Microsoft vs. DOJ: The untold story

By Network World Staff
Network World, 5/25/98

The U.S. Department of Justice sued Microsoft Corp. last week, claiming that the software company's Internet Explorer marketing efforts are illegal. But that charge is just one of many being made by Microsoft's rivals.

Senate Judiciary Committee leader Orrin Hatch (R.-Utah) hinted at other allegations that Microsoft competitors have made, but were too afraid to come public with. An investigation by Network World, however, has unearthed a good deal of these charges.

Areas of concern include Microsoft's:

allegedly unfair integration of Windows NT and BackOffice applications;
approach to directories
handling of its operating system and application APIs
Java strategy
treatment of operating system rivals, such as Caldera, Inc. and Taligent.

While last week's DoJ action homed in on just Windows 95 and 98, NT is at the center of a mounting pile of complaints. And the biggest issue here may be Microsoft's organizational structure.

When it comes to Windows 95, the operating systems group and applications group are separate. However, in the case of NT, those Microsoft employees who develop the operating system and those that write the BackOffice applications work in the very same group. This, by definition, gives BackOffice developers preferential treatment, critics charge.

The BackOffice dealings could pose a problem for Novell, Inc., according to one Novell. Because the NT and BackOffice teams are integrated, the developers of NT's Active Directory Services (ADS) (ck) get insight into the guts of Microsoft Exchange. In fact, ADS essentially is an operating system feature, but will also become the directory system for Microsoft Exchange, which is battling neck and neck with Lotus Notes in the groupware/e-mail market.

Novell, on the other hand, has had to reconstruct many of Exchange's APIs to support Microsoft's messaging system under Novell Directory Service for NT. The end result may be that ADS, built into Exchange, will be a superior way to manage the e-mail system - essentially locking Novell out of a key market segment.

While Windows NT does not currently enjoy a workstation or server monopoly, NT will ultimately replace the Windows 3.X and 4.X families and could thus inherit that monopoly, observers noted.

Bundling blues

Giga Information Group, a Cambridge, MA consultancy, has been tracking Microsoft's bundling strategy. Based on this research, Senior Analyst Randall Kennedy now believes that Microsoft is "abusing" the Windows NT software licensing and upgrade process.

According to Kennedy, the NT Service Pack releases ought to for maintenance -- bug fixes and so on. Instead the Service Packs add lots of important new features to the operating system that would normally be included in a "point" release or upgrade. Then Microsoft releases new versions of its applications that use the new features.

Database vendors are also concerned about NT. "They're now starting to do with NT exactly what they've been doing with the Windows desktop -- they're bundling more and more of what is provided by other software companies into NT and BackOffice," said Mitchell Kertzman, chairman and president of Sybase, Inc.

"The most egregious example is Microsoft Transaction Server. When we announced our Jaguar transaction server, one Microsoft exec called me and bullied me and tried to get me to back off on the product. I declined. Two weeks later they announced that {Microsoft Transaction Server} was now bundled with NT," Kertzman related. "Someone talked to me right after he called: I said [to that person] "I think I just talked to the godfather and he told me to stop me selling drugs on his streetcorner."

According to Kertzman, Microsoft is using its monopolies in desktop operating systems and productivity software to drive NT and BackOffice. "I've been told that if you are a Microsoft Select Customer - you standardize on the Microsoft Office suite -- then you can get a better price on BackOffice: this makes it very compelling for customers. But it starts with the MS Office software.

"What's the obvious connection between Office and Transaction Server? None," Kertzman said.

Microsoft also bundles its Internet Information Server (IIS) Web server, which competes with software from Netscape and others, with the core NT operating system.

Kertzman suggested a Microsoft divestiture. "In general: you've got to separate the monopoly business from the other businesses they're linking to it - the OS vs. non-OS products. Win NT, CE etc. from Office, databases, and BackOffice," he said.

The divestiture issue has been raised in the past, with Microsoft being accused of using its APIs to give its own developers unfair inside access. This was an issue with Windows 3.1 and Microsoft Office developers, observers said.

And according to the DoJ filing last week, Microsoft officials met with Netscape officials two years ago and proposed that Netscape stay out of the Windows browser market. In return, Microsoft would agree to stay out of the non-Windows browser market, according to Marc Andreessen, executive vice president at Netscape.

The reward for Netscape's cooperation? Preferential access to Microsoft APIs., Andreessen claimed. Microsoft Chairman Bill Gates, however, vehemently denied the claim, calling it "an outrageous lie."

The Java issue

Also prominent in the DoJ complaint, but not part of the demands, are allegations that Microsoft has leveraged its operating system dominance to thwart the spread of Sun Microsystems, Inc.'s Java programming language.

``Java is designed in part to permit applications written in it to be run on different operating systems," the complaint reads. ``As such, it threatens to reduce or eliminate one of the key barriers to entry protecting Microsoft's operating system monopoly."

In its filing, the DoJ quoted an internal Microsoft memo in which Group Vice President Paul Maritz emphasized the need to ``fundamentally blunt Java/AWT momentum" to ``protect our core asset Windows."

There may be a simple legal way for the DOJ to add items such as Java to its complaint, observers said.

"This suit is not about any particular product, such as Windows 95 or 98. It is on a particular action: tying," said Rebecca Lynn Eisenberg, an attorney, consultant and writer, who regularly covers technology issues for the San Francisco Examiner. (She defined tying as using a monopoly in one market, such as operating systems, to take advantage of a monopoly in another market, such as browsers.) "If the government pulls together enough evidence of the ways in which Microsoft used its monopoly in the OS market to gain unfair market advantage in the [NT] or [MS Office] markets, Microsoft's activities with respect to those products will come under fire."

Eisenberg believes the feds may well go after Microsoft over Java.

"To the extent that Microsoft has used its monopoly power to harm its competitor, Sun, and the possibility of what Sun hopes to be a powerful Windows competitor in Java, the government will go after Microsoft for those violations of the Sherman Antitrust Act as well," she said. Subhead:

The other antitrust suit

Caldera, founded by former Novell chief Ray Noorda, is also suing Microsoft on anti-trust grounds. Caldera contends that Microsoft tried to destroy the market for DR-DOS by claiming the Caldera DOS-compatible operating system would not work well with Windows. In an amended complaint, Caldera is claiming that Microsoft used its Windows monopoly to squash DR-DOS.

The core of Caldera's complaint is that Microsoft bundled the still technically separate MS-DOS and Windows to create Windows 95, shutting any DOS rivals out of the market.

And of course, there is the now famous OS/2 bait and switch incident. IBM and Microsoft teamed up on OS/2, but then Microsoft began to back away and favor Windows. Many software developers, including Lotus Development Corp., began to write for OS/2, while Microsoft focused on Windows. By the time Microsoft bailed out of OS/2, it already had a solid Windows applications strategy, leaving Lotus in its Windows dust. Subhead:

Vapor Wars

Vendors such as IBM have long been accused of using pre-announcements to freeze the market, and now Microsoft is on the vaporware hot seat.

For instance, earlier this decade IBM and Apple Computer, Inc. formed Taligent, a company designed to build an object-oriented operating system far superior to Windows. Microsoft then began talking about an NT upgrade code-named Cairo that was to do everything Taligent promised. Despite years of promises, Cairo never came out in the form Microsoft described and interest in Taligent dried up.

Pen computing is another area where Microsoft left a bit of a vapor trail. In 1991, a small startup called GO Corp. started showing off its Pen-based operating system. Microsoft leapt into action, announcing plans to include pen support in Windows when the company had barely started the project, critics contend.

Lotus also felt the sting of Microsoft vaporware. Once Lotus Notes started catching on, Microsoft began talking about its upcoming Exchange groupware tool, a product that took so many years to ship that it worked its way through several code names.