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Tuesday, June 8, 1999 Published at 11:31 GMT 12:31 UK

Business: The Company File

IBM exec tells of Microsoft tactics

The Microsoft anti-trust trial is told of pressure on IBM

A former IBM executive has given a first-hand account of how his company learned the hard way it could not do without Microsoft's Windows operating system.

Garry Norris, who was IBM's primary negotiator with Microsoft in the mid-1990s, was testifying in support of the government in the anti-trust case against the software superpower.

The US justice department claims that Microsoft abused its monopoly position in operating systems for personal computers.

It is alleged Microsoft illegally used that dominance to maintain the monopoly and to gain advantage in other business areas.

Microsoft denies the charges, arguing that it faces a multitude of competitors in the various areas within which it operates.

Pressure applied

The long-awaited testimony from Mr Norris outlines how IBM was pressured to stop shipping its own OS/2 operating system and a series of business programmes which competed with Microsoft Office.

IBM, which makes computers for personal and business use, had also created an operating system for its computers.

But Mr Norris said: "They repeatedly used the (computer maker) relationship to apply pressure."

In his trial testimony, Norris said much of the drama took place in 1995, as Microsoft was preparing to release Windows 95.

Microsoft wanted IBM to drop OS/2 and Lotus SmartSuite, a competing suite of office software, from the computers it made.

[ image: Bill Gates asked whether OS/2
Bill Gates asked whether OS/2 "should become an issue"
In March 1995, Microsoft chief Bill Gates asked Joachim Kempin, the top Microsoft executive in charge of personal computer makers, if SmartSuite "should become an issue in our global relationship with IBM".

Mr Kempin wrote back: "I am willing to do whatever it takes to kick them out." Kempin said that the personal computer maker relationship "should be used to apply some pressure".

The stakes were raised in 1995 when IBM bought Lotus and announced on 17 July that it would make Lotus SmartSuite its primary desktop offering.

Money owed

Three days later, Microsoft cut off negotiations for IBM to obtain Windows 95.

On 24 July, 1995, Mr Gates himself was on the phone to IBM.

"He was complaining about SmartSuite, the audit and competing with OS/2," said Mr Norris.

At the time an accounting firm was conducting an audit because IBM had underpaid Microsoft for software and both sides wanted to know how much IBM owed.

Mr Norris told the court that Microsoft's Mr Kempin offered to settle the underpayment problem if IBM would agree not to compete on SmartSuites for a while.

The testimony was backed by an e-mail from IBM's Tony Santelli, Mr Norris's boss, describing a phone conversation he had had with Mr Kempin on 9 August, 1995.

"Joachim offered to accept a single payment and close all outstanding audits," wrote Mr Santelli.

"He suggested IBM not bundle Lotus SmartSuite on our system for a minimum of six months to one year."

Only game in town

IBM refused to stop shipping its own product. Microsoft responded by not supplying the Windows 95 code.

IBM was unable to sign an agreement to receive Windows 95 until 15 minutes before the new operating system was released in late August.

"We were impacted measurably," testified Mr Norris.

"There was a lot of pent-up demand for Windows 95. We missed the initial spurt of demand, we missed the back-to-school season. And we were late to the Christmas market, as well, which is our biggest quarter."

After that, said Mr Norris, IBM knew it had to improve the relationship with Microsoft.

He testified that it was hopeless for IBM to try to go it alone with its own operating system.

He conducted an analysis that found "we would lose 70% to 90% of volume" by relying on OS/2 alone.

"There was no place to go without Windows 95," said Mr Norris. "We couldn't be in the PC business."

Microsoft contends it does not hold a monopoly in the personal computer operating system market, but Norris said he was told otherwise by a Microsoft employee, Mark Baber.

Mr Norris said that Mr Baber, his primary contact at Microsoft, told him: "Where else are you going to go? This is the only game in town."

Microsoft President Steve Ballmer on Monday denied his company had tried to exclude OS/2 from the market in talks with IBM.

"We didn't try to push out OS/2 in any sense in the negotiations we had with IBM," he said in an interview on CNBC television.

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