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TRANSCRIPT OF MICROSOFT TELEPHONE PRESS
CONFERENCE
 DECEMBER 15, 1997
Ms. Mich Matthews, Group Manager Corporate Public Relations:
Thank you. Good morning everyone, thanks for taking the time to
join us. I have with me
Bill Neukom, our Senior Vice President of Law and Corporate
Affairs at Microsoft and
Brad Chase who is our Vice President of Internet marketing. I'm
first going to read our
statement which is just hitting the wire right now and then both
Bill and Brad are going to
make a few comments and then we'll go straight into Q&A. I'll
now read our statement.
Microsoft announced Monday that it is appealing a preliminary
injunction issued by
U.S. District Court Judge Thomas Penfield Jackson on the
grounds that it was error
for the Court to impose a preliminary injunction after denying the
Justice
Department's petition to hold Microsoft in contempt. Microsoft
will comply with
the preliminary injunction while it is on appeal. "The matter
before the Court was
whether Microsoft could be held in contempt for violating a
consent decree entered
in 1995. The Court denied the Justice Department's petition for
contempt. The
case should have ended there. But on its own initiative, the Court
proceeded to treat
the matter as a tying case and without giving Microsoft notice or
an opportunity to
defend itself, issued a preliminary injunction," said William H.
Neukom, Microsoft
Senior Vice President for Law and Corporate Affairs. "The
government could have
brought a tying case, but chose instead to file a petition seeking
an order of
contempt. It is inappropriate for the Court to unilaterally expand
the case beyond
the scope of the government's petition." From a broader
standpoint, Neukom said
Microsoft is appealing because the Order sets a dangerous
precedent. "This
preliminary injunction threatens every American technology
company's right to
innovate and define what goes into its products. The ruling puts
the government
into the middle of the complex product design issues in an
industry that for more
than 20 years has experienced incredible growth, innovation and
competition
without government intervention." Last Thursday, Judge Jackson
ruled that pending
further judicial proceedings, Microsoft could not license
Windows 95 to computer
manufacturers [OEMs] on the condition that they also license
Internet Explorer.
The Court's preliminary ruling premised on the DOJ's argument
that Internet
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Explorer is not part of Windows 95, but rather contractually
bundled with the
operating system by Microsoft. In fact, Internet Explorer has
always been an
integrated part of Windows 95 as provided to computer
manufacturers, and the
customer development benefits of that integration have grown
substantially as
Microsoft has continued to develop the operating system since it
was first released.
The Order allows Microsoft to continue to offer OEMs the
complete Windows 95
product which includes Internet Explorer as long as the OEMs
also have the option
of installing only that portion of Windows 95 that does not
include Internet Explorer
files. Today a number of Windows 95 functions, as well as third
party applications
are dependent on Internet Explorer technologies. These
technologies provide
operating system services that are important both to the operation
of Windows 95
itself and to the operation of products created by other software
publishers, such as
the ability to display information in HTML, a document format
first popularized on
the Web, but now used more widely. Windows 95 would be
lacking if it did not
provide the system services to enable software developers to
create new
applications. Microsoft has challenged assertions by the DOJ that
its integration of
Internet technology into the operating system limits consumers'
ability to choose
which Web browser they wish to use. "Microsoft's current
licensing practices with
OEMs enable consumer choice rather than limit it," said Neukom.
"Computer
manufacturers are free to install Netscape Navigator on new
computers with
Windows 95 if they choose and many have. Customers can
choose to have one or
the other browser or both on their computer and many do." The
central point of our
position is that when a computer manufacturer licenses Windows,
it should install
the entire product, just as Ford requires that all its vehicles be
sold with Ford
engines. This is the only way to guarantee customers a consistent
Windows
experience and is the only way to assure software developers and
hardware
manufacturers that their products will be compatible with
Windows. Neukom
emphasized that the consent decree expressly states that
Microsoft is free to develop
integrated products, that Internet Explorer has been an integrated
part of Windows
95 since the very first version was shipped to computer
manufacturers in July 1995,
and that the Department has known of the company's plans to
integrate Web
technology into Windows 95 even before negotiations began on
the consent decree
in 1994. The current legal issues will not affect the launch of
Windows 98 in the
first half of 1998, he added. In order to comply with the
preliminary injunction,
Microsoft sent a letter Monday to all licensed computer
manufacturers informing
them that the pending appeal: (1) they may continue to ship the
full Windows 95
product including its Internet Explorer features; (2) They have the
option, provided
in compliance with the Court's Order, of removing Windows 95,
all the files that
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are included in the retail version of Internet Explorer 3. Microsoft
is alerting
computer manufacturers that this stripped version of Windows 95
will not operate
or perform as originally designed; (3) Although not required by
the Court's Order,
Microsoft will also provide OEMs with the version of Windows
95 from which
Internet Explorer can be removed with less damage to the
remaining elements of the
operating system. Microsoft will give computer manufacturers
the option of
installing the original OEM version of Windows 95, but with all
Internet Explorer
1.0 files removed. This is the version of Windows 95 that was
available in the retail
channel for the first year after the product launched in August
1995 and to which the
DOJ repeatedly pointed as an example of Windows 95 as a
separate product. More
recent OEM versions of Windows 95 have been upgraded to
provide additional
benefits from the integration of important Internet Explorer
technology such that
removing the Internet Explorer files effectively disables the
operating system. That
ends our statement.
I am first going to hand over to Bill Neukom who's going to make
some remarks:
Neukom:
Thank you Mich, let me add my welcome to Mich's, we appreciate
your making time for
this press event. As you might well imagine since Microsoft
received the Order late
Thursday afternoon our time, we have spent a fair amount of time
coming to understand the
terms of that Order and the effect of that Order. We've addressed
that analysis from two
points of view. First of all, is the Order a sound Order?, and we
have concluded that it is
not and that it contains a number of serious errors and secondly,
we have tried to interpret
the Order to understand what the impact of the preliminary
injunction would be on
Microsoft and on our customers, the computer manufacturers as
well as the independent
software vendors who write products to run on top of Windows,
and we've concluded as a
result of that analysis involving, in addition to legal people,
product folks and sales people
that we are compelled to appeal from the preliminary injunction
immediately, we have done
that this morning by filing our notice of appeal with the Circuit
Courts in the District of
Columbia and we have also resolved that, of course, we will
comply with the preliminary
injunction in a way which we think is respectful of the injunction,
but is also realistic in
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terms of the technical and business realties of our industry. From
the legal standpoint, we
continue to view this litigation as a contract case, pure and
simple. The Department of
Justice began the litigation with a petition for contempt seeking to
prove that Microsoft has
violated the consent decree and therefore should be held in
contempt. The law is clear that
the government has to prove contempt by clear and convincing
evidence of a violation of a
clear and unambiguous term of a consent decree. The
government was unable to do that to
the satisfaction of the Judge and accordingly, the Judge denied
the government's petition
for contempt. However, the Court proceeded on its own initiative
to treat the case as
though it was something more and different -- as though it were a
case brought under the
Sherman Act for tying violation by the Department of Justice, and
without providing
Microsoft with notice for an opportunity to present our views on
its own initiative, sua
sponte, the Court has entered a preliminary injunction.
Under the circumstances, Microsoft
will also be seeking an expedited treatment of this appeal by the
Circuit Court in order that
these legal matters can be resolved just as soon as possible.
Beyond the legal
considerations that brought us to the conclusion that we needed to
appeal the preliminary
injunction immediately, there are other broader implications of
that preliminary injunction.
Microsoft, like other high technology companies have to have the
ability to determine what
features go into products. This preliminary injunction would
inject the government into a
complex of highly technical questions of software product
development and design. We
continue to believe that it's customers in the marketplace -- not
government officials -- who
should determine what goes into software products. In terms of
integration, customers
want and appreciate the benefits of integration in terms of
performance, in terms of ease of
use, in terms of reliability, in terms of economy. This is true in
virtually all businesses,
there used to be after-market air conditioners for automobile
years ago, those are now at the
feature now integrated in the automobile. It's particularly true in
high technology
businesses, especially computer software where there are literally
hundreds of products
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which are integrated products all for the benefit of the customer.
In addition, this
preliminary injunction would make it impossible for Microsoft or
other software companies
with integrated products to maintain the integrity of our products.
It essentially says that
Microsoft has to make two versions of Windows 95 available,
one the way we think that
customers want it, in fact the way customers do want it from all
market indication, and
another the way our competitors and the Department of Justice
want us to offer the
technology. One of those has great contemporary Internet
features and the second would
have those features stripped out of it. This is a very dangerous
precedent and, again, would
lead to a situation where high technology companies are limited
by government judgement
as to what sort of feature they can integrate into their products.
From a practical standpoint,
we do not believe that the immediate impact of the preliminary
injunction should be at all
dramatic, but there are long term negative effects as I've
described above that are very
disturbing. In the short term, we expect that computer
manufacturers will continue to ship
Windows 95 in its full version because that is what their
customers want on those
machines. We've already heard from many of the major
computer manufacturers, to name
a few, Compaq, Dell, Gateway 2000, Packard Bell, Micron and
others who say that they
will continue to ship the full Windows 95 product because of
customer demand. It's also
important to note that this notion of choice is not advanced by the
preliminary injunction.
We indicate in the press release, there is nothing in our licenses
with computer
manufacturers which has ever prevented them from adding other
software to their systems -
- from shipping Netscape's
browser, for example, on top of Windows 95, and there is
nothing which has ever or should ever limit a customer's ability to
add additional browsing
technology to a Windows 95 system. Even though we are
appealing this matter because we
believe there are serious errors underlying the sua
sponte preliminary injunction, we will
also comply with the Judge's Order pending that appeal. And by
way of complying, we are
taking a three prong approach as described in the press release
and as Brad Chase will
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describe in more detail. Fundamentally, the choices for the OEMs
will be to continue to
ship the popular product that they have been shipping, the full
version of Windows 95 or if
they wish as provided in the Order, they may offer a version of
Windows 95 which has
stripped out of it those files which make up the retail version of
Internet Explorer 3.0 which
is the definition used in the Court Order and urged upon it by the
Department of Justice and
unfortunately we don't believe that that what's left of that
operating system will be
functional. In order to try to provide some alternative which
would be functional, we have
gone further and are offering to OEMs the alternative of
pre-installing the version of
Windows 95 in the form of which it was first released in the
OEM channel in August of
1995 from which they will have to strip some files which make
up the thin version of
Internet Explorer 1.0. At this point, I'd like to turn this over to
Brad Chase, who can talk
further about the product, the integration and the compliance
strategy that we are pursuing
with our customers.
Chase:
Thank you Bill. Happy Holidays everyone. So, I think I should
start by talking a little bit
about the options we are providing PC manufacturers and make
sure everyone understands.
The Court required us to provide a version of Windows 95, a
licensed version that does not
include the Internet Explorer files and we are doing that as Bill
and Mich both referred to.
Now unfortunately, when you take out all of those files, you are
left with the version of
Windows 95 that doesn't boot and so while we're required by the
Court's Order to provide
that version, that's not a version that any of us are excited about
providing to PC
manufacturers or of course our final end user customers. So,
we've gone back to the
original version of Windows 95 and although the original version
of Windows 95 that we
provided to PC manufacturers included Internet Explorer 1, we
did test a version and had it
retail a version without Internet Explorer 1 files and as a
consequence we feel pretty
confident that that version will be reasonable for customers. So
we are providing as an
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option for PC manufacturers the ability to ship the original version
of Windows 95 and
they'll have to take out the Internet Explorer 1.0 files. It turns out
a few things won't work,
I think, for example the MSN sign up won't work I believe in that
version. Of course the
last version that everyone can ship is the version they're shipping
today which includes the
latest versions of Internet Explorer and as everyone has indicated
it is our belief and the
feedback we're getting from our PC manufacturers that they're
going to continue to ship
that, because it provides the best choice for the customer. So that
gets us to what we did to
comply with the Judge's Order and our choices for PC
manufacturers. I think it's worth
noting though that there are some fundamentals of this case, that I
want to go back to before
we take Q&A. The first fundamental is to me one of the pleasant
or unique ironies of the
case, pleasant is probably the wrong word for anything to do with
this case actually, and
one of the basic ironies to this case is how Internet Explorer has
gained market share in the
first place. Our momentum, particularly strong over the last 18
months, is not because of
our inclusion of Internet Explorer technologies with Windows 95.
In fact, it is because our
product has been proven time and time again to be the best
browser for customers. It has
handily won every single comparison review done by major
industry or business
publication. For example, just last week, PC Magazine
awarded it the best browser for
1997. We are gaining share and developing momentum because
we have the best product.
That is the key tenet of our momentum and in fact we had as
everyone knows, Internet
Explorer One with Windows 95 provided to PC manufacturers at
the very beginning when
we shipped Windows 95 in August of ‘95 and we had basically
zero share at that time.
Now we had Internet Explorer 2 with Windows 95 delivered to
PC manufacturers and
basically had at most maybe five or eight percent share at that
time. It's when we built a
better product that customers chose, that's when we started to gain
market share. So, that's
one key fundamental in this case. Now, another key irony of this
case is that people are not
only choosing Internet Explorer and it is browser of momentum,
because it's a better
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product, but when they're choosing it, they're doing so not because
it came on their PC.
Conservatively, we estimate that over 80 percent of people did
not choose their browser by
what came with their PC. Instead, people are choosing their
browser based on the
recommendations of their on-line service, their Internet service
provider, they're
downloading it from the Internet or it's because of what their
place of business has chosen.
So they're choosing a better product and their choosing it from
other means other than new
PCs. So then people will say, well then why are you integrating
Internet Explorer
functionality in the operating system? Well, it's because it's
fundamental. It's not some
grand conspiracy. We, in fact, decided that we would start the
integrate this functionality
before Netscape was even formed as a company. This
functionality is very key to the
operating systems business. Operating systems started by giving
people the ability to
access files on a floppy disk and then as technology improved, we
gave people the ability to
access information on a hard disk and then as again things
improved, we gave people the
ability to access information over a local area network and even
later, new technology such
as CD-Roms. The Internet is just one large wide area network.
And for us to be
competitive, we have to provide customers an integrated view of
all their information. But
it's even deeper than that. The technologies represented by the
Internet are key to
providing a modern competitive operating system. Application
vendors will use the
Internet to display information. They'll use the Internet to go out
and get customers new
updated code to update their application. Even core functionality,
such as Help, will be
based on HTML. And so it's very fundamental to our ability to
improve Windows to
integrate Internet technologies and browsing technologies into the
operating system and in
fact if you look at Windows 98, there has been no debate about its
integration and the value
it provides. There's been no debate about that direction as a
fundamental direction that is
necessary and important to the improvement and evolution of the
operating system. And in
fact we are moving forward with Windows 98 full steam ahead
because there have been
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some questions about that and I just wanted to clarify that. The
bottom line is that no
modern operating system will be competitive without Internet
functionality rooted at its
core. Telling an operating system vendor that it can't integrate
Internet functionality is like
telling an electronics manufacturer that it can't ship a CD player
and it has to ship only
record players. Now, another thing that people have been
confused about is the fact that
Internet Explorer is available separately from Windows 95 as
well. Now, I actually on first
thought should understand people's confusion and they say, well
it's separate, well then
how can it be integrated? Well, once you talk to people about it,
they slowly and usually
always understand the principle that just because something
separate doesn't mean it can't
also be integrated. It is in fact the magic of software that things
that are available separately
can integrate into a larger product. In fact what code does is
work, the pieces of code work
together to build a software product and in fact almost any
software product is the
integration of lots of code. Now a practical example, I think
helps bring that to light even
better. If you look at something like the personal computer itself,
it is the integration of
many components that are available separately. CD-Rom drives
used to be available
separately, hard disks were available separately and in fact if you
go to the very core of the
computer itself, the micro processor, it is also the integration of
much functionality, and it
is bringing all those pieces together provides lots of value for
customers. PCs are not the
only thing that have added that kind of value. You could go to
every fundamental part of
our society and look at how integration is key to the value that
companies in the United
States provide their customers. Automobiles coming with
stereos. Automobiles coming
with many other components that are available separately, such as
the radio and the spark
plugs and the batteries. If you even take what seems like a trite
example of something like
a chocolate chip cookie, it is fundamentally an integrated product.
If you take flour and
sugar and water and chocolate chips and put it altogether, with a
few other things for all
those cooks out there, you get this really great tasty thing called a
chocolate chip cookie or
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well at least usually. I'm not always the best baker in the world.
And that is very, very
fundamental. It is the baking of those ingredients that brings
together something that has
great value for customers. Well that's what software code does.
It brings these pieces
together for customers, and that is how IE can be integrated and
separate at the same time.
So in the end, though some people have said this is about
customer choice, this isn't about
customer choice. Customers have plenty of choices. This is
about the ability of a company
like Microsoft to fundamentally provide value to customers. It is
about a fundamental
American tenet of competing. It's about providing the ability for
customers to get new and
improve products that they can use to better their lives, have more
fun and do their job
better.
Matthews:
Okay, can we move to Q&A now, please?
Operator:
Ladies and Gentlemen, we will now begin the question and
answer portion of today's call.
If you have a question, press the one key on your touch tone
phone, if you would like to
withdraw your question, depress the pound key. Again, please
limit your questions to one.
One moment please for the first question.
David Readerman from Montgomery Securities, you may ask
your question.
Readerman:
Thanks, Bill and/or Brad, could you discuss prospectively how
would go forward on
Windows 98 particularly, given David Cole's testimony about
how tightly integrated the
files are here. Will, if the Court, Bill is your interpretation of the
Court ruling that you have
to provide sort of a modern operating system equivalent of Win
98 without IE, or will your
decision to use Win 95 1.0 be sufficient?
Chase:
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A modern version of Windows 98 without IE is an oxymoron.
We're going to move full
steam ahead with Windows 98, and we're going to cross any other
bridge when we think
we come to it.
Readerman:
Brad, I hear ya, but if we're in a situation now with Win 95 and IE
3.0 integrated together
and your response is to provide Win 95 from the August release,
how do you comply if you
intend to go forward with the Win 98 shipment as indicated?
Chase:
You know, I understand David, I just want to stress that at this
point all we've determined
for Windows 98 is that we're moving full steam ahead with it, and
any other actions that we
may or may not take, we haven't really crossed that bridge yet
when it comes to Windows
98.
Matthews:
Next question please?
Operator:
Martin Wolk from Reuters, you may ask your question.
Wolk:
Yeah, Reuters. I'm wondering if you interpret this decision as
having any application to
Windows NT because the language of it says basically all
personal computer operating
systems and including Windows 95 and subsequent
versions?
Neukom:
This is Bill Neukom. We do not believe that the Order involves
Windows NT. As to
Windows NT Workstation in our communication with the OEMs
today, we are providing
them with an alternate to the current version which would not
include Internet Explorer, but
that is not because we feel compelled under the Order to do it.
Operator:
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Elizabeth Corcoran, Washington Post, you may ask your
question.
Corcoran:
Could OEMs simply take the icon for IE 4 off or IE 3 off the
desktop and keep all the
underlying code and still essentially be, you know, in compliance
insofar as you guys are
concerned, in other words, if they didn't want to go back to the
original Win 95 version of
the software and if they didn't want to as Brad said have software
that doesn't boot, could
they just take the icon off, would that be something you guys are
comfortable with?
Chase:
Alright, this is Brad. No that's not an option we're providing. We
actually haven't tested
any version of Windows 95 for PC manufacturers and as a
consequence, we're in this sort
of awkward position. The versions that we have tested, without
IE is the original version
that goes way back to August of ‘95, so that's the version we're
providing. Remember too,
that we have to provide a version of Windows 95 without the
Internet Explorer files.
That's what the Judge ordered us to do, so that's why we're doing
it the way we're doing it.
Neukom:
Just as a reference on that, Elizabeth, I think the footnote at the
bottom of page 16 of the
Order is informative and it if you read that, as well as the
language on page 19 of the Order
that spells out the terms of the preliminary injunction, you
conclude that this is an Order
which contemplates and directs that code be removed.
Corcoran:
Thanks, thanks.
Operator:
George Tibbits, Associated Press, you may ask your
question.
Tibbits:
Yes, I'm wondering, you have a number of new products, one of
them is Office which now
is supporting HTML. Is that critical to have Internet Explorer in
that, in the operating
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system to run that, there's also a third-party companies that are
increasingly writing for
HTML to work on the desktop. What happens to them, with
having to separate out the IE?
Chase:
Well, clearly that's one of our concerns about the case is we're
providing this Internet
technology as a foundation for their applications to build on and
when you remove it, then
you lead to a problem for them. We're not really sure of all the
implications since the
Order just came down, we've only had a few days, but that just
reinforces the point I was
making earlier that this technology is fundamental to applications
like Office or Quicken or
on-line services like America Online and the Microsoft Network
and that functionality is
generally stuff they're depending on and so I encourage you to
take a look at, for example,
David Cole's declaration which goes into quite a bit of detail
about how they're using it.
But, you know, I am not exactly sure of all the implications since
Quicken 98 uses it to
display each HTML table, given that now we have to provide a
version that doesn't have it,
the implications on them will be, we're going to make their life a
lot more difficult.
Matthews:
Next question please.
Operator:
Don Clark from Wall Street Journal, you may ask your
question.
Clark:
Guys, your scenario for the OEMs is talking about Windows 3.0,
what I'm not quite clear,
you know, Windows 98 put that aside for now, but I'm not quite
clear, how this works with
Windows, excuse me with IE 4.0?
Matthews:
Don, don't you mean IE, you said Windows.
Clark:
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I'm sorry, I'm sorry, IE 4.0, you know, because we're sort of in this
intermediary period
before IE 4.0 I believe is kind of integrated, so I see three
scenarios: one is what you do
about IE 3 and Win 95, what you do with IE 4 and Win 95 and
what you do with Win 98,
can you talk about the middle of those, how you deal with IE 4
and Win 95?
Neukom:
Don, it's Bill Neukom, let me try to answer that. In our
communication with the OEMs, we
will make clear that they are, we will continue to provide them
with upgraded version of IE,
we've done that just very recently, we have a few more soon to
follow and the OEMs will
continue to have the ability to decide whether they want to
upgrade Windows 95 with those
enhanced versions of Internet Explorer. So that is available to
them and will continue to be
available to them and frankly we expect that they will take
advantage of that opportunity
because the enhanced versions of Internet Explorer technology
are what customers want
and want more of. As to Internet Explorer 3.0, that aspect of the
preliminary injunction
requires the compliance efforts that we have made in the form of
alternative No. 1 which is
a list of files which comprise the retail version Internet Explorer
3.0, and by deleting those
files, an OEM would then be shipping a product in compliance
with the terms of the
preliminary injunction. The problem is that version of an
operating system isn't functional,
so we've gone the extra step. But as to 4.0, there will be --
continue to be available to
OEMs, the latest and the greatest Internet exploring technology
that we can bring to them
and they will have the ability to pre-install that in upgraded
versions of Windows if they
choose.
Matthews:
Next question please.
Operator:
Bob Drummond, Bloomberg News, you may ask your
question.
Drummond:
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Yes, Bill, indicate here that the compliant is that the Judge didn't
hold you in contempt. As
I read the Judge's Order, he said that he appeared to feel that the
absence of some evidence
of willful violations, he wasn't going to formally cite you for
contempt, but he says that the
fact that you didn't violate the Order willfully doesn't mean that
you didn't necessarily
violate the Order at all. So are you saying that the Judge
basically had to do an all or
nothing kind of, kind of decision in this rather than say, hey,
we're not going to, I'm not
going to formally cite you unless, lets get some experts in and see
what the real deal is on
the true meaning of these terms?
Neukom:
My reading of this 19 page Order is that the Judge was asked by
the government to decide
the merits of a case whose scope was determined by the petition.
This was not an
independent lawsuit, a separate lawsuit, under the Sherman Act.
This was simply a petition
by the government asking that the Court determine if Microsoft
was violating the terms of
the consent decree and if so, to find Microsoft in civil contempt.
That's the sum and
substance of the petition that started this litigation. The Judge
responded to that and the
result was the language on page 19 saying that he was denying
their petition to find
Microsoft in contempt. One of the errors of the preliminary
injunction, we believe, the
fundamental error is that it arose, the preliminary injunction
arose, in the context of a tying
analysis by this Court which was not within the scope of the
petition for contempt. But if
you will the litigation was extended or expanded beyond the
scope of the government's
petition. And that we consider to be inappropriate and that is the
matter we are bringing to
the attention of the Court of Appeals as one of multiple errors that
are in this Order of
December 11th.
Operator:
Rick Sherlund, Goldman Sachs, you may ask your question
Rick Sherlund from Goldman Sachs, you may ask your
question
Page 16
Matthews:
Well, shall we take the next question and come back to Rick?
Chase:
Anyone there?
Operator:
One moment for our next question please.
Mr. Chris Arnold of National Public Radio, you may ask your
question.
Arnold:
Hi, this is Chris of NPR, you know, I wanted to take issue with
you two guys throw out a
lot of examples of what this is like and you know, comparing this
to an automobile, you
know, where the air conditioner isn't after market anymore, it's
built, you know, by the
manufacturer of the car, I just, you know, there are dozens of car
manufacturers out there
who, you know, who are popular and there's really only one
primary operating system, you
know. I just, I don't know what whether that image really, you
know, applies here?
Neukom:
The point is the benefits of integrated technology or in lesser
technology industries, the
virtues and benefits to users of integrated products per se.
That's at the heart of our product
strategy and you can take the view that Microsoft is integrating
more and more useful
functionality into our operating system because that helps us
compete or you can take the
view that we are including in our operating system because that's
where it performs best
and that's where customers expect to find it and like to find it and
use it and as Brad said,
this is a particularly clear case of Microsoft simply extending a
core functionality -- the
ability to get access to stores of information -- extending that to a
new store or a new site of
information: The widest of all wide area networks, the Internet.
So, what Microsoft has
done is the most incremental straight-forward natural extension
of, again, a core
Page 17
functionality. This is what operating systems do fundamentally
and have for the last 16
years that we have been publishing them.
Chase:
Chris if I could just add for a moment, first remember there are
other operating system
vendors and they are also are including browsing functionality in
their operating system, for
example, the Apple Macintosh includes browsing functionality as
part of its operating
system and though we have leadership, certainly in a good
position of Windows that we're
pleased about, we don't hold that position, and assume we're
going to just keep it by
standing still. If we can't integrate new functionality in the
operating system, then how do
we keep improving things for customers? It's, you know, it's our
obligation and also desire
to do so. So, the irony is you didn't, the fundamental analogies of
a car or stereo or you
know the many, many we can give, still apply. The situation that
we are in a position with
Windows, that's a good leadership position doesn't really change
those analogies and in
fact that's why other people like Apple are including Internet
functionality with their
operating system.
Neukom:
And again it's important to remember that our including this
extension of core functionality
is in no way limits the ability of the OEM or the end user to add
competing functionality to
the personal computer. This is not a lock out, this is not a
discouragement at all.
Chase:
And in fact in that way, we're more, it's a much more
advantageous situation for the PC
manufacturers than it is for the car dealer who really can't provide
an alternative engine
with its Ford cars or really can't provide most of the pieces of a
car in an alternative form,
so we are, we do provide PC manufacturers and PC
manufacturers often avail themselves
of that choice.
Matthews:
Page 18
Next question please.
Operator:
Walter Winnitzki from Paine Webber, you may ask your
question
Winnitzki:
Yes, thank you. Since the Judge has, you know, can do basically
what he wants, is there
any question here that he would look at these crippled versions or
enough crippled versions
of the OS say, "hey, that's not in the spirit of what I'm saying, go
back in and come up with
a product without the browser that really works and don't give me
this old version that you
had talked about," and second is relative to Windows 98, is it, by
the way you answered the
first question, you know, I kind of took away the fact that you
may contend that Windows
98 is not covered in this agreement and prior discussions I've had
with competent people in
Microsoft lead me to believe that it was. I just want to clear that
up a little bit, how, what
you're feeling on that is right now?
Chase:
I'll start with Windows 98 and then let Bill go back on the other
question. The issue for us
is we're only a few days into this and trying to assess all the
implications is, you know, is a
time consuming process and we just haven't had the opportunity
to do that. Under all
circumstances, we're going forward with Windows 98 for
calendar year Q2 as we've
previously indicated. That's full steam ahead. If there are other
implications in Windows
98, we just really haven't had the opportunity to internalize and
work those through yet, so
it's more a question of trying to figure all that out. And now I
guess I'll let Bill go back to
the first part of the question.
Neukom:
Okay, as for the first part, this is an Order which requires
Microsoft to comply with a
preliminary injunction immediately. And we have taken what
time we've had available to
us since receiving the Order to try to be reasonable and thoughtful
about what we can do to
Page 19
comply essentially instantaneously with the terms of the
preliminary injunction and as we
described in the press release, in reviewing the version of
Windows they get increasingly
more deeply and tightly integrated with all of their functionality
including the Internet
Explorer technology and so we have tried to find the version
which is least harmed by
removing from it the Internet Explorer technology and presenting,
and try to present that to
the OEM channel. If there's second guessing about what we've
done, we can't stop the
second guessing, but the point is we have made every effort to be
as reasonable as possible
and responsive to the letter and the spirit of the preliminary
injunction as we are able to
under the circumstances.
Matthews:
Next question please.
Operator:
Mr. Paul Andrews of the Seattle Times, you may ask
question
Andrews:
Yeah, hi Bill, hi Brad, good morning to you both, getting back to
Win 98, I know we're
kind of hitting this hard, but what you need to clarify would be a
question of would you
release Windows 98 before the preliminary injunction
expires?
Chase:
Well, our timing for Windows 98 hasn't changed and I'm not even
sure, I'd have to have
Bill address this exactly how all the timing works with the appeal
fit in. So I'm not sure
Paul to be honest about that, so just to be clear I want to make
sure everyone's point, my
point on this is clear. The implications on Windows 98 is not
something we've been able,
we've figured out completely yet. Obviously, we're doing a lot
just to figure out what the
Judge's Order meant for Windows 95. But under any
circumstances, we're moving
forward with Windows 98 for Q2 release and we believe that that
integration will provide
Page 20
value to customers, just like by the way the combination of IE 4
and Windows 95 provides
today, as an integrated update to Windows 95.
Neukom:
Just to reinforce what Brad said from a legal standpoint, we are
going to proceed to bring to
market as soon as possible, Windows 98, under the schedule that
the company has
announced. Whether there are some other technologies we make
available to OEMs at the
same time will depend on the status of this litigation.
Matthews:
Next question please.
Operator:
{Maria Georgianis} from Dow Jones, you may ask your
question.
Georgianis:
Yeah, Georgianis, thanks for taking the call. I had two questions,
which is, one, is it seems
like you're leaving the door open to offer two versions of
Windows 98, and the second one
is if OEMs always had a choice about which browser to load on
their machine, why did the
Justice Department make such a big deal about your alleged
threatening to take away
Compaq's license to Windows 95 if they didn't put IE on the
machine and put Netscape
Navigator on their systems?
Chase:
Okay, so there are two questions there I think, and I sort of lost
them in, in the, in the
question, so I'm going to ask, can you help me out? Oh, yeah,
two versions of Windows,
was one of the questions would we provide two versions of
Windows 98? And the answer
to that is I don't know, we haven't figured that out. We're going
forward with the version
Windows 98 as we've discussed many times. I don't know what a
version of Windows 98
would be without the Internet functionality, so that's sort of hard
to figure out. So, we
Page 21
haven't figured the implications of that. And, I think your second
question was about
OEMs. You want to take that Bill.
Neukom:
Let me try to do that, respond to that. I think you're referring to a
declaration that the
government filed with its petition back in October from Compaq
about some
communication between Compaq and Microsoft and the up shot
of all of that was never
that Microsoft threatened Compaq or any other OEM on the
subject of including other
competing Internet browsing technology on their systems. The
question was whether
Compaq could remove Internet Explorer technology from the
then version of Windows 95
and for all of the reasons that we have stated in these proceedings
and elsewhere, we license
our product as a fully integrated product intact, with the
understanding that the OEM, if it
wants to install the product, must install all of the product for all
the obvious reasons of
compatibility and product integrity that underlie that kind of a
licensing approach and that
is absolutely standard operating procedure in this industry. So,
there's nothing
controversial about Microsoft requiring an OEM to ship a full
product. We have never
threatened any OEM on the grounds of their including competing
technology in addition to
our operating system.
Matthews:
Next question please.
Operator:
Barry Randal from Dane Boswick, you may ask your
question.
Randall:
I thank you, following a question a moment ago on Win 98 and a
possible release, it seems
as though the way it's set up now is that you have two options
here. One, and keep in mind
that the Judge has, I believe he gave himself until May 31 here,
you have two options, one
is to create two versions of Win 98, one with and one without the
browsing functionalities
Page 22
or possibly wait until, assuming the Judge takes that long until
after he has made his
decision before going ahead and releasing, so the question relates
to, are you planning
behind the scenes to actually do two versions as a contingency
plan in case he chooses that
option, so, so late in the quarter?
Chase:
Okay, so let's try to go over the Win 98 thing and see if I can rest
all the Windows 98
questions. Remember that the Order doesn't require us to do
anything in terms of product
design. The Order is about licensing. So, the only question
would be what licensing
options we have to provide PC manufacturers. So, for Windows
98, let me stress the
following: In terms of product design and what we're developing,
we're developing
Windows 98 as everyone has known, and heard about it, and
hopefully loved it for a long
time and we're moving forward full steam ahead with that. And
that is planned for release,
I think in, well, in calender Q2. So, that hasn't changed. Then
your question is, will we
have to provide other licensing options to PC manufacturers.
And, the answer is, we
haven't figured all that out yet. We've been focusing on trying to
implement and comply
with the Judge's Order as it relates to Windows 95. It is, of
course, part of, all of these
interesting questions you ask, sort of relate to the very foundation
of why we're appealing
the case of appealing this Order, of course, and that remember
that as well. Bill do you
have anything to add?
Neukom:
Just to say that we expect Windows 98 will be very popular.
OEMs will want it, customers
will want it, so we're going to provide it. If we have to do some
other kind of licensing to
comply with an Order, if it's still in effect after our appeal, we
hope reviewed on an
expedited basis and resolved in our favor, then we will do those
licensing variations. But,
that's why I said earlier, what if anything we do with regard to
licensing some variation of
Windows 98 will depend on the then status of the litigation.
Page 23
Chase:
I must say I'm glad to see so much excitement about Windows
98.
Matthews:
Next question please.
Operator:
Mr. Michael Moeller of PC Week, you may ask your
question
Moeller:
A quick question for you both about Windows 98 and no Brad
haven't put this to rest yet.
And also, OSR 2.5, which was going to be released in February
or was tentatively
scheduled for release in February. Can you, maybe address the
second one first? Can you
please tell me sort of what the status is of OSR 2.5 and, which
was going to be Windows 95
with IE 4 "integrated" into it?
Chase:
Yeah, I can give you the status. It goes out this week, people are
free to use it, but they
don't have to use it.
Neukom:
That's what I was referring to earlier Mike when I talked about our
continuing stance in
Internet Explorer aspects of Windows 95 and they're absolutely
free to use the new, best
version and we expect that they will.
Operator:
Bruce Francis from CNBC, you may ask your question.
Francis:
Thanks, have any OEMs, in your conversations with them,
indicated that they would like
one of these OSs that are dumbed down or you don't have IE in
them? You mentioned the
support of several key ones. Is that, "no fine, we like it the way it
is." But have any said,
that they wouldn't, or that they were interested in the ones that
don't have IE in them?
Page 24
Also, if I'm a consumer who buys a PC from one of the OEMs that
doesn't want IE in them
and we go back to Windows 95 as of August ‘95, does Microsoft
plan to offer me any
upgrades so I get the latest wittiest form of Windows?
Chase:
Okay, to take your first question, I'm not aware of any PC
manufacturer who has asked for
the to use your terminology "dumbed down" version of Windows
95. And in terms of your
second question, if a PC manufacturer does choose one of those
versions, and a customer
then gets one of those versions, and they wanted IE 4, they can
easily download that from
the Web.
Matthews:
Next question please.
Operator:
Mr. Mike Stanek of Lehman Brothers, you may ask your
question.
Stanek:
Good morning. I've just had a question, who's the Harvard
professor, what's his
background and he apparently is going up the mountain here to
make a lot of, I guess,
decisions on to get back at the Judge on various things in and
around in or around the case.
I guess one of the things I'm confused is that if indeed, you know
the Judge Jackson has
sort of moved us off of the question that was at hand and now
taken us down more of the
Sherman Antitrust path, I guess what could this guy potentially
come back with? What's
his agenda? What sort of power does he have, and who else
might be on this board, if
there's, if there is such a board?
Neukom:
We can't speculate as what the professor might do if he is asked to
perform some services
for the Court. In terms of his background or his disposition,
you're as well informed as we
Page 25
are about that. His, his career, to the extent that it's public, is
available to any of you to
learn about and reach your own conclusions.
Matthews:
Next question please?
Operator:
Mr. Stewart Glasscott of CMP Media, you may ask your
question.
Glasscott:
Yes, gentlemen, could you please revisit OSR 2.5 and its features.
Will it have IE 4.0 fully
integrated? And, if so, isn't it impacted by the immediate
preliminary injunction which
affects products moving forward?
Chase:
OSR 2.5, which is an update to Windows 95 we make available to
PC manufacturers, has
IE 4.01 and it has a few other things, and I'm actually not
recalling off the top of my head
what all the other things are. I think, if you want, we can get
back to you with that one.
Operator:
Sandy Rimer from Hambert and Quist, you may ask your
question
Rimer:
Yeah, hi, I was wondering whether there's any pricing impact on
this three pronged
approach? If a version without IE will be priced differently to the
OEMs? Thanks.
Chase:
The answer is, no. IE is already priced to sell as part of
Windows.
Matthews:
Next question please?
Operator, next question.
Operator:
One moment please.
Page 26
Thanks.
Mr. Mark Boslet of Dow Jones, you may ask your question.
Boslet:
Hello, taking it back to Windows 98, I apologize. In light of the
fact that you guys are
offering several versions of Windows 95, I think the question
about Windows 98 that we've
been asking a couple of times about, whether there might need to
be different versions, is
relevant and my question in this vane is, in either your dealings
with the Appellate Court or
with the District Court, are you folks planning to ask for
elaborations from the Court as to
how their decision or, or future decision may affect the Windows
98?
Chase:
I'll start and I'll let Bill chime in. First, I apologize profusely if, if
anyone thinks we're
trying to avoid the Windows 98 question, that's quite the
opposite. It's just that there's a
plethora of issues here and maybe it's hard, I haven't done a good
job explaining it. So, I'll
try to, I'll try this, this again, and again just keep asking if I'm not
really explaining it well.
The, the Court Order does not require us to do anything in terms
of providing different
designs of Windows 95 to PC manufacturers. It's about providing
a licensing option that
does not require Internet Explorer. The impact of that on
Windows 98 for us, we haven't
figured out fully yet because it's only been a little bit of time
since the Judge's decision.
There are some implications that we do know. For one, there's no
impact on our ability to
offer Windows 98 to our PC manufacturers, as well as of course
to our end-user customers.
So, we're going full steam ahead and we'll have that available in
Q2 of next year, calendar
Q2. Now, there is the question that you and others are asking
about, which is a very
legitimate question about, well, will we have to do, provide other
licensing options to PC
manufacturers for Windows 98, and we haven't figured that out
yet. Now, hopefully that
helps explain it.
Neukom:
Page 27
Again, whether we have to provide any licensing alternatives for
Windows 98 depends on
the state of this litigation. And in response to the final part of
your question, we have
appealed, as of today, as we said earlier, this Order and we are not
disposed to return to the
District Court to get some clarification of the Order or get
implications, because we believe
the Order is fundamentally in error and we are pursuing our rights
on appeal to have that
part of the Order, the preliminary injunction, reviewed by the
Circuit Court.
Matthews:
Next question please.
Operator:
Matthew McAllester, from Newsday, you may ask your
question.
McAllester:
Thanks, in the so called dumbed down version of Windows 95,
maybe that's not a phrase
you want to pick up, what functionality specifically will be lost?
You mentioned the
inability maybe to sign onto MSN, what else will the consumer
miss out on?
Chase:
Well, we can go on actually for quite a while about the lack of
features in, the dumbed
down version of Windows 95. You actually have to talk about
which version as well, but
for example, the online services won't work, you won't have
single integrated Explorer,
you, there's certain features that ISVs take advantage of that help
do things like integrate
browser functionality into their application, that stuff wouldn't
work as well. Of course,
your fundamental ability to browse, to use mail, to do use the
basic conferencing software
that comes with Internet Explorer all that wouldn't be available as
well. I could go on for
quite a long time.
Matthews:
There is a list of this Matthew up on our web site on Press Talk of
the microsoft.com web
site which lists these DLLs and what they do. That may help
you.
Page 28
Chase:
Yeah, it's also worth mentioning that if a PC manufacturer goes
back to the original build
of Windows 95 for PC manufacturers, and takes out the IE 1 file
and uses that build,
they're also missing other types of support that we've added since
then, such as support for
a larger hard disks, upgrades to some of our graphics technology
called Direct X, and USB
Support, the universal serial bus support, which is a new standard
for having easier
connectivity of devices to PCs.
Matthews:
We, we can take one more question please.
Operator:
Drew Brosseau of Cowen and Company, you may ask your
question.
Brosseau:
Thank you. Following this decision, have you heard of any
additional efforts by the DOJ to
expand their attacks on Microsoft?
Neukom:
No, we have not.
Matthews:
Well, that concludes our call. Thank you again for all dialing in.
This will be replayed in
the United States and the number is 888-566-0395 and the pass
code to access is 1017.
Internationally, the number is 402-220-9694 and the pass code is
the same, 1017. As I
mentioned earlier, if you go, if you go to microsoft.com/presspass
you will find a Q&A on
this topic, press release. Also, there is the details about our
integration argument, as well as
details on this media advisory, so that's an additional source feed
to go for further
information. Thanks again for calling in.
|
IN THE UNITED STATES DISTRICT COURT
