Gateway Testifies To Microsoft's OEM Treatment

unconfused1 writes "Gateway testified yesterday about the incredible power that Microsoft wields over OEMs concerning Windows being shipped on every PC. It seems that if an OEM does not ship Windows on every PC they ship that they are severely penalized, and can have their license revoked."

Comments

How is this NOT racketeering?

[xtremex]

I've always known this was true, but now we have a REAL company vouching it..but how does MS do it? Do they send goons in and say "if you don't install Windows we will break your legs?" I mean, how is this different from racketeering? The Mafia does that in major cities with Waste Management. You can only use THEIR company, or they break your legs or set your building on fire. WHich is very similar to how tings work in Eastern-bloc countries.

Re:How is this NOT racketeering?

[Binky The Oracle]

It's not racketeering because MS isn't technically committing a crime in order to commit other crimes. Well... sort of... antitrust law is a pretty freaky place and I don't like to think about it too much. =-)

However, from The American Heritage Dictionary via dictionary.com:

racketeer: n. A person who commits crimes such as extortion, loansharking, bribery, and obstruction of justice in furtherance of illegal business activities.

I suppose one could say that MS has engaged in extortion of sorts, but since the extortion is in the form of a voluntary license agreement , and not backed up with threat of physical violence (the OEMs always have the "choice" of not licensing Windows), it becomes much harder to prove. That's where the antitrust things come in...

The real problem with this whole issue is that the OEMs have been stuck between a rock and a hard place. On the one hand, they have Microsoft playing both good cop and bad cop: unconscionable licensing terms along with a sweet discount on the OS. On the other hand, they have consumers who are, for whatever reason, convinced that if they don't get Windows on their computer, their computer won't actually work.

I don't know what the solution is. If I did, I'd be a highly paid consultant for several states' attorneys general. Perhaps if Microsoft were just prohibited from connecting their licensing terms or agreements to any other OS (i.e. no penalties to the OEMs for offering another OS...) that it might be a start. Probably not enough, but a start.

Or perhaps if the OEMs were to create an association to negotiate with Microsoft for licensing terms things would improve. They really need a single voice, because MS is too good at divide and conquer. The real problem, however, is that MS is also too good at convincing consumers that they really need Windows because "there's nothing else available."

In this case, Microsoft's goons are the consumers demanding Windows on their PC.

Move to strike...

[jdreed1024]

Microsoft on Sunday filed to strike large portions of the submitted testimony from the proceeding before U.S. District Judge Colleen Kollar-Kotelly. She did not grant the request.

"Uh, your honor? We'd like to delete this testimony since it makes us look guilty. We're really not guilty, so you shouldn't allow anyone to intimate otherwise."

They're pretty dumb if they thought they were going to get away with that. Once has to wonder what will happen to Gateway now... I think MS will take the cow boxes to the slaughterhouse while they still can.

Kind of ironic

[jht]

When I loaded the story to read it, it had a Gateway ad in the middle of the story. Go figure.

More seriously, this is an example as to why virtually all PC-only vendors are screwed in the long run (and why I won't buy Dell stock, no matter how well they do). Everybody in the PC industry builds commodity hardware, running an OS they don't control, and tries to compete based on marketing and lowest-cost production. Thanks to things like Microsoft's OEM contracts, there's just no room to go anywhere else. Dell's success is strictly based on execution and volume - they bring nothing else to the table, really. Same with Gateway, and all the other commodity vendors.

So if the MS monopoly is ever broken, it'll be at the hands of companies that have an investment in their own technology, and their own R&D. Perhaps companies that have access to non-Wintel technology (Compaq/HP, though they killed Alpha, IBM, Apple) will be able to take a stab at it. Right now, though, nobody but Microsoft really matters in the desktop supply chain.

And what about VA?

[lseltzer]

Gateway can assert that Microsoft pressured them, but if there's really a market for Linux desktops then other companies would be offering them and making sales.

So why did VA stop selling Linux systems? Alleged Microsoft pressure on mainstream vendors not to sell Linux should only have made things better for VA, assuming there really was a market for Linux desktops. But the fact is that there is no serious market for Linux desktops.

While we're at it, I simply don't believe that IBM could be subject to such pressure, and yet they too have pretty much abandoned the Linux desktop and notebook business. You used to be able to find Thinkpads for sale on IBM's site with Linux on them, but not anymore. Does anyone seriously believe IBM talked them out of this? Isn't the Occam's Razor answer that they weren't selling?

Re:And what about VA?

[JordanH]

• So why did VA stop selling Linux systems?

Because VA had to compete against price-leader Dell and others selling systems with Linux loaded on them. It's possible that MS only tolerated Dell selling Linux as long as VA was still out there.

This article is interesting in this regard. And I quote:

Compaq was also mentioned in other memos, with Microsoft taking the line that OEMs should "meet demand but not help create demand" for Linux.

So, at one time, it was OK with Microsoft for the OEMs to meet demand, but not to push Linux. Then, later, they clearly pressured Gateway and Dell to drop it completely.

VA Linux no longer out there pushing Linux? Another highly visible Linux company down...

This seems to be standard Microsoft practice.

[zapfie]

For those who have not read it, I would suggest reading Sony's comments regarding Microsoft's licencing of Windows. This is from Sony's submitted commments to the Microsoft Antitrust case. If you think being an OEM and having to include Windows on every PC is bad, imagine being an OEM and knowing that it is possible that "Microsoft [could] use its monopoly power to force its OEM licensees to give up intellectual property rights."

Their own fault

[TheGreenLantern]

You know, Microsoft doing this sort of thing is certainly VeryBad(tm), but it's nobody's fault but Gateway, Dell, and all the others that it happened.

You really have to think about how things came to be this bad. Way back in the old 3.x days, if MS would have tried to pull something like this in the licensing, the OEM's would have told them to take a flying leap and installed OS2. So of course they gave the OEM's licenses dirt cheap, and probably a whole bunch of other things to get them to install Windows by default.

Ever heard of looking a gift horse in the mouth? Did these OEM's think Microsoft was doing this out of the goodness of their hearts? Of course not, they didn't think about it at all. All they saw was the bottom line.

Fast forward 5 years when the entire country is hooked up to Windows for life support, in part, I might add, to the OEM's willingness to throw Windows out there with every computer simply because they were getting a hell of a deal. Now they can't tell MS to take a flying leap, so of course MS is there to "restructure" the licensing deals. But is this MS's fault, or is it the fault of the OEM's for being greedy, and getting burned by it. Depends on your philosophy on life I guess: Is it the drug dealer's fault for selling crack, or is it the addicts fault for trying it?

It's a utility.

[Mike Schiraldi]

Other monopolies (Verizon, the local water company, etc) aren't allowed to cut off good-faith customers. Your power company can't say, "You have to buy our skateboard and milk, they're bundled with our power!" Your local telephone company can't say, "We'll double the price of your phone service unless you stop using any competitors products!"

Microsoft is a monopoly just like the others, and to most businesses, Windows is as essential as power or telephone service. Microsoft should not be allowed to withhold Windows from them or vary the price based on how much they subjugate themselves.

(Volume licenses are okay, though)

Re:Dell

[dcgaber]

Dell has something to say on this matter. Read it here. Basically MS e-mails/memos released at the trial last week discussig "hitting the OEM [Dell] harder than in the past with anti-Linux actions," while other e-mails urged Bill Gates and Steve Ballmer to remind Dell "of the meat of why it's smart to be partnered with Microsoft."

Dell's response? A spokesman for Dell, Mike Maher, declined to comment on the case but said the company sells computer equipment with the Linux operating system installed if requested.

"We still offer [Linux] on the [corporate] side and as needed as customers ask for it," he said.

Naturally, this shows a fear of retribution, but shortly after the emails, Dell stopped offer linux on the desktop.

Re:Dell

[JordanH]

• I would love to see what Dell has to say about the OEM agreements with MS. After all they did support Linux for a little while. Now that seems to have gone by the waist-side.

Dell stopped support for Linux? I wonder why?

I won't make you go digging (quoting from the above article):

The states intend to introduce a series of documents detailing discussions Microsoft had with Dell Computer Corp. with the goal of giving Dell a "hard time" about selling Linux desktops. Dell last year pulled its desktop Linux line.

You're COMPLETELY missing the issue...

[telstar]

They're pretty dumb if they thought they were going to get away with that.

• You're COMPLETELY missing the issue. Microsoft requested that large portions of the submitted testimony be dismissed because they have to do with the states presening NEW evidence. The current hearings are only supposed to address two issues ... the browser war, and the Java war. The 9 states are introducing evidence and presenting witnesses to discuss things like hand-helds, set-top boxes, and any other market that Microsoft has entered since the initial trial was completed. Not only are these issues out of the scope of this trial, they're actually weakening the states' position. Judge Kollar-Kotelly has already warned the states to stay within the domain of what was presented at during the trial and appeal phases, but the states continue to present this evidence in the penalty phase. By not striking this evidence from the record, Kollar-Kotelly leaves it on record for future appelate courts to handle, but she'll likely dismiss a great deal of it when she ultimately renders her decision at the conclusion of this phase.

Re:You're COMPLETELY missing the issue...

[TheConfusedOne]

Actually, it goes to establishing continued behavior.

In this particular case it's even MORE important. The OEM License that Gateway is commenting about is the "new and improved" license that has been created by MS to comply with the DoJ's proposed settlement. This goes directly towards proving how inneffective the proposed settlement is.

If the actual license is how it has been portrayed and this is the new license to meet the DoJ's criteria, then I think it goes quite far in proving that the settlement doesn't do anything. In fact, it seems to make the situation worse. I find it quite amusing that this license seems to reinstitute the old per-CPU license by calling it a royalty.

Re:You're being simplistic

[Mike Schiraldi]

You have no way to obtain phone, power or water without the utility (government regulations see to that). You can always obtain an OS without Microsoft.

For most businesses, "an OS" is worthless unless it's an OS that can run their stuff. Microsoft doesn't have a monopoly on the operating system market, they have a monopoly on the "operating systems that can run Win32 applications" market.

Your argument is like saying, "You can always power your business with steam, or hydraulics."

Also, there is no way Gateway could be competitive if they had to pay full retail price for Windows. The profit margins are razor-thin in the OEM business.

So Gateway has two choices: do whatever Microsoft demands or go out of business.

That last part is the crux of my argument; if you reply, you should explain why it's okay that Microsoft can demand whatever they want from OEMs, and the OEMs have no choice but to obey.