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AOL boss muses, can we afford to dump MS?

Interesting memos - shame the witness knew nothing

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MS on Trial The transcript of evidence from AOL SVP David Colburn, who was called by Microsoft as a hostile witness, shows the extent to which Microsoft was gobsmacked by the AOL-Netscape-Sun deal. It was evidently negotiated in conditions of considerable secrecy, with code words such as "Odyssey" for Netscape, "Apollo" for AOL, and "Zeus" for Sun. Microsoft's vulnerability, it became clear, was that it did not control the situation. AOL CEO Steve Case had certainly thought about the AOL-Microsoft relationship. An interesting email from him noted in September set out his thoughts on the deal: "One of the big open questions in my mind about the Netscape deal relates to use of their browser. Our relationship with Microsoft is strained and will get much, much worse no matter how we play it. We should do some scenario planning to understand what possible impacts might be of Netscape deal. I know the current thinking is we should continue with Internet Explorer to stay in Windows 98 and get those registrations. I realise a lot of registrations are at stake, but I wonder if we buy Netscape, and commit to migrate to their browser instead, what impact that will have on Microsoft contract. Specifically, if we push share to Netscape, can Microsoft really pull us out of Windows 98? (Legally, as well as would it be palatable given current antitrust attention.) "Maybe we can get comfortable with putting our support behind Netscape so they really have browser share momentum (suddenly, they would have more than two-thirds share again) because Microsoft will have trouble pulling us, or even if they do, given bundling/pipeline issues for Windows 98, it will take a long time (a year?) before there is meaningful degradation in our registrations, especially given our other OEM deals. Obviously a big, big issue to figure out! My main point is we shouldn't assume we need to or want to maintain IE as primary browser. Maybe that's the right answer, but maybe not. We should push down on all possibilities before deciding." Er, dunno Colburn had a simple reply when he was questioned about this: he didn't think he had see this before, and he wasn't an addressee. It was rather strange that the "deals guy", as Colburn characterised himself, was not copied this email. AOL president Bob Pittman replied to Case: "We're wrestling with it over and over for exactly these reasons, and we may be able to accomplish both goals, but I do think Microsoft is too strong to throw them out of the tent. They can hurt us if they think they have no other option. I think we need to stay in business with them, creating the need for them to need us, and then leave ourselves the flexibility to always accommodate them to a certain extent." John Warden, counsel for Microsoft, read part of a response from Barry Schuler, president of AOL operations: "The clearest way to counterbalance this negative drumbeat would be to announce -- right before going public with the acquisition, that Apollo has renewed its Internet Explorer agreement through August 2000." After more replies from Colburn that he had not seen documents that were produced, the DoJ's special trial counsel David Boies asked for a bench conference with Judge Jackson. He pointed out that Microsoft had had the opportunity to call Steve Case, who would have known about his emails, but declined to do so. Judge Jackson agreed, but said he would not foreclose the questioning. He then asked Warden if he'd like to call Case, implying that he would allow him as an additional rebuttal witness. Warden replied that he would like to wait until the end of Colburn's examination before deciding. Judge Jackson continued: "It does seem to me that it is not very illuminating, in view of the fact that he doesn't know what he is talking about here, or he doesn't know what he is talking about in the sense that he is being shown these that he has never seen before and is not knowledgeable about it." Immediately after this rebuke, more documents were put to Colburn, and it turned out that he had not seen these either because he went on vacation as soon as the deal was negotiated. The AOL board was briefed before the announcement of the merger that a communications objective was to "avoid any appearance of direct conflict with Microsoft". When he was questioned about the AOL board meeting, Colburn said he had no idea what was approved or whether it was changed. The AOL PC Microsoft had discovered from the AOL board documents that AOL had discussed with Sun the possibility of developing AOL PCs. Colburn said there had been two possibilities: a Windows machine, and a non-Wintel machine. However, the real desire had been to find ways of reducing the price of a machine, and that had now happened in the marketplace. Warden asked if Colburn was aware that Schuler and AOL svp Miles Gilburne had told Sun in the summer of 1998 that AOL intended to standardise on the Java platform as their only "AOL Anywhere" client architecture, thereby breaking the deadly embrace with Microsoft. Colburn had a simple reply: it wasn't happening. Colburn was shown an internal Sun document about this, and commented that it was hardly surprising that Sun talked about Microsoft in emotional terms, and that AOL had never made any such commitments to Sun. Warden brought up a remark in an AOL document about "the deadly beast from Redmond", to which Colburn responded "We have our moments too" and indeed they did, because the same document referred to "the partnership between Stalin and FDR [Roosevelt] against Hitler". It was all good fun. Colburn summarised the reasons for the deal at one point: "The highlight reasons we did the deal were the portal, the e-commerce solution play, the Netscape name and the Netscape people. Part of the portal and the interest in the portal is the way that it was tied to the client, and that was the way to get additional people to the portal, and once they were at the portal, have them stay there." Warden made no progress when he tried to admonish Colburn for not having told him of AOL's plans, but to no avail. It was Colburn's job to answer questions truthfully, which he did, and Warden's to ask the right questions, which he didn't. Warden quoted an email from an AOL PR person that Colburn again had not seen that said: "Microsoft may seek immediate discovery of the extent to which the Department of Justice knew of the deal and didn't disclose it in connection with testimony of company executives. "That is, the question whether the Department of Justice engaged in conspiracy with these companies against Microsoft." Warden went on to ask when AOL should say it had informed the DoJ of the acquisition. Boies objected on the ground that this did not arise from the document, so Warden's fishing trip was terminated. Warden dug away at browser market share information, claiming that Schuler thought it critical as to whether the deal went ahead. Colburn said AOL needed to know how many browsers were tied to portals, and how that was changing, so that there could be effective planning. All in all, Microsoft wasted its opportunity to provide any effective rebuttal evidence, and just dug a deeper hole. ® Complete Register Trial coverage

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