Gassee/Be's gauntlet: free for factory installs

Rohit Khare (
Mon, 1 Mar 1999 12:37:12 -0800

Tiny Software Maker Calls Microsoft's Bluff

Ah, the burden of proof.

In January, the tiny software company Be Inc. briefly came into focus=20
at the Microsoft antitrust trial, when a Microsoft executive asserted=20
that Be could soon become a major competitor to his company. No=20
matter that Microsoft controls some 90 percent of the personal=20
computer operating system market and Be has virtually no market share.

With publicity nine-tenths of the law, Be's flamboyant founder and=20
chairman, Jean-Louis Gass=E9e, has come up with a novel way to test=20
Microsoft's hypothesis.
In a column posted on Be's Web site on Thursday, Gass=E9e made a=20
proposal to any computer maker willing to confront Microsoft's=20
stringent licensing requirements: His company will license its Be=20
operating system free for one year to any computer maker willing to=20
install it on new machines and make it an option for buyers to select=20
the first time they switch on the PC.
Gass=E9e said that he had had no takers, despite several "nibbles," but=20
that he was discussing the idea with at least one major PC maker,=20
which he declined to identify.
The obstacles to his challenge appear to be formidable. But that may=20
be the point.
Gass=E9e described in his column how one computer maker has loaded the=20
Be operating system on its computers. But he said that the=20
manufacturer, which he did not identify in the column, has noted this=20
fact only deep in the accompanying documentation because the company=20
interpreted Microsoft's licensing provisions to bar non-Microsoft=20
systems from being displayed during the start-up sequence.
"I'm trying to expose something that has been right under my nose for=20
years," said Gass=E9e, who ran Apple Computer's hardware business=20
before founding Be in 1990 in Menlo Park, Calif. "Microsoft wants to=20
smother the baby in the cradle." -- JOHN MARKOFF=20

A Crack in the Wall
By Jean-Louis Gass=E9e

You're the CEO of a PC OEM, delivering some great news to Wall=20
Street: "In an effort to offer greater variety and performance to the=20
customer, our factory now installs three operating systems on the=20
hard disk -- Windows, Linux, and the BeOS. The reaction has been=20
spectacular. Customers love having a choice of OS, and the press --=20
from John Dvorak in PC Magazine to John Markoff in the New York Times=20
to Walt Mossberg in the Wall Street Journal -- has heralded us for=20
our bold move. This is a great step forward for the consumer and for=20
the industry. Oh, and by the way, we lost $50 million since we no=20
longer qualify for Windows rebates. But it's a sacrifice for the=20
common good."

You're now the ex-CEO of a PC OEM.
We know that the Windows rebate scheme exists -- but what *is* it,=20
exactly? And why are so many OEMs afraid of losing it? Windows=20
pricing practices are closely guarded secrets, so we don't know=20
exactly how the rebate is structured, but we can assume that it works=20
something like this: The total cost of a Windows license consists of=20
a base price offset by a rebate. The base price is set; the rebate is=20
flexible, and contingent on the "dedication" of the licensee. That=20
is, the more you "advertise" the product -- through prominent=20
positioning, expanded shelf space, and so on -- the greater your=20
rebate. This quid pro quo rebate looks innocent enough, and can be a=20
useful tool in a competitive market.
But when you're running a monopoly -- and when it comes to=20
out-of-the-box, consumer-grade PC clones, Microsoft *is* a monopoly=20
-- "prominent positioning" and "expanded shelf space" have little=20
meaning. Microsoft has no interest in getting "more" footage on the=20
OS shelf, because they've already got it all. What interests them --=20
the only useful advantage they can "buy" (to be kind) with their=20
rebate -- is to ensure that no one else will get any.
So how is "dedication" measured? A real-life example: We've been=20
working with a PC OEM that graciously -- and bravely -- decided to=20
load the BeOS on certain configurations in its product line. However,=20
there's a twist in their definition of "loading." When the customer=20
takes the machine home and starts it up for the first time, the=20
Microsoft boot manager appears -- but the BeOS is nowhere in sight.=20
It seems the OEM interpreted Microsoft's licensing provisions to mean=20
that the boot manager could not be modified to display non-Microsoft=20
systems. Furthermore, the icon for the BeOS launcher -- a program=20
that lets the user shut down Windows and launch the BeOS -- doesn't=20
appear on the Windows desktop; again, the license agreement prohibits=20
the display of "unapproved" icons. To boot the "loaded" BeOS, the=20
customer must read the documentation, fish a floppy from the box and=20
finish the installation. Clever.
One suspects that Linux suffers from the same fealty to Microsoft's=20
licensing strictures. Linux is the culmination of 30 years of=20
development by the Unix community. Surely an OEM can't complain about=20
Linux's quality or its price: It's good, and it's free. If Microsoft=20
licensees are as free to choose as Microsoft claims they are, why=20
isn't Linux factory installed on *any* PC? If you randomly purchase=20
1,000 PC clones, how many have any OS other than Windows loaded at=20
the factory? Zero.
But what about all these announcements from companies such as IBM,=20
Dell, and others? A few URLs are supplied here for your convenience:

If you parse the statements, Linux is offered and supported on=20
servers, not on PCs. Another IBM story is that installation is to be=20
performed by the reseller on some PCs or laptops, not by IBM at the=20
As an industry insider gently explained to me, Microsoft abides by a=20
very simple principle: No cracks in the wall. Otherwise, water will=20
seep in and sooner or later the masonry will crumble.
Guarding against even the smallest crack is important to Microsoft,=20
because it prevents a competitor from taking advantage of a=20
phenomenon that economists call the "network effect." The "network=20
effect" manifests itself as an exponential increase in the value of a=20
product or service when more people use it. Applied to a computer=20
operating system, the effect works like this: As more people install=20
and use an OS, the demand for applications increases. Developers=20
respond to the demand, which attracts the attention of OEMs and=20
resellers, who promote the OS in order to sell the apps, which=20
attracts more customers... The key to all this is distribution and=20
visibility -- in other words, "shelf space."
Bill Gates understands the network effect well -- he once quoted it=20
to me, chapter and verse. In the Fall of 1983, when I was still=20
running Apple France, I met with Bill in Paris and we got into a=20
conversation regarding the market share limitations of DOS. No=20
problem, he said, with the wide distribution we enjoy, we'll get the=20
attention of third parties, and the marketplace will fix these=20
This puts statements by senior Microsoft executive Paul Maritz in=20
perspective. In reaction to my claim that Be wants to co-exist with=20
Microsoft, Mr. Maritz said (as quoted by Joseph Nocera in Fortune=20

"[Gassee is] articulating his strategy for entry into the
operating system marketplace. But on the other hand, I
know that Be has built a full-featured operating system,
so what I believe he's doing here is outlining his
strategy about how he will initially co-exist with Windows
and, over time, attract more applications to his
Mr. Nocera interpreted Mr. Maritz's interpretation thus:

"In other words, Gassee's spiel is little more than a
trick intended to lull Microsoft. But Microsoft isn't so
easily fooled! Microsoft will never ignore a potential
threat to its Windows fortress, no matter how slight. The
software giant may be in the middle of an antitrust trial,
but -- as Andy Grove says -- only the paranoid survive..."

[The entire article, part of a court house diary, can be found
at <>.]
Industry sages such as T.J. Rodgers, the CEO of Cypress=20
Semiconductors, as well as venture capitalists aligned with=20
Microsoft, criticize the Department of Justice's intervention in the=20
new Pax Romana we're supposed to enjoy under Microsoft's tutelage.=20
Don't compete in court, compete in the marketplace, they say.
I'm a free marketer myself; I left a statist environment for the=20
level playing field created by the rule of law in this, my adopted=20
country. A free market is *exactly* what we want. One where a PC OEM=20
isn't threatened by financial death for daring to offer operating=20
systems that compete with the Windows monopoly.
We started with a thought experiment. We end with a real-life offer=20
for any PC OEM that's willing to challenge the monopoly: Load the=20
BeOS on the hard disk so the user can see it when the computer is=20
first booted, and the license is free. Help us put a crack in the=20