Article in today's NY Times concerning Intel's 'caving in' to Microsoft in regard to the internet, and the continuing antitrust investigation...
John
U.S. Investigating Microsoft's Role in Intel Decisions
By STEVE LOHR and JOHN MARKOFF
icrosoft Corp. and Intel Corp. are so intertwined, so seemingly dependent on
each other for their success, that they are often referred to as a single entity --
"Wintel" -- in recognition of the degree to which Microsoft's Windows operating system
and Intel's microprocessors dominate the technology of personal computing.
But the government is investigating whether Microsoft has used its market muscle to
force even Intel, its only real peer, to shelve new technology efforts that conflicted with
Microsoft's ambitions.
Federal and state investigators appear particularly
interested in an August 1995 meeting between Intel
executives including chairman Andrew Grove and Microsoft
executives led by chairman Bill Gates. At the meeting,
Gates made "vague threats" about supporting Intel
competitors, according to one of many internal Intel memos
that the company was required to hand over to investigators.
Gates, according to a memo written by an Intel executive
who attended the meeting, was "livid" about Intel's "investments in the Internet, and
wanted them stopped."
In the last few weeks, federal and state investigators have been taking taking
depositions from Grove and three other Intel employees, people close to the inquiry
said. The investigators are pursuing additional evidence that might be included in the
sweeping antitrust case against Microsoft filed by the Justice Department and 20
states.
The federal government and the states accuse Microsoft of using unfair business
practices to protect its monopoly in operating systems and to extend that monopoly into
the new markets for Internet software and commerce. The case, scheduled to go to trial
Sept. 23, focuses mainly on Microsoft's tactics in the market for browsing software for
navigating the World Wide Web.
The Intel employees' depositions could strengthen the
case if the evidence suggests a pattern of Microsoft's
abusing its monopoly power. The Justice Department
and the states say that in addition to thwarting
competition, Microsoft has the clout to control the pace of
innovation in computing, which is the focus of the
investigation of Microsoft's dealings with Intel.
The public policy implication of Microsoft's power, the
government says, is that technology makes its way into
the marketplace at the pace that is best for Microsoft
instead of best for the economy and for consumers.
Microsoft replies that the antitrust suit is misguided, and
that the company is a champion of innovation, enriching
not only itself but much of the high-technology economy
and benefiting consumers.
In the Intel case and others, federal and state investigators are trying to portray routine
business meetings as attempts to forge an anticompetitive conspiracy, Microsoft says.
"Business partners like Intel and Microsoft occasionally have minor disputes, and the
fact that the Justice Department and the states are apparently trying to shoehorn this
into their case at the last minute shows how desperate they are," said Charles Rule, a
partner at Covington & Burling and a former senior Justice Department official who is an
adviser to Microsoft.
The Justice Department would not comment on its investigation of Microsoft.
The meeting between executives of Microsoft and Intel in early August 1995 came only
weeks before the introduction of Windows 95.
Microsoft was already well along in its plans for the Internet, though it would not
announce them until December 1995. None too soon, for by early August 1995,
Netscape Communications Corp., the pioneer in browser software, was a hot startup
about to sell shares to the public, setting off an Internet mania on Wall Street.
On Aug. 2, 1995, Grove met with Gates on Intel's corporate campus in Santa Clara,
Calif., according to the Intel documents.
The three-hour session in a windowless, second-floor conference room was attended by
several executives from each company. It was mainly a confidential exchange of product
plans and market strategies -- not only for Microsoft's operating systems and Intel's
microprocessors but in areas like multimedia software and the Internet.
There was a heated discussion of software, according to Intel documents, but it was
software that had been developed by Intel rather than by Microsoft. Though its business
is making microprocessor chips, Intel also works on software, just as Microsoft does
research and development work on hardware.
Intel's silicon microprocessors are typically called the electronic brains of personal
computers, while Microsoft's operating system is referred to as the central nervous
system. Just as the brain is part of the central nervous system, the line separating the
fundamental hardware and software technology of computing is often blurred. Software
instructions can be programmed into chips, and hardware functions can be emulated in
software.
"Silicon is simply frozen software," Intel's Grove once said.
Intel's software work has long been done at its research center in Hillsboro, Ore., the
Intel Architecture Labs. Intel has mainly developed the software that sits between the
operating system and the microprocessor -- "under-the-hood" programs that enhance
the performance of advanced tasks like Internet communications, video or audio.
Typically, Intel gives such software to developers, including to Microsoft, which has often
added Intel-developed enhancements to its operating systems. This kind of software
development makes business sense for Intel because the more people want
high-performance computing for work or games, the more they need powerful new
computers -- about 85 percent of which are powered by Intel microprocessors.
But at times, Intel's software development conflicts with Microsoft's plans. At the August
1995 meeting, Gates expressed concern about Intel's software work in two areas -- a
layer of multimedia software called native signal processing, or NSP, and the possibility
that some of Intel's Internet software development might be at odds with Microsoft's
strategy.
The differences between Microsoft and Intel over NSP technology were widely reported
in the trade press in 1995, but the memos now reveal that the two companies were also
at odds over Intel's plans for developing support for Internet features and a software
engine for Java, a programming language created by Sun Microsystems Inc., a
Microsoft rival.
A microprocessor that supported Java would have enabled programs written in that
language to run on any operating system -- a serious threat to the dominance of
Microsoft's Windows.
According to an internal memo written by an Intel executive who attended the meeting,
Gates left no doubt that he wanted the software development at the Intel Architecture
Labs, or IAL, curbed. And at the same time he publicly announced that Microsoft would
share technologies and spend up to $100 million to train engineers to develop and
service products on a version of Windows written for a competitor's microprocessor.
"Gates didn't want IAL's 750 engineers interfering with his plans for domination of the
PC industry," the Intel memo stated. "Gates made vague threats about support for other
platforms, and on the same day he announced a major program to support the Alpha
microprocessor made by Digital Equipment Corp., an Intel competitor. Gates was livid
about IAL's investments in the Internet, and he wanted them stopped."
The subject of Netscape also came up at the meeting and, according to Intel
documents, Gates said it was fine for Intel to support Netscape to the degree it would
support any company developing software for the Wintel technology. But the Intel
documents also say that Gates clearly delivered the message that he wanted the most
and closest cooperation for Microsoft.
How evidence about the meeting might be used in the case against Microsoft is not
clear. At this point, the government can add evidence only if it mirror charges already in
the suit filed in May.
In that complaint, the government alleges that during two meetings in June 1995
between Microsoft and Netscape executives, Microsoft tried to persuade Netscape to
divvy up the browser market instead of competing. Microsoft denies the allegation. In
any case, Netscape says it declined the offer.
Still, government lawyers could argue that the Microsoft-Intel meeting was an effort to
limit competition -- Intel's freely distributed software, in this instance.
"At the least, this potentially reinforces the government's argument that Microsoft is a
monopoly -- if it can even push Intel around," observed Robert Litan, a former senior
official in the Justice Department's antitrust division who is now at the Brookings
Institution.
Whatever the legal implications, industry analysts say that Microsoft exercises
considerable control over the pace of innovations in computing. For another company's
hardware or software to work, it must conform to Microsoft's operating system.
That power, industry analysts say, cuts both ways.
"Somebody has to set standards for everything in your computer to work, and Microsoft
has assumed that role," said Richard Doherty, president of Envisioneering, a research
firm in Seaford, N.Y. "But it is also true that when Microsoft can't yet see a way to gain
some proprietary advantage from some new technology, it is in Microsoft's interest to
stall its introduction -- and it does. In all sorts of ways, Microsoft can create a weather
storm in the industry, so the ships will not leave port."
After the August 1995 meeting, Intel pretty much followed Microsoft's lead on Internet
and multimedia software. In later meetings, Intel made it clear it would back off on the
technology initiatives that Microsoft found objectionable, according to Intel documents.
In a September 1995 meeting with Intel, Paul Maritz, a senior Microsoft executive, told
Intel, according to an Intel memo, that it was "imperative we are in lock-step on the
Internet."
Presumably, Intel shifted course for pragmatic reasons -- its relationship with Microsoft
was too important to jeopardize. And the outcome of the dispute over Intel's multimedia
program, NSP, sheds some light on the business logic involved.
The Intel-Microsoft confrontation over NSP in 1995 was closely followed in the industry.
A year later, in lengthy dialogue between Grove and Gates, published in Fortune
magazine as "A Conversation with the Lords of Wintel," the two men discussed the
matter.
Gates said, "Intel deserves a lot of credit for stepping back."
Grove replied, "We didn't have much of a choice. We basically caved."
Gates objected to that characterization, but Grove stuck to his line. "We caved," the Intel
chairman said. "Introducing a Windows-based software initiative that Microsoft doesn't
support . . . well, life is too short for that."
Grove declined to comment for this article. And Intel itself faces a government antitrust
suit; the Federal Trade Commission charges that the company has abused its
dominance in microprocessors by retaliating against corporate customers and
competitors, withholding information on Intel technology needed to make other products. |
