Window 98 pep rally stirs support, controversy

Facing the threat of government actions that could delay the release of Windows 98, Microsoft has staged what turned out to be a controversial industry rally in New York to support what the company called its right to deliver innovative products. Though the event was staged to display widespread support for Microsoft, it also further fueled controversy surrounding Windows 98, as a trade group and Microsoft competitors decried what they called the software giant's bullying tactics.

Facing the threat of government actions that could delay the release of Windows 98, Microsoft has staged what turned out to be a controversial industry rally in New York to support what the company called its right to deliver innovative products.

On a stage crowded with more than 30 representatives from different areas of the information technology industry, Microsoft's chairman Bill Gates, several other chief executives from leading technology vendors, and a Harvard University economist discussed what kind of impact a government-forced delay would have on the computer trade, users and the US economy in general.

Though the event was staged to display widespread support for Microsoft, it also further fueled controversy surrounding Windows 98, as a trade group and Microsoft competitors decried what they called the software giant's bullying tactics.

The controversy entered the political arena as well.

"It strikes me as curious that it was only after calls from Microsoft that many of these individuals saw fit to sign letters and make public appearances," said US Senator Orrin Hatch, a Utah Republican, on the Senate floor today. Hatch is chairman of the Senate Judiciary Committee, which in March held a hearing on competition in the high-tech sector during which Gates and others testified.

Microsoft has a stranglehold on third-party developers, Hatch indicated.

"I have been told that some executives in fact hope to see the Justice Department pursue further its case against Microsoft, but have chosen to join Mr. Gates on that stage today because they feel they have little choice but do so in order not to jeopardise their relationship with the industry's most powerful and important player," said Hatch.

In addition, even IT companies here to show support for Microsoft said that a delay in the Windows 98 release would not have a huge impact on corporate users.

"Corporations usually wait a while before widely deploying a new operating system," said Lenore Michaels, director of marketing for Micro Modeling Associates , a New York-based systems integrator and developer for large companies.

"Corporations aren't going to be buying up copies of Windows 98 the first day in June when it comes out," Michaels said.

Michaels said she was here today because her company was called by Microsoft and wanted to show support for an effort to fight against government intervention in industry.

Other third-party vendors and consultants agreed.

"I'm ballistic ... over the idea of the government interfering in how companies do business," said Sheldon Laube, chief technology officer and executive vice president for Internet services provider US Web Corp.

But Laube also said that a delay in the release of Windows 98 was not the core issue for large companies.

Even Compaq Computer president and CEO Eckhard Pfeiffer, when asked how a Windows 98 delay would affect Compaq's corporate customers, stated that it would be "difficult to predict."

The event appeared to have been pulled together at the last minute. Press were informed late yesterday and early this morning, and an outside public relations representative helping Microsoft organise the event said he had been called last night.

The event comes in the face of speculation that about a dozen state attorneys general and the US Department of Justice are considering legal action that could delay or even halt the release of Windows 98.

A group of state attorneys general is expected to file separate suits alleging anti-competitive business practices and want to secure a preliminary injunction before Windows 98 is shipped to manufacturers, which the software giant has targeted for May 15.

Gates said Microsoft is taking the possibility seriously.

"This is a very serious situation ... we read every day that there is a very good chance that some people might do this (try to halt Windows 98). So it is under serious consideration," Gates said.

The timely launch to the public of Windows 98, slated for June 25, is important for the "ecosystem" of companies and products that depend on Windows, but also for the US economy, Gates said.

One of the issues under examination by government authorities is that the folding in of the Explorer browser into Windows constitutes an illegal tying of products -- a situation where a company holding a monopoly product forces its customers to also buy other products it sells.

But Gates reiterated the theme that browser integration into Windows is a case of innovation.

"In America, innovation is progress and progress means economic growth for the PC industry, for consumers and for the nation," Gates said.

Several dozen IT vendors also sat to the side of the stage in a show of support for Microsoft, as Gates spoke after short declarations from Compaq's Pfeiffer, Harvard professor Gregory Mankiw, Visio Chief Technology Officer Ted Johnson, CompUSA president and CEO James Halpin, and peripheral maker Storm Technology president and CEO Bill Krause.

The vendors said that they have already made strategic marketing and product plans around the Windows 98 release date, and would stand to lose millions of dollars if their plans were to be upset.

"CompUSA employs more than 17,000 people in 38 states whose livelihoods depend on the continued growth of our business," said Halpin.

And Windows 98 is expected to be a "catalyst for sales," Halpin said. CompUSA expects Windows 98 to be the biggest software launch since Windows 95, and to help fuel the industry after a recent downturn in PC market growth.

"For CompUSA the horse is already out of the barn," Halpin said, noting that the company has already paid for 26,000 preprint advertisements.

Pfeiffer pointed out that the consumer PC market is a seasonal one, and delays in releasing Windows 98 would undermine manufacturers' ability to both meet demand when school starts in the third quarter, and meet end-of-year, holiday-season demand.

"We must let the marketplace dictate competition and prices, not the government," Pfeiffer said.

Microsoft and its supporters also strove to show that Windows 98 offers real consumer benefits.

In a Windows 98 demonstration that was unscathed by crashes, Microsoft marketing director Yusuf Mehti showed the Universal Serial Bus (USB) technology in action by plugging in a scanner and scanning a picture within a minute.

By contrast, configuring a scanner for Windows 95 takes roughly 40 minutes, according to Storm's Krause.

Ted Johnson, chief technology officer and co-founder of graphics software vendor Visio in Seattle, said that by integrating features such as Internet connectivity into Windows 98, Microsoft is freeing his company to spend its research and development dollars on more specialized features.

Meanwhile, among economists, there is no consensus about how government intervention would affect the computer industry, Harvard's Mankiw said.

"The government should do what physicians do ... the first rule of physicians is, 'Do no harm.' "

Several speakers cited a recent report by US Commerce Secretary William Daly that found that the US IT industry is growing at double the rate of the overall economy and represents 8.2 percent of the country's gross domestic product.

This scenario shows that no other industry is doing as much to support consumer demand, Gates said, As proof, Gates noted Microsoft will sell Windows 98 with all its new features at the same price as Microsoft sold Windows 95 three years ago.

What Gates did not address is that while Microsoft has been able to maintain its premium pricing, competition has driven virtually every other software and hardware vendor to sell products with more features and functions for quite a bit less than they did three years ago.

The discrepancy poses "an interesting question," conceded Harvard's Mankiw.

Nevertheless, representatives from different companies in the audience said that consumers would be hurt by a delay in the Windows release.

"Our small-business customers rely on technical advances to increase their efficiency," said Elizabeth Heller Allen, vice president of corporate communications for retailer Staples.

Windows 98 will help customers install peripheral devices more easily, thereby improving their productivity, she noted. The software could help improve Staple's sales of peripheral devices, but "our concern is not the affect on Staples, it is the impact on the customers, period," she said.

Outside observers today said it is clear that a delay in Windows' release date would hurt the IT industry.

Giga Information Group has estimated that while the impact of a Windows 98 delay on the national economy is unclear, it could cost the industry some US$16 billion.

"That's not all money lost, but in some cases just deferred," said Giga senior analyst Rob Enderle. "If the product were to be canceled altogether, a lot of that money would be lost. But it could drop too close to Christmas, or not give enough lead time for the back-to-school season, and (a delay) blows any sort of large-scale corporate deployment because they want to do that at the end of summer, when they're trying to close out the books."

Meanwhile, Microsoft competitors and the trade association ProComp issued statements decrying Microsoft tactics.

"Today's public relations extravaganza is an attempt to bully policy makers and legal authorities into backing off of an important antitrust investigation, said Mike Pettit, executive director of ProComp, in a statement.

ProComp, the Project to Promote Competition and Innovation in the Digital Age, calls itself an alliance created to promote the importance of maintaining consumer choice, open and fair competition, and is composed of various other trade bodies, non-IT companies, and Microsoft competitors.

"That investigation, currently underway, focuses on anticompetitive business practices that deny consumers the right to choose products and services, and that stifle innovation by putting a stranglehold on access to 90% of the world's personal computers," Pettit said.

(Lynda Radosevich is an InfoWorld senior editor. Additional reporting by InfoWorld senior editor Bob Trott.)

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