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01.22.09

Microsoft Antitrust: “The Linux Threat on the Desktop” (2006) and Predatory Response

Posted in Antitrust, GNU/Linux, Marketing, Microsoft, Windows at 11:50 am by Dr. Roy Schestowitz

Microsoft “Taskforce” lobbied Wal-Mart/Microtell to drop GNU/Linux

Large store
The real story about Microsoft’s fight against
GNU/Linux at high-street shops

Wal-Mart’s proximity to Microsoft — and by association to Novell — is something that Shane and I discussed before, but today’s antitrust evidence comes from 2006 and it reflects on things that were happening behind the scenes when the press was totally unaware. This exhibit is about what Microsoft called “the Linux threat on the desktop.” From Exhibit px09617 [PDF] which comes from Microsoft:

Microtel PCs without an operating system (“naked”) first started appearing on Walmart.com in CY 01. We responded by working with Walmart.com on the language that was used to market those PCs. The focus was on “anti-piracy” messages.

The first Microtel Lindows PCs appeared on Walmart.com in June 2002. We are responding with a taskforce and coordinated efforts to understand the situation and intentions of all parties involved.

[...]

There is one critical data point we are missing: volume. Walmart will not disclose the volume of Microtel PCs they are selling, and Microtell has told us they are under a “non-disclosure agreement with Walmart.” We have been working on some tactics so attempt to obtain volume estimates, but at this time, we can’t confirm any numbers.

[...]

The PR activity and focus from Walmart has definitely increased out efforts to understand the Linux threat on the desktop. Several Linux PCs were purchased and evaluated. See the summary of those findings below.

This exhibit, as text, can be seen in full at the bottom. It’s not too laborious to read entirely, but let’s go through some portions of interest.

The “Confidential [Internal] Memo” lists “Walmart/Linux Taskforce” as Robin Bradshaw, Christine Briggs, Mark Croft, David Hoffman, and Tom Perrier. To understand what this “Walmart/Linux Taskforce” actually is, one should look at the part where it says: “The first Microtel Lindows PCs appeared on Walmart.com in June 2002. We are responding with a taskforce and coordinated efforts to understand the situation and intentions of all parties involved.” In other words, the “task” is to suffocate or destroy GNU/Linux.

“Is that retaliation at play? Let’s remember that those who don’t choose Microsoft have the Microsoft executives yell “cut those fuckers off” and then sue them for something. ”Microsoft also writes: “We understand that there has not been a customer satisfaction issue. Walmart sets fairly strict standards for customer return rates and service calls.” They were also shipping about $200,000 per week, which must have made them happy with GNU/Linux desktops.

Then Microsoft turns to the dealer at another level: “All of the conversations with Microtel are centered on growing their Microsoft business, and improving the relationship between Microtel and Microsoft. We avoid any direct conversations on Lindows.”

Now, pay attention to this part: “Luke is concerned that Microsoft is mad at them for selling Linux PCs.” Is that retaliation at play? Let’s remember that those who don’t choose Microsoft have the Microsoft executives yell “cut those fuckers off” and then sue them for something. On at least 3 separate exhibits that we’ve found in Comes, the company referred to competition as "Jihad". Even Bill Gates uses this word.

For Wal-Mart, this GNU/Linux project was really successful. Microsoft remarks: “Their goal with Lindows was to hit a very low price point – if it sold, they would keep it, if it didn’t they would dump it after 90-120 days. It’s selling.” In fact, it was also selling later on when Walmart began offering gOS PCs (2007), but we lack evidence to show if Microsoft was involved. It did look highly suspicious at the time.

Microsoft also writes: “”Naked PCs” (no O/S) are still outselling Linux PCs (but not by much)…”

Let us remember that Microsoft said it was "scared" of GNU/Linux. It called it a “huge threat”.

Having circulated this for some feedback, we gathered some responses, such as: “Clear evidence that Microsoft hosts meetings on their retail clients and how to undermine them and their competitors by illegally addressing their sales instead of competing with them through better price and products.

“This is habit of drugs induced paranoia driven marketing plops that look closely at money and play blind with regulator and fair trade.

“The retail clients should have nothing to fear.”

Another person remarks: “In regards to ‘triple-dipping’, it really amazes me how none of the major OEMs or content providers have pup to the bat to provide a total stack, e.g. making money from the hosting , the content and then from the consumers – a license to print money …”

A longer response comes from Rex Ballard, who writes:

“Microsoft has tried a number of tactics against the “No OS” or “Linux on PC” machines.

“These include:

  • Filing trademark infringement lawsuits against Lindows (FUD to slow sales).
  • Sponsoring the SCO lawsuit against IBM, claiming copyright infringements (FUD to slow sales).
  • Claiming that Linux violates Microsoft copyrights and patents, yet refusing to identify the infringing code so it could be replaced. (More FUD)
  • Threatening Retailers – telling them they can’t turn on Windows PCs while Linux PCs are on.
  • Vapor-Ware – XP, Longhorn, Vista. – for almost 25 years. (Latest being Windows 7).
  • Attempt to gain control of advertising revenue by going against Google.
  • Attempt to limit coverage – by getting placement control of OEM advertizing as well as their own $4 billion budget – possibly a total of $40 billion in “leverage”.
  • Filing Piracy lawsuits against Retailers who offer Linux instead of Windows.
  • OEM contracts force OEM to exclude Linux.

“EULA of Vista Home editions originally did not permit Vista to be used in virtualized environment. EULA of XP and Vista require that even Linux clients accessing the Windows desktop remotely have an XP or Vista License.

“All of these issues have been raised by the “California Group” monitoring the settlement compliance, but the DOJ has dismissed all complaints (over 4,000 so far) as being “Without Merit”. This ties the Judge’s hands. She can’t impose sanctions without a request from the DOJ. Judge Kollar-Kotelly has openly stated in court that she is disappointed by the lack of compliance, AND the DOJs unwillingness to seriously investigate complaints and violations of the settlement. The Judge is powerless to enforce her own Judgement.

“Even with ASUS and Acer, once the sub-notebooks were released into the market, Microsoft strong-armed them into offering the same machines with Windows XP home edition. Could it be that they threatened to revoke Vista/XP licenses on full-sized PCs and Notebooks? What pressure was used? Investigation is warranted.

“There are about 9000 exhibits on this site, which show that Microsoft not only engaged in criminal activity to obtain their monopoly, but also showed that Microsoft continued to engage in criminal activity to protect that monopoly even AFTER the DOJ settlement, a direct defiance of the Appeals Court Ruling.”

Linspire may be defunct now, but given the evidence, can’t Michael Robertson sue Microsoft instead of suing Kevin Carmony?

For those who wonder, this was not an isolated incident where a “taskforce” is assigned to fight GNU/Linux adoption (Microsoft calls it “Linux infestation”) . The memo ends with: “Develop a deeper understanding of the Linux efforts at other System Builders and OEMs in the US. (Datel, ZT Group, MEI etc) (Tom Perrier & Ken Goetsch).”


Appendix: Comes vs. Microsoft – exhibit px09617, as text


Confidential Memo

To: Microsoft Internal

From: Walmart/Linux Taskforce: Robin Bradshaw, Christine Briggs, Mark Croft David Hoffman & Tom Perrier

CC: Rogers Weed

Date: May 16, 2006

Summary

Microtel PCs without an operating system (“naked”) first started appearing on Walmart.com in CY 01. We responded by working with Walmart.com on the language that was used to market those PCs. The focus was on “anti-piracy” messages.

The first Microtel Lindows PCs appeared on Walmart.com in June 2002. We are responding with a taskforce and coordinated efforts to understand the situation and intentions of all parties involved.

To date, there has been a lot of press about the Linux PCs selling on Walmart.com (See attached list of articles.) The media has been mixed, some telling a positive story about the Linux efforts and some pointing out the flaws in the offerings. One consistent message is that these are “substandard” PCs based on today’s technology advances.

There is one critical data point we are missing: volume. Walmart will not disclose the volume of Microtel PCs they are selling, and Microtell has told us they are under a “non-disclosure agreement with Walmart.” We have been working on some tactics so attempt to obtain volume estimates, but at this time, we can’t confirm any numbers.

- We understand that Microtel is shipping approximately 100 units per week on Walmart.com orders.

- We understand that most of the volume is at the $199 price point.

- We understand that most of those systems are shipping with NO OS. (Naked Systems)

- We understand that there has not been a customer satisfaction issue. Walmart sets fairly strict standards for customer return rates and service calls.

The PR activity and focus from Walmart has definitely increased out efforts to understand the Linux threat on the desktop. Several Linux PCs were purchased and evaluated. See the summary of those findings below.

Linux on the Desktop

Abcdefghijklmnop…..

Microtel

Microtel is a small system builder in the City of Industry California. A couple of principles in the company came from a previous OEM Mitsuba. Microsoft filed suit against them in _____ for piracy and they went out of business. They haven’t been proponents of Microsoft, their volumes haven’t warranted direct account management, and we just began to engage and build a relationship with them in 2002.

We started to engage with Microtel in the beginning of FY02, but the AM was met with a closed door and had little if no success. When the Lindows issue broke, Tom Perrier (tperrier), Microsoft System Builder RSM, discovered that Rich Hindman was their VP of Sales/Marketing (from Mitsuba). Tom had worked with Rich prior at AST Computer. Tat got us in the door and Rich is open to work on the relationship with Microsoft and Tom, but isn’t sharing any information regarding their plans of volume. This is a summary of his progress with Rich:

1.) Continue the engagement with Rich Hindman to focus on strategies to differentiate the offerings as Microtel introduces a new wave of SKU’s. This will separate the offerings and focus on the added value of the Windows based systems. (Avoid the current situation where the $299 Windows Home SKU is the same config as Lindows model but $100 more for the same model with XP Home, with no other differentiation). This can be accomplished with scenarios like the Office XP 20-Day trial (in place today).

2.) They are still very “non-disclosure” oriented. I tried and tried, but could not get Rich to divulge any shipment data. I continue to think that the shipments out of their facility in City of Industry are small. In addition, Rich would not give me any real data for the current PRM Account Profiling that we are doing.

3.) All of the conversations with Microtel are centered on growing their Microsoft business, and improving the relationship between Microtel and Microsoft. We avoid any direct conversations on Lindows.

4.) Rich realizes and states that Microtel is getting increased focus and attention based upon their offerings on the Wal-Mart.com site. He will continue to take advantage of these opportunities as they arise.

5.) In developing the relationship with the local VIA Sales Rep, Roger Goh (rogergoh), System Builder AM was able to determine that the systems built for Walmart.com are build somewhere on the east coast, and the volume is approx 1000 a week. He was not able to get the mix.

Tom has been working closely with the taskforce team and David Hoffman on driving a longer term strategy with Walmart.com. Microtel seems willing to do the implementation.

Walmart.com

Retail relationship efforts have been historically focused on Walmart corporate and not walmart.com. There is a high level of autonomy at walmart.com. They are not managed under the same guidelines and processes as Walmart corporate. They are making their own decisions about product offerings. Luke Ellison is the Technology Manager at Walmart.com. David Hofman, Microsoft HRD Account Manager, has developed a relationship with Luke. He is eager to work on some additional Microsoft programs with David, but isn’t sharing too much regarding their Linux plans. This a summary of his meetings with Luke:

1.) Luke is concerned that Microsoft is mad at them for selling Linux PCs.

a. He wanted to make sure that we knew that www.wal-mart.com is very “pro-Microsoft”

b. They feel that customers that purchase Linux PCs were never a “Microsoft” customer anyway, and that by offering Linux PCs, they were broadening their customer base

c. Their goal with Lindows was to hit a very low price point – if it sold, they would keep it, if it didn’t they would dump it after 90-120 days. It’s selling.

2.) “Naked PCs” (no O/S) are still outselling Linux PCs (but not by much)

a. They plan to start selling Windows XP OEM (bundled with mouse) as a standalone product (technically this is legit)

3.) All the machines are build-to-order and that www.wal-mart.com carries no inventory.

4.) They are currently working on a way to offer additional software bundles with all of their PCs (like Office, Anti-Virus, etc.)

5.) He mentioned that Microtel was upset about the E-machines deal with Wal-Mart retail, but that Wal-Mart didn’t think Microtel could handle being a retail partner – it was just too big of a job for them.

David is working with Walmart.com to help them promote the Windows XP PCs that are listed on walmart.com today. In an effort to differentiate the Windows XP PC from the Linux PC, we are working on a consumer software title bundle to promote as part of the purchase of the Windows XP machine.

Next Steps

1.) Continue the relationship efforts with Microtel and Walmart.com. (Tom Perrier & David Hoffman)

2.) Develop a deeper understanding of the Linux efforts at other System Builders and OEMs in the US. (Datel, ZT Group, MEI etc) (Tom Perrier & Ken Goetsch)

3.) Work with Windows Team to understand options for a Windows XP eval solution. (Mark Croft)

4.) Stay close to HP and eMachines (to oOEMs selling PCs at Walmart) to understand their efforts and position in the account.

DRAFT

http://www.startribune.com/stories/789/3341339.html

http://mslibrary/news/elecpub/csn

http://msnbc.com/news/813350.asp

http://www.pcmag.com/print_article/0,3048,a=30914,00.asp

http://www.desktoplinux.com/news/NS9675669942.html

http://www.extremetech.com/article2/0,3973,491621,00.asp

http://newsforge.com/newsforge/02/08/22/1855237.shtml?tid=23

http://biz.yahoo.com/fo/020821/doesn t do windows 3.html

Wal-Mart Sells Windows-Less Computers

Associated Press

Silicon Valley.com

USA Today: http://www.usatoday.com/life/cyber/tech/review/2002-07-17-walmart-computers x.htm

Linux finds fans at Wal-Mart

C/Net:

Sun, Lindows.com Strike Deal

Internet.com: http://www.internetnews.com/ent-news/article.php/1404731

Mandrake on Lindows

C/Net:

http://www.washingtonpost.com/ac2/wp-dyn/A35576-2002Jul20?language-printer

http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentID=A35576-2002Jul20&notFound=true

http://www.pcmag.com/article2/0.4149.470658.00.asp

http://www.pcmag.com/print article/0,3048,a-30914,00.asp

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15 Comments

  1. Roy Bixler said,

    January 22, 2009 at 1:13 pm

    Gravatar

    Yes, it would be an understatement to say that the settlement of the US v. Microsoft suit was a disappointment. The DOJ had a strong hand and snatched defeat from the jaws of victory. It’s not surprising then that they are also unwilling to investigate compliance issues with the already disappointing settlement (which, at the time, was called by El Reg “the Seattlement”.)

  2. Roy Bixler said,

    January 22, 2009 at 1:30 pm

    Gravatar

    I should also add that there is little doubt that, if the George W. Bush Administration had its way, the anti-trust suit against Microsoft would never have existed because they wouldn’t have filed it. It’s a combination of their unabashed faith in an unregulated free market and of the influence that Microsoft brought to bear. It’s ironic because the administration of the first George Bush started the anti-trust investigation which led to the Clinton administration DOJ’s US v. Microsoft suit.

  3. Roy Schestowitz said,

    January 22, 2009 at 1:39 pm

    Gravatar

    It’s a combination of their unabashed faith in an unregulated free market and of the influence that Microsoft brought to bear.

    “Free market” is an Orwellian term. It has little to do with freedom and the few with liberty to abuse may cause more harm while stifling real “innovation”

    MSFT sank to $17 today. Layoffs are now confirmed too.

  4. Gentoo User said,

    January 22, 2009 at 1:48 pm

    Gravatar

    Your interpretation of this is completely wrong. Wal-Mart is one of the few companies that Microsoft simply cannot muscle around because they’re immensely larger, more influential and far more diversified than anyone else. This is not Dell or Gateway who center their entire livelihood around selling PCs with Microsoft operating systems on them, and are thus at the mercy of whatever licensing terms Redmond decides to come up with.

    You’re just taking advantage of the relative crudity of these internal documents and spinning up their real meaning.

    Other than your groupies, no one who reads this would even for a second buy the premise that Microsoft somehow pressured Wal-Mart into anything, sorry.

    Note: comment arrived from a witch hunter that does not even use GNU/Linux.

  5. lpbbear said,

    January 22, 2009 at 2:37 pm

    Gravatar

    In the case of the more recent “netbooks” take note of how few, if any, of the Linux offerings come with actual hard drives meaning for instance the 120/160 gb hard drives commonly offered with the WinXP Home Edition versions. All Linux netbooks, as far as I have so far seen, are being marketed with the SSD drives. Also note how many Linux users have experienced issues with the new SSD drives.
    This appears to me to be obviously more of the same kind of behind the scenes rigging of the system from Microsoft. Ask yourself why are the Linux versions of these systems not offered with the larger hard drives?

  6. Jose_X said,

    January 22, 2009 at 2:50 pm

    Gravatar

    Gentoo User, you make some sense. Collusion with or bribing of Wal-mart probably more likely took place than “pressuring”. Maybe.. perhaps. [?]

    What is confusing me is exactly what did Roy say that you think was way wrong and got you so upset?

    I believe Microsoft has partnered with Wal-mart on large POS contracts and maybe in other major ways (Wal-mart does sell Windows PCs) since the time the Xandros machines were introduced years ago.

    Wal-mart plays hardball. They can get major brand names to sign contracts completely not in the best interests of those suppliers. Certainly, they “push around” many small vendors and non-monopolists. Whether Linux was working out or not, Wal-mart does stand to gain by giving the impression Linux is succeeding.

    However, Wal-mart has much potential on the line when it comes to Microsoft’s markets (see quote at bottom). Wal-mart depends on Microsoft more than vice-versa, partly because of the huge potential gains in future partnerships but also because Microsoft supplies very important business goods for Wal-mart’s own internal use as a business.

    Wal-mart is not a monopolist except in small scattered markets. They don’t quite have the leverage Microsoft has. To Microsoft, Wal-mart is just another retailer. Microsoft won’t sell many fewer licenses without Wal-mart. Microsoft can reach just about everyone they otherwise might reach specifically through Wal-mart. Conversely, Wal-mart needs Microsoft to be able to tap even a little bit into the huge Windows-based markets.

    Roy’s piece also specifically mentioned influences that were brought to bear to some extent (carrots it appears) on Microtel, which is a much much smaller company than either Microsoft or Walmart and does rely heavily on PC sales. [Is this them: http://www.spoke.com/info/c36CPEM/MicrotelComputerSystemsInc ?]

    So…

    Of this entire blog piece, what fraction of the content, if any, would you say you disagree with? I can’t figure it out.

    Do you disagree with this? …

    >> today’s antitrust evidence comes from 2006 and it reflects on things that were happening behind the scenes when the press was totally unaware.

    [Maybe Roy meant that almost all (or all) of the press was not reporting and most might not have been aware.]

    or how about this? …

    >> In other words, the “task” is to suffocate or destroy GNU/Linux.

    This maybe? …

    >> “Luke is concerned that Microsoft is mad at them for selling Linux PCs.” Is that retaliation at play? Let’s remember that those who don’t choose Microsoft have the Microsoft executives yell “cut those fuckers off” and then sue them for something.

    Do you disagree with any of the fact-based quotes?

    This? …

    >> [Wal-mart is] currently working on a way to offer additional software bundles with all of their PCs (like Office, Anti-Virus, etc.)

    >> Luke [a major Wal-mart exec] is concerned that Microsoft is mad at them for selling Linux PCs.

    >> [Luke] wanted to make sure that we knew that http://www.wal-mart.com is very “pro-Microsoft”

    Gentoo User, I have to imagine you agree almost entirely with Roy’s posting, right? [maybe I just misunderstood you when I thought you were greatly disappointed]

    >> Other than your groupies, no one who reads this would even for a second buy the premise that Microsoft somehow pressured Wal-Mart into anything, sorry.

    Hmmm. I’m not sure what motivated that remark.

  7. Jose_X said,

    January 22, 2009 at 2:57 pm

    Gravatar

    >> Ask yourself why are the Linux versions of these systems not offered with the larger hard drives?

    Why ask the obvious?

    Microsoft is working with it’s dealers to tune the market properly. Anyone that doesn’t play along suffers serious disadvantages as Monopolysoft withholds competitive deals from them.

  8. Roy Schestowitz said,

    January 22, 2009 at 3:20 pm

    Gravatar

    ASUS has already sort of confessed that Microsoft was “tying them up” over the Linux-based sub-notebooks. Search this site’s archives.

    As for dependency at Wal-Mart, it’s Wal-Mart that depends on Microsoft. Many large OEMs have complained that they are left with no choice but to accept Microsoft’s margins, or else they go out of business.

    See Comes vs Microsoft for details and proof.

  9. Jose_X said,

    January 22, 2009 at 3:35 pm

    Gravatar

    >> Many large OEMs have complained that they are left with no choice but to accept Microsoft’s margins, or else they go out of business.

    Wal-mart is not likely to go out of business solely because of anything Microsoft might do or not do, but Wal-mart’s investors really would not be happy to antagonize Microsoft and suffer the retributory consequences.

    In the future, if Linux uptake and the add-on market prove to be very successful, Wal-mart could really help pain Microsoft, but this surely wasn’t the case back years ago, especially while Bush was in the White House.

  10. pcolon said,

    January 22, 2009 at 4:01 pm

    Gravatar

    One of the possible reasons for HDD for the MS units and SSD for the GNU/Linux ones could be the constant drive thrashing of windows systems. SANDISK said SSD drivers for MS was a problem. Vista 7 even worse.

  11. Gentoo User said,

    January 22, 2009 at 5:01 pm

    Gravatar

    Note: comment arrived from a witch hunter that does not even use GNU/Linux.

    (Note: lame disclaimer text was pasted by someone who spends massive amounts of time criticizing software he doesn’t even use)

    This is what I call poetic justice :)

    Feel free to actually answer my comments at your leisure, BTW, instead of doing this.

    Note: comment arrived from a witch hunter that does not even use GNU/Linux.

  12. Roy Schestowitz said,

    January 22, 2009 at 5:14 pm

    Gravatar

    @pcolon: do you have any links about that?

    I have some links about Vista causing hard-drive damage and there’s also this:

    Windows Vista’s Constant HD Activity Craziness
    http://texhex.blogspot.com/2007/11/windows-vistas-constant-hd-activity.html

    Under the hood, Vista 7 is just Vista, so nothing has changed.

  13. Burfoot said,

    January 22, 2009 at 5:15 pm

    Gravatar

    Lol I think Wal-mart could tell microsoft to take a flying leap…and sell only linux or mac based computers – or none at all – and not make a dent in there bottom-line sells. So I really don’t think Walmart was pressured or anything.
    Actually as business smart as Walmart is, I would be Surprised if they were using a microsoft server solution. most likely a stable Linux one.

  14. pcolon said,

    January 22, 2009 at 5:33 pm

    Gravatar

    @Roy. I’ll look for it. It was a driver issue with vista, about 6 months ago when they came to our site for a “Roadshow” on enterprise storage using ssd’s.

  15. The Mad Hatter said,

    January 22, 2009 at 10:34 pm

    Gravatar

    Microsoft has had enough time to fix the drive issue, whether they have done so I don’t know. I do know that if this problem showed up with a Free Software kernel it would have been fixed within a week or two at most.

    And that is one of the things that scares Microsoft. They are well aware that problems which show up in Free Software projects are usually fixed quicker than problems that show up in Closed Software projects. This is why Apple has based OSX on one of the BSD variants, it cuts down on the amount of work they have to do, and problems with the Free Software part are fixed very quickly.

    Desktop BSD is really nice, I’ve been playing with it for the last week. It’s a lot more stable than Windows XP, and runs in hardware that neither XP nor Vista would run well on.

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  27. Links 28/6/2015: Manjaro Linux Cinnamon 0.8.13, VectorLinux 7.1

    Links for the day



  28. Williamson v. Citrix Online (at CAFC) Reinforces Alice v. CLS Bank (at SCOTUS) in Crushing Software Patents

    More patent news from the United States, again serving to indicate that software patents over there are getting weak (harder to defend in court or acquire from the patent office)



  29. Proskauer Rose LLP is Cherry-Picking Cases to Make Software Patents Seem Eligible Despite Alice v. CLS Bank

    Naming and shaming those who are trying to reshape the consensus despite a rather consistent pattern of software patents being rejected



  30. IAM Biased: How IAM 'Magazine' Glorifies Patent Stockpiling

    A look at the bias of one of the most overzealous sites for and by patent lawyers


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