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Old 08-16-2000, 09:05 PM   #12
Darth Qui-Gon
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Netscape:
Navigator has been ported to more than fifteen different operating systems. Thus‚ if a developer writes an application that relies solely on the APIs exposed by Navigator‚ that application will‚ without any porting‚ run on many different operating systems.

Microsoft knew in the fall of 1994 that Netscape was developing versions of a Web browser to run on different operating systems. It did not yet know‚ however‚ that Netscape would employ Navigator to generate revenue directly‚ much less that the product would evolve in such a way as to threaten Microsoft. In fact‚ in late December 1994‚ Netscape’s chairman and chief executive officer (“CEO”)‚ Jim Clark‚ told a Microsoft executive that the focus of Netscape’s business would be applications running on servers and that Netscape did not intend to succeed at Microsoft’s expense.

As soon as Netscape released Navigator on December 15‚ 1994‚ the product began to enjoy dramatic acceptance by the public; shortly after its release‚ consumers were already using Navigator far more than any other browser product. This alarmed Microsoft‚ which feared that Navigator’s enthusiastic reception could embolden Netscape to develop Navigator into an alternative platform for applications development. In late May 1995‚ Bill Gates‚ the chairman and CEO of Microsoft‚ sent a memorandum entitled “The Internet Tidal Wave” to Microsoft’s executives describing Netscape as a “new competitor ‘born’ on the Internet.” He warned his colleagues within Microsoft that Netscape was “pursuing a multi–platform strategy where they move the key API into the client to commoditize the underlying operating system.” By the late spring of 1995‚ the executives responsible for setting Microsoft’s corporate strategy were deeply concerned that Netscape was moving its business in a direction that could diminish the applications barrier to entry.


D. Microsoft’s Attempt to Dissuade Netscape from Developing Navigator as a Platform
Microsoft’s first response to the threat posed by Navigator was an effort to persuade Netscape to structure its business such that the company would not distribute platform–level browsing software for Windows. Netscape’s assent would have ensured that‚ for the foreseeable future‚ Microsoft would produce the only platform–level browsing software distributed to run on Windows. This would have eliminated the prospect that non–Microsoft browsing software could weaken the applications barrier to entry.

Executives at Microsoft received confirmation in early May 1995 that Netscape was developing a version of Navigator to run on Windows 95‚ which was due to be released in a couple of months. Microsoft’s senior executives understood that if they could prevent this version of Navigator from presenting alternatives to the Internet–related APIs in Windows 95‚ the technologies branded as Navigator would cease to present an alternative platform to developers. Even if non–Windows versions of Navigator exposed Internet–related APIs‚ applications written to those APIs would not run on the platform Microsoft executives expected to enjoy the largest installed base‚ i.e.‚ Windows 95. So‚ as long as the version of Navigator written for Windows 95 relied on Microsoft’s Internet–related APIs instead of exposing its own‚ developing for Navigator would not mean developing cross–platform. Developers of network–centric applications thus would not be drawn to Navigator's APIs in substantial numbers. Therefore‚ with the encouragement and support of Gates‚ a group of Microsoft executives commenced a campaign in the summer of 1995 to convince Netscape to halt its development of platform–level browsing technologies for Windows 95.

Simply put‚ if Navigator exposed APIs that competed for developer attention with the Internet–related APIs Microsoft was planning to build into its platform‚ Microsoft would regard Netscape as a trespasser on its territory.

Microsoft knew that Netscape needed certain critical technical information and assistance in order to complete its Windows 95 version of Navigator in time for the retail release of Windows 95. Indeed‚ Netscape executives had made a point of requesting this information‚ especially the so–called Remote Network Access (“RNA”) API‚ at the June 21 meeting. The Microsoft representatives at the meeting had responded that the haste with which Netscape received the desired technical information would depend on whether Netscape entered the so–called “special relationship” with Microsoft (agreement to write on Microsoft’s APIs and not their own).


You have paid the price for your lack of vision.


Microsoft similarly withheld a scripting tool that Netscape needed to make its browser compatible with certain dial–up ISPs. Netscape never received a license to the scripting tool (becuase they did not enter into the “special relationship”)‚ and as a result‚ was unable to do business with certain ISPs for a time.


E. Developing Competitive Web Browsing Software

Once it became clear to senior executives at Microsoft that Netscape would not abandon its efforts to develop Navigator into a platform‚ Microsoft focused its efforts on ensuring that few developers would write their applications to rely on the APIs that Navigator exposed. Developers would only write to the APIs exposed by Navigator in numbers large enough to threaten the applications barrier if they believed that Navigator would emerge as the standard software employed to browse the Web. If Microsoft could demonstrate that Navigator would not become the standard‚ because Microsoft’s own browser would attract just as much if not more usage‚ then developers would continue to focus their efforts on a platform that enjoyed enduring ubiquity: the 32–bit Windows API set. Microsoft thus set out to maximize Internet Explorer’s share of browser usage at Navigator’s expense.

Microsoft’s management believed that‚ no matter what the firm did‚ Internet Explorer would not capture a large share of browser usage as long as it remained markedly inferior to Navigator in the estimation of consumers. The task of technical personnel at Microsoft‚ then‚ was to make Internet Explorer’s features at least as attractive to consumers as Navigator’s. Microsoft did not believe that improved quality alone would depose Navigator‚ for millions of users appeared to be satisfied with Netscape’s product‚ and Netscape was known as ‘the Internet company.’ As Gates wrote to Microsoft’s executive staff in his May 1995 “Internet Tidal Wave” memorandum‚ “First we need to offer a decent client‚” but “this alone won’t get people to switch away from Netscape.”

In addition to improving the quality of Internet Explorer‚ Microsoft sought to increase the product’s share of browser usage by giving it away for free. In many cases‚ Microsoft also gave other firms things of value (at substantial cost to Microsoft) in exchange for their commitment to distribute and promote Internet Explorer‚ sometimes explicitly at Navigator’s expense. While Microsoft might have bundled Internet Explorer with Windows at no additional charge even absent its determination to preserve the applications barrier to entry‚ that determination was the main force driving its decision to price the product at zero. Furthermore‚ Microsoft would not have given Internet Explorer away to IAPs‚ ISVs‚ and Apple‚ nor would it have taken on the high cost of enlisting firms in its campaign to maximize Internet Explorer’s usage share and limit Navigator’s‚ had it not been focused on protecting the applications barrier.

The transcendent importance of browser usage share to Microsoft is evident in what the firm expended‚ as well as in what it relinquished‚ in order to maximize usage share for Internet Explorer and to diminish it for Navigator. Microsoft also paid huge sums of money‚ and sacrificed many millions more in lost revenue every year‚ in order to induce firms to take actions that would help increase Internet Explorer’s share of browser usage at Navigator’s expense. Ex: If an IAP was already under contract to pay Netscape a certain amount for browser licenses‚ Microsoft offered to compensate the IAP the amount it owed Netscape‚ then licensed Internet Explorer to them for free.

Finally‚ with respect to OEMs‚ Microsoft extended co–marketing funds and reductions in the Windows royalty price to those agreeing to promote Internet Explorer and‚ in some cases‚ to abstain from promoting Navigator.


F. Excluding Navigator from Important Distribution Channels
Decision–makers at Microsoft worried that simply developing its own attractive browser product‚ pricing it at zero‚ and promoting it vigorously would not divert enough browser usage from Navigator to neutralize it as a platform. They believed that a comparable browser product offered at no charge would still not be compelling enough to consumers to detract substantially from Navigator’s existing share of browser usage. If Microsoft was going to raise Internet Explorer’s share of browser usage and lower Navigator’s share‚ executives at Microsoft believed they needed to constrict Netscape’s access to the distribution channels that led most efficiently to browser usage.

In its internal decision–making‚ Microsoft has placed considerable reliance on studies showing that consumers tend strongly to use whatever browsing software is placed most readily at their disposal‚ and that once they have acquired‚ found‚ and used one browser product‚ most are reluctant — and indeed have little reason — to expend the effort to switch to another.

In contrast to other operating system vendors‚ Microsoft both refused to license its operating system without a browser and imposed restrictions — at first contractual and later technical — on OEMs’ and end users’ ability to remove its browser from its operating system. As its internal contemporaneous documents and licensing practices reveal‚ Microsoft decided to bind Internet Explorer to Windows in order to prevent Navigator from weakening the applications barrier to entry‚ rather than for any pro–competitive purpose.

Microsoft did manage to bundle Internet Explorer 1.0 with the first version of Windows 95 licensed to OEMs in July 1995. It also included a term in its OEM licenses that prohibited the OEMs from modifying or deleting any part of Windows 95‚ including Internet Explorer‚ prior to shipment. The OEMs accepted this restriction despite their interest in meeting consumer demand for PC operating systems without Internet Explorer. After all‚ Microsoft made the restriction a non–negotiable term in its Windows 95 license‚ and the OEMs felt they had no commercially viable alternative to pre–installing Windows 95 on their PCs.

Microsoft knew that the inability to remove Internet Explorer made OEMs less disposed to pre–install Navigator onto Windows 95.

Pre–installing more than one product in a given category‚ such as word processors or browsers‚ onto its PC systems can significantly increase an OEM’s support costs‚ for the redundancy can lead to confusion among novice users. Therefore‚ the presence of Internet Explorer would exclude the presence of Navigator.

Despite all this‚ Microsoft’s executives believed that the incentives that its contractual restrictions placed on OEMs would not be sufficient in themselves to reverse the direction of Navigator’s usage share. Consequently‚ in late 1995 or early 1996‚ Microsoft set out to bind Internet Explorer more tightly to Windows 95 as a technical matter. The intent was to make it more difficult for anyone‚ including systems administrators and users‚ to remove Internet Explorer from Windows 95 and to simultaneously complicate the experience of using Navigator with Windows 95. As Brad Chase wrote to his superiors near the end of 1995‚

“We will bind the shell to the Internet Explorer‚ so that running any other browser is a jolting experience.”

Microsoft bound Internet Explorer to Windows 95 by placing code specific to Web browsing in the same files as code that provided operating system functions. Starting with the release of Internet Explorer 3.0 and “OEM Service Release 2.0” (“OSR 2”) of Windows 95 in August 1996‚ Microsoft offered only a version of Windows 95 in which browsing–specific code shared files with code upon which non–browsing features of the operating system relied.

Although users were not able to remove all of the routines that provided Web browsing from OSR 2 and successive versions of Windows 95‚ Microsoft still provided them with the ability to uninstall Internet Explorer by using the “Add/Remove” panel‚ which was accessible from the Windows 95 desktop. The Add/Remove function did not delete all of the files that contain browsing specific code‚ nor did it remove browsing–specific code that is used by other programs. The Add/Remove function did‚ however‚ remove the functionalities that were provided to the user by Internet Explorer‚ including the means of launching the Web browser. Accordingly‚ from the user’s perspective‚ uninstalling Internet Explorer in this way was equivalent to removing the Internet Explorer program from Windows 95.

Still not satisfied. In late 1996‚ senior executives within Microsoft‚ led by James Allchin‚ began to argue that Microsoft was not binding Internet Explorer tightly enough to Windows and as such was missing an opportunity to maximize the usage of Internet Explorer at Navigator’s expense. Allchin first made his case to Paul Maritz in late December 1996. He wrote:

I don’t understand how IE is going to win. The current path is simply to copy everything that Netscape does packaging and product wise. Let’s [suppose] IE is as good as Navigator/Communicator. Who wins? The one with 80% market share. Maybe being free helps us‚ but once people are used to a product it is hard to change them. Consider Office. We are more expensive today and we’re still winning. My conclusion is that we must leverage Windows more. Treating IE as just an add–on to Windows which is cross–platform [means] losing our biggest advantage — Windows marketshare. We should dedicate a cross group team to come up with ways to leverage Windows technically more. . . . We should think about an integrated solution — that is our strength.

Allchin followed up with another message to Maritz on January 2‚ 1997:

You see browser share as job 1.... I do not feel we are going to win on our current path. We are not leveraging Windows from a marketing perspective and we are trying to copy Netscape and make IE into a platform. We do not use our strength — which is that we have an installed base of Windows and we have a strong OEM shipment channel for Windows. Pitting browser against browser is hard since Netscape has 80% marketshare and we have 20%. . . . I am convinced we have to use Windows — this is the one thing they don’t have. . . . We have to be competitive with features‚ but we need something more — Windows integration.

If you agree that Windows is a huge asset‚ then it follows quickly that we are not investing sufficiently in finding ways to tie IE and Windows together. This must come from you. . . . Memphis [Microsoft’s code–name for Windows 98] must be a simple upgrade‚ but most importantly it must be killer on OEM shipments so that Netscape never gets a chance on these systems.


...Thus‚ Microsoft delayed the debut of numerous features‚ including support for new hardware devices‚ that Microsoft believed consumers would find beneficial‚ simply in order to protect the applications barrier to entry.

Reporting on one study in late February‚ Microsoft’s Christian Wildfeuer wrote: “The stunning insight is this: To make [users] switch away from Netscape‚ we need to make them upgrade to Memphis. . . . It seems clear to me that it will be very hard to increase browser market share on the merits of IE 4 alone. It will be more important to leverage the OS asset to make people use IE instead of Navigator.”

Microsoft’s technical personnel implemented Allchin’s “Windows integration” strategy in two ways. First‚ they did not provide users with the ability to uninstall Internet Explorer from Windows 98. The omission of a browser removal function was particularly conspicuous given that Windows 98 did give users the ability to uninstall numerous features other than Internet Explorer — features that Microsoft also held out as being integrated into Windows 98. Microsoft took this action despite specific requests from Gateway that Microsoft provide a way to uninstall Internet Explorer 4.0 from Windows 98.

The second way in which Microsoft’s engineers implemented Allchin’s strategy was to make Windows 98 override the user's choice of default browser in certain circumstances. As shipped to users‚ Windows 98 has Internet Explorer configured as the default browser. While Windows 98 does provide the user with the ability to choose a different default browser‚ it does not treat this choice as the “default browser” within the ordinary meaning of the term. Specifically‚ when a user chooses a browser other than Internet Explorer as the default‚ Windows 98 nevertheless requires the user to employ Internet Explorer in numerous situations that‚ from the user’s perspective‚ are entirely unexpected. As a consequence‚ users who choose a browser other than Internet Explorer as their default face considerable uncertainty and confusion in the ordinary course of using Windows 98.

Microsoft has harmed even those consumers who desire to use Internet Explorer‚ and no other browser‚ with Windows 98. To the extent that browsing–specific routines have been commingled with operating system routines to a greater degree than is necessary to provide any consumer benefit‚ Microsoft has unjustifiably jeopardized the stability and security of the operating system. Specifically‚ it has increased the likelihood that a browser crash will cause the entire system to crash and made it easier for malicious viruses that penetrate the system via Internet Explorer to infect non–browsing parts of the system (remember all those Outlook viruses from a couple months ago?).

As with Windows 95‚ there is no technical justification for Microsoft’s refusal to meet consumer demand for a browserless version of Windows 98. Although some consumers might be inclined to go without Windows 98’s new non–browsing features in order to avoid Internet Explorer‚ OEMs are unlikely to facilitate that choice‚ because they want consumers to use an operating system that supports the new hardware technologies they seek to sell.

Microsoft’s argument that binding the browser to the operating system is reasonably necessary to preserve the “integrity” of the Windows platform is likewise specious. First‚ concern with the integrity of the platform cannot explain Microsoft’s original decision to bind Internet Explorer to Windows 95‚ because Internet Explorer 1.0 and 2.0 did not contain APIs. Second‚ concern with the integrity of the platform cannot explain Microsoft’s refusal to offer OEMs the option of uninstalling Internet Explorer from Windows 95 and Windows 98 because APIs‚ like all other shared files‚ are left on the system when Internet Explorer is uninstalled.
In order to bring the behavior of OEMs into line with its strategic goals quickly‚ Microsoft threatened to terminate the Windows license of any OEM that removed Microsoft’s chosen icons and program entries from the Windows desktop or the “Start” menu. These inhibitions soured Microsoft’s relations with OEMs and stymied innovation that might have made Windows PC systems more satisfying to users. Microsoft would not have paid this price had it not been convinced that its actions were necessary to ostracize Navigator from the vital OEM distribution channel.

In August 1995‚ Compaq (well known as Microsoft's closest ally) entered into a “Promotion and Distribution Agreement” with AOL whereby Compaq agreed to “position AOL Services above all other Online Services within the user interface of its Products.” An addendum to the agreement provided that Compaq would place an AOL icon — and no OLS icons not controlled by AOL — on the desktop of its PCs. Pursuant to its obligations‚ Compaq began in late 1995 or early 1996 to ship its Presario PCs with the MSN icon removed and the AOL icon added to the Windows desktop. At the same time‚ Compaq removed the Internet Explorer icon from the desktop of its Presarios and replaced it with a single icon representing both the Spry ISP and the browser product that Spry bundled‚ i.e.‚ Navigator. Compaq added this icon in part because it recognized Navigator to be the most popular browser product with its consumers; it removed the Internet Explorer icon because it did not want its PCs desktops to confuse novice users with a clutter of Internet–related icons.

Finally‚ after months of unsuccessful importunity‚ Microsoft sent Compaq a letter on May 31‚ 1996‚ stating its intention to terminate Compaq's license for Windows 95 if Compaq did not restore the MSN and Internet Explorer icons to their original positions. Compaq's executives opined that their firm could not continue in business for long without a license for Windows‚ so in June Compaq restored the MSN and IE icons to the Presario desktop. In its confrontation with Compaq‚ Microsoft demonstrated that it was prepared to go to the brink of losing all Windows sales through its highest–volume OEM partner in order to enforce its prohibition against removing Microsoft’s Internet–related icons from the Windows desktop.

In addition to tutorials‚ sign–up programs‚ and splash screens‚ a few large OEMs developed programs that ran automatically at the conclusion of a new PC system's first boot sequence. These programs replaced the Windows desktop either with a user interface designed by the OEM or with Navigator’s user interface.

In an effort to thwart the practice of OEM customization‚ Microsoft began‚ in the spring of 1996‚ to force OEMs to accept a series of restrictions on their ability to reconfigure the Windows 95 desktop and boot sequence. There were five such restrictions‚ which were manifested either as amendments to existing Windows 95 licenses or as terms in new Windows 98 licenses.

1. Microsoft formalized the prohibition against removing any icons‚ folders‚ or “Start” menu entries that Microsoft itself had placed on the Windows desktop.

2. Microsoft prohibited OEMs from modifying the initial Windows boot sequence.

3. Microsoft prohibited OEMs from installing programs‚ including alternatives to the Windows desktop user interface‚ which would launch automatically upon completion of the initial Windows boot sequence.

4. Microsoft prohibited OEMs from adding icons or folders to the Windows desktop that were not similar in size and shape to icons supplied by Microsoft.

5. When Microsoft later released the Active Desktop as part of Internet Explorer 4.0‚ it added the restriction that OEMs were not to use that feature to display third–party brands.

Gateway‚ Hewlett–Packard‚ and IBM communicated their opposition forcefully and urged Microsoft to lift the restrictions. Emblematic of the reaction among large OEMs was a letter that the manager of research and development at Hewlett–Packard sent to Microsoft in March 1997. He wrote:

“Microsoft’s mandated removal of all OEM boot–sequence and auto–start programs for OEM licensed systems has resulted in significant and costly problems for the HP–Pavilion line of retail PC’s. Our data (as of 3/10/97) shows a 10% increase in W[indows]95 calls as a % of our total customer support calls . . . . Our registration rate has also dropped from the mid–80% range to the low 60% range. There is also subjective data from several channel partners that our system return rate has increased from the lowest of any OEM (even lower than Apple) to a level comparable to the other Microsoft OEM PC vendors. This is a major concern in that we are taking a step backward in meeting customer satisfaction needs. These three pieces of data confirm that we have been damaged by the edicts that Microsoft issued last fall. . . .

From the consumer perspective‚ we are hurting our industry and our customers. PCs can be frightening and quirky pieces of technology into which they invest a large sum of their money. It is vitally important that the PC suppliers dramatically improve the consumer buying experience‚ out of box experience as well as the longer term product usability and reliability. The channel feedback as well as our own data shows that we are going in the wrong direction. This causes consumer dissatisfaction in complex telephone support process‚ needless in–home repair visits and ultimately in product returns. Many times the cause is user misunderstanding of a product that presents too much complexity to the common user. . . .

Our Customers hold HP accountable for their dissatisfaction with our products. We bear the cost of returns of our products. We are responsible for the cost of technical support of our customers‚ including the 33% of calls we get related to the lack of quality or confusion generated by your product. And finally we are responsible for our success or failure in the retail PC market.

We must have more ability to decide how our system is presented to our end users.

If we had a choice of another supplier‚ based on your actions in this area‚ I assure you [that you] would not be our supplier of choice. I strongly urge you to have your executives review these decisions and to change this unacceptable policy.”


Even in the face of such strident opposition from its OEM customers‚ Microsoft refused to relent on the bulk of its restrictions. This behavior has been consitent from Microsoft over the last fifteen to twenty years and has become a great deal more intense in the last six or seven. Even though AOL now owns Netscape‚ then cannot use their own browser– they must use Internet Explorer. If they do not‚ Microsoft will not allow the AOL icon on the Windows desktop‚ and for reasons explained above‚ this is something that could conceivably destroy AOL’s usage. This last would be particulalry true if Microsoft decides to really go after them like they did with Netscape. There is a reason why vitually no one in the computer industry can even speak out against Microsoft. Even Steve Jobs‚ of whom tales of rants and tirades of pure rage against Microsoft are well known‚ can do nothing and say nothing bad about Microsoft. If he does‚ Microsoft will remove the Macintosh version of Office– a blow that Apple cannot afford.

All right Kurgan‚ how’s that for a reason?


Jedi Assassin‚ Cloned Wars
Darth Qui-Gon‚ Microsith Mercenary
The ability to clone software does not make you an innovator.
Join the Jedi Temple.

[This message has been edited by Darth Qui-Gon (edited August 16, 2000).]
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