THE TROUBLE WITH THE TRUTH
PAUL ANDREWS
11/01/98
The Seattle Times
FINAL
Page G1
(Copyright 1998)
They're partners one day, bitter rivals the next. In Silicon Valley deals, ethics and memories change as fast as the technology.
Who is telling the truth and who is lying in the war of memos, e-mail and selective memory being conducted in federal court between Microsoft and the Department of Justice?
Netscape co-founder Jim Clark says he wanted to partner with Microsoft and never saw much revenue potential for the browser business. Netscape Chief Executive Jim Barksdale, asked if Clark is a truthful man, dodges the question by calling him "a salesman."
America Online, with much fanfare, selects Microsoft as its browser of choice. Why? Because its technology is better. That was in March 1996.Now company executive David Colburn says the decision came because Microsoft twisted AOL's arm to "screw Netscape."
Intuit, maker of the leading financial software Quicken, deals a blow to Netscape by selecting Microsoft's Internet Explorer technology to enable Quicken users to do transactions over the Internet.
"We could not do what Intuit wanted us to do with their product (technologically)," Netscape marketing chief Mike Homer says in July 1997. Today, Barksdale says Intuit did the deal "for access to Windows" - because of Microsoft's "monopoly power."
So who's telling the truth, and when are they telling it?
The situation says a lot about the nature of the wild and woolly software business, which has never placed a premium on honesty, openness or due process. Two to three years ago, when the Internet boom touched off the browser war between Microsoft and Netscape, software companies were used to doing one thing and saying another.
Much of the corporate behavior is driven by the nature of the technology business. At the same time companies engage in no-holds-barred competition, they also find they have to cooperate with each other to advance their markets overall.
Up to now, there have been few rules governing conduct in this situation.
Perhaps the real legacy of this antitrust action will be, in part, to get this industry to remedy the inconsistencies that result from their actions. Don't say something that will test your credibility down the road. Don't put things in e-mail that you would not want your mother to read.
And watch how you play the game if you're a proven monopoly.
Communications uncovered in the antitrust investigation show there was considerable gamesmanship going on. But they lack a significant context: In 1995 and 1996, Microsoft was the new kid on the Internet block who needed Netscape, AOL and others as much as, if not more than, they needed Microsoft.
Less than three years ago, Microsoft was considered so out of touch with the Internet that a leading analyst downgraded its stock for the first time in six years. Rivals predicted the downfall of Windows and industry pundit George Gilder praised a new Sun Microsystems technology, called Java, that "menaces Microsoft's software supremacy."
The Internet boom had Silicon Valley feeling its oats. Not since the rise of Apple Computer and Intel in the early 1980s had the valley seen a comparable explosion of new ideas, entrepreneurship and fabulous wealth.
A look at the record over the past five years shows that many of the rivals now pointing fingers at Microsoft eagerly courted its business in the early days of the Internet. And in high-profile deals, industry leaders consistently cited superior Windows technology - not necessarily unfair competitive practices - as their motivation for doing strategic Internet deals with Microsoft.
But even if Microsoft establishes its technological superiority in court it still would not address the core issue of the trial: Would the Redmond software giant do things the same way over again?
Ultimately, the real purpose of the antitrust case may be to answer the question for Microsoft. A number of signs point toward the Department of Justice's goal being not to break up Microsoft, but to keep it from repeating history with the release of its newly christened Windows (NT) 2000 and Office 2000 line of products.
Both product suites will be closely integrated. Both lend themselves to "package deals" of volume discounting, exclusivity and site licensing to big corporate accounts. And both could be technologically superior enough to wipe out remaining competition from companies like Netscape, Sun and networking giant Novell.
Following is a look at three cases in which Microsoft and another company crafted deals. Each illustrates principles of competition and cooperation that have marked technology-industry interactions. Whether they could ever happen again in the future may be largely in the court's hands.
Case 1: Netscape
The seeds of Microsoft's Internet strategy were sown Dec. 7, 1993, when second-in-command Steve Ballmer wrote almost two years before Windows 95 was launched about a visit to his alma mater, Harvard University.
"I think we could really help popularize (Windows 95) and (Microsoft) Mail not only among students but all the other random people I talk to who have Internet addresses if we could say that (Windows 95) is the greatest front end to the Internet," Ballmer effused in a rambling follow-up message to senior Microsoft executives.
It was Ballmer's e-mail, as well as a series of long memos from Internet advocates inside Microsoft and a pivotal strategy meeting in early April 1994, that led the Redmond company's charge to the Internet, Microsoft argues. All took place before Netscape, which incorporated as Electric Media also in April 1994 and began writing its browser as Mosaic Communications in May, emerged as a competitor to Microsoft.
By the time Chairman Bill Gates' technical assistant, Steven Sinofsky, described in a February 1994 memo how the Internet was transforming his alma mater, Cornell University, the stage was set for the April planning retreat, which took place at Kirkland's Shumway Mansion.
It was at the retreat, Gates said in an interview, that he gave the directive for Microsoft to develop its own browser as part of the Windows operating system.
"I absolutely said, 'OK, the browser is part of the operating system,' " Gates recalled.
Netscape announced its browser the following September and began distributing it in late October over the Internet. By then, Microsoft's browser development had begun in earnest, headed by Seattle native and MS-DOS programming whiz Ben Slivka.
It was a competitive threat from IBM's OS/2 and the Macintosh operating systems - not Netscape - that pushed Microsoft into action, the company says. At the time, the fall of 1994, Apple's Macintosh was used by as many as two of every five Internet users. And IBM was just weeks away from releasing OS/2 Warp, which included a built-in browser, WebExplorer.
In an e-mail dated Nov. 11, 1994, senior Microsoft executive Paul Maritz warned that the company had to "ensure that Windows is very well connected - in particular to ensure it is straightforward for a user to get connected to the Internet." Ease of use and availability of connection must "not become differentiating attributes of Macintosh or OS/2," Maritz declared.
Microsoft's presence on the Internet at the time was lightly regarded everywhere except Netscape, whose co-founder Jim Clark may have first blown the Internet antitrust whistle on Microsoft. When Netscape programmers complained in late spring of 1995 that Microsoft was withholding key Windows 95 technology called APIs, or applications programming interfaces, Clark contacted Justice Department officials.
"When I heard that I just went ballistic," Clark said. "I said, 'This seems like something the Justice Department should get involved in somehow.' "
But Microsoft executives deny any delay tactics.
"The killer app (software application) for Windows 95 was (Netscape) Navigator," said Silverberg of the Silicon Valley company's browser. "We did everything we could to help those guys; we didn't withhold anything."
Microsoft even went out of its way to ensure that Netscape would work with Windows 95, recalled Dan Rosen, a strategic development executive.
"They called us up (about) a week before the last Windows 95 beta (test version) went out and said, 'Our stuff doesn't work with yours, we need some changes to the APIs,' " Rosen said in an interview earlier this year. "It turned out what they really needed was a piece of code that just didn't exist. I called up the developer, he did some special things at night and tried to get stuff ready for them."
By then, Clark was in the position of spurned suitor. Just months earlier, in December 1994, he had barraged Silverberg with phone calls seeking to license Netscape technology to Microsoft.
"Clark personally pleaded with me to make a deal," Silverberg recalled. Eventually the Netscape co-founder offered Microsoft a 10 percent investment in his fledgling company and a board seat.
Pressed about the contacts in an interview in May 1997, Clark acknowledged, "I probably made a pretty impassioned plea for them to consider licensing our stuff and probably in that context I suggested taking an equity position."
Clark's entreaties may have stemmed from wanting to upstage a competitor he disliked even more than Microsoft - a tiny Champaign, Ill., software company called Spyglass. Spyglass, which had secured from the University of Illinois exclusive rights to market the leading browser at the time, Mosaic, was also pursuing a deal with Microsoft.
Each company saw Microsoft as the plum in its effort to gain acceptance of its browser as the standard. Microsoft wound up signing a $2 million license with Spyglass to use Mosaic in Windows 95 and Windows NT. Later the deal was expanded to earlier Windows 3.x versions, as well as Macintosh and Unix platforms. All told, Spyglass received $14 million from Microsoft for Mosaic.
Even after its early dealings with Microsoft led nowhere, Netscape pursued an ongoing relationship. In a series of discussions, including a pivotal strategy session in June 1995, the two companies addressed plans for browsers and servers - high-end software that performs Internet chores on e-mail, security, commercial transactions, Web site management and other functions.
Each company has given dramatically different versions of what happened at the key June 21 meeting, highlighted in the antitrust trial. Homer, the Netscape marketing chief, said Microsoft offered to give Netscape advanced looks at Windows code - a move that would help Netscape tailor its browser to work better with Windows - in return for Netscape's licensing its Internet security and Web server software to Microsoft. Microsoft also sought a board seat and 20 percent share of the company, Homer said in an interview in June 1997.
"By implication they were saying if you don't, then you won't have all these things, and we're going to beat the crap out of you, basically," Homer recalled.
But two Microsoft executives offered a radically different view of the sessions. Rosen, who set up talks in a meeting with Barksdale, recalled him saying, "The last thing in the world I want to do starting up a small company is fight a battle with Microsoft."
And J Allard, an early Internet advocate at Microsoft, said Microsoft simply wanted to know what products Netscape was focusing on to determine whether the two companies would partner or compete.
"I think what everybody wanted to figure out was where are we going to compete, and where can we complement each other in all sorts of things," Allard recalled earlier this year. "I think they drew some pretty concrete boundaries and said, 'You know, there aren't a lot of ways for us to complement each other; we're going to go after you.' "
It was only after the talks failed to produce a deal that Netscape gave up on the idea of collaborating with Microsoft, Homer said. By the time of its dramatic public offering on Aug. 8, 1995, which saw its stock rise from $28 to $75 in a few hours, Netscape was warning investors of competitive risks from Microsoft.
"To complete development of Netscape Navigator for Windows 95, the company (Netscape) must obtain certain technology from Microsoft," the Netscape prospectus stated. "There can be no assurance that Microsoft will make such technology available to the company on a timely basis, on commercially reasonable terms, or at all."
"They slammed us," Microsoft Chairman Bill Gates recalled in August. "They used their IPO to do negative PR against Microsoft."
Case 2: Sun Microsystems
Netscape was not the only Silicon Valley powerhouse to seek out Microsoft's company. By the fall of 1995, Sun Microsystems was in licensing talks with Microsoft executives over key Internet technologies.
Sun's chief technology officer, Eric Schmidt, had contacted Microsoft executive Nathan Myhrvold during a conference at Princeton University, where both had attended school. Schmidt proposed licensing Java to Microsoft for use in its Internet Explorer browser. A new programming language, Java was hailed by some as a successor on the Internet to Windows.
Sun wanted to have as broad distribution for Java as possible and saw Netscape's browser and Microsoft's Windows as prime vehicles.
The two companies conducted rapid-fire negotiations. At the Dec. 7, 1995, briefing, they announced a deal for Java. The move was greeted with shock and consternation by many industry observers, who deemed it unthinkable that the two archrivals would ever enter a high-profile partnership.
"The argument was, you were licensing candy to your competitor, because Java was such a strategic advantage," Schmidt said.
Microsoft, which during software-programmer forums was being told to get on the Java bandwagon, entered the license with mixed feelings, said John Ludwig, a key Windows executive.
"One of the things they were telling us was, 'You just don't get Java, do you?' " Ludwig recalled in a Seattle Times interview earlier this year. "You get beat upside the head with that enough times and you finally realize, you know they must have a point here."
Still, Microsoft felt limited by Sun's license.
"Sun went out of their way to define Java in such a way that it didn't allow us any room for success," he said.
By the fall of 1997, the two companies clashed over contract language. Sun filed suit for breach of contract in federal district court in San Jose. Judge Ronald Whyte heard arguments in September and is expected to rule soon.
Case 3: America Online
America Online's (AOL) partnering with archrival Microsoft in the spring of 1996 sent shockwaves of disbelief through the industry.
At the time, Microsoft was engaged in a titanic struggle with AOL for commercial online customers. The Microsoft Network had rolled out the previous fall and quickly gained 1 million customers. AOL, with 5 million subscribers, was growing even faster.
In a dramatic onstage appearance in mid-March at a Microsoft developers conference in San Francisco's Moscone Center, AOL chief Steve Case lauded Microsoft's browser technology and said AOL was "looking forward to working with technology partners like Microsoft" in the interest of expanding the online and Internet communities.
"The reason we're working with Microsoft: I'm quite impressed with the technology," Case told some 5,000 developers on hand. He added that although Microsoft's ActiveX platform would be AOL's standard, "We'll provide Netscape as an option to America Online customers."
The America Online deal had been made possible by a sweeping overhaul of Microsoft's browser technology the previous fall in which Microsoft programmer Chee Chew recast it into components that could be customized.
The structure would enable any software developer to place browser functionality in its products. America Online, for example, could do an AOL browser using only the Microsoft technology it wanted. And it could make the browser appear to be an AOL, not Microsoft, feature.
Last week, however, AOL executive Colburn testified in the antitrust trial that AOL made the deal because it was offered a spot in a folder on the Windows 95 opening screen. At the time he made the San Francisco announcement, Case said Windows' popularity was a big attraction.
Other high-profile deals ostensibly attracted by Internet Explorer's component structure were announced later in the year. Intuit adopted Microsoft browser technology for its market-leading Quicken financial software to interact with the Web. PointCast, which pioneered a popular Web newscasting service, announced in December that it was going with Microsoft and not Netscape.
Microsoft executive Brad Chase, who played a key role in numerous browser deals, said the company's overriding strategy was to "build win-win relationships."
"I sometimes say we realize that it's in our self-interest to help other people with their self-interest," Chase said.
Paul Andrews' phone message number is 206-464-2360. His e-mail address is: pandrews@seattletimes.com
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