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Killing OS/2 by quotas – how MS Win95 deals stifle rivals

The deal isn't 'ship less OS/2,' but 'ship more Win95,' capiche?

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MS on Trial MS attorney Pepperman tried to establish that Microsoft did not make efforts to kill OS/2, but the story that emerged was more about how Microsoft set about achieving this indirectly. There were some semantic issues examined, but nothing further emerged about any IBM executive decisions concerning OS/2. The suspicion still lurks that there are important aspects of this story that are not yet told. Microsoft's approach to OS/2 had been to find ways of sidelining it rather than confronting it, for example by suppressing mention of it in advertisements, in exchange for soft dollars. Microsoft was clearly careful not to include in agreements any direct dealings about OS/2, because of the prima facie evidence that this would have provided for antitrust purposes. Pepperman claimed that "Microsoft never included in any MDA proposal any milestone that required IBM to stop shipping or eliminate OS/2", no doubt aware of that Microsoft had not done this because of antitrust concerns. Judge Jackson scented the implication, and his question implied his cynicism: "You mean in writing?", which Pepperman confirmed. It was an important indication that the judge is concerned about illegal practices to suppress competition. The criteria that Norris elaborated as to how Microsoft was trying to kill OS/s were: first, there were milestones for royalty reductions that, combined, had the effect of IBM reducing, eliminating or dropping OS/2 in the market; second, Microsoft said verbally that it wanted IBM to eliminate, drop, reduce or stop shipping OS/2; and third, financial incentives amounting to $48 million that "would have the effect of killing OS/2 in the market". Norris said that "We asked Microsoft on many occasions what the 'adopt Windows 95 as the standard operating system for IBM' meant. Microsoft would not quantify what that meant. Did it mean that we had to ship 100 per cent to make it the standard? Did it mean we had to ship 90 per cent for it to be standard, 80 per cent, or what have you? We also asked how it would be measured. We were informed, according to my briefing, that it was up to the discretion of Microsoft as to whether or not we met that milestone." Sam Palmisano [svp personal systems group] emailed John Thompson [svp software group] in September 1996 that "Once Windows 95 was announced, retailers told us that they would no longer be ordering any OS/2 systems as their demand was going for Windows 95 only". What we can never know with certainty is whether OS/2 would have been a success if IBM had declined to license Windows 95. The consequence of IBM not making a serious stand against Windows 95 was revealed in the following exchange: Pepperman: Part of the reason why IBM decided it needed to repair its relationship with Microsoft was because the marketplace had gone strongly in favour of Windows 95 rather than OS/2, correct? Norris: Yes. As a matter of fact, speaking of the marketplace, we really had no commercially viable alternative to Windows 95. So the fact of the matter is while the marketplace may have gone there, we had no place to go." There was no commercially viable alternative to Windows 95. You had to have Windows 95 to be in the PC business. When Pepperman asked "And when did IBM begin shipping Netscape Navigator with its computers?" it had the same innuendo as if he had asked "When did you start using heroin?" The answer was some time in 1996, and that IBM still did this. In his redirect examination, Philip Malone for the DoJ focussed on some little tricks Microsoft had invented to help the OS/2 market to wither away: Malone: While there are no dollar numbers here, if IBM had agreed to ship 75 or 90 per cent or even 100 per cent of its desktop PCs with Windows 95, what if any impact would that have had in reducing or eliminating your shipments of OS/2? Norris: It would have had the impact of reducing or eliminating OS/2 shipments. Malone: What, if any, impact on IBM's ability to ship-sell OS/2 would it have had if you had either only mentioned Windows 95 in your ads or said that Windows 95 was better than other operating systems? Norris: Well, we certainly would not have shipped OS/2 for much longer, had we done that. Malone: ... it says "PC 95 shipping within one month of Chicago launch," whereas the one we looked at before was "PC shipping at Chicago launch," and again, "minimum, 75 per cent, exceed would be 90 per cent, far exceed would be 100 per cent of desktops and portables." In order to earn any MDA royalties that are similar to this, what if anything - what if any impact would that have had on IBM's ability to ship OS/2? Norris: It would have forced us to reduce, eliminate or drop OS/2. ® Complete Register trial coverage

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