Microsoft feared its Web browser would lose out in “side by side comparisons” to rival products and so it required Internet service providers (ISPs) to distribute Microsoft's browser to 85% of customers to win placement on the Windows desktop, a company executive has testified.
If given a choice of browsers back when those ISP agreements were negotiated, more customers would choose the Netscape Communications browser, testified Cameron Myhrvold, Microsoft's vice president in charge of ISP business relations. Myhrvold said the reason was because Netscape had a larger market share and “the mindshare,” which means that a product is popular, Myhrvold told the court during Microsoft's antitrust trial.
“We would lose the majority of those decisions,” Myhrvold testified.
David Boies, the attorney for the U.S. Justice Department, pressed Myhrvold under cross-examination about whether, for those reasons, the company was concerned that if customers were presented with a choice they would pick Netscape. "You were concerned that if you presented users with a choice, side by side, they would pick the Netscape browser rather than yours?'' Boies asked.
“Yes, that's right,” Myhrvold conceded. He added that Microsoft was late, or a “Johnny-come-lately” to the browser market.
The concession was made during a day of tough questioning about scores of agreements Microsoft entered into with the world's largest ISPs starting in 1996, in which the company required distribution of its browser to an overwhelming majority of customers. In order to sew up that distribution channel, Microsoft was even willing to pay ISPs to switch from distributing Netscape's popular Navigator browser and pay "bounties” for each ISP customer converted from Netscape to Microsoft. Under the contracts signed with scores of ISPs, the companies could be kicked off the Windows desktop or out of Microsoft's Internet referral system if they failed to meet IE distribution targets of 50%to 85% of customers.
The US Justice Department and 19 states have alleged that Microsoft used a monopoly position in the operating systems market to enter into illegal contracts with computer manufacturers, content providers and ISPs in order to disadvantage Netscape. Boies said outside of court today that the contracts with ISPs are a very strong part of the government's case and that these contracts were “pervasive and very critical to Microsoft.” He added that the net result “was to deprive consumers of the right to choose Netscape.”
During the afternoon, when Microsoft attorney Steven Holley questioned Myhrvold, the witness pointed out that none of the ISPs were ever kicked out of the Windows program for failing to meet distribution targets. In addition, Microsoft stopped enforcing many of the preferential provisions in its contracts with ISPs in April 1998, after the company came under criticism for the practice.
Through company e-mails presented in court, it was clear that in 1996 -- when the browser war first got underway -- Microsoft was determined to sign up as may ISPs as possible and win that browser distribution channel away from Netscape. The company gave its product away for free, and sometimes paid companies for converting customers, where Netscape had charged ISPs up to $US25 per customer for its browser. In one such negotiation between Microsoft and UUNet's Pipex Internet service in England, Microsoft paid that company $500,000 in order to begin shipping Microsoft's Internet Explorer browser. Originally, a UUNet official had suggested that the company wanted $3.3 million [M] for such an agreement.
At first, Myhrvold denied that the payment was directly tied to Pipex willingness to start shipping IE. “Although it may not be in the contract, you ultimately tied the payment of the $500,000 to them actually shipping IE, didn't you?” Boies asked.
“No, sir. I don't believe that's the case,” Myhrvold responded.
But then Boies confronted the witness with a Dec. 16, 1996 e-mail that Myhrvold wrote to a subordinate in which he said, “I actually think tying the payment to their shipping IE is a great idea, though I would not do this formally.”
Boies also confronted Myhrvold with Myhrvold's deposition in the case, from April, in which he testified that Microsoft developed certain components of Windows called the Internet Connection Wizard and the Internet referral server in order to induce ISPs to license and distribute IE. Myhrvold was questioned today about whether the Internet Connection Wizard, which helps new Internet users sign up with an ISP and connect quickly to the Internet after they buy a new PC, was still of great value to ISPs.
“I'm not sure it's of great value,” Myhrvold said. “GTE signed an agreement and never implemented the program.”
The company maintains that it did nothing illegal. Microsoft spokesman Mark Murray said outside the courthouse that Microsoft was the underdog in the browser market and was fighting an uphill battle against Netscape, which owned 50% to 60% of the market in 1996. He compared Microsoft's position in the market in 1996 to that of a small cola company that was trying to take on Coca-Cola and pushed for preferential agreements with restaurants in order to get people to try the product.
“We wanted to make sure consumers saw our technology,” Murray said. “If the two were presented side-by-side,’’ he said, “Netscape was the most popular and most well known and people might go with what they knew.”
Among the prominent ISPs and online services that agreed to promote IE and try to achieve distribution targets in exchange for Windows placement were America Online, CompuServe., Prodigy Communications, and AT&T WorldNet. A host of others agreed to similar conditions to become part of Microsoft's Internet referral service.
Myhrvold concluded his testimony yesterday. TMicrosoft senior vice president Brad Chase is next to be called to the witness stand. Chase has already testified in writing that AOL chose to adopt Microsoft's browser technology in 1996 because of technological superiority and not because Microsoft offered AOL placement on the Windows desktop.
(Wasserman is Washington bureau chief for The Industry Standard.)