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December 1, 1998

NOTES FROM THE MICROSOFT TRIAL

By CBR Staff Writer

– OEMs were the most important channel for Microsoft Corp’s Internet Explorer browser, while only 13% of Netscape Navigator users obtained their browsers through an OEM, said economist Frederick Warren-Boulton, testifying for the Government. The figure backed up his claims that restrictive practices from Microsoft Corp had made a significant impact through the OEM channels, he said. And with Explorer tied into the operating system, OEMs also wanting to provide Navigator were forced into two sets of testing cycles, he said.

– Challenging claims by Warren-Boulton that users want browser choice, Microsoft attorney Michael Lacovara cited Microsoft focus groups that found that users valued a closer integration between operating system and browser, and criticized Warren-Boulton for not including mention of the focus group within his written testimony. If you’re saying users want closer compatibility then the answer is yes, he admitted, they prefer a seamless situation in which a browser works well with the operating system. I don’t need a focus group to come to that conclusion.

– As part of his testimony, Warren-Boulton argued that, knowing the value internet service and content providers attached to placement of icons on the Windows desktop linking to their services, Microsoft had used this as a bargaining position for exclusionary restrictions. It emerged in court on that in February 1996, America Online Inc had predicted winning up to 750,000 new sales per month from being included in the Windows Online Services folder. That worked out at up to 9 million new subscribers a year, worth around $16m, and without the distribution costs associated with distributing disks or striking individual OEM deals for desktop placement on consumer PCs. Lacovara pointed out that AOL had continued to use both of the other methods as the more lucrative distribution channels, even after its deal with Microsoft in March 1996, which included an agreement to use Explorer over Netscape. AOL was already directly on 90% of consumer desktops said a Microsoft spokesman outside of the court, the deal with Microsoft was motivated by superior technology, not desktop placement.

– Microsoft attorney Michael Lacovara criticized Frederick Warren-Boulton for being selective in his written testimony, and as an example cited the use of a quote he had used from the testimony of Microsoft’s Brad Silverberg. The quote used aimed to show that Microsoft was fully aware of the bargaining power over product placement it had over internet service providers. Negotiating with Tom Evslin of AT&T Co just after the launch of AT&T WorldNet, Silverberg was quoted as saying: You want to be part of the Windows box, you’re going to have to do something special for us. There are very, very few people we allow to be in the Windows box. If you want that preferential treatment from us, which is extraordinary treatment, we’re going to want something very extraordinary from you. Lacovara then read out for public record the context of the quote, which led Silverberg to take what he called an extreme position the other way. Silverberg said that, flushed with the initial success of WorldNet, Evslin was being very obnoxious. Pounding his fist, he told Silverberg. I demand to be in the Windows box. I demand to be in the Windows box. Silverberg said: Okay, we can talk about that. But what are you going to do for me? The response from Evslin, according to Silverberg, was: I’m not going to do shit for you. I am the king of the world, you know. You’re going to do this for me because I’m AT&T. Warren-Boulton denied mischaracterizing the Silverberg testimony, saying that it wasn’t relevant to know that the two negotiators hadn’t liked each other.

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