A Mac-Centric Perspective On The Microsoft Ruling

While some have expressed surprise that U.S. District Judge Thomas Penfield Jackson's Finding of Fact in the Microsoft antitrust case went so solidly against Microsoft, I wasn't surprised at all.

After the peculiar combination of arrogance, disingenuousness, and buffonery exhibited by Microsoft and its counsel during the 77 days of testimony, Judge Jackson hardly had any choice. Microsoft's behavior in court pretty much confirmed the plaintiffs' case.

So what happens now? It would be unwise to hold one's breath waiting for more dramatic developments in the immediate future. Although Judge Jackson has declared Microsoft a monopoly, the government is not obliged to take any particular action. If they choose to act, Microsoft is almost certain to appeal, a process which could take years to work its way through the courts. Another possibility would be an out-of-court settlement, but any such agreement will be no nine day wonder.

Microsoft's statement that Judge Jackson's decision is "just one step in an ongoing process, with many more steps remaining. We're confident the American legal system will ultimately support our position and that our actions have benefited consumers," signalizes what will come next.

Still, the judge's affirmation that "Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," has to be considered a significant setback for the Redmond giant.

Judge Jackson could order that Microsoft be broken up into smaller companies competing against each other, or choose a lesser punishment -- such as ordering Microsoft to open source the Windows operating system.

Judge Jackson's Finding of Fact document, which was released November 5, contains many interesting observations on the computer world, with Apple and the Mac OS receiving frequent and prominent mention. You can read and/or download the document at this URL:

http://usvms.gpo.gov/

and I encourage you to do so. The judge's writing style is quite fluid and readable, and the saga of Microsoft versus just about everybody else in the industry is entertaining.

However, the document is quite long at 412 paragraphs, and I doubt that many people will actually wade through it, so in this column I will look at several selected passages likely to be of particular interest to the Mac community.

No Substitute For Windows?

The judge notes that "Currently there are no products, nor are there likely to be any in the near future, that a significant percentage of consumers world-wide could substitute for Intel-compatible PC operating systems without incurring substantial costs." Apple fans might argue the "significant percentage" issue, and the superior total cost of ownership (TOC) effectiveness of Macintosh computers has been actuarially demonstrated.

Commenting on the server market, Judge Jackson says that:

"Consumers could not turn from Intel-compatible PC operating systems to Intel- compatible server operating systems without incurring substantial costs.... Furthermore, a consumer would not obtain a satisfactory substitute for an Intel- compatible PC operating system even if he purchased a server, since server operating systems lack the features -- and support for the breadth of applications -- that induce users to purchase Intel-compatible PC operating systems."

The Old "Not Enough Software For The Mac" Myth Regurgitated

The judge observes that:

"users of Intel-compatible PC operating systems would not switch in large numbers to the Mac OS in response to even a substantial, sustained increase in the price of an Intel-compatible PC operating system.... the package of hardware and software comprising an Apple PC system is priced substantially higher than the average price of an Intel-compatible PC system. Furthermore, consumer demand for Apple PC systems suffers on account of the relative dearth of applications written to run on the Mac OS."

I think more appropriate terminology would have been "a perceived dearth of applications written to run on the Mac OS." While there are certainly some proprietary apps. written only for Windows, these tend to be quite specialized, and Virtual PC or SoftWindows emulation is a possible workaround.

A substantial proportion of the larger range of software titles available for PCs relative to the Mac are essentially junk, although the much broader selection of games for the Windows platform is indisputable. On the other hand, the depth, quality, variety, and usefulness of shareware and freeware available for the Mac never seems to be considered when these sweeping generalizations about less software being written for the Mac are made. In fact, there is nothing like this cornucopia of *useful* small apps. for Windows, as people migrating from Wintel to the Mac frequently point out. Also, there is no broad-based class or category of graphics, publishing, or office application, with the exception of continuous-speech dictation software (about to be rectified), that is not covered on the Mac platform.

However, Judge Jackson appears firmly convinced that software availability for the Mac is a major shortcoming of the platform, remarking later on in a section about network computers that as consumers "begin to conduct a significant portion of their computing through [Internet] portals," they would probably be less likely to "regard the Mac OS's limited stock of compatible applications as the major drawback to using an Apple PC system that it is today."

This comment reveals how even relatively well-informed individuals can be misled by misinformed conventional wisdom. I have been a Mac-user since 1992, and I have never once been aware of any piece of software that I really wanted to use that was not available for the Mac (I'm not a gamer). If the judge and others who parrot the "not enough software for the Mac" malarkey were correct in their surmise, the average Mac-user would be a poor, frustrated soul looking balefully across the platform divide pining for all those thousands of Windows software titles that won't run on the Mac. However, this simply isn't so. Mac users I know and hear from (with the exception of some gamers) are very happy with the selection of software available for the Mac. Presumably the "no Mac software" myth is fostered in the non-Mac orbit by the fact that few software outlets stock or display a decent selection of Mac titles, and non-cognizance that most Mac people buy their software mail-order.

Then there's this statement by Judge Jackson: "Although Apple's Mac OS supports more than 12,000 applications, even an inventory of that magnitude is not sufficient to enable Apple to present a significant percentage of users with a viable substitute for Windows." Say what? Viable substitute??! Most Mac-users I know don't consider Windows an even TOLERABLE substitute for the Mac OS. So Windows supports 70,000 applications? So what? Who uses 70,000 applications? Who uses 70 applications? The 12,000+ applications available for the Macintosh are plenty enough to keep most of us busy and productive for a very long time.

The QuickTime Showdown

Judge Jackson devotes a whole subsection of Section C (paragraphs 104 to 110 if you're browsing the document) to Apple's negotiations with Microsoft over Apple's QuickTime multimedia technology. Jackson relates how from the spring of 1997 through into the summer of 1998, Microsoft attempted to dissuade Apple from producing a Windows 95 version of QuickTime, which presented an alternative to Microsoft's own "DirectX" multimedia APIs and its media player. If Apple would play ball, Microsoft offered the quid pro quo of not entering the authoring business and promised to assist Apple in developing and selling tools for developers writing multimedia content.

"Apple would have been permitted, without hindrance," writes Jackson, "to market a media player that would run on top of DirectX. But, like the browser shell that Microsoft contemplated as acceptable for Netscape to develop, Apple's QuickTime shell would not have exposed platform-level APIs to developers. Microsoft executives acknowledged to Apple their doubts that a firm could make a successful business out of marketing such a shell. Apple might find it profitable, though, to continue developing multimedia software for the Mac OS, and that, the executives from Microsoft assured Apple, would not be objectionable."

Mighty big of them, what?

According to the judge:

"Microsoft's representatives made it clear that, if Apple continued to market multimedia playback software for Windows 95 that presented a platform for content development, then Microsoft would enter the authoring business to ensure that those writing multimedia content for Windows 95 concentrated on Microsoft's APIs instead of Apple's. The Microsoft representatives further stated that, if Microsoft was compelled to develop and market authoring tools in competition with Apple, the technologies provided in those tools might very well be inconsistent with those provided by Apple's tools. Finally, the Microsoft executives warned, Microsoft would invest whatever resources were necessary to ensure that developers used its tools; its investment would not be constrained by the fact that authoring software generated only modest revenue."

In a nutshell, if Microsoft developed multimedia technologies incompatible with Apple's, and content developed with Apple's tools would not run properly on Microsoft's media player that it would bundle with Windows, plus implementation of a variety of tactics to limit distribution of Apple's media player for Windows, Microsoft could succeed in extinguishing developer support for Apple's multimedia technologies. Nice guys.

Things came to a head at a meeting between Microsoft and Apple executives, including Apple's iCEO, Steve Jobs, at Apple's headquarters on June 15, 1998. Microsoft's Eric Engstrom, said that while he hoped the two companies could agree on a single configuration of software to play multimedia content on Windows, Microsoft's position was that any unified multimedia playback software for Windows would have to be based on DirectX. If Apple would agree to make DirectX the standard, Microsoft would be willing to adopt Apple's ".MOV" as the universal file format for multimedia playback on Windows, to configure the Windows Media Player to display the QuickTime logo during the playback of ".MOV" files, include support in DirectX for QuickTime APIs used to author multimedia content, and give Apple appropriate credit for the APIs in Microsoft's Software Developer Kit.

Steve Jobs reserved comment during the meeting, but categorically rejected Microsoft's proposal a few weeks later. According to Judge Jackson:

"Had Apple accepted Microsoft's proposal, Microsoft would have succeeded in limiting substantially the cross-platform development of multimedia content. In addition, Apple's future success in marketing authoring tools for Windows 95 would have become dependent on Microsoft's ongoing cooperation, for those tools would have relied on the DirectX technologies under Microsoft's control."

He continues:

"Apple's surrender of the multimedia playback business might have helped users in the short term by resolving existing incompatibilities in the arena of multimedia software. In the long run, however, the departure of an experienced, innovative competitor would not have tended to benefit users of multimedia content. At any rate, the primary motivation behind Microsoft's proposal to Apple was not the resolution of incompatibilities that frustrated consumers and stymied content development. Rather, Microsoft's motivation was its desire to limit as much as possible the development of multimedia content that would run cross-platform."

While I'm concentrating mainly here on Apple-related nuances of Judge Jackson's decision, the sections on Redmond's relations with its erstwhile corporate mentor, IBM, are too interesting to pass over without comment.

Were you ever curious as to why IBM finally dropped promotion of OS/2 Warp, after launching it with great fanfare in the late winter of 1995? I was.

The judge notes that:

"The fact that IBM's software division markets products that compete directly with Microsoft's most profitable products has frustrated the efforts of the IBM PC Company to maintain a cooperative relationship with the firm that controls the product (Windows) without which the PC Company cannot survive....

"Microsoft leveraged the fact that the PC Company needed to license Windows at a competitive price and on a timely basis, and the fact that the company needed Microsoft's support in many more subtle ways. When IBM refused to abate the promotion of those of its own products that competed with Windows and Office, Microsoft punished the IBM PC Company with higher prices, a late license for Windows 95, and the withholding of technical and marketing support."

In 1994, Microsoft tried to convince IBM to stop promoting its own software products, including IBM's operating system, OS/2 Warp, and to install only Windows on its PCs. In return, Microsoft would give IBM an $8 per copy discount on each OEM copy installed, which would have resulted in an annual savings to IBM of $40 million - $48 million. IBM refused, and added to Microsoft's ire by announcing that it would install Lotus SmartSuite (a direct competitor to Microsoft's Office Suite) on its PCs.

Microsoft retaliated by terminating negotiations for IBM to OEM license Windows 95, and refusing to release the Windows 95 "golden master" code which IBM needed for its product planning and development, and which Microsoft had already released to IBM's OEM competitors.

IBM was reduced to pleading with Microsoft to uncouple the licensing deal from the dispute over bundled productivity software. Microsoft held firm in its demands that IBM de-emphasize its own that competed with Microsoft and promote Microsoft's products instead until finally granting IBM an OEM license for Windows 95 fifteen minutes before the start of Microsoft's official launch event of the new OS on August 24, 1995.

Because of the delay in obtaining a license, IBM was virtually shut out of the 1995 the back-to-school market, costing Big Blue substantial revenue losses. Judge Jackson says that "Microsoft continued to treat the IBM PC Company less favorably than it did the other major OEMs, and Microsoft executives continued to tell PC Company executives that the treatment would improve only if IBM refrained from competing with Microsoft's software offerings."

The judge cites Microsoft sales exec. Joachim Kempin at considerable length informing his IBM counterparts that:

"pre-installing SmartSuite on its PC systems made Microsoft reluctant to help IBM sell more PC systems. After all, the more PC systems IBM sold with SmartSuite, the fewer copies of Office Microsoft could sell. For this reason, as Kempin explained to a group of IBM PC Company representatives in August 1996, Microsoft refused to provide IBM press releases with quotes endorsing any PC system that IBM shipped with SmartSuite. Microsoft later expanded that rule to cover any IBM PCs shipped with the World Book electronic encyclopedia instead of Microsoft's Encarta."

The judge noted that IBM learned through surveys it conducted that it had lost between seven and ten large accounts, representing about $180 million in revenue, because the standoff between Microsoft and IBM led customers to doubt that Windows would not work as well with IBM PCs as with PCs produced by firms with which Microsoft was on cordial terms.

Explorer and Apple

I will not even attempt to precis the Byzantine struggles between Microsoft and Netscape, Microsoft and AOL, Microsoft and sundry OEMs and ISPs over implementation of Microsoft's Internet Explorer browser, except for the part that pertains directly to Apple's adoption of Explorer as the Mac OS default browser in mid-1997.

Judge Jackson notes that pre-installation and promotion of Explorer by Apple was perceived by Microsoft as one of the more effective means of raising the usage share of browsing software among Mac-users, and that Bill Gates consistently urged his executives to persuade Apple to pre-install the Mac OS version of Internet Explorer on its Mac systems and to feature it more prominently than the Mac OS version of Netscape's Navigator.

By the summer of 1996, Apple had begun bundling Internet Explorer with the Mac OS, but continued to pre-install Navigator as the Mac OS default browser. Judge Jackson writes:

"After a meeting with Apple in June 1996, Gates wrote to some of his top executives: 'I have 2 key goals in investing in the Apple relationship - 1) Maintain our applications share on the platform and 2) See if we can get them to embrace Internet Explorer in some way.' Later in the same message, Gates expressed his desire that Apple 'agree to immediately ship IE on all their systems as the standard browser.'"

Microsoft realized that a strong point of leverage it held over Apple was the fact that ninety percent of Mac OS users running suites of office productivity applications were using Microsoft's Office for the Mac OS. In 1997, Apple's market share plummeting and its very survival as an independent corporate entity in doubt, Apple was having great difficulty convincing developers to continue writing and publishing software for the Mac platform. Microsoft knew that if it announced in the midst of this atmosphere that it was ceasing development of new versions of Office for the Mac, a snowball effect would likely ensue that would likely have administered the coup de grace to Apple.

Naturally, Microsoft exploited this opportunity by threatening to cancel Mac Office development unless Apple compromised on a several outstanding issues between the two companies, one being Apple's distribution and promotion of Internet Explorer, as opposed to Navigator, with the Mac OS.

In June 1997, Ben Waldman, the Microsoft executive in charge of Mac Office, sent a message to Bill Gates and Microsoft's Chief Financial Officer, Greg Maffei, reflecting Waldman's understanding that Microsoft was threatening to cancel Mac Office:

"The pace of our discussions with Apple as well as their recent unsatisfactory response have certainly frustrated a lot of people at Microsoft. The threat to cancel Mac Office 97 is certainly the strongest bargaining point we have, as doing so will do a great deal of harm to Apple immediately. I also believe that Apple is taking this threat pretty seriously."

Judge Jackson hastens to note that Waldman himself was advocating prompt release of Mac Office, and pressed for that outcome in his message to Gates and Maffei. However Gates and Maffei made clear that the threat of canceling Mac Office was too valuable a lever to give up "before Microsoft had extracted acceptable concessions from Apple." Maffei wrote Waldman:

"Ben - great mail, but [we] need a way to push these guys and this is the only one that seems to make them move."

In his response to Waldman, Gates asked whether Microsoft could conceal from Apple in the coming month the fact that Microsoft was almost finished developing Mac Office 97 [which eventually emerged as Office '98].

Waldman dutifully reported to Maffei in his June 1997 message that he had recently informed his Apple counterpart that Maffei "would be recommending to Bill [Gates] that we cancel Mac Office 97." Waldman believed that the Apple representative would "got the message that we would, in fact, cancel," and noted that he had cited several issues on Microsoft's laundry list, including "IE equal access," meaning making Internet Explorer equally available to MacOS users as Navigator. According to Waldman, the Apple employee had replied that it would not be possible to change the Mac OS's default browser until next version of the MacOS was released in the summer of 1998.

A few days later, Bill Gates informed Microsoft executives closely involved in negotiations with Apple that the discussions "have not been going well at all," in part because "Apple let us down on the browser by making Netscape the standard install." Gates noted that he had already called Apple's CEO (then Gil Amelio) to ask "how we should announce the cancellation of Mac Office . . . ."

Less than a month after that call, Amelio was ousted and Steve Jobs had become Apple's interim CEO. Job and Gates quickly settled all outstanding issues between them by way of three agreements signed on August 7, 1997. Under one entitled "Technology Agreement," which remains in force today, Microsoft undertook continue releasing up-to-date versions of Office for the Mac for a minimum of five years. In return, Apple agreed that so long as Microsoft continues to support Mac Office, the most current version of Internet Explorer for Macintosh would become and remain the MacOS default browser." Under the agreement, Apple could continue to bundle browsers other than Explorer the Mac OS as non-default, user- selected installation options. As Judge Jackson puts it:

"Having already installed an altogether adequate browser (Internet Explorer) when the Mac OS 8.5 upgrade completed its default installation process... most users are unlikely to trouble to install Navigator as well."

Other provisions of the agreement mandate that Apple may not position icons for non-Microsoft browsers on the Mac OS desktop, nor proactively encourage users to substitute Netscape for Internet Explorer. The agreement states that Apple will "encourage its employees to use Microsoft Internet Explorer for Macintosh for all Apple-sponsored events and will not promote another browser to its employees." Apple's management has instructed the firm's employees to not use Navigator in demonstrations at trade shows and other public events. The agreement further requires Apple to display the Internet Explorer logo on "all Apple-controlled web pages where any browser logo is displayed," and grants Microsoft the right of first refusal to supply the default browsing software for any new operating system product that Apple develops during the term of the agreement.

A second agreement, entitled the "Preferred Stock Purchase Agreement" and a third called the "Patent Cross License Agreement" were also signed, placing obligations on Microsoft unrelated to Office for the Mac, and binding Apple in areas other than browser software.

Restating the obvious, Judge Jackson notes that "Microsoft's commitment to continue developing Mac Office was at least partial consideration for Apple's commitment to distribute and promote Internet Explorer more favorably than Navigator." The provision in the Technology Agreement sets forth Apple's obligations relating to browsing software, explicitly stating that those obligations will last as long as Microsoft complies with its obligation to continue supporting Office for the Mac.

Judge Jackson adds that in February 1998, when "a Microsoft employee proposed giving Apple an HTML control in exchange for Apple's agreement to use Internet Explorer as its standard browser internally, Waldman informed the employee that Apple was already obligated to use Internet Explorer as its standard browser internally and that Microsoft would revive the threat to discontinue Mac Office if Apple failed to comply with its obligation." He quotes Waldman directly:

"Sounds like we give them the HTML control for nothing except making IE the 'standard browser for Apple?' I think they should be doing this anyway. Though the language of the agreement uses the word 'encourage,' I think that the spirit is that Apple should be using it everywhere and if they don't do it, then we can use Office as a club."

Summarizing this issue, Judge Jackson says that:

"Apple increased its distribution and promotion of Internet Explorer not because of a conviction that the quality of Microsoft's product was superior to Navigator's, or that consumer demand for it was greater, but rather because of the in terrorem effect of the prospect of the loss of Mac Office. To be blunt, Microsoft threatened to refuse to sell a profitable product to Apple, a product in whose development Microsoft had invested substantial resources, and which was virtually ready for shipment. Not only would this ploy have wasted sunk costs and sacrificed substantial profit, it also would have damaged Microsoft's goodwill among Apple's customers, whom Microsoft had led to expect a new version of Mac Office. The predominant reason Microsoft was prepared to make this sacrifice, and the sole reason that it required Apple to make Internet Explorer its default browser and restricted Apple's freedom to feature and promote non-Microsoft browsing software, was to protect the applications barrier to entry. More specifically, the requirements and restrictions relating to browsing software were intended to raise Internet Explorer's usage share, to lower Navigator's share, and more broadly to demonstrate to important observers (including consumer, developers, industry participants, and investors) that Navigator's success had crested.

"By guaranteeing that Internet Explorer is the default browsing software on the Mac OS, by relegating Navigator to less favorable placement, by requiring Navigator's exclusion from the default installation for the Mac OS 8.5 upgrade, and by otherwise limiting Apple's promotion of Navigator, Microsoft has ensured that most users of the Mac OS will use Internet Explorer and not Navigator. Although the number of Mac OS users is very small compared to the Windows installed base, the Mac OS is nevertheless the most important consumer-oriented operating system product next to Windows. Navigator needed high usage share among Mac OS users if it was ever to enable the development of a substantial body of cross-platform software not dependent on Windows. By extracting from Apple terms that significantly diminished the usage of Navigator on the Mac OS, Microsoft severely sabotaged Navigator's potential to weaken the applications barrier to entry."

Microsoft And Me

And that's pretty much it as far as directly Apple-related content goes. I had heard most of this stuff before in dribs and drabs over the course of the trial, but reading it all in one document has an impact that disjointed snippets do not.

The fallout? As noted above, despite the fact that Apple stock soared in value after the document's release, it is difficult to discern how Judge Jackson's findings will positively affect Apple in any substantive sense, other than that disgust over Microsoft's business ethics might drive a few more consumers out of the Windows empire and into the Mac community.

Personally, I have tried to take a rational and objective stance on the Microsoft issue, my policy being that if a Microsoft application was the best tool for the job I wanted to do, then I would use it regardless of my mixed feelings about its publisher.

Happily, this has not created much tension for me since not many Microsoft programs are up to my standards on merit. I rarely use spreadsheets, and the module in AppleWorks is more than adequate for my minimal needs in that regard. I don't have any need for presentation software either, so I don't miss PowerPoint.

I used MS Word 5.1 for years as my workhorse word processor, and I still think it was one of the best Mac applications ever, but I don't like either Word 6 or Word '98, and much prefer Nisus Writer or even WordPerfect, both of which offer the added bonus of costing substantially less than Word (free in the case of WordPerfect for the Mac these days, and Nisus offers the very capable Nisus Writer 4.1.6 as a free download as well).

Browsers create more of a dilemma, because I really do like Internet Explorer 4.5 better than Netscape Navigator 4.7, notwithstanding Explorer's signature Microsoft bugginess.

I've also flirted with the MS Outlook Express email client for the past year or so, and the latest OE 5 release is especially enticing, but reading through Judge Jackson's chronicle doesn't exactly instill one with the warm fuzzies about using Microsoft software, and I don't think I will be moving my email activities to OE.

Browser-wise, I had just got the graphics working in Explorer again with a clean install of the program, when installing my test copy of OE 5 seems to have re- disabled the browser's graphics rendering. For the past couple of weeks I have been using iCab (supplemented by the cool little text-only browser, WannaBe) for most of my surfing, and the only time I've reverted to Explorer was to access a page on Microsoft's own Website that blocks browsers other than Explorer. Another annoying bit of user-unfriendliness from Redmond that does nothing to mitigate my growing disdain for them.

iCab is a little slower than Explorer, but it gets better and better with each preview release, and at version 1.7 really is a viable alternative to Explorer and Communicator. Unlike either of the latter, iCab is run by people who are truly committed to the Mac platform -- not just as a corporate strategy, but out of conviction. And reading through Thomas Penfield Jackson's "Findings of Fact" really hammers home how important that is.

Charles W. Moore

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Saturday, 22-Nov-2008 04:57:02 EST