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Cut a deal or you don't get Win95 – IBM faces PC suicide

In the months before the launch, MS cut off the air supply

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MS on Trial IBM witness Garry Norris explained that Microsoft was offered $10 million by IBM to delink the audit of IBM's licence payments from the Windows 95 licence negotiation and to guarantee that any discrepancies would be cleared up. The audit was expected to take four to six months, and last until around the end of 1995, far beyond the launch of Windows 95, so IBM was having kittens at this move since it believed that not to have Windows 95 would be PC suicide. In the event, we shall never know what might have happened if IBM had had the intestinal fortitude to resist. The Personal Software Products division, which develops software, is in competition, but in its naive view, Microsoft thought it would be possible for the PC Company to get PSP to stop developing competitive products. Microsoft had no understanding of the dynamics of a large corporation. From about 20 July, IBM found it was completely cut off from access to Windows 95 code, and could not continue with development of models incorporating Windows 95. Kempin told Santelli that if IBM would agree not to ship SmartSuite for six months to a year, the audit would be settled. The judge asked at this point for Kempin's name to be repeated, which seemed to indicate that he was concerned at this gross abuse of power. Santelli reported Kempin as telling Thoman that although Microsoft threatened IBM over the bundling of SmartSuite by the PC Company, it was not possible for him to agree on behalf of all of IBM that there would be no competition using SmartSuite. IBM made it clear that it wished to get a licence for Windows 95 quickly in order not to miss the back-to-school market and the Christmas market. It was not a good idea to be so open with a monopolist, as this only served to make it more obdurate. Kempin wrote to Santelli on 15 August, a few days before the Windows 95 launch: "If you believe that the amount I am asking for [to settle the audit] is too much, I would be willing to trade certain relationship-improving measures for the settlement charges and/or convert some of the amounts into marketing funds if IBM, too, agrees to promote Microsoft's software products, together with their hardware offerings." Santelli replied: "Each day that IBM has to wait for the Windows 95 code, IBM is at a competitive disadvantage." It is hard to imagine Microsoft being anything but gleeful at this. IBM lacked a hard man. Norris revealed that IBM considered the possibility of buying the Windows 95 code at retail and paying to have it installed, but expected that this would result in a loss of volume between 30 and 90 per cent. To use OS/2 would result in loss of sales between 70 and 90 percent, Norris estimated, since "without Windows 95, you couldn't be in the PC business." Baber had told Norris: "Where else are you going to go? This is the only game in town." It was an acknowledgement that Microsoft had a monopoly. Norris estimated that the PC Company would be out of business sometime between the second and fourth quarter of 1996 without Windows 95. Baber had told Norris that IBM could have Compaq's price, together with support and participation in Microsoft marketing programmes, if it quit competing. Kempin was also blunt, and replied to Santelli on 5 January 1996: "As long as IBM is working first on their competitive offerings and prefers to fiercely compete with us in critical areas, we should just be honest with each other and admit that such priorities will not lead to a most exciting relationship and might not even make IBM feel good when selling solutions based on Microsoft's products." Microsoft's determination that it should be the only software company will not help its present case. In a call between Santelli and Kempin at the end of January, Kempin wanted to know why Microsoft did not get an opportunity to compete with SmartSuite, because "when the PC Company wins, Lotus wins and Microsoft loses". ® Complete Register trial coverage

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