on the
offensive, taking a negotiating team to Redmond that included
technical people who could both impress and appeal to the highly
technical people at Microsoft.ÿ He worked his team around the
clock, testing every possible option from selling the company
to Microsoft to creating its own version of Windows NT.
After weeks of negotiations, a deal was struck.ÿ It allows Microsoft
to license the multi-user extensions from WinFrame and put them
into future versions of Windows NT under the Microsoft name.ÿ
Citrix will continue making WinFrame as a separate program.ÿ
The two companies will jointly develop networking products
for Windows NT.ÿ
Everybody seems to benefit from the deal, and Citrix's stock
price has rebounded considerably, though not to its previous
level.ÿ Of course, as analyst Michael Cristinziano points out,
Citrix "is still dependent on Microsoft."
****************************************************************-
"A lot of people make the analogy that competing with Bill Gates
is like playing hardball.ÿ
I'd say it's more like a knife fight."ÿ
Stac Electronics CEO Gary Clow
** USA Today, June 11, 1997
****************************************************************-
The Case of Stac Electronics
In January of 1993, Stac Electronics, a Carlsbad, California,
maker of software that compressed files to save space on a
computer's hard disk, filed suit against Microsoft for patent
infringement.ÿÿ
It was a classic David vs. Goliath case; Stac in all of 1993
would earn the same amount of money that Microsoft was earning
in four hours.
The tiny company had tried to negotiate a deal with Microsoft
so that its award-winning data-compression software could be
included in the upcoming version of Microsoft's DOS 6.0.ÿ Stac
claimed that Microsoft tried to leverage the smaller company into
an unfavorable deal; and when it refused, Microsoft copied
Stac's technology and built it into its own data-compression
product.ÿ At the launch of DOS 6.0, Bill Gates himself promoted
the data compression feature by wearing a t-shirt that said,
"We came, we saw, we doubled."
Gates would testify at the Stac trial himself.ÿ It was his
second appearance at a civil trial to defend his company.ÿ
In 1986 he had testified in a $60 million suit brought by
bankrupt Seattle Computer Products, which had sold the DOS
operating system to Microsoft in 1981 for $50,000.ÿ In that
case, after a three-week trial, Microsoft settled the suit
for $1 million while the jury was still deliberating.
The jury would return a verdict in the Stac Electronics case.ÿ
Despite Gates' claims from the witness stand that Microsoft's
programmers had not copied Stac's product, the jury awarded
Stac $120 million in damages for patent infringement.ÿ
Microsoft said it would appeal, but later changed its mind and
negotiated an $83 million settlement.ÿ Microsoft agreed to pay
Stac royalties of $1 million a month for 43 months, and also
purchase $39.9 million of convertible preferred stock in Stac.ÿ
The new partnership gave Microsoft the right to license, for
a royalty, any of Stac's existing or future technology unrelated
to data compression.ÿ In addition, Stac received a license to
some of Microsoft's technology in DOS 6.0.
****************************************************************-
Microsoft and Go Corporation
Gates: I contend technology breakthroughs can happen by extending
what we already have.ÿ Let's take handwriting computers. . . .
The software will come either from Microsoft or from a U.S.
competitor named Go Corporation.ÿ That's going to be a major
breakthrough, and who do you give credit to?
Jobs: I think everybody gives credit to Go, but Go will be crushed.
Gates: That's one of the nastiest comments I've ever heard.ÿ
I've been working on handwriting since long before there was
a Go Corp.
Jobs: Really?ÿ I didn't know that.ÿ Most people would say
that Go is the company that first tried to commercialize the
technology.
Gates: Well, Go hasn't shipped anything yet, and I'll ship
my stuff before they ship theirs.
**Fortune magazine interview with Bill Gates and Steve Jobs, 8/26/91
Go Corporation was a tiny startup company in Foster City,
California, developing software to control small computers
that recognize handwritten words.ÿ Hoping to convince software
companies to develop applications for its product, Go showed
its secret software to several companies in confidential
demonstrations.ÿ A team from Microsoft was included.
In January 1991, just a week before Go was set to announced
its innovative product to the press, Microsoft made a preemptive
strike with its own announcement.ÿ Gates said his company was
developing handwriting-recognition software called Pen Windows.ÿ
Microsoft's design team included an engineer who had been briefed
by Go.ÿ
A few weeks later, Microsoft said 21 computer makers were
"considering" building hardware around the Pen Windows software.ÿ
"Anybody who shows Microsoft confidential information is taking
a risk," said J. Jerrold Kaplan, Go's founder and chairman.ÿ
****************************************************************-
"I characterized it at the time as
date rape," said an industry official familiar with the deal.ÿ
"Micrographx went out with Microsoft in good faith, and they took
advantage of them, and then they wouldn't return their phone calls
in the morning."ÿ
**ÿ James Wallace and Jim Erickson, "Hard Drive:ÿ Bill Gates and
the Making of the Microsoft Empire."ÿ John Wiley & Sons, Inc., 1992
****************************************************************-
Microsoft and Micrographx
Micrographx, a Texas company that develops graphics software for
PCs, was one of the few companies that hung with Bill Gates and
Microsoft during the lengthy delays in bringing the first version
of Windows to market.ÿ Micrographx later became the first independent
software company to put a product on the market for Windows.
When Microsoft and IBM shifted development efforts from Windows to
OS/2 and Presentation Manager, Micrographx developed time-saving
special software, called Mirrors, that essentially translated
Windows into programs for OS/2.ÿ Microsoft liked Mirrors, and
signed a letter of intent under which Microsoft could use it to
modify its own Windows applications for OS/2.
Then, Microsoft demanded to see the source code for Mirrors
** the very guts of the program.ÿ Micrographx co-founders Paul
and George Grayson balked at first, but finally sent it.ÿ
The Graysons became even more uneasy when Microsoft assigned an
operating systems engineer to evaluate the product.ÿ Only the
applications side of Microsoft was supposed to see the code; an
operating systems engineer could copy the program and promote it
in competition with Micrographx.ÿ
A few weeks later, Micrographx was informed that Microsoft had
decided to write its own Mirrors-like software.
Micrographx was planning to go public, and felt it couldn't
afford a blow-up with Microsoft.ÿ The Graysons swallowed their
pride and let the matter drop.ÿ Eventually, Microsoft placated
the Graysons with a cross-licensing deal that Bill Gates
characterized as "unusually generous." Nonetheless, the Graysons
felt used and manipulated by Microsoft.
"I half-jokingly say there is only one person with fewer friends
than Saddam Hussein.ÿ And that's Bill Gates," Paul Grayson said.
****************************************************************-
"Microsoft and/or its affiliates may gather, process, and use
(and allow others to use) the information which you provide
directly (e.g., name, physical address, email address), as well
as information regarding the manner in which you use this Web site.
"From time to time, Microsoft may allow others to offer products
and services to you."
** Microsoft Corp.'s Seattle Sidewalk Web Site, "Terms of Use"
April 1997
****************************************************************-
Sidewalk and Data Mining
Once MSFDC gets its hands on bill payment data, "The key question
is what they will do with it," said Alexandria, Va., banking
consultant James G. Hamrick.ÿ ** American Banker, September 29, 1997
The Microsoft stance on transactions has clearly changed, as its
ventures into electronic commerce show.ÿ Analysts believe that
the company's patience and deep pockets will enable it to sustain
these projects during the time it takes for them to become profitable.ÿ
Microsoft acknowledges that it will lose money on its Web
endeavors in 1997, but it will invest $300 million to $400
million per year for five years to prop up all of its content
sites, including Expedia, CarPoint, Investor, Sidewalk, and
other upcoming projects.
There are well-defined, market-share hopes for these sites.ÿ Lewis
Levin, vice president of the company's desktop finance division,
declared recently that the desired percentage of online investors
moving through the Microsoft Investor site is "greater than 50
percent."
Microsoft's change of heart about electronic commerce can be
traced to a revenue source other than just processing fees,
according to the September 1997 issue of Institutional Investor.
"In addition to fees from billers for processing the checks, there's
a gold mine in the information about consumer spending contained
in those bills," the magazine says.ÿ "That makes MSFDC potentially
a lucrative business for Microsoft."
On April 3, 1997, Microsoft launched a Web site called Sidewalk,
a local arts and entertainment guide.ÿ Sidewalk first appeared in
Seattle, and has been followed by four more sites, New York, Boston,
Minneapolis/St. Paul and San Francisco.ÿ Microsoft announced that
five more cities would be added to the list by the end of the year.
The Sidewalk service contains a powerful database on restaurants,
movies and events in the cities it serves.ÿ It offers a free-of-charge,
custom service tailored to users' preferences in ntertainment,
arts and other fields.ÿ This custom service only works if the user
provides his/her name, address and other personal data.
Whether they know it or not, Sidewalk users give Microsoft
implicit authorization to sell their name, address and uses of
Sidewalk to third parties.ÿ Nothing in the customizing setup
discloses this fact; users discover the policy only by clicking
on a "Terms of Use" button and scrolling through the legalese.ÿ
Here is what appears under the "Use of Information" section,
found halfway through the "Terms of Use" page:
"Microsoft and/or its affiliates may gather, process, and use
(and allow others to use) the information which you provide
directly (e.g., name, physical address, email address), as well
as information regarding the manner in which you use this
Web site.ÿ From time to time, Microsoft may allow others to
offer products and services to you.ÿ
"If you wish to discontinue receiving such offers, you may
notify Microsoft by sending email to sideterm@microsoft.com.ÿ
In order to permit us to make this change, you must include
your email name and first and last name in the text of your message."
When consulted by the media about this portion of the Sidewalk
site, Microsoft Sidewalk General Manager Frank Schott says
the company has "no plans" to sell names of individual customers.
"Bill [Gates] is not just in the business of publishing on-line
City Guides. He is also in the data-mining business. And when
he's determined from your virtual visits which cities most
interest you, no doubt his virtual travel agent will
give you a call.
"It was said of the Chicago meat-packing companies that they
used every part of the hog except the grunt. By Microsoft standards,
they were rank amateurs."
** John Naughton, The Observer,
June 22, 1997
****************************************************************-
Sources Used in this Document
David Bank, "Microsoft Moves to Rule On-Line Sales."ÿ
The Wall Street Journal, 6/5/97.
Kevin Maney, "Tiny Tech Firm Does the Unthinkable."ÿ
USA Today, 6/11/1997.
Donna Lawrence Harris, "Microsoft Auto Plan Has National Scope."
Automotive News, 6/30/97.
James Gleick, "Making Microsoft Safe for Capitalism."ÿ
New York Times magazine, 11/5/95.
Steve Hamm, Amy Cortese and Cathy Yang, "Microsoft Refines
Its Net Game."ÿ Business Week, 9/8/97.
James Kim, "Microsoft Muscles into Media Market."
USA Today, 8/25/97.
Amy Cortese, "Where the Action Is: Your Hometown; City Guides
Are a Hot Market Enticing Myriad Big Players."ÿ Business Week, 4/14/97.
Barton Crockett, "Microsoft Bidding for Online Payments; Company
Forms Joint Venture with First Data to Pay Bills Electronically."ÿ
MSNBC, 6/27/97.
Amy Cortese and Kelley Holland, "Bill Gates is Rattling the
Teller's Window."ÿ Business Week, 10/31/94.
Philip Elmer-DeWitt, "Bill Gates Wants A Piece of Everybody's
Action." Time, 6/5/95.
Joseph Kornik, "Jupiter Sheds Light on Commission Cuts, Agents'
Future Role." Travel Weekly, 5/8/97.
Michele Matassa Flores, "Microsoft's Media Bid Questioned;
Analysts Doubt Profits will Satisfy Company,"
Seattle Business Times, 9/9/97.
Unidentified, "Is MSFDC Good for the Industry?"ÿ
Retail Delivery Systems News, 7/4/97.
Drew Clark, "Banks Worried About Microsoft/First Data."ÿ
American Banker, 9/29/97.
John Naughton, "The Internet, Bill and Coups."
The Observer Review Page, 6/22/97.
O. Casey Corr, "Cybersnoops on the Loose; Web-site Surfers
Beware: Software 'Cookies' Gathering Personal Data."ÿ
The Seattle Times,ÿ 8/10/97.
Hal Lux, "The On-Line Elite."ÿ Institutional Investor, 9/97.
Brenton R. Schlender, "Jobs and Gates Together."ÿ Fortune, 8/26/91.
James Wallace, "Overdrive: Bill Gates and the Race to
Control Cyberspace."ÿ Published by John Wiley & Sons, Inc., 1997.
James Wallace and Jim Erickson, "Hard Drive:ÿ Bill Gates
and the Making of the Microsoft Empire."ÿ
John Wiley & Sons, Inc., 1992. |
