This was on the front page of thursday's New York Times.
kelly
October 8, 1998
How a Giant Software Maker
Played the Game of Hardball
By STEVE LOHR and JOHN MARKOFF
I n the summer of 1995, a whiff of revolution was in the air in
Silicon Valley. The Internet offered a new deal in computing, a
fresh opportunity for entrepreneurs to try to break the Microsoft
Corporation's firm grip on the personal computer software business.
Leading the challenge was the Netscape Communications Corporation,
whose software for browsing the World Wide Web had ignited the
Internet boom.
_________________________________________________________________
MICROSOFT'S WORLD
A special report.
_________________________________________________________________
James H. Clark, Netscape's chairman, spoke boldly of attacking
Microsoft head-on. He borrowed imagery from the movie "Star Wars,"
referring to Microsoft as the Death Star and Netscape as the leader
of a rebel alliance.
Microsoft answered with a vengeance. It dispatched hundreds of
programmers to work on a competing browser and poured many millions
of dollars into marketing it. It prodded computer makers and others
to distribute its browser, folded the browser into its
industry-dominant Windows operating system and gave the browser
away free -- a campaign intended to "cut off their air supply," as
a senior Microsoft executive described it.
But it's not only competitors like Netscape that have encountered
Microsoft's force.
photo caption:
William H. Gates, lower left, and Paul G. Allen, lower right, with
Microsoft's first employees in the mid-1970s.
_________________________________________________________________
Microsoft's partners, its corporate customers and professional
investors who finance new ventures have all collided with it.
A close look at Microsoft's no-holds-barred push into the Internet
software business offers a window into the ways the company uses
its market muscle to influence the behavior of virtually every
player in the industry.
Some of the cases recounted here figure prominently in the suit
brought by the Justice Department and 20 states, scheduled to go to
trial later this month, charging that Microsoft at times went too
far -- and violated antitrust laws.
Regardless of the legal outcome, previously unreported details
about incidents in the suit and the other examples provide a more
complete picture of Microsoft in action.
* When the Compaq Computer Corporation considered loading Netscape's
browser instead of Microsoft's on its machines, Microsoft
threatened to stop selling its Windows operating system to the big
personal computer maker. Compaq, Microsoft's largest customer in
the industry, quickly changed its mind.
* After Spyglass Inc. began supplying Microsoft with its early
browser technology, Microsoft announced that it would give away
its browser free. The timing came as a rude surprise to its
partner Spyglass. The company lost most of its revenues almost
overnight, as the technology, which it had also been licensing to
companies besides Microsoft, suddenly became available free.
* When America Online Inc., which competes fiercely with Microsoft's
online service and electronic commerce divisions, went shopping
for browser technology, Microsoft made an offer that was too good
to pass up: If America Online used Microsoft's browser as the main
one for its millions of subscribers, Microsoft would give America
Online prime placement on the desktop screen of all personal
computers using Windows.
* When the Intel Corporation began developing its own Internet
software, Microsoft complained. Intel, the leading maker of the
microprocessors that serve as the electronic brains on most
personal computers running Windows, pulled back. The chip maker
decided that its lucrative hand-in-glove partnership with
Microsoft took priority.
* Microsoft's reach in computing has become so pervasive that nearly
every year now, Silicon Valley's top venture capitalists meet
privately with a team of top Microsoft executives to learn about
the company's plans. The goal, one venture investor observed, was
to "stay out of the way of the steamroller."
Microsoft adamantly denies that it has broken any laws. The company
plays the game of business hard, and its executives acknowledge
that without apology. Yes, Microsoft says, rivals may suffer and
partners may be irritated occasionally. But the company insists its
actions are guided by its main corporate goal of bringing new
technology inexpensively and conveniently to the millions of people
who use its software.
Most people in the computer industry say that living in Microsoft's
world means routinely making accommodations to it. Microsoft's
power emanates from its near-monopoly on the market for personal
computer operating systems, the master control programs that run
computers.
"Because it owns the operating system, Microsoft is the essential
utility of the information age," said James F. Moore, president of
Geopartners Research Inc., a technology consulting firm. "It acts
as a kind of gatekeeper to the pipeline of computing innovation,
sitting there and deciding whether to help some innovation or slow
it down."
The Netscape Meeting: Offer Declined, and War Begins
F or months, Microsoft and Netscape had talked on and off, circling
each other warily. But the event that would define them as
unflinching rivals was a meeting on June 21, 1995, in a
second-floor conference room at Netscape's headquarters in Mountain
View, Calif.
That meeting, according to the Justice Department and 20 states
suing Microsoft, was the high-tech equivalent of the storied
gatherings in smoke-filled railroad cars that inspired passage of
the nation's antitrust laws a century ago. On that day, they say,
Microsoft made Netscape an illegal offer to divvy up the market for
Internet browsing software, a collusion pact that Netscape
rejected. Microsoft replies that the prosecutors are
misinterpreting a routine meeting in the software business and that
the company has never tried to divide the browser market.
Microsoft's principal strategist and its chairman, William H.
Gates, did not attend the Mountain View gathering, but he consulted
by telephone with the Microsoft team. Two people who did attend
that June meeting have been named as witnesses in the trial
scheduled to begin next week: James L. Barksdale, Netscape's
president, and Daniel Rosen, Microsoft's general manager of new
technology.
In the trial, the Government will contend that Microsoft presented
Netscape with an all-or-nothing offer, according to people who have
been questioned in the Federal investigation.
Relying heavily on notes taken in the meeting by Marc Andreessen,
an executive vice president of Netscape, and on the testimony of
Barksdale, the prosecutors are expected to assert that the
Microsoft proposal had several elements, both incentives and
requirements. Microsoft, according to the people questioned by the
Government, would invest in Netscape, taking a 15 to 20 percent
stake, give Netscape technical information and fine-tune
Microsoft's operating systems so that Netscape's software would run
better on Windows.
In return, the people say, Netscape would give Microsoft a seat on
its board, license its technology to Microsoft, give Microsoft
advance knowledge of its product-development efforts and not make a
browser for the next generation of the Microsoft operating system,
Windows 95, which was shipped two months after the June 1995
meeting.
And Microsoft, the people added, did what it has always denied it
does -- used access to its technology as a powerful lever in
business negotiations, by offering Netscape preferential access to
the Windows "application program interfaces," or A.P.I.'s, the
links that enable other companies' programs to run smoothly on the
Windows operating system. By turning down the deal, Netscape, they
say, would not have that preferred access to Microsoft technology
-- a threat that Microsoft fiercely denies making.
Barksdale, Netscape's 55-year-old chief executive, told a colleague
that the encounter with Microsoft in June 1995 was "the damnedest
meeting I've ever attended in 35 years in business."
Had Netscape accepted Microsoft's offer, it would have had
Microsoft's money and its endorsement. Netscape would have also
been free to sell its browser for use in earlier versions of
Windows and for use on other operating systems like Apple's
Macintosh and Unix, a powerful system used mainly in corporations
and research labs.
"But if we had licensed our technology to Microsoft and stepped
aside, the best we could have hoped for was becoming a company with
sales of $100 million or so and hoping to be bought out by
Microsoft," said Clark, a former computer scientist at Stanford
University who founded Silicon Graphics Inc., a computer graphics
pioneer, before starting Netscape. "We didn't start Netscape for
that."
For any company, a meeting with Microsoft is often a charged
affair. Every computing device from keyboards to disk drives, and
every software program from games to browsers, must mesh smoothly
with Microsoft's Windows operating system. This is necessary to
make computers reliable and easier to use, but it also gives
Microsoft its role as the industry's gatekeeper.
And since Microsoft itself makes all manner of software products
beyond the operating system, other companies are put in the uneasy
position of requiring Microsoft's cooperation to be able to compete
against it.
And in the software industry, where every program is rendered in
the digital code of 1's and 0's, the lines that divide competition
and cooperation are often blurred. The talk about that line at the
Microsoft-Netscape meeting focused on the division between the
operating system -- the "platform," in computer terms -- and the
application programs, sometimes called "solutions," that run on top
of the operating system.
The Government suit states that in sworn testimony, Chris Jones, a
Microsoft manager who attended the meeting, "admitted that
Microsoft 'absolutely' intended to persuade Netscape not to
compete."
Microsoft reads Jones's testimony very differently, as evidence
mainly of the company's clarifying its position. If Netscape stayed
on the applications or solutions side of the operating system, the
two companies could be partners, Microsoft said. But if Netscape
tried to become a player in the platform space, they would compete.
Microsoft released portions of the Jones deposition last month as
evidence that the Government had quoted the Microsoft manager out
of context.
Q. Do you recall any discussion about a desire of anybody on the
part of Microsoft who was participating to be able to persuade or
influence Netscape not to compete?
A. Absolutely. But again, persuade in the sense of force or
persuade in the sense of, hey, we think we can have a great
business relationship together.
Later in the deposition, a Justice Department lawyer asked Jones
whether any of the Microsoft executives intended to suggest that
"there would be any consequences to Netscape or its business if
Netscape chose to go in the platform direction you've described
earlier as opposed to the solutions direction."
Jones replied: "The conversation was something like the following:
'We're in the platform business. We're going to invest heavily in
this part of the platform because we feel it's critical to our
technologies. That's a done deal.' And we're asking them: 'What is
your business? Is your business platforms or solutions? If it's
platforms, we're in the platforms business. We're competing.' "
Microsoft portrays such comments as innocuous statements of fact.
But to Netscape, the same remarks could be taken as a warning, if
not a threat. This is because Internet browsing software had the
potential to become an alternative platform to the Windows
operating system. The browser, sitting on top of the operating
system, could supplant Windows as the main desktop screen on users'
machines and the main layer of programming for starting other
software applications.
In addition, Netscape's browser could serve as a powerful platform
for distributing and running Java, an Internet programming language
developed by Sun Microsystems Inc., a Microsoft rival.
In technical terms, Netscape's upstart platform could replace
Microsoft's A.P.I.'s as the essential utility of computing. Indeed,
Andreessen had boasted in public of Netscape's ambition to relegate
Microsoft's Windows to so much software plumbing underneath the
browser.
By the June meeting, Microsoft certainly viewed Netscape as a
serious potential challenger to Windows, the corporate crown jewel.
On May 26, 1995, in an internal memo, "The Internet Tidal Wave,"
Gates wrote: "A new competitor 'born' on the Internet is Netscape.
Their browser is dominant with 70 percent usage share, allowing
them to determine which network extensions will catch on."
Netscape's strategy, Gates wrote, was to "move the key A.P.I." into
the browser "to commoditize the underlying operating system."
The Intel Case: Routine Talks, or Unfair Threats?
T he Federal Government and the states have recently broadened
their allegations against Microsoft by adding evidence that it
tried to bully Intel, Apple Computer Inc. and other companies to
squelch competition.
They say that like the Netscape meeting the new evidence fits a
pattern of behavior by Microsoft, which has repeatedly tried to
limit competition by strong-arming competitors and partners.
One episode that fits the pattern, the prosecutors contend, was an
effort by Microsoft to pressure Intel to shelve the development of
multimedia and Internet software and to limit its cooperation with
Netscape.
Intel's main business is making the microprocessor chips that act
as the electronic brains of most of the computers that run the
Windows operating system. Indeed, the fortunes of Intel and
Microsoft are so closely aligned that the two companies are
sometimes referred to as a single, powerful entity, "Wintel."
But Intel also employs hundreds of software engineers, mainly at
its Intel Architecture Labs in Hillsboro, Ore. And while Intel and
Microsoft are partners, they have also had their conflicts,
typically over the direction and pace at which certain innovations
should be introduced into the personal computer industry, which
they dominate together.
Federal and state investigators have focused on Microsoft's strong
reaction to work being done by Intel's software engineers -- a
sentiment expressed in no uncertain terms during a meeting at
Intel's Santa Clara, Calif., headquarters on Aug. 2, 1995.
The contentious session was attended by several executives from
Intel and Microsoft, including Intel's chairman, Andrew S. Grove,
and Gates. An internal Intel memo stated that Gates made "vague
threats" about supporting Intel's competitors and that he was
"livid" about Intel's "investments in the Internet and wanted them
stopped." Later, Intel did pull back from its multimedia and
Internet software development. Steven McGeady, an Intel vice
president who attended the August 1995 meeting, is scheduled to
appear as a witness for the Government.
Microsoft replies that the Government's accounts of meetings like
those with Netscape and Intel are fanciful distortions, created by
using a biased selection of documents and witnesses. The
Government's case, Microsoft asserts, betrays an utter failure to
accept the computer-industry reality that Microsoft routinely meets
with companies to make sure their software and equipment will work
well with Windows. Sometimes the talks, Microsoft says, go on to
include further levels of cooperation like licensing technology or
a Microsoft investment, as the company discussed with Netscape.
In the trial, Microsoft is expected to argue its advance in the
browser market was the result of its own business acumen and
Netscape's missteps. To document Netscape's errors, Microsoft
issued a subpoena last month and obtained the unpublished
manuscript of a new book, "Competing on Internet Time: Lessons From
Netscape and Its Battle With Microsoft," which is based on hundreds
of interviews with current and former Netscape executives.
The book does chronicle the mistakes made by Netscape. But its
authors, Michael A. Cusumano of the Massachusetts Institute of
Technology's Sloan School of Management, and David B. Yoffie of the
Harvard Business School, think Microsoft is hardly blameless.
"Microsoft's take-no-prisoners strategy backfired, all but inviting
retaliation from competitors, the Government and even customers,"
Yoffie said.
Emphasizing that he was offering no legal judgment, Yoffie added,
"I think Microsoft could have achieved 90 percent of what it did
without crossing the line as much as it did."
The Spyglass Link: Rewards and Perils of a Partnership
O n April 6, 1994, Gates and 20 Microsoft executives gathered for a
daylong retreat not far from the company's headquarters in Redmond,
Wash. The subject was the Internet and how it might revolutionize
the computer software business. Few concrete plans were made that
day, but Microsoft executives insist that a direction was set. "Our
vision from the outset was to unite the two worlds of the Windows
desktop and the Internet," said Steven Sinofsky, a Microsoft
executive who attended the meeting.
Yet Microsoft badly trailed Netscape in the browser field. To
hasten its entry, Microsoft licensed its early browsing software
from Spyglass Inc. of Naperville, Ill. The first meeting between
the two companies was initiated by Spyglass in April 1994. At the
time, it was a tiny company and eager to do a deal with Microsoft.
Spyglass was selected as the commercial licensee for browser
technology developed by the National Center for Supercomputing at
the University of Illinois.
In the summer of 1994, Douglas Colbeth, president of Spyglass, met
with Clark of Netscape at O'Hare International Airport in Chicago.
The two men talked in the United Airlines Red Carpet Room, reserved
for business-class passengers, and Colbeth recalled Clark telling
him, "We're going to take Microsoft head-on."
At the time, Colbeth recalled thinking to himself, "Great, now
Microsoft will really want to license from me." Today, he noted:
"Remember, we were a company with a couple dozen people and almost
no money in the bank. Netscape had Jim Clark, with his money and
reputation, and big-time venture capital backing from Silicon
Valley. Netscape had a very different agenda."
By July 1994, Microsoft had become quite interested in the Spyglass
technology, Colbeth says, and the two companies signed their first
licensing agreement the following December. Microsoft, Colbeth
recalls, always told him that it would eventually fold browser
technology into its operating system, but its timing was
accelerated by Netscape's rapid rise.
"Microsoft was initially hoping to charge for the browser," Colbeth
said.
But on Dec. 7, 1995, Gates declared that Microsoft would not only
deeply integrate its browser into Windows but would give it away.
The announcement caught the industry, even Colbeth, by surprise. At
the time, Spyglass had licensed its technology to 82 other
companies, including I.B.M. and Digital Equipment, for use in their
software products -- a licensing revenue stream of about $20
million a year.
As a result of Microsoft's move, Spyglass saw those revenues vanish
within a year, as smaller Internet software companies went out of
business and big customers shifted to Microsoft's free browser.
Spyglass slashed its payroll and scrambled into new niches of the
industry to replace its lost sales, which it succeeded in doing
eventually.
"Whenever you license technology to Microsoft, you have to
understand it can someday build it itself, drop it into the
operating system and put you out of that business," Colbeth said.
Compaq's Conundrum: A Good Customer Sees the Light
W ell into 1996, Netscape's share of the browser market continued
to rise, while Microsoft made little headway, even though its
browser was free. Analysts and trade magazines agreed that
Netscape's browser was the clear technical leader. In April 1996,
Netscape's Navigator was used by 87 percent of people browsing the
Web, compared with 4 percent using Microsoft's Internet Explorer,
according to Zona Research.
So the biggest personal computer maker, Compaq, thought it made
sense to give customers Netscape's browser instead of Microsoft's.
But Microsoft would not stand for that -- and Compaq had no choice
but to give in.
In June 1996, Compaq wanted not only to load the more popular
Netscape browser on its machines but also to remove the icon for
Microsoft's Internet Explorer, which was delivered to the computer
maker with Windows 95. Microsoft informed Compaq that if it removed
Internet Explorer, the computer maker would lose its license for
Windows, Stephen Decker, director of software procurement at
Compaq, said in testimony to Federal investigators.
The ultimatum from Microsoft was delivered bluntly in a letter
headed, "Notice of Intent to Terminate License Agreement."
Faced with being denied the essential operating system, Compaq
quickly reversed course and kept the Internet Explorer icon.
Microsoft asserts that Windows and Internet Explorer are a single
product and that Microsoft alone defines what is in the product.
Nothing in its contracts, Microsoft adds, prohibits computer makers
from including competing technologies.
While the cutoff letter Microsoft sent to Compaq seems an
unnecessarily hardball tactic when dealing with its largest
corporate customer, Bob Herbold, Microsoft's chief operating
officer, insists, "To take one letter here or one snippet of e-mail
there to try to portray Microsoft as an arrogant company is
unfair."
Noting that a Compaq executive is a witness for Microsoft, Herbold
said, "We are totally dependent on tremendous relationships with
key companies like Compaq."
At Netscape, however, the Compaq episode was a watershed.
"That was the singular act that got me going to the Justice
Department," Barksdale recalled.
Barksdale said he regarded Microsoft's tactic of forcing Compaq to
buy its browser as a condition of obtaining an essential product,
the Windows operating system, as "an illegal act and absolute proof
that Microsoft was a monopolist." After investigating the incident,
the Justice Department and the states agreed with Barksdale that
Microsoft was illegally tying the sale of one product to another.
Microsoft replies that it has a long history of adding new features
to its operating system. And from the outset, Microsoft says, it
intended that Windows and its Internet Explorer browser be
seamlessly integrated, as they are now in Windows 98. Thus,
Microsoft insists, there is no product-tying violation of antitrust
laws. In a separate case, a Federal appeals court sided with
Microsoft, upholding the principle that the company could put
whatever it wanted to in its operating system and declare it a
single product.
But in June 1996, when Compaq wanted to offer the Netscape product
instead of Microsoft's browser, most industry experts viewed the
browser and operating system as two different software programs.
"It took a long time for the integration strategy to play out,"
said a former senior Microsoft researcher. "Back then, integration
was basically bolting a browser onto Windows."
AOL's 'Balancing Act': Offer to Competitor Was Hard to Refuse
S tephen M. Case, chairman of America Online Inc., refers to
dealing with Microsoft as "a delicate balancing act." That balance
swung sharply from the fall of 1995 to the spring of 1996, when
Microsoft used the lure of giving America Online a featured place
on the Windows desktop as the ultimate bargaining chip. To gain
access to computing's most coveted real estate, America Online
agreed to make Microsoft's Internet Explorer the main browser for
its online subscribers, who now number more than 13 million.
Yet throughout 1995, as Microsoft prepared to introduce Windows 95,
the most significant improvement ever in its operating system, Case
was knocking on the door of the Justice Department. His complaint
was that Microsoft was going to place its new online service,
Microsoft Network, a direct competitor to America Online,
prominently on the desktop screen of Windows 95, which was
introduced in August.
This bundling tactic of using the industry-dominant operating
system to market Microsoft Network, or MSN, Case argued, gave
Microsoft an unfair advantage in the young but fast-growing online
business.
The Justice Department listened and investigated. But ultimately,
the Government decided against taking any action.
At America Online's headquarters in Vienna, Va., Microsoft was both
feared and loathed at the time. America Online had a designated
"Microsoft watcher," a young M.B.A. who tracked its adversary's
every move. Above the desk in his small, windowless office was a
picture of Gates. Beneath the picture, in large block letters, were
the words "THE ENEMY."
Though America Online was the clear leader in the online services
business, it had ample reason to worry about an all-out assault by
a rival as rich and aggressive as Microsoft.
When he had visited the Microsoft headquarters a couple of years
earlier, Case recalled, Gates had bluntly assessed Microsoft's
options by saying he could buy 20 percent of America Online, all of
it or enter the online business on his own and "bury you."
A threat or merely a statement of the facts? "A bit of both," Case
said recently. "But he was mainly articulating what everybody at
that meeting kind of intuitively understood."
Yet by 1996, Microsoft and America Online found they had reason to
cooperate. With the exploding popularity of the Internet's World
Wide Web, the conventional online companies, like America Online
and Compuserve, had to provide their customers Internet access as
well as their own services. America Online had its own browser, but
to keep pace with the rapidly advancing technology it made sense to
do a deal with Netscape or Microsoft.
For both software companies, a deal with America Online, which had
five million subscribers at the time, could mean a big surge in
browser use and market share.
Netscape seemed the natural partner for America Online, since both
companies were Microsoft rivals. On March 11, America Online did
announce that it would buy Netscape technology, but it was a
standard licensing deal based on a payment-for-use formula. The
next day, America Online announced a more significant deal with
Microsoft making its browser the default technology -- the browser
America Online subscribers would use unless they specifically asked
for Netscape's Navigator.
To win the deal, Microsoft offered to give America Online a
start-up icon on the Windows desktop -- precisely the kind of equal
treatment on the main Windows screen that Case had asked the
Justice Department to require of Microsoft. "After we agreed to its
Internet Explorer browser, Microsoft allowed us to be bundled on
the Windows desktop," Case said. "It was an example of Microsoft's
pragmatic side."
The pragmatic decision was that the paramount corporate goal was to
increase browser market share to protect the mainstay software
business. As a result, its new online service, MSN, would have to
sacrifice an important marketing advantage over its main rival,
America Online.
"It was Bill's decision," Russell Siegelman, the former general
manager of MSN, said, referring to Gates. "He sent me e-mail on it.
He said he didn't think it would hurt MSN that much. I disagreed
with him."
To other Microsoft executives, Gates expressed a different view of
the likely impact on MSN. He told Brad Silverberg, a senior vice
president, that putting America Online on the Windows desktop would
amount to "putting a bullet through MSN's head," according to a
deposition taken by the Justice Department.
In the antitrust suit, the Government asserts that the America
Online deal shows how Microsoft used the power of its Windows
monopoly to give it an edge in the browser war against Netscape.
David Colburn, a senior vice president of America Online who took
part in the browser negotiations with Microsoft, is a witness for
the Government.
Today, Microsoft has overhauled its Internet strategy to focus
mainly on building popular special-interest Web sites in fields
like travel, personal finance, automobile retailing and news. And
it is putting these sites, along with e-mail and search features,
in an all-in-one site that uses the name MSN.com.
"I still regard Microsoft as a primary threat," Case observed.
"Microsoft has a history of getting it right in the long run, and
there's no reason to think it won't in this business as well. We
will always be in Microsoft's cross hairs."
The Lesson: Don't Confront a Steamroller
A t Netscape's headquarters in Silicon Valley, the strategy today
is one of avoiding head-to-head competition with Microsoft whenever
possible. "Don't do something that is in Microsoft's path -- that's
the lesson learned," observed Clark, the Netscape chairman.
Silicon Valley's venture capitalists, the investors who finance so
many of the nation's high-tech startups, generally follow the
Netscape formula these days.
Yet that still leaves ample room to prosper. For while competing
directly with Microsoft is dangerous, the software industry as a
whole is an engine of wealth creation, job generation and technical
innovation.
And there is an ambivalent side to the venture community's
relationship with Microsoft.
For if a start-up cannot steer clear of Microsoft entirely, the
favored option is to be bought out by Microsoft, which has scooped
up many fledgling companies as a way of acquiring promising
technology and people.
"Microsoft understands start-up innovation and how to co-opt
start-up innovation better than any other high-tech company," said
James Breyer, managing partner of Accel Partners, a venture capital
firm.
As Microsoft has grown, it has come to be seen not merely as a
competitor but as a force of nature that shapes the business
environment, like a weather front.
"Microsoft is incredibly pervasive," said Stewart Alsop, a partner
with New Enterprise Associates, a venture capital firm in Menlo
Park, Calif. At the board meetings of the companies in which his
firm has invested, two issues always come up, he said: "One is the
price of the company's stock, and the other is what Microsoft is
going to do."
In the last few years, Microsoft has offered its guidance during
almost yearly meetings between senior Microsoft executives and
leading venture capitalists. The meetings are part of Microsoft's
effort to improve its sometimes prickly relations with Silicon
Valley.
"We work hard to provide clarity about where we're going and where
we're not going," said Greg Maffei, Microsoft's chief financial
officer.
Last year's conference took place in October at the Quadrus office
building on Sand Hill Road in Menlo Park, the Wall Street of
high-tech venture investing.
Maffei led a team of five Microsoft executives who appeared before
a group of 40 venture capitalists, one of whom stood and asked the
question that seemed to be on the minds of many of his peers: "How
do I invest in a company that stays out of the way of the
steamroller?"
Maffei, recalled one person who attended the meeting, stood up and
delivered a brief lecture on businesses that Microsoft was likely
to avoid. His list included specialized software for manufacturing,
human resource management, computer-aided design and others. But,
this person noted, broad swaths of the industry appeared to be
designated as off limits -- including new software platforms that
might compete with Microsoft's personal computer operating system.
At one point, Ruthann Quindlen, a partner with Institutional
Venture Partners, leaned over to Vinod Khosla, a co-founder of Sun
Microsystems and a partner at the venture capital firm Kleiner
Perkins Caufield & Byers, and said quietly, "I guess that leaves us
washing machines and toasters."
Copyright 1998 The New York Times Company
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