IBM exec outlines MS plan to throttle OS/2, Lotus

IBM exec Garry Norris yesterday detailed a Microsoft campaign to throttle OS/2 in the run-up to the launch of Windows 95. IBM and other PC companies, including Compaq, were threatened with higher prices if they shipped rival products as well as Windows.

Norris, program director for software strategies with the IBM PC Co, was involved in extensive negotiations over IBM's Windows licensing deals from early 1995 until 95's launch that August. Microsoft was obviously playing hardball, as Norris claims that that IBM didn't get its final deal until 15 minutes before the launch. An $8 price reduction, he said, was secured for "exclusion of OS2 and expedited shipments of Windows 95."

Other manufacturers, including Compaq, agreed not to sell OS/2 after Microsoft threats, said Norris. This is not of course strictly correct, as OS/2 was available from various PC companies, Compaq included. But it wasn't always that easy to obtain, so Norris may be right in some senses.

Norris achieved instant fame earlier this week (Earlier story) when it was revealed that he'd kept a detailed diary of two years' negotiations with Microsoft, and his testimony seems to be providing the clearest picture yet of how Microsoft used its muscle against PC manufacturers, via a mixture of threats, inducements and hard cash.

He came up with some useful numbers, saying that IBM had been paying $9 a copy for Windows 3.1, but that initially with Windows 95 Microsoft wanted $46. The 3.1 fee was probably the lowest price paid by any OEM, while the $46 was higher than rivals. "Microsoft told us repeatedly, `Because you compete with us, you're going to get unfavorable terms and conditions,'" he said, backing it up by saying payments to Microsoft had risen from $40 million in 1995 to $220 million in 1996. Compaq's higher discounts are justified by Microsoft as being because of greater volumes, but this can't have been the case in earlier years, before Compaq shipments passed IBM's.

He also provided evidence of linkage by Microsoft between operating system and application sales, claiming that IBM would get better prices if it didn't ship Netscape Navigator and Lotus SmartSuite. For Microsoft Office bundles he was charged "IBM's price" of $250 per copy, considerably higher than the Compaq or HP price. Microsoft might have some justification for claiming volume discounts here, if IBM was shipping fewer copies of Office.

"Microsoft repeatedly told us that as long as we were shipping competitive products, such as Smart Suite and OS2, we would not be treated the same as Compaq and others," he said. ®

Last update: 01.12.2000