Screws went onto IBM at Gates' bidding

Once good soldier Kempin got the word from Bill, the hunt began

MS on Trial Gates had set the tone about IBM's relationship with Lotus in 1994, long before the company was acquired by IBM. He had emailed Kempin "I am unsure if we need to see this as an organisational issue or an OEM issue. I am willing to do whatever it takes to kick them out, but strongly believe we need a worldwide hit team to attack IBM as a large account, whereby the OEM relationship should be used to apply some pressure." From this point on, Kempin exerted pressure on the OEM relationship to get IBM to stop competing, first with OS/2, then with SmartSuite, and later with World Book, which competed with Encarta. Clauson noted that "Gates was really mad about the World Book deal". When Norris had to negotiate the1996 market development agreement, Microsoft toughened its negotiating stance. It was "non-negotiable", since Microsoft had decided it no longer needed IBM to help make a market for Windows 95. Microsoft also turned the screw by telling IBM it could only have a single licence agreement for Windows 3.11, MS-DOS, MS-DOS tools, Windows 95, Windows for Workgroups, and NT 4.0 in a "Windows desktop family agreement". Apart from Windows 3.11 going from $9 to $62, despite the licence expiring in September 1997, Microsoft said that NT4 could only be licensed by IBM through the proposed agreement. Furthermore, if IBM did not sign, the MDA allowances would be cancelled in a renewal of the Windows 95 licence. Eventually, IBM was able to get Windows 3.11 for $25, but the overall extra cost to IBM was $75 million. Kempin initially refused to meet or talk to Santelli about royalties or relationship improvement, because of the Lotus competition. Norris wanted to know why Kempin was tying Windows 3.11 to IBM's ability to get an MDA for it. He also wanted to know whether Microsoft was requiring Compaq to give up favourable terms for other agreements. It was hardly surprising that Microsoft said that its agreements with Compaq were confidential. The agreement was finally signed in August 1996. Another dispute concerned the unwillingness or otherwise of Microsoft to provide quotations for use in joint press releases. The reason was clear enough: Norris made a note that said "Aptiva bundle SmartSuite, therefore no quote". Although it has always been recognised that comments attributed to executives have been made up by marketing departments, what is less known is the extent to which their supply was subject to negotiation. Norris showed himself very concerned at IBM's inability to negotiate suitable quotes from Microsoft, and conducted research that suggested that IBM lost $180 million of sales because of a perception that IBM did not get good NT support or have a good relationship with Microsoft. It would of course be better if the media ignored these fatuous quotations anyway (and mocked the person who allegedly made them), since they tend to predispose reader attitudes to products and relationships. Bengt Akerlind, who was director of Microsoft's OEM group, told Norris that IBM could get on various marketing programmes that Microsoft ran "when the two chairmen kiss and make up". Akerlind probed Norris: "How religious is your support of Smartsuite. ... What would it take to get you not to load Smartsuite?" Norris detailed issues concerning the first screen, and Microsoft's insistence that it could not have anything different from other OEMs. IBM had spent a great deal on developing tutorial programs to help new users, with between 60 and 150 programmers working on pre-loading, as well as research with usability studies and focus groups. It turned out that IBM's real concerns were that it was hard to differentiate PCs by following Microsoft's first-screen diktat. Furthermore, IBM had determined that three calls to its help centre (which cost $35 each) wiped out the profit entirely (showing that IBM's profit was in the order of $100 per PC), so that Microsoft's rejection of user improvements would be expensive for IBM, and work against user interests - although Malone in his examination did not catch this point. The pressure Microsoft put on IBM to use IE rather than Netscape has not figured previously in the case. Microsoft's requirement was that IE4 could be made available to IBM, with "more MDA dollars" if it agreed to put it only on "neutral" systems, which primarily meant "no Netscape", but also included no IBM or Lotus products that competed with Microsoft products. IBM eventually signed an IE4 deal. Norris was promoted in April 1997, so it is at this point that his valuable and meticulously documented account of negotiations with Microsoft stops. There was an epilogue to relations between IBM and Microsoft, written by Gates in an email to Kempin in October 1997: "Overall, we will never have the same relationship with IBM that we have with Compaq, Dell and even HP, because of their software ambitions. I could deal with this just fine if they weren't such rabid Java backers ...". Norris did not work with Java, so we have no special insight from him, but the Sun v Microsoft case should reveal much of what we do not yet know. So far as this catalogue of Microsoft's business dealings with IBM are concerned, if The Register were a tabloid rather than a broadsheet newspaper, we would be screaming "Blackmail!" We prefer to suggest that the IBM-Microsoft relationship had strong elements of sado-masochism, with the masochist IBM saying "hit me" and the sadist Microsoft replying "No". ® Complete Register trial coverage

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