Open Letter to Ralph Nader Appraising the Nader Conference

Joe Barrera (joebar@MICROSOFT.com)
Thu, 13 Nov 1997 15:12:26 -0800


... from Microsoft COO Bob Herbold

- Joe

Joseph S. Barrera III <joebar@microsoft.com>
<http://research.microsoft.com/~joebar/>
Phone, Office: (415) 778-8227; Cellular: (415) 601-3719; Home: (415)
588-4801
The opinions expressed in this message are my own personal views and do not
reflect the official views of Microsoft Corporation.

November 13, 1997

Mr. Ralph Nader
PO Box 19312
Washington, D.C. 20036

Dear Mr. Nader:

Like other Americans, I have long admired your commitment to the well being
of consumers. The intensely competitive nature of the software industry has
produced a steady stream of innovative new products, at attractive prices,
that is unambiguously good for consumers. As a result, it is regrettable
that you appear to have aligned yourself with a small band of Microsoft's
detractors whose apparent goal is to enlist the government's assistance in
their efforts to compete with Microsoft.
Your conference this week in Washington, D.C., "Appraising Microsoft and Its
Global Strategy," might more appropriately be entitled "Microsoft: A
Conclave of Critics." Virtually all of the speakers at the conference are
either litigation opponents, leading competitors or well-known Microsoft
critics. The conference makes no pretense of presenting an objective or
balanced treatment of the issues. Moreover, you and your colleagues have
already taken an aggressively hostile stance toward Microsoft in your public
statements. This conference makes one wonder whether your speakers traveled
by Qantas because it has all the hallmarks of a kangaroo court.
At last count, some 30 anti-Microsoft speakers filled your two-day agenda.
You and your staff rejected our suggestions for several respected industry
participants and observers who could have presented a balanced view of
Microsoft's business practices and products. For us to participate in this
kind of an environment would be like walking into an ambush with
sharpshooters on every hilltop. Furthermore, it would dignify an event that
will inevitably devolve into Microsoft bashing.
For a supposedly pro-consumer conference, it's interesting that you charged
attendees $1,000, yet Novell earlier in the week was handing out free
tickets to 40 of its closest friends. It's also curious that the conference
was advertised in full-page national newspaper ads costing upwards of
$50,000 apiece. How is it that a non-profit operation like yours can find
the money to finance such expensive advertising and marketing efforts on
behalf of companies that compete with Microsoft?
Your premise that Microsoft has been a disincentive to competition and
innovation is simply wrong. As an AT&T executive observed last year, the
cost of computing has fallen 10 million-fold since the microprocessor was
invented in 1971. That's the equivalent of getting a Boeing 747 for the
price of a pizza. If this innovation had been applied to automotive
technology, a new car would cost about $2; it would travel at the speed of
sound; and it would go 600 miles on a thimble of gas.
Meanwhile, American software companies provide over 600,000 direct American
jobs and grew at seven times the rate of the U.S. economy from 1987 to 1994.
That's certainly not a portrait of an industry in decline due to lack of
competition. In fact, the growth in jobs and decline in the cost of
computing has been helped by the operating system technology in Microsoft
Windows, which has enabled software developers and hardware manufacturers to
develop thousands of compatible products.
It's important that the public and journalists covering your event
understand the extent to which you appear to have stacked the deck against
Microsoft:
* Your first session is entitled "An Overview of the Microsoft
Strategic Plan and How They Accomplish Their Goals." The speaker is Gary
Reback of the Palo Alto law firm of Wilson, Sonsini, Goodrich and Rosati.
Mr. Reback is an outspoken opponent of Microsoft who is on the payroll of
some of Microsoft's most notable competitors. He represented an anonymous
group of clients who attempted to intervene in a judicial review of
Microsoft's Consent Decree with the Justice Department in 1994. His
challenge was firmly rejected by the D.C. Court of Appeals. PC Week has
described Mr. Reback as a "headline-seeking lawyer," and he plainly has a
significant personal stake in portraying himself as the savior of Silicon
Valley companies in their competitive battles with Microsoft. Reback's boss,
Larry Sonsini, is on Novell's board and owns 54,100 shares of stock.
* The speaker for the session entitled "Microsoft and Increasing
Returns" is Brian Arthur, an economist closely affiliated with Mr. Reback's
efforts to limit the vigor of Microsoft's competitive efforts. Mr. Arthur
was a major contributor to a paper submitted in 1994 by Mr. Reback on behalf
of anonymous clients to the Antitrust Division of the U.S. Department of
Justice. Mr. Arthur's economic theories regarding Microsoft were recently
described by Rich Karlgaard in The Wall Street Journal as "old and
discredited. Mr. Arthur's is a very bad argument. The scandal of it is that
he can't defend it himself, except as a tautology." The essence of Mr.
Arthur's theory of economic returns is that Microsoft's success establishing
Windows as a popular operating system for the PC had everything to do with
luck and nothing to do with delivering a quality product that customers
wanted. According to Mr. Arthur's reasoning, millions of consumers the world
over simply made stupid choices.
* The speakers for the session entitled "Digital Commerce of the
Future" are representatives of companies that compete with Microsoft Expedia
and Microsoft CarPoint. These speakers are unlikely to be objective about
one of their major competitors.
* Your "keynotes" are being given by the CEOs of two of Microsoft's
competitors, including Scott McNealy of Sun Microsystems. Sun Microsystems
is a very large company with $8.8 billion in revenues and $747 million in
profits last year. The subject of Mr. McNealy's speech - "No One Should Own
the Alphabet" - is ironic. Sun is aggressively pushing its own proprietary
standard, Java, which it hopes will compete with Windows, while wrapping
itself in a half-hearted promise of openness. Just weeks ago, U.S.
representatives rejected Sun's gambit to have the International Standards
Organization shield Java from competition by designating it as an "open"
standard while allowing Sun to continue to control the technology and the
Java trademark. It's also important to understand that Sun's large Unix
workstation and outdated minicomputer business model is under pressure from
Microsoft's Windows NT, which offers far better price and performance for
customers. Your second keynote speaker, Mitchell Kertzmaan, is CEO of
Sybase, which competes with Microsoft in database products.
* The speakers for the session entitled "The Theory of Increasing
Returns and the Essential Facilities Doctrine" are both longstanding
opponents of Microsoft. Garth Saloner is another economist who contributed
to Mr. Reback's efforts to block Microsoft's proposed acquisition of Intuit.
Morgan Chu of the Los Angeles law firm of Irell & Manell was lead counsel
for Stac in its patent infringement action against Microsoft, and is
currently counsel to AT&T in another lawsuit against Microsoft. It's hard to
see how such a biased panel could actually shed any light on fair
competition.
* The speakers for the session entitled "Level Playing Field" are
perhaps the most partisan of the entire conference. Roberta Katz is the
general counsel for Netscape, which is locked in a competitive contest with
Microsoft in the development and marketing of Internet-related software.
Jamie Love, who works for you, has devoted virtually all of his time in
recent weeks to stirring up controversy about Microsoft on electronic forums
and offering a wide range of uninformed opinions regarding the legality of
Microsoft's actions under the antitrust laws (even though he is not a
lawyer, much less a lawyer with any antitrust experience.)
* The second day of the conference begins with a session entitled
"Government Antitrust Enforcement Activities." The speakers include Graham
Lea and Christine Varney. Mr. Lea is a freelance writer who used to work for
an English magazine called Computing. He has called Bill Gates "a spoiled
brat," "boorish," and "immature," and Microsoft a company "that lacked
ethical principles, that used sordid business practices." Your agenda lists
Christine Varney as a former commissioner of the Federal Trade Commission.
What you don't say is that she is now a paid consultant to Netscape. The
suggestion that she brings the perspective of an antitrust enforcement
agency is thus misleading.
* The speakers at the session entitled "Perspectives of Software
Developers and Users" cannot pretend to represent software developers who
create products that run on Microsoft's operating system, or the users of
any Microsoft products. Andrew Schulman is a journalist who testified as an
expert against Microsoft in the Stac litigation. Rick Ross is a
representative of the Java Lobby, which is a mouthpiece for Sun. Daniel
Nachbar is director of the Public Software Institute. Your colleague, Jamie
Love, is a board member of Nachbar's organization. None of these speakers is
qualified to speak about the advertised topic. Moderator of the panel is
Audrie Krause, director of NetAction, which has ties to some of Microsoft's
most vocal critics. According to published reports, Krause recently received
a grant from Sun Microsystems, the details of which neither would discuss.
She also receives free legal assistance from a Washington, D.C. lawyer who
does work for Netscape and Oracle. While NetAction says it is a 5013, it
recently organized an anti-Microsoft lobbying day in Washington D.C.
* The three speakers for the session entitled "Private Antitrust
Enforcement" are all involved in antitrust litigation against Microsoft that
is currently pending in Salt Lake City. Bryan Sparks is the CEO of a company
called Caldera, which is owned by Mr. Noorda's family foundation. Caldera
purchased the defunct DR-DOS operating system from Novell in 1996 and
promptly sued Microsoft based on claims that purportedly had been assigned
to Caldera by Novell. Those claims are identical to the allegations that
were thoroughly investigated by the FTC and the Justice Department at
Novell's behest between 1990 and 1994. A Forbes article quoted Sparks as
saying: "We could have just purchased a license to DR-DOS, and that's
originally what we were talking about with Novell, but by purchasing it
outright, we got the right to litigate." Steve Susman of the Houston law
firm of Susman Godfrey, and Steve Hill of the Salt Lake City law firm of
Snow Christensen and Martineau, are both counsel to Caldera in that
litigation. Obviously, Caldera and its lawyers will do nothing more than
repeat the unfounded allegations of the complaint. Mr. Sparks evidently was
so excited about being invited to attend your conference that he issued his
own press advisory on PR Newswire announcing his participation.
* The speakers for the last session, "Video, Telephony, Consumer
Protection and The Future of Television" have all been vocal critics of
Microsoft. Ed Black is president of the Computer and Communications Industry
Association, an organization that sought to persuade the court to reject the
Consent Decree agreed to by Microsoft and the DOJ in July 1994. Those
efforts were ultimately unsuccessful when the Court of Appeals in
Washington, D.C. ordered the lower court to enter the Consent Decree without
modification. Philip Monego is CEO and president of NetChannel, which is
closely allied with Oracle in its competition with Microsoft's Web TV.

Once the TV lights have been turned off and the reporters have packed away
their notebooks, I hope you will take the time to seriously study the market
dynamics that shape the computer industry. As a consumer advocate, you
should want to support a market defined by strong competition that results
in continually improving product quality and declining prices.
How dynamic and viable is the PC software industry today? There are 7,500
commercial software companies in the U.S. alone and more than 4 million
developers worldwide for Windows. Hardly an industry on its knees. We did a
study a few years ago that showed more than 500 new companies were formed
each year because of Windows, and that number has undoubtedly risen since
then. Interestingly, some of our most vocal opponents have built significant
businesses and realized hundreds of millions of dollars of revenue annually
as the result of the PC and Windows.
Yet Microsoft, though the most visible company in the industry, accounts for
only 1 percent of total information technology industry revenues of $1.1
trillion. We account for less than 4 percent of total software industry
revenues of $250 billion. Microsoft is not even the largest software company
- $13 billion of IBM's $75 billion in revenues is in software, compared to
our $11 billion.
As a consumer advocate, you know that any dialogue on competition needs to
be focused on the consumer. When companies complain about the vigor of
competition, that is typically a sign that they are having difficulty
keeping up with the pace of innovation or remaining profitable in the face
of declining prices. That doesn't mean, however, that consumers are
suffering. Nor does it imply that other companies have in any way
misbehaved.
Rather than blindly supporting efforts by Microsoft's large competitors to
enlist the government to help them compete in the marketplace, I urge you
instead to learn about our industry, which is at the center of America's
economic growth. Rather than trying to start an inquisition against
Microsoft, I urge you explore the innovation and falling prices that have
provided consumers with new products that improve the way we work, live and
play.
Sincerely,
Bob Herbold
Executive Vice President and Chief Operating Officer
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