MS - Harris : LUSENET : MS-DOJ : One Thread

William Harris is the CEO of Intuit. He has managed the business aspects of considerable amounts of Intuit's software and negotiated with MS on several desktop and IE ventures.

I. Direct Testimony

William Harris's direct testimony reiterated the story of the monopolistic power that MS maintains over software developers and Internet Content Providers (ICPs). Harris related the tough life of a software developer / ICP-cursed to program for MS's operating system to assure widespread compatibility (entrenching MS's "choke point" dominance by doing so), and always frightened of being replaced or excluded from the market by next wave of MS code. In Harris' opinion, MS also has control of the premier distribution channel for software-distribution with the OS-and first shot at potential customers by setting the default browser start page and portal on IE. Harris asserted MS's power extends or will soon extend beyond the browser into applications and the Internet, suggesting MS tips the playing field by positioning its offerings with Windows. Consequently, software developers and ICPs are forced to make deals with the devil (term not used) when scrambling to place their icon on the desktop.

Harris' direct testimony specifically related how MS's behavior and practices have affected Intuit. First, Intuit's fear of a WinATM program, an attempt to include financial functionality in Windows, was a factor leading to its preliminary acquisition agreement with MS in 1994. (In reality, neither WinATM, nor its embedded functions, appeared in Windows. All evidence about WinATM's existence was hearsay.) Second, seeking premier product placement and fearing MS would advantage its own software, Intuit contracted with Microsoft to be a "Platinum Partner" on Microsoft's "Active Desktop" in Windows 98. Active Desktop was to provide desktop icon-activated direct access to web sites. Effectively, Intuit was sold a "white elephant"--a junior piece of real estate in an unused "Active Desktop" in a delayed Windows 98, in exchange for exclusively promoting IE and dumping Netscape. Intuit was subsequently released from this agreement when MS dumped the Active Desktop idea. During this period Intuit embedded IE's functionality into Quicken, allowing Quicken users to access the Web without opening an additional window.

Harris reiterated many familiar refrains heard from other witnesses so far: Software is invariably highly malleable and flexible. The Internet is an important format for commerce. Integrating software will always have advantages and disadvantages. Removing a program does not involve removing every associated file. Harris' testimony also touched some other issues. His profitability analysis boiled down to the reasoning, "Microsoft is so darn profitable that it must be doing something illegal." Harris also addressed on remedies, suggesting unspecific remedies based on "operating system neutrality." His ideas included separating Microsoft's OS business and ensuring universal access to all OS technology and equal placement for all service and content providers.

II. Cross-Examination

MS Hits: First, Warden traced much of Intuit's behavior to its own business judgements and perceptions, rather than MS's "monopolistic" practices. Intuit chose to embed IE in Quicken because it was a technologically superior product. MS did not pressure Intuit's decision. Netscape had other priorities and could only offer Intuit a commercially impractical "hack" version of Netscape 4.0 by the time Intuit needed to select a browser for integration. Harris' only reason for working with Netscape was an historical warm long-term relationship of two years. Notably, while Windows sold "Platinum Partner" real estate to multiple content providers, Warden suggested Intuit was one of the only partners to actually cease developing and promoting technology to benefit Netscape's Netcaster. Intuit's sites were still programmed to recognized either browser and send display instructions accordingly. Now, well after the exclusive Active Desktop agreement would have naturally expired, Intuit has avoided collaboration with Netscape both as a negotiating tactic, and because Netscape has already signed other potentially conflicting partnership agreements. Warden noted that MS never limited Intuit's ability to contract with OEMs to place its software.

Second, reality suggests Harris' allegations of MS's impending dominance over software and Internet content are unlikely. Warden defused much of Harris assertion of MS's impending dominance over web content and its power to restrict the ability of software vendors and ICP from reaching potential customers. Harris admitted MS has little of the control over the browsing behavior and home page/start page selection that he asserted in his "choke point" theory. He admitted MS possesses a small share of "portal" traffic, every ISP and browser can adjust customer's start pages, URLs are easy to memorize and bookmark, many URL's have push-button capacity to change start pages, and IE 5.0 plans to make this last function easier than ever. And despite Harris' claims of competitive advantage, MS has not attained a monopoly on financial software. Intuit remains the dominant provider.

Harris also admitted that Windows' increasing functionality has been a great benefit to Intuit and other software developers as well as consumers.

MS Misses: Uncertain inquiries:

Warden spent much of his cross-examination trying to prove that placement on the OS desktop does not mean life or death to an application or a software developer, presumable to assert that Intuit could have told MS to stuff it. However, Warden couldn't get Harris to suggest such preferential real estate is unimportant. Also, Warden tried to make Intuit's dumping of Netscape look like a drop in the bucket of Netscape's distribution tactics, 5 million copies of Netscape versus the 150 million they intended to circulate. Would this somehow excuse MS's behavior? Or is this to minimize the associated damages? Harris refuted Warden's comparisons of Intuit's software strength to MS's OS and browser power.

Warden steered clear of Harris' allegations that but for MS's contracts and Gates' ultimatums, Intuit would have continued relations and development with Netscape, until re-cross examination. Then, Warden made no progress. First, Harris dismissed Warden's notion that Intuit could have settled for junior, junior partner status in the Active Desktop and still talked to Netscape as commercially impractical. Second, he rebuffed Warden's attempts to make cooperation and bundling with both browsers look too expensive.

Pointless Inquiries: Both Warden and Harris appeared to be shooting in the dark when contemplating whether Microsoft's profitability was evidence of monopolistic behavior. Their discussion regarding the appropriate leverage ratio for Microsoft was particularly valueless. Both agreed that Windows has included additional functionality while maintain its price. Harris admitted that some of Intuit's software prices have increased with enhanced functionality and the bundling of application suites.

III. Implications

While Harris's larger allegations failed cross-examination and his thoughts on investment performance and remedies appeared undeveloped, Harris came off as a level-headed, reasonably technological businessman negotiating for his firm's survival against the strong-arm tactics of MS. At times he agreed with Warden, other times he recalled Warden's own earlier hypothetical situations to prove his own point. Harris lent strength to the DoJ's central claim of unlawful extension and preservation of monopoly (Sherman Act '2, defensive monopolization). He provided first-hand experience of MS using its OS power to extort browser distribution exclusivity at the expense of browser competitors. He also witnessed MS using its power to force OEMs like Compaq to abrogate contracts with Intuit. However, Harris' contribution to the DoJ tying claim (Clayton Act '3) is more uncertain. His testimony clearly suggested rampant consumer-benefiting competition in "tied" markets of applications and Internet content. And as Intuit and other developers and ICPs analyze competition in the browser market, they continue to program for both browsers.

IV. Best Comments

When discussing the relationship between desktop icons and ensuing profitability:

Harris: One of the things you mentioned earlier was-I think, a similar example-that pornography is very popular, although that does not have an icon on the Windows Desktop. That's true. My guess is that if there was [sic] one pornography site that had an icon embedded on the desktop, it would be extremely successful. Warden: Well, we're not likely to know the answer to that question. Jackson: I'd like to know what that icon would look like.

-- Anonymous, January 20, 1999

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