MS contract exec explains Netscape ‘acceptable degradation’

MS on Trial On the 50th day of the Microsoft trial, Will Poole, senior director of business development for Windows, came across as Microsoft's cheeky chappy. He's in effect Microsoft's negotiator for contracts with Internet content providers (ICPs) and came to Microsoft when eShop, a company he co-founded, was acquired in 1996. He reports to Brad Chase, who will shortly be appearing as a witness. His cross examination by David Boies was preceded by a video narrated by Yusuf Mehdi, a Microsoft marketeer, which dealt with Microsoft's channel bar and Microsoft's view of Netscape's Netcaster. It sought to explain how some content was more dramatic on IE compared to Netscape, because of some non-standard extension to HTML that Microsoft used. It should be noted that Netscape has also indulged in similar practices. Poole did not listen carefully to the questions Boies asked, and appeared to make a poor impression on Judge Jackson for his evasiveness. He was told by the judge to listen to questions and answer 'yes', 'no', or 'I don't know'. At one point, Poole wanted to be asked a question and told Boies it was "his call", but the judge told him to desist. He admitted that Microsoft thought it could get "maybe a hundred million" dollars a year in revenue from its channel bar, but in the event decided not to charge, in order to compete with Netscape. He also admitted that revenue estimates by Microsoft were "not realistic". His testimony showed how poor Microsoft's assessment of the Internet opportunity was. ICPs were offered various flavours of relationships with Microsoft for periods of up to a year. He characterised being on the desktop as having an "invaluable spot". Microsoft's excuse for not trying to get money for its efforts was that it was seeking branding association between the ICP products and IE. The analogy of Coca-Cola was used by Poole, but it is invalid, since Coke does not have a monopoly. Poole claimed that Intuit came to Microsoft and said it would like to use IE. Boies brought up yet again the well-worn email in which Gates, reporting on his conversation with Scott Cook, the CEO of Intuit, says that "I was quite frank with him that if he had a favour we could do for him that would cost us something like $1 million to do that in return for switching browsers in the next few months, I would be open to doing that." Poole claimed not to have seen the email before, which seems very unlikely since he negotiated with Intuit some six to nine months later. Poole squirmed when asked about the meaning of what Gates had written, saying "I'm not maybe an expert in interpreting his words". That was strange, for they seemed all too clear on this occasion. Poole confirmed he was poorly informed when he claimed that the Opera browser did not exist when he signed the browser-switching agreement with Intuit in June 1997. In fact the first public version had been released in Q3 of 1996. Poole regards AOL as the number one competitor today in his area. When Poole's answers conflict with other evidence, he often seems to slip in a "Mr Boies". Asked if the reduction of Netscape's revenue was a business objective of Microsoft, he replied: "No, Mr Boies, that was- that was not my understanding of any general characterization, nor was it the intent of this part of the contract." Of course, Mr Poole. Poole admitted that Microsoft did have contracts that prevented the other party paying anything to a Microsoft competitor-and of course Netscape was the prime reason for such clauses. Paramount, the producer of Star Trek, was one example. The legal wording that Microsoft used about content promotion with Intuit was: "Nothing in this paragraph shall restrict Intuit from ... entering into agreements to authorise or license companies which produce Other Browsers to distribute, transit or market or promote Intuit content or logos, provided that such agreements do not include the exchange of material valuable consideration return for such authorised license." It appears that Poole was largely responsible for some phrasing that obligated Intuit to have some "differentiated content ... available only to IE users" by means of "acceptable degradation". Microsoft had evidently departed from Internet standards, and Poole blurted out what Microsoft was doing was "to introduce some new technologies to the market, get content providers to make use of those technologies to show off their content, to offer something a little bit new or different to users. And what that would mean is they might format the content in a way that looks different, maybe has better animations [sic], maybe has just some user interface features that looked a little better that made use of some of these technologies. And that same content could also be displayed using different technologies from Netscape." Boies clarified that the differentiated content would only be available to IE users, and that all other browsers would receive the degraded output. Boies produced Microsoft's contract with Pointcast and showed that it contained a provision that Pointcast would pay Microsoft a fee of $10 million for being a first-tier ICP. Poole claimed that it was not intended that Pointcast would pay Microsoft any money, and that there were additional clauses whereby Pointcast could gain sufficient marketing credits to cancel the fee. Boies made the point that Microsoft had clearly seen value for ICPs, but had foregone this revenue (claimed to be $100 million or more) in order to gain a better market position. Some content providers agreed not to mention Netscape on their web sites. Three business content providers were named: Reuters, Bloomberg, and Reed Elsevier (which should make readers of the UK's Computer Weekly see the publication in a new light, as a Microsoft business partner). Boies also introduced evidence to show that Microsoft went beyond the terms of its contracts to lean on its partners. An 6 June 1997 email from Lisa Gerhauser of Hotwired reporting a conversation with Suzan Fine, who reported to Poole, said: "Despite the contract, [Fine] is strongly discouraging companies from splitting their content with, eg Netcaster, and she is most concerned about the promotional branding implications of that and would consider it counter to the 'spirit' of the agreement with Microsoft for Wired Digital to have any Wired-branded presence on any Other Browser. . . . she really cared about how much of our network of sites might be slated for further promotion of someone else's Other Browser." Gerhauser also noted that "the net effect is that Microsoft is orally, if not on paper, requiring exclusivity, vis-a-vis the two other browser companies, for companies like ours". Although it had been agreed by Microsoft that the Active desktop feature of IE4 could be switched off by OEMs, the reason was less well-known: "It's a performance issue," admitted the cheeky chappy. "I actually stopped using this feature myself ... because it had a performance impact." The danger of Poole's admission that a couple of hundred thousand lines of code could lurk but be easily disabled was a very close parallel to what could be possible with IE and Windows 98, if Microsoft so desired. It is not certain if the judge grasped this point. Poole squirmed when he was asked why he had not confirmed to AOL in writing that Microsoft had relaxed the terms of its agreement, claiming that he did it only by telephone, as emails "were easily misconstrued". He was at a loss to explain why a telephone call should lessen that risk. The suspicion was that Microsoft could re-impose the terms if it so desired. Towards the end of the first day, Boies was questioning a statistic produced by Poole to the effect that 4.7 per cent of users in a survey became aware of a web site through a pre-configured browser. Poole was asked to pinpoint the place from which the data had been derived in a survey. The following colloquy ensued: Poole: There are, I think, a few hundred pages of survey results here. I'm happy to look through it. Boies: This is my last subject. Poole: Would you like me to do it quickly? Boies: What I will do is I will stop my examination. If Mr Pepperman finishes you today, I will waive that answer. If he doesn't finish you today, you could come back, and we could do this tomorrow. Poole: You sound like a business-development guy. The Court: You are going to get his answer tomorrow because we are going to stop here. Poole: So we're done? The Court: No, you'll be back tomorrow. Poole: I could tell that part. The Court: You'll be back tomorrow morning for Mr Boies' last question with an answer that you will develop over the evening, and Mr Pepperman will conduct your redirect examination beginning tomorrow morning. There was an interesting subtext to all this. Boies was showing the judge he was keen to progress the case quickly, although he was also subtly challenging Pepperman to make his redirect examination very brief. Poole was of course anxious to be released and go home. Judge Jackson was showing that he was peeved at Poole's attitude in court, and so forced him to come back the next day, although it was only 4.15pm and the court has in the past sat beyond 5pm. In the event, Boies cross examination closed on a rather feeble note the next morning. Richard Pepperman for Microsoft in his redirect examination went over the same ground. The main admission from Poole was that Microsoft was "woefully incorrect" in its predictions about the value of the channel bar. Judge Jackson said he would like to know why people didn't like it. Poole's response was quite interesting: "We had a technology that had gained some initial excitement among users- this push idea. And Pointcast, I mentioned, was sort of a pioneer there. And the whole industry kind of jumped on this idea and said, 'Wow, we can build something that will be really compelling and graphical and interesting to consumers.' It turns out that the push idea just doesn't offer enough benefit to the users compared to the cost of adopting the technology. And one reason was performance. "Trying to push a bunch of graphical information over a modem was not all that efficient. And we thought it would be more efficient. It wasn't that efficient. Another reason was just confusion of the user interface. Users were comfortable with the basic model of browsing. And this idea of having-and they had bookmarked favorites, for example, in their browser. A web site they go to frequently would be in their favorites list. They can click on it and go there. So we added a new way-this channel bar thing-for them to go and find frequently-used web sites. And it turns out that they didn't want a new way. It just wasn't all that useful. ... And it may be that we'll do another rendition at some point in the future that we'll figure out that we can make something work for consumers, but this one just didn't." Poole was keen to point out that there were currently over 200,000 'Netscape Now' icons on the Web. Microsoft also wanted it to be known that AOL, Disney, CBS Sportsline and ZDNet were ICPs that were on Netscape's Netcaster as well as IE channels. Pepperman tried to recover from the glaring admission that Microsoft's efforts to create "differentiated content" was not a move against Netscape. The Disney example came up, and it was admitted that Netscape users would not have the advantage of seeing either a dancing mouse or a big green splat on the screen. It really seemed that the future of civilisation, as we know it, was threatened. The truth was of course that content providers were wary of the bad press reports about differentiated content, so Microsoft found itself unable to enforce the provisions in its contracts, lest there be further bad publicity about Microsoft's non-standard displays. with its dynamic HTML. Pepperman's redirect examination was more competent than that of other Microsoft lawyers so far, but he was limited by the problems that exist in his client's case. In Boies' re-cross examination, he introduced an email dated 16 October 1997 from Steve Wadsworth of Disney in which he noted he had "just had a very unpleasant conversation with Bill Spencer [of Microsoft] in which Spencer had threatened to take the Disney icon off Microsoft's Active Desktop and use the dispute resolution path in the termination section of the Disney-Microsoft agreement. Microsoft argue that Disney could only use "pure text" in the Netcaster channel bar, and not a logo of the Disney mouse with ears. Disney disagreed. Wadsworth wondered why Brad Chase, Poole's boss, had not entered the discussions. Chase had apparently said that he didn't want to get involved, and expected Disney to back down. Wadsworth recommended that Disney lawyers became involved; that Chase be forced to become involved; and that a "graceful way" be found to resolve the matter by giving them "what they want even though they are strongarming us". The email continued: "Unfortunately, Microsoft has the upper hand from a business value perspective, even though they don't have it from a contractual perspective. I leave it to Eric, but it seems crystal clear to me, we are in the right on the contract, but even so, it's probably not worth it to take them on. The value of the Netcaster channel is low, and if they take us off the active desktop while this is being resolved in court, we lose substantial value. Plus, getting into litigation over this, even though we are in the right, will clearly undermine any chance of doing more with them. We're being roughed up by the 1,000-pound gorilla of the industry." Poole stated that "we did not enter into any agreements that requested anybody to degrade a presentation" but Boies pointed out that Poole had just said it was in every one of Microsoft's platinum contracts with content providers. Poole agreed to Pepperman's final question about Disney: "So is it fair to say that this was a dispute between the King Kong of content and the 1,000-pound Gorilla over mouse ears?" ® Complete Register trial coverage