'Buy AMD or NatSemi,' Microsoft exec told Gates

Microsoft OEM division senior VP Joachim Kempin seems to be a specialist in thinking the unthinkable, being a loose cannon, or both. Last week his radical recommendation that Microsoft move over to a rental model for its software became public (Click for story), and now it emerges that at the same time he was suggesting Microsoft buy NatSemi or AMD. Given the timing (December 1997, in a suggestion to Gates), our verdict on Kempin has to start tilting towards loose cannon. Microsoft was immersed in the Windows 95/Internet Explorer integration battle with the DoJ, and had for quite some time been taking a ‘heads down’ view of major acquisitions. The high tide came when the DoJ effectively warned it off from buying Intuit, and although the company slipped WebTV in afterwards, that didn’t necessarily look such a big deal at the time. A bid for a major x86 company, on the other hand, would certainly have drawn further unwelcome attention from the antitrust authorities. Kempin was making the suggestion in connection with the scheme to move over to an annual fee system for software sales. He saw an Intel entry into the operating software market as probably the most dangerous threat to the plan, as Intel could conceivably undercut Windows drastically (Kempin saw $50 a PC, no matter how low the PC price, as ‘no pasaran’ territory for Microsoft). This could screw-up the fee plan, but even if the fee plan didn’t go ahead immediately, it could slash Microsoft’s OEM revenues. So to counter this, Microsoft could buy a cloner, presumably tying clone x86 hardware and software closely together and slowly squeezing Intel out. This of course would have been a dangerous plan – maybe Microsoft undercutting Intel on hardware while Intel undercut Microsoft on software would have been absolutely great for the industry. Could Microsoft have gone ahead with such a plan? With hindsight, from this distance, it would have been suicidal. But in December 1997 Microsoft was (rightly) confident that it could overturn the DoJ injunction, and Bill Gates quite possibly thought defeat for the DoJ on integration would be the end of the matter. He and his lawyers had been taking a line by line, narrow legalistic approach to the consent decree that was being argued over, and as his deposition videos now are making clear, Gates did not take the DoJ seriously. If he thought that Microsoft would soon leave the whole antitrust thing behind and steer into clear blue water, then yes, maybe he could have gone for it. ®