we control the interface .. we are NOT chosen .. - Original Message - From: Bill Gates Sent: Monday, November 02, 1998 12:19 PM To: Steve Ballmer; Paul Maritz; Joachim Kempin; Richard Fade; ? Pete Higgins; Brad Chase Cc: Craig Mundie; Haral Kodesh; Laura Jennings; Moshe Lichtman; Carl Stork (exchange); Jawad Khaki; Eric Rudder; David Vaskevitch Subject: Compaq meeting on Friday A Consumer group 1. Portal PC The consumer group is planning to ship a "portal pc" in the second half of 1999. At present Microsoft is NOT the chosen OS vendor for this machine. I tried to probe and understand why not as best I could. Our relationship with Compaq should avoid us being in this kind of come from behind situation - even if we can't meet all of Compaq's needs they should come to us first and be clear about what they need. This machine cuts across all our org boundaries. - IMG Win CE and Windows. Compaq at one point thought we would make a unified bid for this machine to be an MS OS and a MSN portal and we did not respond to that. I told Compaq that we should focus on whether we can provide the OS. Rod feels that Windows CE is not at all focused on this kind of machine and is missing the multimedia and other support required. He is talking about a machine that does browsing. The way he talked it made me feel like maybe the NeOS is considered a favourite choose. He also said we would have to adopt our software for their portal partner which could mean they are thinking of AOL as the portal partner. This whole area is a confusing one inside Compaq and Microsoft. Are we willing to have Windows CE used for a browsing machine like this - it seems with Jupiter we have crossed that bridge so I am unclear what Compaq thinks is missing. It would be a big disappointment for us to have another OS be chosen here. We need to get on top of this. Trey Smith may give us more insight into what is going on here. Our OEM groups need to get to the bottom of this ASAP. Rod will require a low royalty price for this machine. I am not sure it will sell in big quantities or not. It is proposed as maybe just Internet but including creating email and simple documents. It wasn't clear whether it has a disk or not. I think BeOS requires a disk and WindowsCE does not which should be an advantage for us. If the machine has a disk we could do a castrated version of Windows at quite a low royalty since it would run no Windows applications - technically and timewise for 99 this might be the easiest path. I tried to engage Rod on WebTV and understand what the issues were there. He said costs of cleaning out old inventory are super high for the current people so they aren't making money. I said I didn't think we had really dug into the issues on a TV based product to see if the economics could work between us or not. Maybe we don't need Compaq in this space but I would rather have them do this than Portal PC. However we have to be careful. They interpreted something Craig said about preferring to work with them on WebTV and saying we had NO interest in Portal PC and they should go to another supplier for that. Schrock talked about how WebTV is a closed model and I pointed out that helps the economics and certainly AOL will do the same thing. I explained how "openness" was a spectrum starting with whether you allowed a user to go to any URL they wanted to or not. One area we need to get a policy together for is whether we believe in Windows terminal type usage in the home where you can share a device and have stuff that is less complex. There are third parties doing stuff like this and we create a vacuum by not understanding what we want to do in this area. 2. Portal in general Somewhat related to the above is their whole view of Portal. We have a clause in the Windows contract that requires our properties to be featured prominently at no charge. I don't believe Compaq id fulfilling this clause. We need to have hard core position on this without upsetting that on the Portal PC. Compaq should understand that machines that run Windows applications we have stricter requirements than for other machines - we won't impose the same requirements on Portal PC if it doesn't run Windows applications. Rod Schrock acted like we were the ones who had not followed up on the clause and I said that that couldn't be right since we were meeting with them and they were bringing up AltaVista to us. I painted a picture where cable providers will get most of the high speed connection customers and they will not be paying a portal fee. I challenged Compaq's assumption that they can convert someone away from AOL with what they do in their machines. Schrock brought up a lot of data to say their buttons were getting people to do amazing things. After digging into it, all their data shows is that Compaq users do use the buttons to get to their "Home Page" and that generates a lot of home pages levels of use for Yahoo (My Yahoo) which is 10x as much traffic as Yahoo normally gets when they don't have the Home page. I suggested to Rod that people would "pay" customers to download software that redirects the Compaq URL that the keyboard generates - he kept saying they can avoid this which given the general purpose nature of a browser and remapping URLs I think he is wrong on that. Maffei thinks Compaq is trying to get TimeWarner to do some portal deal where they throw i AltaVista. This is possible since they are a partner in Roadrunner but I wouldn't be surprised of the deal comes together. Compaq needs to get $40 per PC over the next 3 years to feel good. I suggested they shouldn't any of this for granted on a machine that runs Windows applications since we control the interface. However it is interesting to understand that threshold which ties to their margin on selling hardware itself. Portal people like MSN or AOL or GTE might be willing to pay that toll. I want to be clear this is the revenue for ALL PCs so you have to get to the $40 even including the people who don't stay signed up or never sign up - say an AOL user who stays with AOL. Compaq is amazed at AOL's pervasiveness. They say 15% of all homes and 60% of connected homes are AOL subscribers and they don't see anything we or anyone else is doing to change that. I said it is true that AOL dominants and it means no one will pay portal fees unless they somehow think they can compete with AOL which since they were allowed to buy CompuServe is pretty tough. 3. Wingate(?)/NAT Compaq is really disappointed that we have so far ignored their plea to support the PC as ~~~ the cost for them of going to a third party. I was shocked to get ail from Stork saying their 3rd party solution replaces Winsock - that is crazy. However Compaq felt a need to do something and we did NOT respond. Apparently our lack of involvement has them off working with AOL to come up with specific extensions to make gatewaying work for AOL (does AOL like that? According to Compaq they are working with them). I told Compaq that there current solution worked in the basic cases (they offered a demo but I choose not to spend the time on it) but saw some problems with it. Compaq said that they are full speed ahead unless we come up with something better perhaps even a standard. I don't want to do more standards that don't benefit us - I want to do solutions that work myself. This whole area is really an embarrassment for us and I don't understand how we are going to do with this huge hole. Windows 98 has got to get some of this capability I feel. I promised Compaq we would work on doing better in this space. No one raised the issue of separately distributing binaries and I would have said NO very very very hardcore if that had come up. I don't see how that approach can help us at all. 4. Connectivity to the home I painted a picture where Cable is charging ahead and it doesn't appear that RBOCs are going to show up for the game at all. Echard has a keynote at Comdex and they said that they will announce all the RBOCs supporting G.lite as well as friendly words with Hughes about connecting through satellite and friendly words about making PCs cable ready. I asked when the RBOCs will price to compete and discussed all the issues about conditioning, no video etc.. Echard is on the board of BellAtlantic and said he would dig into it. I told Compaq they had been a great partner on G.lite but that right now I didn't see much happening and that cable will not allow them to get subsidies since they don't have to. I am disappointed in how vague all the G.lite pricing is - where it is concrete it is just too high. Desktop 1. Windows CE devices They will continue with Jupiter and other devices. They lost a lot on discounting what was in the channel as we made the version transition. They wanted to know if Philips was pulling out and what was going on with 3Com. They showed me a great looking Jupiter form factor. They want to be leaders in Ebooks and I agrees they should talk to Dick Brass and crew. They were thinking of getting some software from Xerox called Peddy reader or something which overlaps the work we are doing. They may consolidate their WindowsCE stuff with the consumer group IF we ever figure out how to work with the consumer group on Portal PC. They had a bunch of market data that showed VERY low awareness of Windows CE and Palm as being very well known. They just got a huge order from one customer for 60,00 units - a medical application of some kind. 2. Customers are telling them that Windows Terminal is too thin and the PC is too thick. They want something that runs Office on the PC and is easy to deploy to by using the browser for most other applications. Essentially the customers want a Microsoft Office Appliance (plus a few other local productivity applications) and they want us to make this very easy and supportable. Compag has hired Scott Cutler to work for Winkler as the chief technologist. He will come with some ideas for this machine that are fairly concrete and near term which may be very interesting to us. Compaq is amazed that we haven't done more to have a clear story on application deployment. When they talk to us we seem to talk about new written applications but they say we HAVE to solve the problem for todays applications and soon. 3. Display technology. They have invented an approach for building displays which uses LCD chips and a new light bulb projector which is novel. They feel that over time it will compete with CRTs on price and have a better resolution and size. The demo was very nice. They were even ~~~ would be a candidate for the spin out. I don't see it matching up with our focus even though what they are doing is cool and very protected with IP. Since it is not an LCD screen I don't think it lends itself to our special font resolution breakthrough. Server .. 4. UNIX. They are deathly afraid their UNIX won't have critical mass. They talked about the AIX announcement. It is unclear how the SCO and AIX code based come together. Compaq likes to point out that IBM is not turning over all their technology so there will not be one AIX. Also there is a Sequent involvement in this mix somehow where that code is different. They really want us to help them convert some people to their UNIX (Siemens, ICL, DG, Unisys) which we are already doing. They think we should help them in the field with their UNIX but this us really asking too much I am afraid. .. The whole meeting including my 1:1 with Pfeifer at the end was very friendly except for my really probing Schrock on the portal related issues. However we help Compaq a lot with our Frontline efforts. There is tension over Portal PC and Appliance server and the Portal in general. - Original Message - From: Paul Maritz Sent: Monday, November 02, 1998 1:45 PM To: Bill Gates; Steve Ballmer; Joachim Kempin Subject: RE: Compaq meeting on Friday This mail about "Portal PC" just reinforces my belief that we need to re-constitute ourselves along the lines of two underlying OS groups, and a UI/Solution group (which is specifically chartered to make faster progress on solutions while keeping consistent UI direction, and is charted to work with megaserver group) I think we need two types of solution ~~~ solution that is for running legacy and general purpose Windows apps. I still think we need to push harder on the original "NetPC" idea, coupled with Windows2000/ZAW, for both the corporate and the consumer environment (for those situations where there is a high bandwidth) - as the right balance between a full PC and a Windows Terminal. We should come up with big marketing rebate program (or like) for those who are willing to push this with us. * A differently-branded solution that pulls together into one product family, the eBook, Jupiter, Portal PC. It does not run arbitrary Windows apps. It is based on CE, and includes bundled set of apps. * Both solution are tied at some level into our Portal. Beyond that I am really shocked/puzzled at the status of relationship with Compaq. It is clear that Rose is only delivering half of the company for us. We don't seem to have any relationship at all with the other half. I think we need some exec to really take it upon him/herself to get to know Schrock et al. ?? ... http://edge-op.org/iowa/www.iowaconsumercase.org/011607/2000/PX02972.pdf -- court documents in the case of Comes v. Microsoft.