<nettime> Gassée on why PC manufacturers don't sell non MS products

[James Love <love@cptech.org>]

     [orig to INFO-POLICY-NOTES <info-policy-notes@essential.org>;
      URL for info on that list near the end.--tb]

This important essay by Jean-Louis Gassée is a devastating
critique of the 1995 DOJ/Microsoft consent agreement and
a clear explanation to the barriers facing MS competitors
in the OS market.
Jamie


http://www.be.com/aboutbe/benewsletter/volume_III/Issue8.html#Gassee

Be Newsletter
Volume III, Issue 8, February 24, 1999

Crack in the Wall
By Jean-Louis Gassée


You're the CEO of a PC OEM, delivering some great news to Wall
Street: "In an effort to offer greater variety and performance
to the customer, our factory now installs three operating systems
on the hard disk -- Windows, Linux, and the BeOS. The reaction
has been spectacular. Customers love having a choice of OS, and
the press -- from John Dvorak in PC Magazine to John Markoff in
the New York Times to Walt Mossberg in the Wall Street Journal --
has heralded us for our bold move. This is a great step forward for
the consumer and for the industry. Oh, and by the way, we lost
$50 million since we no longer qualify for Windows rebates. But it's
a sacrifice for the common good."

You're now the ex-CEO of a PC OEM.

We know that the Windows rebate scheme exists -- but what *is* it,
exactly? And why are so many OEMs afraid of losing it? Windows
pricing practices are closely guarded secrets, so we don't know
exactly how the rebate is structured, but we can assume that it works
something like this: The total cost of a Windows license consists
of a base price offset by a rebate. The base price is set; the
rebate is flexible, and contingent on the "dedication" of the licensee.
That is, the more you "advertise" the product -- through
prominent positioning, expanded shelf space, and so on -- the
greater your rebate. This quid pro quo rebate looks innocent enough,
and can be a useful tool in a competitive market.

But when you're running a monopoly -- and when it comes to
out-of-the-box, consumer-grade PC clones, Microsoft *is* a monopoly --
"prominent positioning" and "expanded shelf space" have little meaning.
Microsoft has no interest in getting "more" footage on the OS shelf,
because they've already got it all. What interests them -- the only
useful advantage they can "buy" (to be kind) with
their rebate -- is to ensure that no one else will get any.


So how is "dedication" measured? A real-life example: We've been
working with a PC OEM that graciously -- and bravely -- decided to 
load the BeOS on certain configurations in its product line. However,
there's a twist in their definition of "loading." When the customer
takes the machine home and starts it up for the first time, the 
Microsoft boot manager appears -- but the BeOS is nowhere in sight. 
It seems the OEM interpreted Microsoft's licensing provisions to mean 
that the boot manager
could not be modified to display non-Microsoft systems. Furthermore,
the icon for the BeOS launcher -- a program that lets the user shut
down Windows and launch the BeOS -- doesn't appear on the Windows
desktop; again, the license agreement prohibits the display of
"unapproved" icons. To boot the "loaded" BeOS, the customer must read
the documentation, fish a floppy from the box and finish the 
installation. Clever.

One suspects that Linux suffers from the same fealty to Microsoft's
licensing strictures. Linux is the  culmination of 30 years of
development by the Unix community. Surely an OEM can't complain
about Linux's quality or its price: It's good, and it's free. If
Microsoft licensees are as free to choose as Microsoft claims they
are, why isn't Linux factory installed on *any* PC?
If you randomly purchase 1,000 PC clones, how many have any OS other
than Windows loaded at the factory? Zero.

But what about all these announcements from companies such as IBM,
Dell, and others? A few URLs are supplied here for your convenience:

    <http://www.dell.com/products/workstat/ISV/linux.htm>
    <http://www.compaq.com/isp/news_events/index.html>
    <http://www.compaq.com/newsroom/pr/1998/wa111298a.html>
    <http://www.hp.com/pressrel/jan99/27jan99.htm>
    <http://www.hp.com/pressrel/jan99/27jan99b.htm>
    <http://www.software.ibm.com/data/db2/linux/>

If you parse the statements, Linux is offered and supported on servers,
not on PCs. Another IBM story is that installation is to be performed
by the reseller on some PCs or laptops, not by IBM at the factory.

As an industry insider gently explained to me, Microsoft abides by a
very simple principle: No cracks in the wall. Otherwise, water will 
seep in and sooner or later the masonry will crumble.

Guarding against even the smallest crack is important to Microsoft,
because it prevents a competitor from taking advantage of a phenomenon
that economists call the "network effect." The "network effect"
manifests itself as an exponential increase in the value of a product 
or service when more people use it. Applied to a computer operating 
system, the effect works like this: As more people install and use an 
OS, the demand for applications increases. Developers respond to the 
demand, which attracts the attention of OEMs and
resellers, who promote the OS in order to sell the apps, which attracts
more customers... The key to all this is distribution and visibility -- 
in other words, "shelf space."

Bill Gates understands the network effect well -- he once quoted it to
me, chapter and verse. In the Fall of 1983, when I was still running 
Apple France, I met with Bill in Paris and we got into a conversation
regarding the market share limitations of DOS. No problem, he said, with
the wide distribution we enjoy, we'll get the attention of third
parties, and the marketplace will fix these shortcomings.

This puts statements by senior Microsoft executive Paul Maritz in
perspective. In reaction to my claim that Be wants to co-exist with 
Microsoft, Mr. Maritz said (as quoted by Joseph Nocera in Fortune 
Magazine):

      "[Gassee is] articulating his strategy for entry into the
      operating system marketplace. But on the other hand, I
      know that Be has built a full-featured operating system,
      so what I believe he's doing here is outlining his
      strategy about how he will initially co-exist with Windows
      and, over time, attract more applications to his
      platform."

Mr. Nocera interpreted Mr. Maritz's interpretation thus:

      "In other words, Gassee's spiel is little more than a
      trick intended to lull Microsoft. But Microsoft isn't so
      easily fooled! Microsoft will never ignore a potential
      threat to its Windows fortress, no matter how slight. The
      software giant may be in the middle of an antitrust trial,
      but -- as Andy Grove says -- only the paranoid survive..."

    [The entire article, part of a court house diary, can be found
    at <http://www.pathfinder.com/fortune/1999/03/01/mic3.html>.]

Industry sages such as T.J. Rodgers, the CEO of Cypress Semiconductors,
as well as venture capitalists aligned with Microsoft, criticize the
Department of Justice's intervention in the new Pax Romana we're 
supposed to enjoy under Microsoft's tutelage. Don't compete in court, 
compete in the marketplace, they say.

I'm a free marketer myself; I left a statist environment for the level
playing field created by the rule of law in this, my adopted country. A
free market is *exactly* what we want. One where a PC OEM isn't 
threatened by financial death for daring to offer operating systems 
that compete with the Windows monopoly.

We started with a thought experiment. We end with a real-life offer for
any PC OEM that's willing to challenge the monopoly: Load the BeOS on 
the hard disk so the user can see it when the computer is first booted, 
and the license is free. Help us put a crack in the wall.

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