[NCLUG] forward FYI: article about MS versus Linux

[Alan Silverstein]

Found on another unrelated email list...  FYI.

Alan Silverstein, http://frii.com/~ajs
________________

               How Microsoft Warded Off Rival

                       May 15, 2003
                     By THOMAS FULLER 
                International Herald Tribune

BRUSSELS, May 14 - At least 90 percent of the world's
personal computers run on Windows software. But Microsoft
wanted still more. 

Last summer, Orlando Ayala, then in charge of worldwide
sales at Microsoft, sent an e-mail message titled Microsoft
Confidential to senior managers laying out a company
strategy to dissuade governments across the globe from
choosing cheaper alternatives to the ubiquitous Windows
computer software systems.

Mr. Ayala's message told executives that if a deal
involving governments or large institutions looked doomed,
they were authorized to draw from a special fund to offer
the software at a steep discount or even free if necessary.
Steven A. Ballmer, Microsoft's chief executive, was sent a
copy of the e-mail message.

The memo on protecting sales of Windows and other desktop
software mentioned Linux, a still small but emerging
software competitor that is not owned by any specific
company. "Under NO circumstances lose against Linux," Mr.
Ayala wrote. 

This memo, as well as other e-mail messages and internal
Microsoft documents obtained from a recipient of the
Microsoft e-mail, offers a rare glimpse these days into the
inner workings of Microsoft, the world's largest software
company. They spell out a program of tactics that were
carried out in recent years, ranging from steep price
discounts to Microsoft employees lying about their
identities at trade shows.

The Microsoft campaign against Linux raises questions about
how much its aggressive, take-no-prisoners corporate
culture has changed, despite having gone through a lengthy,
reputation-tarnishing court battle in the United States
that resulted in Microsoft's being found to have repeatedly
violated antitrust laws.

Perhaps most important, certain discounts may run afoul of
European market regulators, who are still investigating
accusations that Microsoft abused their antitrust laws.

Discounting is a perfectly normal corporate practice. But
under European law, companies that hold a dominant market
position like Microsoft are prohibited from offering
discounts that are aimed at blocking competitors from the
market. Microsoft has been concerned with the legality of
its discounts in the past, consulting a London law firm on
a specific discount plan in 1998, before it was determined
in court that the company had a monopoly in desktop
operating systems. 

In a telephone interview today, Jean-Philippe Courtois, the
chairman of Microsoft's operations in Europe, Africa and
the Middle East, defended the use of the special fund
described in Mr. Ayala's e-mail message, saying it was part
of a strategy to be "competitive" and "relevant" in the
market for big government and education deals.

"Linux is obviously a key competitor," Mr. Courtois said.
Rivals use similar tactics, he said.

Sun Microsystems, for example, "is giving away StarOffice
to basically governments and schools," he said. The Sun
suite of programs runs on both Windows and Linux operating
systems. 

Mr. Courtois said that Microsoft sometimes gave software to
"very low-income countries." He cited a program where
Microsoft donated software in South Africa and helped train
teachers to use it.

Mr. Ayala's memo said that the discounts could be offered
to "developed and developing countries," and that an
"initial focus" was being put on Latin America, Africa, the
Middle East, India and China.

In his e-mail message, he focused on governments and large
institutions buying mostly desktop software. A separate
memo described a discounting program for corporate
customers worldwide.

Two days after Mr. Ayala sent his e-mail message, Michael
Sinneck, the executive in charge of Microsoft's services
department, sent a message giving details of a program to
provide corporate clients with discounts on the hourly
rates charged by Microsoft's consulting business.

The memo said nearly $180 million had been allocated in the
2003 fiscal year, which ends in June, for this purpose
alone. Of that, $140 million was earmarked for consulting
services for server software, an area where Microsoft has a
growing share of the market but still faces lively
competition, particularly from big companies like I.B.M.
that are promoting Linux as an alternative to Microsoft
Windows. 

Servers are the powerful computers used by corporations to
store data, manage Web sites and perform other network
tasks. The software that runs servers is the subject of one
of the two antitrust cases currently open against Microsoft
in the European Community. In broad terms, Microsoft is
accused of illegally leveraging its overwhelming dominance
of the PC software market into the server market.

European antitrust laws are generally stricter than
comparable American laws, but the Microsoft practices
described in the memos may raise red flags for regulators
in the United States as well.

In June 2001, a federal appeals court in Washington ruled
that Microsoft had violated antitrust laws by bullying
business partners and rivals to thwart any competitive
challenge to Windows. Later that year, Microsoft reached a
settlement with the Bush administration, agreeing not to
use its monopoly power in PC software, including pricing
deals and contract terms, to effectively force PC makers to
favor Microsoft products over competing offerings.

Among the documents is an e-mail message from an outside
lawyer, Bill Allan of the London-based firm Linklaters, to
Microsoft that offers a precise interpretation of European
Community law on the matter of discounts, including the
view that short-term discounting would be more likely to
escape scrutiny. The message, from 1998, advised Microsoft
that its discounts should not discriminate between clients
and that discounts could not be aimed at excluding
competitors from the market.

"Discounts are not per se unlawful," Charles Stark, a
former antitrust official at the Justice Department and a
partner at Wilmer, Cutler & Pickering in Brussels, said in
an interview. "It depends on the market circumstances and
how they use them and what their impact is."

Mr. Stark, who has not seen the documents, pointed out that
under European law "pricing behavior can be viewed
differently by a dominant firm than by a nondominant firm."

Asked whether the discounting program for server software
consulting was legal in Europe, given Microsoft's position,
Mr. Courtois, the Microsoft executive, said that consulting
was a "break even" business.

"We are not a global services company," he said. "We need
to compete against the big guys."

Mr. Courtois cited I.B.M. and Oracle as companies with
large consulting businesses.

The Microsoft documents show the preoccupation among top
managers with countering the open-source movement, a group
of programmers who want the software that runs computers to
be offered free of charge. The codes behind open-source
software are developed openly by independent teams of
programmers, allowing companies to customize their programs
and paying for services to make the software perform
better. This is in stark contrast to Microsoft, which keeps
most of its source code secret - although governments and
some corporations are increasingly allowed to view the
code. 

Linux, the biggest open-source threat to Microsoft, has a
tiny share of the market for personal computer software.
But Linux was installed in 26 percent of the large
data-serving computers sold last year that power corporate
networks and the Internet, according to International Data,
a market research company. Microsoft's Windows was the
operating system on 44 percent of the servers.

The server market is one area where Linux appears to have
some momentum. The use of Linux is also being supported by
a handful of Microsoft rivals and encouraged by many
governments, especially in Europe, as a cheaper and perhaps
more secure alternative to Windows software. The French,
for example, have a Web site that recommends Linux systems
for government departments.

Mr. Ballmer, Microsoft's chief executive, once referred to
Linux's licensing as "a cancer that attaches itself in an
intellectual property sense to everything it touches."

In the face of this competition, the Microsoft documents
show the significant resources the company devotes - and
the unconventional tactics it sometimes uses - to combat
Linux. 

Chris O'Rourke, a Microsoft employee, described attending
LinuxWorld, a trade fair in California, where he "purported
to be an independent computer consultant" working with
several public school districts, according to an e-mail
message he sent on Aug. 20, 2002.

"In general, people bought this without question," Mr.
O'Rourke wrote. "Hook, line and sinker."

He said his goal was to glean intelligence about the
competition. His guise, Mr. O'Rourke said, "got folks to
open up and talk." Mr. O'Rourke did not respond to a fax
and voice mail message seeking comment.

Another employee, Todd Brix, said in an e-mail message that
he attended a Linux conference in June 2001 in San Jose,
Calif., pretending to be an "ambivalent OEM." Original
equipment manufacturers, or O.E.M.'s, are companies like
Hewlett-Packard and Dell Computer that buy Windows software
licenses. 

Reached at his office on Tuesday, Mr. Brix said that when
attending such a show, "you don't broadcast that you're a
Microsoft person." 

"You don't disguise that fact," he said. "You just don't
lead with your chin."

In his message, Mr. Brix described the technical issues
discussed at the show and said the tone of the meeting "was
an even mix of Local Union hall teamster gathering,
Christian Scientist revival and Amway sales conference."

Of all the Microsoft tactics described in the internal
messages, the two discount programs appear to be the most
aggressive - and perhaps the most legally questionable.

Mr. Ayala sent his memo at 8:17 a.m. on July 16, 2002. In
addition to Mr. Ballmer, the recipients included two
Microsoft vice presidents - James Allchin and Jeffrey S.
Raikes - along with some of the company's top lawyers and
the general managers of Microsoft's operations in Asia,
Europe, Africa and the Middle East.

Mr. Ayala wrote that in today's "difficult economic
environment" some institutions and companies were focusing
on cheaper software."

"It is important," he continued, "that we have a way to
address large PC purchases that involve low-cost/no-cost
competitors in the education (and government) sectors,
especially in emerging markets."

The solution, he wrote, was to "tip the scales" toward
Microsoft in these deals by using the special fund, which
he called the Education and Government Incentive Program.

The fund was to be used "only in deals we would lose
otherwise," Mr. Ayala said.

When he wrote the memo, Mr. Ayala was a quite high-level
executive at Microsoft, reporting directly to Mr. Ballmer.
He was in charge of sales and marketing and responsible for
roughly 22,000 of the more than 50,000 Microsoft employees.

In March, Mr. Ayala was transferred to lead a new division
that focuses on small and medium-size companies. This new
push is one of Microsoft's top priorities. Mr. Ayala was
not available to comment.

In his separate e-mail message, Mr. Sinneck, the Microsoft
services executive, wrote that the consulting fund would be
used to cover the difference between the "discounted
customer rate and the standard services billing rate per
hour." 

Reached this week, Larry Meadows, marketing manager for
Microsoft's services group at company headquarters in
Redmond, Wash., said the fund could be used "anywhere it
needs to be." 

"There's not really a limit to say that you can use it only
in certain geographies," Mr. Meadows added.

He said the funds would be used again in the next fiscal
year that begins in July.

http://www.nytimes.com/2003/05/15/technology/15SOFT.html?ex=1053990245&ei=1&
en=17781cf2a54e5800