Intel and Microsoft Remain Allies Despite Squabbles
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PC Partners Routinely Disagree on Products, Strategy and Especially Java
By Dean Takahashi
09/25/98
The Wall Street Journal
(Copyright (c) 1998, Dow Jones & Company, Inc.)
Intel Corp. and Microsoft Corp. have long shared some of their most intimate corporate secrets. But Intel didn't tell Microsoft about a team it assembled in December 1994 to exploit a radical new software technology.
When Microsoft executives 11 months later learned of Intel's work on Java, a Sun Microsystems Inc. technology considered a threat to the software giant, they "hit the roof" and mounted a long lobbying campaign against the effort, say people familiar with the matter. Intel didn't give in, but later dropped a key multimedia product that was a focus of the development group.
So it goes inside Wintel, the alliance that built an industry around personal computers that use Intel's microchips and Microsoft's software. Though the companies are still inextricably linked in the PC business, a series of backroom squabbles has come to light lately that shows how the partners routinely feud over technology and strategy. Indeed, the chip and software giants have recently hedged their bets quite openly.
Andrew Grove, Intel's chairman, describes the relationship as committed and productive, but contentious. "We didn't go to the altar, never swore allegiance or anything like that," he said in an interview earlier this month. Microsoft "always courted other microprocessors and we worked with and still work with other software producers all along."
Microsoft, for example, has been tailoring its software for non-Intel chips in handheld computers and this summer agreed to build links to its software to support a graphics technology being promoted by Advanced Micro Devices Inc., a fierce Intel competitor. Last week, Intel licensed video streaming technology to Real Networks Inc., a company that is locked in a battle with Microsoft over technology for viewing video on the Internet. Intel also has quietly supported past efforts by some of Microsoft's rivals to get a single standard version of the Unix operating system to run on Intel microprocessors, an alternative to Microsoft's Windows NT system.
There is little chance the alliance will split, as both companies' interests are tightly aligned in encouraging the growth of the PC market. But Microsoft also wants to sell products for existing machines, while Intel tends to be more keen on persuading existing users to upgrade their hardware. "It's a key difference in our focus and how we look at technology," said Mark Murray, a Microsoft spokesman.
The Justice Department's antitrust investigation has helped to put such intramural issues into a fishbowl. The agency, seeking to prove that Microsoft has bullied other companies in ways that have hurt industry innovation, has subpoenaed Intel researcher Steven McGeady to testify in a trial scheduled to begin Oct. 15. He and other Intel officials generally decline to discuss many details of their disputes with Microsoft, citing the agency's investigation.
Microsoft insists, however, that it doesn't bully Intel or other partners -- it simply expresses honest opinions on technology issues. A classic case of the gray area is an Intel software initiative called "native signal processing," which Intel's Oregon laboratory developed in 1995 as a way to make it easier for its Pentium microprocessor to process multimedia data without the need for costly specialized add-on hardware. Intel tried to persuade personal-computer makers to embrace what it called NSP, with the thought it would eventually become part of Microsoft's operating systems.
The squabbling between the companies began almost immediately, people familiar with the matter say. NSP would tend to hurt Intel's chip competitors and makers of accessory graphics boards. But Microsoft engineers doubted Intel's Pentium could handle video, graphics and sound as well as accessory chips. They also argued that Intel's layer of software would make its operating systems unstable, and specifically feared incompatibilities between NSP and the Windows 95 program being rolled out in August 1995.
Richard Doherty, an analyst at the Envisioneering Group in Seaford, N.Y., who was then closely tracking the issue, says four computer makers told him that Microsoft threatened to withhold Windows 95 from them if they supported NSP on Intel. A Microsoft spokesman said it is "absolutely untrue" that Microsoft made such a threat.
In June 1995, however, Microsoft acknowledges that it did warn computer makers that it hadn't properly tested Intel's software and suggested there was a "support risk" to using it with Microsoft's Windows 95 operating system. PC makers soon backed off, forcing Intel to negotiate with Microsoft. NSP and other issues were hashed over in meetings involving top Microsoft and Intel executives, including Mr. Grove and Microsoft CEO Bill Gates, and Intel ultimately decided to drop the NSP effort.
At the time, many observers looked at the NSP dispute as both an example of Intel's subservience to Microsoft, and a simple disagreement over standards for the PC, said Michael Slater, editorial director at market researcher at Micro Design Resources Inc. in Sebastopol, Calif. Mr. Grove said recently that many of the technologies in NSP filtered into the marketplace a couple of years later, just not as quickly as Intel had hoped -- "for a variety of reasons, some of which were our own doing."
"The notion that either Microsoft or Intel pushes the other around is simply not accurate," Mr. Murray said. "Both companies make decisions based on what is best for technology and consumers."
But Intel's Hillsboro, Ore., research division, the Intel Architecture Labs, has remained a continuing source of friction. The laboratory has 600 researchers, many of them programmers, who have focused on making sure technological advances are introduced quickly so that the PC market keeps growing and attracting new users and new applications. It was also the site of Intel's work on Java, which was an example of the kind of hot Internet technologies that Intel wanted to make sure its chips support. Java was considered a threat to Microsoft because it was designed to make software that works on many types of operating systems, not just Microsoft's Windows.
Among other things, Intel engineers worked with Sun on a technology called the JMedia Player, which made multimedia applications written in Java run particularly well on Intel chips. The company continued with the project despite vociferous objections from Microsoft officials, people familiar with the effort say.
"They didn't succeed, but they tried to influence" Intel's strategy, said one person familiar with the matter. Microsoft was opposing Intel "at every turn," he said.
Microsoft doesn't dispute making its views known. "At the time, we didn't see Java as necessarily good for Intel or Microsoft or the overall PC industry," Mr. Murray said. "We had some technical meetings, but neither side did anything different as a result. Intel is still working on Java-related projects today."
As it turns out, Intel decided to drop the JMedia Player project in July. But that was more out of concern for Java's momentum than Microsoft's arguments, people familiar with the matter say. An Intel spokesman declined to comment on the issue.
The Justice Department has cited Microsoft's campaign against Java as an example of anticompetitive tactics, and has questioned Intel executives about related issues. Intel's efforts to work with Java have also come up in a Sun Microsystems' suit against Microsoft, which alleges that Microsoft violated terms of a licensing pact between the companies. Microsoft denies the allegation.
Despite all the recent attention on Microsoft's market power, Intel also faces its own antitrust suit by the Federal Trade Commission. Some of the chip maker's rivals say they are glad that Microsoft is there to provide a counter-balance to the hardware giant, which otherwise could create standards that would lock PC makers into buying its chips.
"We like it because Microsoft gives us a shield for innovation," says Dana Krelle, a vice president of marketing at Intel's archrival, alternative chip maker Advanced Micro Devices. "Without Microsoft, we'd be doomed to follow behind Intel."
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Rifts in the Wintel World
-- Handheld computers: Microsoft has supported small computers with non-Intel chips.
-- Servers: Intel has supported Unix software on large computers in addition to Microsoft's Windows NT.
-- Set-top boxes: Microsoft has supported TV devices that don't use Intel chips.
-- Java: Intel has supported this technology from Microsoft rival Sun Microsystems
-- Graphics: Microsoft has supported graphics technology from Intel rival Advanced Micro Devices.
-- Web video: Intel has cut a deal to supply video technology to Real Networks, a Microsoft rival.
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