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Microsoft Corp.

Microsoft vs. IBM: A Turbulent Relationship Exposed in Antitrust Trial

Strategic Insights

— 2 min read

The historic relationship between Microsoft and IBM is set to take center stage at the ongoing Microsoft antitrust trial, with allegations of a vendetta orchestrated by Microsoft Chairman Bill Gates against IBM for refusing to dump its operating system in favor of Windows. Government prosecutors will present evidence of specific illegal conduct by Microsoft, while IBM executive Garry Norris is expected to testify about his experiences with Microsoft during a critical period when the company sought to achieve a marketing breakthrough with its OS/2 operating system. Norris's allegations could both ruffle the current relationship between the two companies and strengthen the government's case in a critical sector.

Key Takeaways:

  • The Microsoft antitrust trial will focus on the company's dealings with IBM, highlighting alleged instances of retaliatory behavior by Microsoft against IBM for refusing to dump its OS/2 software.
  • Garry Norris, an IBM executive who worked closely with Microsoft from 1995 to 1997, is set to testify about his experiences, citing instances of Microsoft raising prices, withholding advanced Windows code, and refusing to share technical support with IBM.
  • Microsoft Chairman Bill Gates offered IBM major financial incentives to switch to Windows, including deep pricing discounts and preferential marketing programs, but allegations suggest this was a ruse to get IBM to abandon its OS/2 software.
  • The testimony of IBM executive Garry Norris could ruffle the current relationship between the two companies, which has warmed since IBM stopped marketing OS/2 as a desktop solution and decided to offer Windows as a Microsoft business partner.
  • The government has been unable to convince any large computer manufacturer to testify against Microsoft due to fear of Microsoft's wrath, highlighting the company's significant market influence.

Statistics:

  • Microsoft employed 14 employees in Seattle when it was first contracted by IBM to develop DOS 1.0 in 1981.
  • DOS 1.0 originated from code bought by Gates from another company, but it proved insufficient for the next generation of Intel-based computers.
  • Microsoft and IBM developed OS/2, but later quarreled, with IBM taking over the operating system's development and gaining full rights to Windows 3.1 code.
  • Microsoft released Windows 3.1 in 1992, which Fisher estimates gave the company probable monopoly power, although full consolidation of its market position did not occur until the release of Windows 95 in 1997.
  • The merger between America Online Inc. (AOL) and Netscape Communications Corp. has been cited by Microsoft as evidence of competition in the high-tech industry, but economists and executives from both companies believe this would not impact Microsoft's monopoly stance.

Sources:

  • [Justice Department Press Release]
  • [Franklin Fisher's Testimony at the Microsoft Antitrust Trial]
  • [Garry Norris's Deposition Transcript]
  • [America Online Inc. Press Release]
  • [Netscape Communications Corp. Press Release]

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