From markwa Tue Aug 29 17:03:20 1989
To: davidw
Cc: jonm
Subject: DefineHandleTable
Date: Thu Nov 07 16:40:01 PDT 1991

David, it sounds like you're the guy to answer the question below.

>From jonm Tue Aug 29 17:03:22 1989
To: markwa
Subject: DefineHandleTable
Date: Tue Aug 19 17:00:30 1989

Hi . . . could I ask another question about Windows? This question is indirectly related to the SDK, but if you think someone else would be more appropriate to ask, please pass it on...

The question is: do you think it is feasible to document "DefineHandleTable" for ISV programmers to use?

"DefineHandleTable" is an undocumented Windows call which is used by the Apps Division. It allows great speedups when using moveable memory, because it permits the program to find the current address of a moveable segment (or detect it it's paged out in EMM) without having to make a Windows call.

I am designing features in Microsoft C which will allow the Apps Division to use our standard retail tools, while increasing the level of support for ISV Windows programming. One of the options I am evaluating is to make a system using "DefineHandeTable" available to ISV's. (There are other good options as well.)

I am not sure about this since Microsoft's public position has been that Apps Division programmers do not have special hooks into Windows, when, in fact, they do. Therefore, it might be embarrassing to document "DefineHandleTable" at this late stage, as part of a system for ISV's to use. Could you give me some feedback on whether this is an option?

Thanks,

Jonathan

CONFIDENTIAL

From markwa Wed Aug 30 08:20:48 1989
To: davidl
Subject: Re: Floating Point Exception App
Date: Thu Nov 07 16:40:01 PDT 1991

WinMail 1.21 brucen Thu Nov 07 16:36:32 1991Page: 31

[Ed: This is an exhibit from Gordon v. Microsoft, Exhibit 141.] [Same as Gordon 0141.]

Microsoft says their overall objective for next 6-9 months is to "gain market share." Discusses various ways to do so, including cross-selling with Windows, getting power users, retailers to push, selling to Fortune 500 companies. Mentions distributing evaluation copies, direct sales, lowering price, offering support. Describes marketiing messages and ads. In public relations section, want to "Reposition WordPerfect as the one-dimensional company struggling to keep up with the latest technology" and "Reposition Ami Professional as the easy-to-learn, poor man's publishing tool". Mentions importance of reviewers, and ways to influence them. Reiterates possibility of dropping price. Describes direct mail campaign offering trials. Important to support corporate customers, offer WinWord seminars, consulting, visit user groups. Want to develop sales tools showing benefits of WinWord over competitors. Phil Gilberts has given good PR to WinWord, want to replicate this. Want to research customers. Offer samples to OEMs. Create a program that offers rewards to experts in WinWord (Microsoft MVP). Leverage the Kelly Program (?). Discuss end user training conferences, "Class-in-a-box". Gaining market share among law firms through direct mail, demos, PR work. Successful in "educational channel." Unmentioned plan to "counter" WordPerfect at COMDEX.

To: Jeremy Butler, Chris Smith, Bernard Vergnes
From: Joachim Kemp
Date: February 9, 1990
Subject: OEM Sales in the 90's
Cc: Bill Gates, Jon Shirley, Richard Fade(sp?), Ron Hosogi(sp?), Bob O'Rear

Discusses sales forecasts, DOS pricing, royalty forecasts, OEM marketing and sales strategies, organization of sales groups, weaknesses of sales efforts.

To: List
From: Russ Werner
Subject: Windows Push 1 and 2 Recommendations/Decisions
Date: 2/14/90

This is about marketing for the introduction of Windows 3.0.

To: List
From: Jonathan Roberts
Re: Win 3.0 Update Plan
Date: February 21, 1990

Discusses marketing plans to get existing customers to update/upgrade to Windows 3.0.

To: Joachim Kempin
Jochen Haink
From: Manfred Shindler
cc: Christian Wedell
Ralf Klocke
Hans Apel
Thomas Koll
Roland Rock
Karl-Heinz Breitenbach
Peter Prikryl
Borbl(sp?) Brockman
Jorgen Weidenhausen
Jorgen Strangh-ner (sic)

Discussion of sales, marketing, DRI/DR-DOS marketing inroads into customers.

Discussion of the value of a deal to put Windows on Toshiba 3100SX laptops.

>From scotto Mon Mar 12 21:55:32 1990
To: jonre richmac
Subject: Palintir
Cc: johnfi Johnpa rgms sherryr
Date: Mon Mar 12 21:52:56 1990

The Win 3.0 beta included copies of WinWord and Excel. An offer was extended to other ISVs to mail to the same beta testers. The Scotto reply includes this line: "We should not allow Win ISVs to do this. I understand the church and state issues. But one has to draw the line somewhere."

REISWIG AT RHQVHOB, 826-3320
6F1/44 SOMERS, NY
*** FORWARDING NOTE FROM SCHULMAN--NINVMJ 22:O3.90 19:08 ***
TO: KALESF --EHQPROFB FRANK KALES
FROM: _SY SCHULMAN 731-8143 SCHULMAN AT WINVHJ
SUBJECT: NOTES FOR BILL GATES - DAVE MCKINNEY MEETING - PART 2

Discussion of IBM and Microsoft's preferred timetables for Windows and OS/2. MS wanting to push the next OS/2 release to the end of the year with the big Windows 3.0 release in mid year.

Six page strategy document. It is partly cut off on right side. Expresses concern that MS cannot win in all the areas that it has taken on. Proposes 'some ways that I think we could better focus ourselves and have industry thank us, instead of view us as "across the board enemies".' The main proposal is to create an "information socket" on the desktop that other software could plug into. The specification for this socket would be under the "nominal control" of a "neutral entity".

Please find attached my first pass at an information sheet for DR DOS and NOVELL NETWARE working together.

To: Mike Quinlan, IBM
From: Jerry Kaplan, GO
Subject: Possible call to Intel
Date: May 7, 1990

Intel considering investment in GO. Paul Otellini may call Mike as part of due diligence; Jerry is giving Mike permission to discuss GO.

To: Bill Gates, Mike Hallman, Jon Shirley
From: Mike Maples
Cc: Brad Chase, Lewis Levin, Scott Oki, Apps BUMs, Apps Group Product Managers
Date: May 10, 1990

Re: Request and justification for incremental FY 91 Marketing $

Asks for additional marketing money for applications. Discusses details of current spending by business unit and product. Considers introduction of Windows an opportunity to gain market share for applications.

Microsoft Memorandum:
To: Hank Vigil
From: Susanna Foels
Date: May 18, 1990
Re: Microsoft Excel Product Marketing Challenges in Next 6 Months

[Ed: excerpt from pg. 1]: "Develop a plan and execute with strength and momentum. We should create hype and anticipation for our product - and leverage the fact that on the Windows platform we will have 2nd generation GUI. Let's take full advantage of this competitive advantage and thereby regain technology leadership. To the extent we are able, we should stall the sales of Lotus because people are waiting for/evaluating Excel and Microsoft's Windows products as a strategic choice. This is not advocating preannouncing, but I do advocate building anticipation where possible."

[Excerpt from pg. 2]: "- Seed top channel accounts with free or nearly-free software."

[Excerpt from pg. 3, regarding "Apple Computer Relationship"]: "Our objective is to increase Excel sales by increasing our involvement in Apple's marketing promotions. The key issue is that while Microsoft is the largest and most-experienced Macintosh software developer, we receive little marketing cooperation from Apple."

Complete transcript:

T

To: Hank Vigil
From: Susanna Foels
Date: May 18, 1990
Re: Microsoft Excel Product Marketing Challenges in Next 6 Months

A. Regain Technology Leadership

we need to identify and market our competitive advantages by communicating aggressively with the press and directly with influencers corporate accounts via MSTC.

• Take advantage of being a true Windows app
• Leverage MS Windows family of Apps
• For Mac Excel, leverage the case of use, design & reliability advantages
• Comarket with 3rd parties that provide tools we are lacking in our current product

B. Leverage MS Sales Force and Windows Emphasis

We need to empower our Microsoft sales force. They need our help - tools and communication to combat the current Lotus momentum. All of us need to be in closer contact with this group to get them knowledgeable and excited to sell against Lotus.

To take advantage of Windows 3.0 - specifically, produce a WinExcel, Windows 3.0 and Winword bundle at a very reasonable price.

C. Remain active in Excel 3.0 Product Development

The way to win in the long run is to deliver the product our customers need. We need to work more closely with program management and development to make sure that we are satisfied with the tradeoffs which are being made for Excel 3.0 in terms of implementation of features. Specifically, some decisions will need to be made regarding System 7.0 support and we need to make sure the right tradeoffs are made, since System 7 and Apple support are critical to Excel's success.

D. Plan for Excel 3.0 Launch

Develop a plan and execute with strength and momentum. We should create hype and anticipation for our product - and leverage the fact that on the Windows platform we willhave 2nd generation GUI. Let's take full advantage of this competitive advantage and thereby regain technology leadership. To the extent we are able, we should stall the sales of Lotus because people are waiting for/evaluating Excel and Microsoft's Windows products as a strategic choice. This is not advocating preannouncing, but I do advocate building anticipation where possible.

Retail Channel

Our objective is to sustain Excel's leadership position through the slow period after DataAccess (CL/1 support) is old news and before Excel 3.0 is launched. With the introduction of Excel 3.0 our emphasis will change to educating Microsoft reps and RSPs on new features, promoting our new position vis a vis the competition, and assuring our continuing sales as the Macintosh spreadsheet leader. A strong effort in the retail channel early in FY '91 will help to create a barrier to prospective entrants (such as Lotus) expected later in the fiscal year.

While Excel dominates the existing Macintosh market, the retail channel is changing, and we must take advantage of these changes in order to maintain and solidify our market dominance. We will strive to achieve our objective by addressing three major changes:

1. Resellers have targeted small and medium businesses because margins are better than those in the corporate account market. By providing resellers with solutions-oriented programs and materials we can convince resellers to recommend Excel to their small and medium business customers.
2. Resellers are focusing increasingly on outbound sales. According to our ASR Advisory Council, "80% of our resellers prioritize outbound selling as a selling practice and only 20% engage in 'pushing boxes'". To take advantage of this we must deliver reseller materials that are tailored for resellers' outbound focus.
3. Wingz seems to be gaining momentum and credibility, particularly in retail storefronts. RSP's steer customers to Excel and Wingz, but recommend Wingz if the customer will be charting and/or giving presentations; this costs Excel many sales. We need to succinctly communicate the advantages of Excel to RSPs.

Specific programs planned to address these areas are:

• Develop and promote vertical market reseller seminars (i.e. "Excel in a real estate firm") to take advantage of reseller focus on small and medium businesses. (Trial program first; full-scale if successful.)
• Include in Excel 3.0 Intro Kit materials relevant to outbound and solutions selling.
• Develop and distribute "Why Excel?" piece outlining advantages of selling and supporting Excel rather than Wingz.
• Seed top channel accounts with free or nearly-free software.

Apple Computer Relationship

Our objective is to increase Excel sales by increasing our involvement in Apple's marketing promotions. The key issue is that while Microsoft is the largest and most-experienced Macintosh software developer, we receive little marketing cooperation from Apple.

Our plan to improve the relationship is straightforward: we will spend lots of time at Apple. develop contacts with key marketing people, and attempt to fit into some of Apple's promotions. This will require trips to Apple corporate in Cupertino approximately twice a month. The first step is to meet with the Product Marketing, Large Business/Government Marketing, Small Business/Productivity Marketing, and Channel Marketing groups. Then we will attempt to fit into Apple's marketing promotions by focusing on areas where we can add real value to Apple (ie. save them time, differentiate the Mac, sell to businesses, etc.) and where we already have plans to do something. Preliminary research suggests such opportunities may exist with: Apple's Market Development Program (providing training and materials to resellers on vertical-market solutions); Apple's General Productivity Competitive Advantage forums (reseller seminars to take place in the calendar third and fourth quarters of 1990); and Apple's renewed emphasis on small and medium businesses (under the guidance of Tom Virden).

We will also explore the feasibility of working directly with Apple's five regional field organizations. It is possible that a working relationship can be more easily established with the regional organizations than with Apple corporate.

[excerpt from pg 2]"Background: Microsoft's decision to aggressively promote the Windows platform is based on the logic that the sooner the DOS world moves to Windows and Windows applications, the better off we will be(1). History has proven that gaining market share from entrenched competitors is a slow and expensive proposition. Conversely, the resilience of our Macintosh applications proves that being first is the best way to garner and retain market share. Since only Microsoft has a full family of Windows applications, now is the time to proliferate both Windows and Windows applications. It will never be cheaper to win market share(2). [footnote](2) Lotus and WordPerfect are expected to ship "real" Windows versions of their dominant products in Q2 or Q3 of CY'91."[end excerpt from pg 2]

[excerpt from pg 5...cont. on page 6] "Competition: Resistance to change, the inertia behind established or dominant character DOS applications, and the fact that nothing is easier than what a user already knows are the primary competitors to Windows. The anxiety and fear of change only make things worse. Many users would rather continue to use Lotus 1-2-3 than switch to Excel. Ditto for WordPerfect users and Word for Windows. The scondary competitors are personal computers and workstations not using the DOS environment - Sun, Next (both Unix), Macintosh, and HP's New Wave."[end excerpt from pg 5]

____________ PLAINTIFF'S EXHIBIT 294 Confidential - Comes v. Microsoft

To: Peteh, Russw, Lewisl, Ruthannl, Bradc, Hankv, Karenab, Nancybi, Richab, Sharonde
Fr: Mark Kroese
Re: Windows Computing/Marketing/communications plan, draft 2
Dt: Tue, May 29, 1990
Cc: Valerie Houtchens, Nancy Gullick, Barry Briggs, Coleman Barney, Jean Thompson, Kathryn Yates, Sarahch, Martyta, Anneh, Davidv, Gary Gigot, Mike Delman
"This is the revised Windows Computing plan. Please review and respond by end of this week. Goal: get client approval of this document this week, then follow next steps as outlined. P1ease mail or call with questions." [ed: There are also handwritten notes below the email]

CONFIDENTIAL

Purpose
This document is written to provide an overview of key components of the Windows Computing marketing campaign, and define the campaign's objectives, strategies and tactics.

It is intended to be an "umbrella" document that ties the individual marketing programs together, with an emphasis on the communications programs. The positioning of Windows Computing should influence the communications elements of all Windows Computing programs.

Client review of this document will lead to agreement on the scope, objectives, strategies and tactics of the Windows Computing campaign. Once closure has been reached, the plans for each component of this program begin to be implemented. At this level of approval, the client is defined as Peth/Russw. More clients emerge as the individual programs develop.

Document outline
Purpose.....................................1
Background..................................1
Critical Insights...........................1
Campaign Objectives.........................2
Windows Computing Defined...................2
Relationships to other Microsoft campaigns..3
Marketing strategy..........................3
Target audiences and markets................3
Competition.................................4
Positioning.................................5
Next steps..................................5

Background
Microsoft's decision to aggressively promote the Windows platform is based on the logic that the sooner the DOS world moves to Windows and Windows applications, the better off we will be(1). History has proven that gaining market share from entrenched competitors is a slow and expensive proposition. Conversely, the resilience of our Macintosh applications proves that being first is the best way to garner and retain market share. Since only Microsoft has a full family of Windows applications, now is the time to proliferate both Windows and Windows applications. It will never be cheaper to win market share(2).

Winning market share is a two step process: both inextricably linked. First, we must make the Windows platform mainstream (get "sockets"). Second, we must fill the sockets with our applications, recognizing that Lotus and WordPerfect will attept to stall the market and convince their customers to stay with them until they ship Windows versions of their applications.

Done right, the Windows Computing campaign will accomplish the first step and position the Applications Division to accomplish the second step. Windows computing is not a Microsoft applications-specific campaign.

Critical Insights
-- Co-existence is a saleable message, radical displacement is not. As the world moves towards the Windows platform, co-existence and compatibility become very important issues. Individuals, workgroups and influentials all must understand that radical displacement is not necessary in order to enter the Windows world. To quote billg - "Windows is better DOS than DOS"; meaning that there are no bad choices. The transition to Windows is the natural evolution of DOS.

_________________________
(1) Defined as a $1 billion dollar opportunity by 1991.
(2) Lotus and WordPerfect are expected to ship "real" Windows versions of their dominant products in Q2 or Q3 of CY'91.

Windows Computing marketing communications plan 1 5/29/90 CONFIDENTIAL

-- There are quantifiable benefits for those who move to a GUI environment. The TBS study (CUI vs. GUI) has concluded that there are very compelling benefits for those who move to a GUI computing environment. The results of this study should be used to support our message (separate attachment).

-- Migration is as big an issue as functionality. We need to tell prospects not about only about the benefits of graphical computing, but how to get there, the role of OS/2, etc. Case studies (both collateral and advertising) can play an important role here.

-- GUI does not necessarily mean easy. For new users, GUI makes more sense. But millions of DOS users claim "Nothing is easier than what I already know". Research has proven that the initial experience with GUI feels more complex to the user since the screen represents an entire desktop instead of just a single application. Many also find the use of the mouse cumbersome and unnatural. This supports the need to show (vs. tell) people about GUI.

-- We can't be too simple with the Windows message. In the complex and dynamic world of personal computing, we often talk to ourselves in our advertising. The market is yearning for straightforward, informative and educational communication from Microsoft. Even words like "graphical" or "character based" can confuse people.

-- Windows must be seen as both an integrating technology and an open environment. Common user access and the ability to use multiple applications simultaneously are seen as the big benefits to Windows. However, "vendor-lock" remains a concern with companies. Customers must understand that Windows is an open environment that the Microsoft applications company happens to be very commited to.

The success of the Windows platform does not guarantee the success of Microsoft Windows applications. The marketing efforts for Microsoft applications must be developed in conjunction with the Windows Computing campaign; however we should not attempt to turn the Windows Computing campaign into a Microsoft applications campaign.

Campaign Objectives
The Windows Computing campaign will be measured against the following objectives:

-- Create an instant awareness that Windows Computing signals an important change in how you use your 286/386 PC(1) (establish Windows Computing positioning concept).

-- To create a sense of urgency about moving to the Windows environment.

-- To facilitate experience with Windows Computing (specific estimates for each experience level will come later; included will be autodemos, working models, literature and seminars).

-- To quickly convert the experience into product sales.

Windows Computing Defined
Windows computing is a marketing campaign designed to accelerate the platform change among PC users from current character based software to Windows 3.0 and related applications software(2) to the Windows environment.

>From a communications standpoint Windows Computing is primarily a market building campaign. From a marketing standpoint, it is a market building and a market share campaign.

_______________
(1) I am not aware of any primary research that measures attitudes and awareness of Windows and its benefits. We should conduct a pre and post campaign measurement to gauge the effectiveness of the campaign.
(2) "Related applications software" refers to Microsoft Windows applications and third party Windows applications, such as Aldus PageMaker, Corel Draw, etc.

Windows Computing marketing communications plan 2 5/29/90 CONFIDENTIAL

This is because the Working Model component of the campaign will include both environment (Win 3.0) and applications (Word, Excel, PP, Project) working models. Windows computing is Microsoft's central marketing campaign for the September - December '90 timeframe. The campaign has several key components:

1. National advertising ($3,000.000, funded by the FY'91 Brand budget)
2. Telemarketing (-$750,000, funded by the $4 million in incremental funds)
3. Working Model and supporting collateral (-$3,250,000, also funded by the $4 million incremental funds)
4. Existing framework marketing programs: (funded by traditional means)
- In store merchandising - RSP training - MRSS seminars - Autodemos - Outbound sales tools - PST seminars

Relationship to other Microsoft campaigns
The Windows Computing marketing strategy is to accelerate the platform shift to Windows and Windows applications by employing a three step marketing approach that will include both push and pull related programs:

1. Create awareness, interest and understanding of Windows Computing through communications programs that expand the reach and frequency of our message to the best prospects (as defined in target audience section).

2. Fulfill the interest by offering prospects a range of ways to experience our products. This includes a range of programs from collateral to working models to reseller demonstrations to seminars.

3. Convert the interest and experience to sales by utilizing telemarketing to push prospects through the purchase process.

See the attached schematic for the inter-relationship between the various marketing programs. The data from the TBS study will be used liberally at all phases of this campaign in order to push prospects down the sales cycle.

Target audiences and markets
Since the Windows Computing concept is usage driven, the communications programs will be targeted at users. This includes influential end users (IEUs) and general business users (GBUs) that are "Windows ready". Prospects must fit the following description:

- Owns or uses a 286/386 PC capable of running Windows and Windows applications
- Works in a professional, executive, managerial, administrative, clerical, sales or technical occupation.

Windows Computing marketing communications plan 3 5/29/90 CONFIDENTIAL

- Are found in a size businesses where PCs are found, with an emphasis on corporate environments where PCs are the dominant platform
- Uses his/her PC regularly as a business tool. May feel some frustration or limitation with their current level of utilization. The prospect should have some predisposition to change (improvement).
- Is a proficient user of at least one application, primarily a word processor or a spreadsheet. This person is described as the "one app" in the O&M creative brief dated 4/6/90.

Current MRI data shows that there are just over 3 million IEUs and over 18 million GBUs(1). The Windows Computing advertising is intended to reach all IEUs and the best GBU prospects. Not all 18 million GBUs are "Windows ready", but a significant percentage are. The Windows Computing advertising must be targeted at the least sophisticated IEUs and the most sophisticated GBUs. This is a combination of the IEUs we are currently not reaching with the enthusiast press and the GBUs that are most ready to move to the Windows platform. The following diagram shows the WC target.

[ed: inserted on this page is a diagram that measures "The Windows Computing audience segmentation."]

Business press will be recommended based on its cost effective ability to extend our reach of IEUs and reach the best GBU prospects. For example, the unduplicated reach of IEUs by all the computer related publications we advertise in is less than 1.5 million. Hence, there are at least 1.5 million IEUs that we can not reach through the enthusiast press.

Competition
Resistance to change, the inertia behind established or dominant character DOS applications, and the fact that nothing is easier than what a user already knows are the primary competitors to Windows. The anxiety and fear of change only make things worse. Many users would rather continue to use Lotus 1-2-3 than switch to Excel. Ditto for WordPerfect users and Word for Windows.

________________
(1) MRIs IEU definition: Respondent was directly involved in the past year in evaluating, initiating, recommending, ordering or approving the purchase of PC software for his or her firm. The GBU definition is similar to that of the IEU. It requires the same job function but factors out the formal or informal influence. It does, however, require that the respondent be a regular user of a personal computer.

Windows Computing marketing communications plan 4 5/29/90 CONFIDENTIAL

The secondary competitors are personal computers and workstations not using the DOS environment - Sun, Next (both Unix), Macintosh, and HP's New Wave.

Positioning
The Windows Computing consumer positioning will be aimed at the target market defined above. This positioning will talk to the mainstream computing issues such as ease of use and the ability to do more with your PC. In short, we are selling the benefits of the environment and using applications (not just Microsoft applications) as the support for our position.

Windows Computing consumer positioning:
Windows Computing instantly transforms how easily and effectively you can now use your PC to its full potential. Windows Computing... speaks to the new/better way to compute. There is Macintosh computing, DOS computing, UNIX computing and OS/2 computing. People need to be made aware of this alternative. Windows computing always equals Windows 3.0 plus Windows applications.

...instantly transforms... addresses the significance of the change. It does not require a major hardware investment. This $149 product (+ apps) will promptly change forever how you use your PC. We use the term transformation because it signals the positive nature of the move versus just a technology shift for the sake of change.

...how easily and effectively... covers two key issues for our target. "Easily" addresses those people who have a PC but seldom use it. The notion of taking something they are underutilizing and making it more effective is the major focus of the effort. The more sophisticated segments of the target have never been able to do multiple tasks (e.g. WP and SS at the same time). The term "effectively" is descriptive of how they can get much more benefit from their PC.

...you can use your PC to its full potential... This portion of the positioning encourages users to get the most out of their PC hardware investment. This plays to the guilt of not and the possibilities of maximizing one's potential.

Next steps
- Agreement on the strategic direction that this document provides (w/o 5/29)
- Individual creative briefs for the advertising portion of the campaign (w/o 5/29)
- Agreement on approval process. The client for the advertising/collateral portion of this program is Peteh (for apps), Russw (for Systems) and Scotto/Valerieh (for USSMD).
- Completion of the supporting plans for all individual programs (Working Model, USM programs, telemarketing programs, revised creative brief, etc)

Windows Computing marketing communications plan 4 5/29/90 CONFIDENTIAL

[ed: The last page is titled "Windows Computing, PUSH II, April 30, 1990" and contains a diagram of the "Windows Computing - National Advertising and PR" campaign]

cameronm: "Windows apps are notoriously dirty in terms of undocumented calls and poor app design that is going to make running these suckers very hard." (on SPARC PC).

GO was developing an OS for handhelds and PDAs and Intel was eager to enter that new market. MS was late, starting to develop Windows-H for such devices. Gates tries to lure Grove away from Go, and better stick to the wintel environment for mutual benefit.

From joachimk Fri Jul 13 10:02:22 1990
To: teresach
Cc: jeffl richardf
Subject: RE: APPS sales to OEMS
Date: Fri Jul 13 09:48:16 1990

OK

>From teresach Tue Jul 10 17:12:50 1990
To: joachimk
Cc: jeffl richardf
Subject: RE: APPS sales to OEMS
Date: Tue Jul 10 17:12:44 1990

(Ed: discussion of terms and conditions for Win 3.0 sales to NCR and request for permission to keep negotiating.)

>From joachimk Thu Jul 5 10:30:18 1990
To: doem (sp?)
Cc: jeremybu mikemap
Subject: APPS sales to OEMS
Date: Thu Jul 05 10:16:26 1990

(Ed: joachim's approval required for all quotes on apps sales)

This is a long (4 full pages) message about how to handle Windows being the long-term OS and OS/2 going away (PM is the GUI for OS/2). Some relevant snippets:

"Windows 4 (on RISC and x86) is the strategic 32 bit API for the future"

"The high end of Windows 4 will have the NT OS/2 kernel and be able to run OS/2 server apps."

"Our IBM strategy must be a masterful job of brinksmanship. We should not declare war, but on the other hand we should start taking them down the road to realizing that Win 4 is the future..."

"Our positioning for Windows is as the cornerstone of a single architecture family stretching from handhelds to RISC" "The way that I look at the PM problem is to break it down into how PM appears to several different observers - ISVs, end users, IBM, and finallay what I think our own point of view should be."

OEM Meeting 7/17/90

1. Forecast system update.

Need: Acer/OEMs ability to track so that high UPB's can be attributed to reasons such as OS/2 overcommit, high machine forecast (over estimate), etc.

2. FY 90 OEM Rev. Performance

$156 Mill / (can't read)
$151 Mill / DOEM
----------------------
$307 Mill + $10.5 mill

$118.3 (end Q4)

Q4 was expensive but we (OEM) delivered

7/24

3. Q1 - get OS/2 1.21 shipping from OEMs

4. $10.5 million OPB reserve in Q1-Q4
(FY91)

- Tap into non revenue bearing quarter
- $12 mill in bankrupcy reserves
($40 mill in International reserve)
Collection (or Attention?) Watch for Koda (delinquency) (ed: encircled)

5. $5 mill + $2 mill => Deposits
future min commit

(Deposit accts report for Auth(sp?))
ask TimB (up arrow) (check mark) NealH & I will go over

(ed: last two lines in a box, then 'NealH & I ...' in box inside box)

6. Q1 Revenue Booster (sp?)

Sign up more OEMs for Win 3
(Dos 5 will be late by a couple of months)

7. DOS 5 licensing policies

- Same as Win 3 policy change
- only want system licenses
- Sith(sp?): go to per processor licenses vs per-model/machine licenses 15% more (ed: in box with arrow pointing to 'model' on previous line)
- If the OEM is no on price list (ed: or but?) level(sp?) this will allow us to get up the proper level! Yank prices up if the current rates are low.
- Threats
. DRI is out there w/ 5.0
. Don't lose because of being hard core or too hard core (bend if needed)

Discusses new features in MS-DOS 5.0 and points to make when comparing MS-DOS 5.0 to DR-DOS 5.0

Concluding paragraph:

"MS-DOS 5.0 is much more compatible with Windows 3.0. Early testing of DR DOS 5.0 indicates several compatibility problems with Windows 3.0. There are also reports of DR DOS 5.0 compatibility problems with Desqview, and many problems with their 386 memory management in general (more details to be provided soon).

Handwritten notes on letter:

Copy bradsi davidcol johnfi sherryr markwz

david: please respond to me and I will talk to OKNA. Thx Richard

The letter itself:

July 20, 1990

Mr. Richard Able
Microsoft Corp.
One Microsoft Way
Redmond, WA 98073

Dear Rich,

I recently came across two undocumented messages in Windows 3.0 Both have to do with moving files from File Manager to Program Manager. They are respectively: WM_QUERYDROPOBJECT and WM_DRAGMOVE. There are no references to these messages neither in the pre-release documentation nor in the header files.

I would like to implement similar functionality for opening and linking files across all of The DeskTop Set programs. Although it would be relatively easy to determine the messaging scheme, the reception of WM_DRAGMOVE message is determined by an undocumented extended Windows style that I cannot figure out on my own.

I am very dissappointed that from time to time I am discovering undocumented functions. It seriously impede my competitiveness vs. current and former Microsoft developers who have an access to such information. It also, for example, provides hDC corp (reputedly with access) the ability to release a program (memory viewer) that cannot be designed by Okna or anyone else.

I hope that you will be able to assist me in resolving this matter immediately and that 100% "openness" will become a rule.

Sincerely,

Konstantin Monastyrsky

Subject: GO threat
Dates are July 31, 1990 and August 1, 1990
The primary senders are gregw and darrylr
Others on the To: and Cc: lines are billg, jeffr, mikemap, bradsi, jabeb, lloydfr, tonyw

The discussion is mainly about object oriented frameworks, linking and embedding (L&E), indexing, querying, printing and rendering, in standalone and networked environments.

The final three paragraphs are the only ones that directly address GO:

(from gregw:)
| GO (or any new platform) is going to have a hard time addressing these 3 issues. | They are completely dependent on making the hardware platform compelling | soon after the initial introductions.

(from darrylr:)
I've read that they are backing away from selling hardware and are instead trying to license their software to hardware oems. If this is true they are becoming another systems software company. That makes the threat a lot more real.

I think the response we need to the Go threat is to make sure we have a response in our software to anything that people will like about theirs. The stuff about hyperlinks and sorting will need to be addressed. Could tony spend some time understanding what Go has done and, in conjunction with bill's earlier feedback on l&e, prepare a list of recommendations for l&e.

'Steve Ballmer' is handwritten in the upper right-hand corner (partially cut off). Also handwritten on the right side:
Bradsi
Markche
Looks pretty good. A few comments. Steveb

To: List
From: Mark Chestnut
Date: 7/24/90
Subject: MS-DOS Upgrade Marketing Plan

The last page of the memo discusses competition for the MS-DOS 5.0 upgrade from IBM's PC-DOS and DRI's DR DOS.

To: John Parkey
From: Jon Reingold
Subject: Win Word Strategy
Date: July 24, 1990

The memo mostly discusses what criticisms to level against WordPerfect and make Word look good in comparison.

From gregw Tue Jul 31 23:56:40 1990
To: billg darrylr jeffr mikemap
Cc: bradsi jabeb lloydfr tonyw
Subject: Re: GO Threat
Date: Tue Jul 31 23:42:48 1990

The author regards GO's object oriented framework as the real competitive threat to Microsoft in GO's product.

"Could tony spend some time understanding what Go has done and, in conjunction with bill’s earlier feedback on ????, prepare a list of recommendatlons for bill"

To: billg, darrylr, jeffr, mikemap, bradsi, et al
Subject: GO Corp. Info
From: Lloydfr [handwritten on document - Lloyd Frink]
Date: 8/1/90

Attached is a packet of information I have collected on GO. There are some of GO's very preliminary specs, a slide show of theirs, two of my trip reports on GO, and some press information.

Essentially, GO has been going out and telling the world that you need a whole new OS and apps for portable, pen based computers. People seem to bite on this, especially when they see that IBM is a strong backer of the GO OS (GOODE). They use their notebook shell and OO framework combined with gestures and handwriting recognition to show everyone that their platform is indeed very different from the standard Windows/Mac world. They say you can't "hack this into an existing OS."

Well, we know this isn't so, and the best way to prove them wrong is to do our own "notebook" app. The big constraint is that we get it done in a year. SO this won't be the most beautiful thing, but it should serve as a stopgap measure until we do our Win 4 shell and have all of our OO stuff in place.

GO Notebook Shell

When you turn on a GO computer, the user sees something that looks like a notebook. You can write directly on the page, probably do pictures as well. On a page you can open many document windows of any type. THey use an object oriented approach to their OS, so opening up a document is just creating an instance of that class type. When I was down at GO, Carr talked a a lot about embedded documents, but the screen shots we have don't actually show that. These guys are smart, so I'll bet they will make it possible. When you leave a page, and later return to it, all of the documents will be in the same state as when you left (i.e. open/iconic, position). At the top of the screen is a menu bar with system-wide and generic document commands. If you want to create a new, blank document, you use the Create menu and choose the document type. Inside of each document are menus that correspond to that class.

Besides the many benefits of being OO, the thing which sets the GO notebook apart is the ease of navigation. On the side of each page are a set of "tabs" which correspond to folders, just a page in the notebook. Touch the tab and instantly you will go to a predefined workspace (similar to excel, but multiple document/object types). It is not clear if they are going to have only one level of folders, a "show all tabs" command, or some sort of hierarchy. The really nice thing about these tabs is that they are always visible, and never get obscured by other windows. There are prev, next, and back buttons as well (the upper right hand corner). I suggested they add the ability push and pop of pages (hypercard). At the beginning of the notebook is a Table of Contents, which is a listing of the folder and page titles. At the end of the notebook is an Index of keywords the user has marked. Clicking on an item in either the TOC or index sends the user to that page. The user can also search for information in all documents and can create "goto" links (not really clear how they have implemented the latter). There are probably several other standard methods which can be applied to all objects.

This metaphor does have a few drawbacks. If they number every page by sequence, and you keep inserting pages, then your page numbers are always changing and lose some meaning. Since they seem to be avoiding very many levels of a hierarchy, what happens when you get tons of info? Does something like a piece of email belong on a page by itself, or with other email? What about rolodex cards? You kind of have next, prev, back navigational type issues within a window on a single page of a notebook. The notion of having a multiple page document, or a multiple record table in a window on a single page of a notebook might seem confusing.

But this metaphor has a lot of appeal, especially compared to our program/file manager combination. I think we can whip something up in a year that embodies some of these ideas. I'll think about this in more detail and write it down in the next few weeks. [Attached are drawings showing what the system looked like.]

Mail-Flags: 0000

Date: Wed Aug 08 16:00:49 1990

A number of folk have asked questions or written mail to effect of how we are going to emerge from the present period of turmoil wrt OS/2 (both 2.0 and NT), so I wanted to let you know of the series of steps that I envisage and who is doing what.

First "facts":

1. We have thrown the switch on moving to a "Windows centric" strategy, ie. the API that we will take forward and put our energies behind is Windows.

2. This means that for:
NT OS/2 - we will no longer port PM, but port Windows. We will also no longer do an "NT Shell" - this resource will be xferred to Bradsi.

OS/2 2.0 - it minimally means that the BCL became a critical component.

This still leaves a lot of questions to be answered.

1. What will 32bit Windows look like -- will it just be a "stretch" of 16bit Windows, or will we also address shortcomings in 16bit API (like pre-emption, input model, possibly security)? To what extent will we make allowance for a future possible "Holeport". Ie. Will it just be "Win32" or will it be "Advanced Windows 32".

3. How do we get started on addressing cross platform issues like data storage, NLS, metafiling, printing, etc. which also have impact on above decisions.

4. What does above mean in terms of focussing each individual project? Eg. what are priorities for NT - RISC, x86, x86MP? In case of OS/2 2.0 is BCL complete enought? etc.

To address this, we have booked 2 days of offsite time with billg/steveb (this will happen 8/20, 21) + few key others to take an inventory of above issues and make high-level decisions. Building up to this the following work is happening:

1. Windows 32/Advanced Windows:

A team of Scottlu, Davidw, Paulb, Chuckwh is thinking this thru. Scottlu will be pulling the issues and data together and presenting it on 8/20.

2. Bobmu is pulling the data together and articulating the questions. I have asked Ralfha to also be involved so that "RISC PC" task force views ("Power PC") can be represented. The first step is to develope a matrix of possible function and possible platforms, and then assess a "cost" (memory/performance) that will indicate how the matrix can be filled out. Other key data is size (units) and characteristics of the new machines and installed base, now and in 1992/93.

3. Cross platform issues - principal ones are Data Storage, NLS, and Printing (including metafiling). Markz is pulling these views together. He has been working with selected folk in each of the areas. Notable by its absence is Shell/Application Integration - this will not be addressed by 8/20.

4. Specific projects. It is likely that there maybe even be some further re-organization as a result of above decisions, but for now the responsibility of ensuring that the following projects are well focuessed falls to the relevant program mangers:

OS/2 2.0 - Bobmu
"NT OS/2 and NT Windows" - Ralfha

This means that Bob and Ralf are responsible for (i) articulating the basic goals, (ii) documenting the open issue, (iii) getting closure.

I do not expect to get final and complete closure on all issues by 8/20, 21, but I do expect to have the issues and costs of various trade-offs well enough articulated that billg can help make basic decisions of direction - so that we can articulate to our groups what their goals are.

From paulma Wed Aug 8 09:56:53 1990
To: nathanm
Subject: Power PC comments
Date: Wed Aug 8 10:00:09 1990

Mail-Flags: 0000

Date: Wed Aug 8 09:55:30 1990

You should really use a smaller "to" list for this kind of mail -

TO: Tony Audino, Steve Ballmer, Jeremy Butler, Dave Cutler, Richard Fade, Bill Gates, Rob Glaser, et al

From: Paul Maritz and Pat Bellamah

DATE: August 14, 1990

MICROSOFT CONFIDENTIAL

* Do not forward or copy

* We do not want press speculation on the contents of this memo

* Send all questions to PaulMa and PatBe

Directives to systems marketing: our strategy for Windows and OS/2.

We have decided to use Windows, instead of PM, as the native WIN API on NT OS/2. To that end, we have begun to spec a 32-bit Windows API.

This change raises questions about what our strategy is for Windows, OS/2 and NT OS/2. Moreover, there may be some confusion about what the implications of the strategy are, both within the product groups and in terms of what we say publicly about our objectives.

In light of our ongoing discussions with IBM, many factors are subject to change. The following points are not public, and all of our comments to ISVs, OEMs, the press, etc., should not communicate any change to strategy for Windows or OS/2. In other wordsw, we should avoid comment on these issues except where we have already made public commitments, such as the Binary Compatibility Layer (BCL).

On the other hand, we cannot be immobilized for the duration of our discussions with IBM and we are resolved to move ahead on the following points:

1. Our long-term product strategy is Windows on DOS and Windows on OS/2. OS/2 2.0 with the BCL is the first manifestation of this strategy. (The BCL allows Win 3.0 applications to run natively on OS/2 2.0.)

Our goal is to simplify our message to ISVs and focus all of our development and marketing energy behind the Windows API. We are evolving our OS/2, Windows and NT OS/2 development efforts away from the redundant process we have today towards a single-API, scalable desktop operating system. Future Windows will span user requirements from low-end DOS systems to high-end OS/2 systems.

____

P. 2

2. Our portable NT OS/2 work has been refocused on Windows. Note that this is the only development project that has been changed. Since our greatest strength on the desktop is the large and growing base of Windows applications, we want to leverage that asset going forward by providing a clean migration path to 32-bit for Windows apps.

3. Without announcing a change in strategy, we are telling ISVs to write for Windows. With the exception of non-graphical server applications, all developers will continue to be encouraged to support OS/2 via the SMK.

We will sustain 16-bit PM compatibility over selected future generations of our desktop product to protect the corporate investment in OS/2. But our goal is to simplify our message to ISVs and corporate customers by focusing on the Windows APIs as the key platform moving forward.

[Ed: Two more pages follow with Q&A "On Changes to MS NT OS/2 Development Strategy." One example: Q: Does IBM buy into 'dead-ending' PM? A: No, that is why we should be careful what we say in public, to ISVs and OEMs.]

This is another way of saying that Microsoft is not much like Compaq - it is difficult to work up enthusiam for buying into sombody else's game and their rules and still beating them through superior execution. Compaq only has experience in succeeding at this strategy against IBM, which is a very slow moving company that does not know how to execute all that well, and does not even understand how to press their advantage. With a couple of minor changes in strategy, IBM could have eliminated Compaq's big claims to fame - for example if IBM had wanted to do the 386 first, Intel would have put the fix in for them and the Deskpro 386 never would have ben. With the right licensing terms and up front negotiations, IBM could have had Compaq and the rest of the industry locked into the MCA bus and there wouldn't have been an EISA. IBM is not ruthless, innovative or even all that ambitious, and Compaq may discover that they need new tactics against an opponent like Sun which is all of these.

[NOTE: First page of exhibit is largely blacked out. There is a vertical "RISC Strategy" on the upper right hand side. There is a stamp PLAINTIFF'S EXHIBIT 369 Comes v. Microsoft with the 369 being handwritten. Near the bottom on the right there is a x 555173 CONFIDENTIAL and the rest of the exhibit is also numbered the same way through 555195. The second page of the exhibit has a handwritten notation "Strategy RISC" in the upper right corner. The third page of the exhibit is numbered "Page 2" in the bottom right hand corner and subsequent pages are similarly numbered through "Page 22" Centered at the bottom of these pages is "Microsoft Configential" and in the lower left corner is "8/27/90 1:23 AM". The upper left corner of these pages have the major section name (e.g. Introduction) in the upper left and the minor section name (e.g. "Sun's Strategy") in the upper right. The third page of the exhibit (numbered "page 2") is the table of contents and is omitted below.]

MICROSOFT RISC PC TASK FORCE REPORT

Responses to the Compaq SPARC Thread

NOTE: This memo is very confidnetial and discretion should be used copying or distributing it - even within the company.

Advanced Technology and Business Development

1. INTRODUCTION

We have recently learned that Compaq is seriously considering a project to enter the workstation business with a SPARC and UNIX based machine. This memo covers some initial thinking on what this means to Microsoft, and how we should respond.

Obviously the best thing would be to have them change their minds. The question of how to cause this to happen will be covered elsewhere. This memo assumes that we will immediately begin a dialog with Compaq to try convince them to do something else (nearly anything else would be an improvement), but in parallel we must start to plan, and act, on a response which assumes the worst. It is fairly safe to assume that Compaq will wind up in one of a couple of modes:

- Rapidly reach a formal decision in favor of SPARC. Once their consensus driven process locks in on a decision it is hard to change, and we can assume that it will be months before we could turn them around. Even then, we will need dramatic new data to change their minds, and there is only a small chance that we could win even then. A further complication is that to do SPARC they are likely to enter into some commitments early on which are tough to reverse - it is not just engineering work.

- Return to confusion on the RISC issue. This is the state that they were in for the last several months (although some of that was cover for their SPARC investigation), and it is possible that we could get them back into that mode of operation. They could wind up right back in the SPARC camp, or do something else random.

- Run down multiple paths. They could start working on the SPARC plan without a formal decision, just as they worked on the MCA bus machines while thinking about EISA. This would still be a very dangerous situation, but it would increase the likelihood that we could get them to turn around later. The problem with this is that the likely scenario for their SPARC project involves building or buying a sales force and other activities which can't easily be cancelled late in the game.

Another way to put this is that we will either lose very fast, or we will be in a long holding pattern from which we could still lose. In either event we must proceed at once with our response - there is no point at all in waiting for Compaq to turn around, or in hoping that they will quickly come to their senses and join our present RISC plan.

Finally, I should note that the ideas below are the result of conversations with many people.

1.1. Sun's Strategy

Our present understanding of Sun's overall strategy is as follows:

- Stay the course with direct sales and the conventional UNIX workstation market. They will rely on their present approach as the mainstream core of their business for the next two years. The growth rate is large, and they can comfortably use this to finance their assault on other markets, and give them enough time to get the pieces in place. The key niche markets that they will exploit are technical workstations and software development within corporations. This will broaden to cover an increasingly large set of customers.

- Experiment with other channels. This will occur through limited test cases such as their deal with Micro Age, and through SPARC clone companies such as Northgate, Compuadd and others who are expendable missionaries in new markets.

- Build an arsenal of ISV support. They do not have a sufficient set of desktop productivity applications to really threaten PCs or control of mainstream office computing, but they get more support every day. Their present growth rate even without having such apps will take them to 300K - 500K units/year run rate within the next year to 18 months. This starts to get a

- Once they are ready, make a major push on the PC market. Within the next two years they will be in an excellent position to directly assail PCs with widespread retail distribution of both machines and binary software packages. In early 1992 they will be selling at the 300K - 500K machines per year run rate, will have a critical mass set of major applications, and they will have a commanding price/performance lead on the x86.

This all assumes their present level of industry support. Even though Compaq is not likely to ship any appreciable volume in SPARC until late 1992, their endorsement will clearly help.

Note that the strategy above is NOT aimed at bringing RISC into the PC market - rather it is trying to grow the workstation market to the same volume levels, and the same distribution methods as PCs. This is a critical distinction. Sun is creating a parallel world to the PC industry, in much the same way as the Macintosh is a parallel world to IBM compatible PCs. It is not a high end PC, but rather a new beast which has some key differentiating features:

- RISC. This means three direct benefits over the x86 - 32 bits, better price/performance, and higher absolute levels of performance. Indirectly, the open processor model will ensure that SPARCs lead over the x86 and closed processors will increase over time.

- UNIX. This is a mixed blessing, but their positioning is to try milk as much as possible out of "open systems", and the supposed technical quality of UNIX.

- Networking and connectivity. Nobody would accuse UNIX of having an elegant or even very good networking story, but since it has been put into place over a number of years it does work, is mature, and has been ported to all manner of machines and networks.

- The perception of being high tech. Sun and other workstations have the cachet of being sophisticated, powerful state of the art machines, and this aura helps set them apart from the PC industry.

Despite the enormous momentum behind Windows 3, as long as Sun can position themselves in a significantly different market, they are largely immune from assault and can continue on the strategy above. An analogy that we've used in the past is the case or the Macintosh, which was introduced at a point of unprecedented strength for the character mode IBM PC. This did not eliminate the Mac, and in fact it is hard to imagine that any amount of increased volume in character mode PCs would have stopped it. The Mac used GUI to put itself in a class by itself, and thus have the breathing space to grow, and as long as the SPARC world uniquely enjoys the features above it will have the same kind of chance.

Our strategy has been to deny key points of differentiation to SPARC by broadening the Windows work to include to include them. The most dramatic and most important is RISC, and that has been the item which has been discussed the most. The high tech image is addressed by the Power PC features. Networking is also being addressed. Although not unique to RISC, it is a key part of our long term systems strategy.

1.2. Probable Compaq Plan

Our present understanding of the Compaq strategy is as follows:

- Enter the UNIX workstation market with a SPARC based machine. This will probably be of their own design rather than a SPARCstation clone. This would be positioned very clearly at workstations, and at Sun's present and near future market. They have an explicit goal to keep it very separate from the x86 PC market to avoid any negative impact on their current systems, and they think that this separation is pretty easy to achieve.

- Use a Compaq direct sales force to distribute the machine. This choice is determined by three factors - their desire to compete head to head with Sun in the traditional workstation market, the need to keep this activity separate from their present distribution channel and finally they have a long term goal to build a real direct sales force, and this project provides a convenient opportunity. There are hints that they may acquire a mini or workstation company such as DG or Wang to get an established sales force in a hurry, but they may just build one from scratch.

- Create a limited consortium. Compaq will attempt to balance the necessity of having industry support to attain critical mass with their large desire to have a proprietary advantage. They do not be vulnerable to cheap SPARCstation clone kits (although exactly how is not clear to us yet). The data to date suggest a group of 3-4 companies with sales > $2 billion, and with little enough clout that Compaq gets "51% of the votes" (in Gary Stimac's words).

- Rely on the Compaq name and prestige. They do not seem to mind us doing something else for RISC which does not involve them, because they do not feel that it will amount to much. They think that the Compaq name and support is critical to the success of any such machine, so other efforts will be just so much noise.

- Out execute Sun and the SPARC clones. In attempting this strategy they are dearly counting on superior execution to win them a good slot in the SPARC pantheon - i.e. that there is room for two major players (themselves and Sun).

The time frame for this is uncertain, but Stimac said that they could have sample machines within 9 months, and ship within 12 months. This would be consistent with building a machine from scratch (you can manufacture an existing design such as the LSI Logic SPARCkit in much less time - say 3 months).

The Compaq strategy outlined above is much more of a pure workstation approach than the one that Sun is on. This is because Compaq has a huge PC business to protect. Ironically, by endorsing SPARC they are giving Sun and others a powerful means to attack the PC business even if Compaq itself achieves a way to isolate their own workstation business from PCs.

This is a very key distinction between what they are planning to do and the IBM RS/6000 strategy which they admire so much. In IBM's case the RS/6000 has no life of its own - IBM controls it completely and also benefits completely if it is successfuL

In Compaq's case, SPARC does have a life of its own, and Compaq is far from being the sole beneficiary if SPARC wins. Sun and others can directly attack the PC industry, and in doing so compel Compaq to either follow suit and cannibalize their PC business, or resist the trend and lose in the SPARC market. For example, if Sun continues to up the ante in aggressive pricing, marketing aimed at PC end users, ISV evangelism and other anti PC activities, Compaq will have to match Sun to remain competitive in the SPARC market.

1.3. Compaq's Motivation

One view of Compaq's interest in SPARC is that it is simply an extension of their desire to ape IBM, and more generally to be a quality implementor of other peoples strategies (i.e. superb knock-off artists). They need to copy any strategy that IBM has, ergo they need to have an answer to the RS/6000. Given that there are some nearly insurmountable barriers to directly cloning the RIOS chip set, they looked around to see who is the next biggest player (Sun) and set off to copy them and win through superior execution. Compaq has recently taken the same approach in the printer business.

Stepping back, there are several likely factors which are motivating Compaq:

- Cloning the strategy of moving into workstations. This was discussed above.

- Obtaining incremental revenue and market share. The workstation market has a faster growth rate than the PC business, and they perceive that they have sufficient skills to beat the present competition.

- Get involved with RISC without jeopardizing their PC business. They understand that RISC will be important long term, but they remain terrified of anything which introduces RISC in a fashion which might in any way reflect on the PC market.

- Get involved with UNIX. They are getting a much more favorable view of UNIX than in the past and this gives them a way to hedge their bets. I do not believe that they have an explicit goal to get out of the Microsoft dominated world, but having a strategic hedge is sensible.

- Build a direct sales force without disrupting their present channel. The workstation business gives them an opportunity to do this without upsetting their dealers.

One interesting question is the degree to which we have accelerated Compaq's concerns in these areas, or done things to cause them to move to SPARC. It is likely that our efforts to involve them in the RISC PC, and our emphasis of the Sun threat has highlighted the importance of this area, but in general I think that at most we got them thinking about this six months sooner than they might have otherwise.

During the meeting with Stimac there were a number of comments that indicated that they were none too pleased with Microsoft's power in the industry. One concern that we had during the meeting, was that Compaq was upset with Microsoft taking an active role in trying to define a hardware platform and pushing them and the rest of the industry to RISC. After thinking about it, and considering their SPARC strategy in more detail, it appears to me that anti-MS feelings, including fear about our hardware prototyping efforts and the role we have intended to play in RISC PC have essentially nothing to do directly with their basic strategy.

They appear to be doing exactly what one would expect from Compaq if we had never told them a thing about RISC, and instead they had discovered it on their own. Their natural tendency is to clone the winner rather than to innovate with a bold new approach. They would never undertake an initiative like setting a new RISC PC standard by themselves - there are too many unknowns for them. If you set aside the notion of doing their own standard, what else could they do except clone an existing one? Sun is their choice over our RISC PC because they are more established whereas our plans are still on paper, and there is less perceived risk to their existing business.

Certain individuals at Compaq probably do hate us, or are uncomfortable with our power, and we should never get lulled into thinking that they are not just as envious and jealous as the rest of the industry. Probably the biggest sin that we have committed in their eyes is that we ship products before they are ready - this offends their perfectionist sensibilities, and in the case of RISC they are worried that our haphazard approach could hurt them very badly by impacting their present market. These personal factors help grease the wheels for any plan that shifts power away from us, or reduces Compaq's reliance on Microsoft, but there is no evidence to support the contention that they are on an anti-Microsoft jihad as a matter of company strategy. Nevertheless we should not be fooled into thinking that they like us, or will cut us a break in any way - if the long term effect of the strategy is to put us in our place, so much the better although it is not an explicit goal.

1.4. Impact on Microsoft

Sun's clear goal is to be the system software provider and the leading hardware company in the SPARC market, and have that market become the key high volume segment of the computer industry. From a technology standpoint they have a fundamental advantage over the x86 based world, and there is every reason to believe that in the long term RISC based machines will completely replace the x86 for all desktop personal computers. If Sun succeeds, our systems business will die along with the x86.

That is the big picture view, and it shows why we need to be excited - billions of dollars, and Microsoft's identity as a company that is important in systems software - hang in the balance. Narrowing down our focus a bit, it is interesting to project the near term impact of a Compaq SPARC project on our part of the world.

1.4.1. PC Industry OEMs

One can argue whether Compaq is just following a done strategy, or has some deeper plan, but when it comes to the rest of our OEM customers, there is little doubt, especially among those who are focussed primarily on the PC market. They are not so ambitious as to think that they need to emulate IBM in every way, but by the time Compaq is doing it too, it will get their attention. The rush of interest in MP and server machines following the SystemPro introduction is ample testimony to this fact - despite the fact that nobody (even Compaq) is burning up the sales charts in this market. The minute that Compaq announces a RISC strategy, every other OEM is going to give it some serious thought Some will wait, some will rush in, but they will all think about it

The reaction to a Compaq SPARC announcement will group OEMs in three basic categories:

- Pure PC companies. This includes big ones like Zenith and Tandy, as well as the second and third tier people. SPARC will be the leading contender for most of the them, because it is the simplest thing to do - just copy Compaq. The only thing to consider is whether their distribution channel can handle it, but many of them will invert this problem into a perceived opportunity - i.e. that their advantage is that they're in a different channel than Compaq with the same kind of machine.

- PC companies which are already in the workstation and mini business. These guys will be caught in a tough position, because Sun is their nemesis, and they will be loathe to support them. The canonical example here is HP - they are the second largest workstation company, and also have a PC business.

- Workstation and minicomputer companies. People without a substantial PC business include companies such as DEC, Silicon Graphics etc. These people would not normally care at all about what Compaq does (or at any rate it is a second order phenomena for them), and are unrelenting in their opposition to Sun. They will see an incredible boost of momentum for Sun and will be very interested in doing nearly anything else as a matter of survival.

The last two categories of companies are the simplest ones to predict - they are directly threatened by SPARC (even more than we are) and they will react sharply in the opposite direction. Ultimately they may give up and make SPARC clones, but they will almost certainly make one last attempt to beat them first. The motivation is pride, inertia and the fact that Compaq (at number two) will have taken last really desirable spot in the SPARC line up (not to mention Compaq's little consortium). This gives them nothing to lose and everything to gain by going in any direction other than SPARC. The primary distinction between the two is that workstation companies in the PC industry will naturally look to Microsoft for a solution to this problem, whereas those who are not big customers of ours wouldn't normally think of that. In either case, they are very approachable for a counter SPARC strategy.

The pure PC people are another matter entirely. They will have a much more direct reason to just sign up with SPARC. They are especially vulnerable to the same pitch that Compaq itself is falling for - enter the workstation market as a way get incremental revenue without effecting your PC business. The keys to convincing these people not to go with SPARC are to play on three things:

- It will hurt your PC business. SPARC is the natural enemy of PCs, and it is too late to side with SPARC in this fight because all of the good seats are already taken.

- You can adopt a RISC strategy which actually benefits your PC business. This is the Power PC message. Since most pure PC companies do not understand the UNIX market, they would be much better off with a way to address RISC which leverages the thing they do understand, and their present users and distribution channel.

- It's time to turn the tables on Compaq. This only works for the larger PC companies, but it can be effective. These guys are clearly in third place behind IBM and Compaq in the PC world, and they would still be third place (or worse yet) in the SPARC world. If they are offered a chance to move up in the hierarchy, and still have the comfort of having major forces in the industry supporting them, they will see this as an opportunity.

This covers the near term reaction to a Compaq SPARC. The long term consequences depend on the course that we follow. In the absence of any MS lead RISC project, I expect that we will see over half of the PC only crowd offering SPARC machines within a year of Compaq actually shipping. The only reason that I do not say all of them is that the SPARC market can only absorb a certain amount of growth until mass market binary applications start to appear.

1.4.2. PC Industry ISVs

The effect of a Compaq SPARC announcement on PC industry ISVs will depend a lot on our strategy and how it relates to Windows. It will also depend a great deal on how active Compaq is getting ISV support. If they are really hard core about the notion of separating the UNIX and Dos parts of their world, then they will not embark on a big ISV program unique to the machine and will instead let Sun's existing efforts handle it. On the other hand, if Compaq has some differentiating feature over Sun (for example they decide to push Motif rather than OpenLook) then they will have to go to ISVs.

If we do not have a compelling way to tie RISC into Windows, and execute on it very well, then we will see a lot of PC industry ISVs look at SPARC as being enormously more interesting after Compaq than before.

1.4.3. Networking Business

One of the primary attractions to UNIX from Compaq's point of view is that it has mature networking. We can expect that their direct sales force will be pushing this very strongly as part of selling the machines. This suggests that networks will become one of the first areas where we will conflict develop between the x86 and SPARC sides of Compaq's business - which machines get pushed as the departmental network? What is the server OS? If you buy one kind of Compaq machine the sales rep will help you out, but the other kind you have to call this dealer.

This has a lot of potential to negatively impact our network business, and any attempts to establish OS/2 as a server OS. A natural separation for Compaq to make is to say that simple file and print services belong on x86 PC based servers up to the SystemPro, since the issue is mainly one of I/O throughput rather than processor speed. The dominant software here would be Novell. When you need to do database operations, or any other kind of compute intensive server task, it will be hard for them to avoid selling the SPARC machine.

2. LIVING IN A SPARC WORLD

One way to view this development is that we should learn very fast how to live in a SPARC dominated world, because that is going to be a reality. There are several degrees of emphasis that you can place on this. At the very least, Sun and SPARC will continue to be a viable system for a number of years, and we could view this as an incremental revenue situation (much like Compaq). At the other extreme we could just admit that SPARC is likely to take over from the x86 within the next five years and we should jump on board as hard and fast as we can. In any event, the sections below describe some of the opportunities that we could approach assuming that SPARC is going to be important.

There are three different approaches for distribution that we could take in working with SPARC - one would be to deal directly with Sun, the other would be to work with Compaq and the third is to try retail. In the discussion below we will assume that Compaq will have the same system software base that Sun has, and this means that for all intents and purposes we have to work with Sun. Retail is a poor choice for the present SPARC market because it is all done by direct sales. By the time that retail is effective, it will be too late for most of the approaches below (except applications).

2.1. Windows layer for SunOS

The idea here is to take the portable version of Windows being developed for NT, and make it work on top of SunOS instead of the NT kernel. There is considerable precedent for such a project - we negotiated a deal just like this with Sun several years ago, but it fell through at the last moment when they were feeling their oats and thought they didn't need us (that was right at the moment when they first signed up with AT&T to control UNIX).

If there wasn't an existing window manager and look and feel for UNIX this would be straightforward - it would be to UNIX like Windows is to Dos. The proposed deal we had with Sun would have had a portable version of PM be the only GUI interface with SunOS, and be bundled with every copy. Now that there is OpenLook in the default position, a number of problems arise:

- Sun won't bundle it. Obviously we can try to get this, but it is hard to see why they would want to at this stage. They can sell at the rate of 200K+ machines per year without this today, and there is no present sign of their growth slowing down. They are getting a slow but steady series of defections from the PC ISVs, and with Compaq on board they have a good shot at the rest. As a company, they are a lot less enamored with the "big deal syndrome" than we are and they are likely to just go out and compete with their product There is also the strategic cost of letting us get into a strong position in their system software business.

- System utilities and UNIX apps will follow OpenLook. They are too far down the road to pull back now. The fact that there would be two different looks, and two different APIs is a pain to both end users and developers. Over time people would tend to view one of the approaches as being a second class citizen - if that stigma fell on Windows (and Sun would have every reason to make that so), then ISVs would migrate to OpenLook and we would be eliminated.

- Windows on SunOS could be clumsy. Although the core kernel issues are not difficult, there are a lot of other things that would need to be done to make a slick system. Examples include how you share the screen with OpenLook apps, sharing clipboard formats, whether you can do DDE with OpenLook apps etc. This has much of the flavor of the problems that arise in trying to run Windows and PM at the same time in a nice fashion, but the details are worse because OpenLook differs a lot more from Windows than PM does. It is not so simple to add

- Sun will continue to evolve OpenLook. They will add new features in an attempt to be competitive in general, but this will cause a direct challenge to Windows. Unless there is a high degree of cooperation between us and Sun this will make life difficult.

- Windows will evolve in directions that are hard to support. Our advanced data storage initiative is a good example of something that will be very difficult to implement on top of SunOS, and there are likely to be more of these in the future.

- We would be vulnerable to direct OpenLook ports, or SMK approaches. The primary value of the Windows layer is to make it easy for an ISV to address both SPARC and Windows on x86 with the same source base. To the extent that this is not smooth because of the evolution issues or clumsiness issues above, or that the resulting app looks like a second class citizen in an OpenLook world, ISVs would be motivated to go directly to OpenLook. If SPARC remains a minor phenomena, then they would use our layer, but once it is important they will look hard at other approaches. The most viable alternative is a software migration kit which Sun or third parties could provide, which makes it easier to port from Windows, but yields a more OpenLook-ish app as the final result.

This does not mean that a Windows layer for SunOS is a terrible idea, but it does raise a lot of questions. It is not a simple project and we would have to overcome these issues in order to make it viable.

2.2. NT Windows for SPARC

Another obvious approach is to build essentially the same NT Windows product that we are presently targeting for a MIPS based Power PC, but offer it on SPARC instead as an alterative to SunOS for the native operating system. This raises its own set of challenges:

- Sun's strategy is based on controlling the operating system. The operating system is key to any plan to dominate an instruction set - they need control of the operating system software in order to be able to get an advantage over the SPARC clones. This comes up in a huge variety of areas - multiprocessor machines, new system level instruction set changes, moving to a 64 bit address space, making handheld machines, adding multimedia capabilities - the list goes on and on. The operating system sits at the critical crossroads between the hardware and applications. To first approximation, the only software that is really visible to the hardware, or that is visible to ISVs - is the operating system. Sun understands this, and they are not very likely to give up their system software business, or to let us get any kind of serious position in it.

- We are not well suited for their present market Although we are working on making a compelling state of the art product, NT Windows is not particularly well suited for the traditional workstation market. Given that Sun, and Compaq, are both working the workstation market first and foremost in the initial phase, we are bound to get a fairly small penetration. Our product will shine when it is marketed as a Power PC - not as a weird kind option in the workstation catalog.

- We would have to plug and play with their network strategy. The most direct example of us not being well suited for their present market is that we would need to work on a Sun network. Essentially all of their sales are machines on a network , and our situation would be hopeless unless we could have individual machines running NT plug into a Sun network. This means we would have to support NFS and their entire net strategy (directory, mail, security...). Although it is possible we could do this by licensing software from Sun, it would still be a lot of work, and it would constrain us in doing our own networking vision.

- They control the customer via a direct sales force. It is very difficult for us to come in with a different operating system when Sun has dedicated people on site, and is selling a complete solution rather than a retail machine. This does not give our system any room to grow and build up momentum. This will change at some point when they go retail, but by then it will be too late.

One of the themes that runs through the problems above is that there is already a strong operating system strategy for SPARC, namely SunOS. Furthermore, the marketing environment for SPARC is dominated by SunOS and matched to its natural constituency and feature set. Compaq is not considering doing a RISC PC or Power PC which just happens to have a SPARC CPU inside - they are planning on going into the Sun clone business and going after the same customers. We are ill suited to competing in that environment, and without some room to grow, we would never get critical mass and succeed.

It is interesting to contrast this with the MTPS based Power PC plan that we have had to date. In this case we are being marketed as a high end Windows machine, and the feature set would be attuned to that need. The Power PC is designed to mesh well with a network of Windows machines - it has the same apps (upon recompilation) , the same look and feel, the right network support (LanMan and Novell) etc.

2.3. NT as a base for SunOS

Another idea is to try use NT as the base for building an entire UNIX version, probably by turning SunOS into a subsystem. This is similar to the Mach approach, and from a technical standpoint the NT kernel would be great for that. It is difficult to imagine that Sun would let us do this, or would be interested themselves. They have the capability to do this themselves, and there is little reason to let us into the revenue stream for this reason.

2.4. Applications on SPARC

Finally, our applications group is a way that we could profit on SPARC even if we do not get any systems revenue. The issues here are fairly straightforward - we would simply port our apps to OpenLook. One could imagine using some portable Windows code as an internal porting aid, but that is just an implementation detail.

This case differs substantially from the historical example of our success on the Macintosh:

- Apple never had the potential to kill our systems business. The Mac was destined to be popular, but because it was proprietary, it was a self limiting and could not threaten our systems business. The Mac offered incremental revenue with no strategic consequences. Lending support to SPARC is a different matter entirely.

- SPARC does not offer a unique technology. The Mac gave us a unique chance to do GUI, and thus be the foundation for a long term applications strategy. SPARC has no such offer - RISC is not unique (indeed MIPS has better performance), and the rest of the system definition is boring and not substantially different than today's PCs. Power PC on the other hand does represents an opportunity to raise the bar on the minimum system and take advantage of technological synergy.

- Apple had a much better distribution strategy. The current Sun direct sales force approach is not conducive to selling our applications. We really need to have retail software distribution. SPARC will have that eventually, but until that point it makes the business case of doing SPARC applications much tougher. Although there is a big advantage in being first on a new platform, there is also the phenomena of being "all dressed up with nowhere to go" - it doesn't count if you are so early that you are gaited by having an immature infrastructure such as the distribution channel.

- The present SPARC market is niche oriented. There is an interesting chicken and egg problem - SPARC has a very poor selection of mainstream office productivity applications today - which means that its present set of users clearly do not place these in very high regard. SPARC sells today to people in niche markets (electronic CAD etc) - although they may have an interest in word processing, spreadsheets etc, the per capita demand will be much less than the PC market. This reduces the effective installed base and sales volume that we can look at to project applications revenues.

- Our opportunity cost is higher at present. Our apps group has a historic opportunity to reap the advantages of having bet on GUI, and on Windows.

- SPARC app sales will impact sales on other platforms. In the early days of the Macintosh we had a very small market share in applications, so the Mac represented good incremental revenue. Someone who bought a Mac and our software was almost certainly a customer that we would not be able to reach with other products. This is no longer true, and many business customers that buy SPARC and our apps would be likely to have bought our apps on Macintosh or under Windows. In encouraging the growth of the SPARC market we have to recognize that the customers we attract will not all be incremental additions.

Many of these points apply only to the early stages of SPARC. Obviously if SPARC is destined to succeed and be the high volume office platform, then we should do applications for it. The points above mainly speak to the issue of when we should jump on the SPARC bandwagon. The net result is that the business case for doing SPARC apps is much tougher than it would appear at first because the SPARC market is less lucrative than it appears (niche market, impact on other platforms) and because there is a tradeoff against our systems business.

This would suggest that we should not do SPARC applications until the point where we think that SPARC's success is a foregone conclusion, and the SPARC infrastructure and channel is in place to make our entry meaningful.

2.5. Conclusions

The fundamental problem that we face in looking at SPARC as an opportunity is that they don't need us. The very reason we are discussing SPARC is our fear that Compaq's support lets them achieve critical mass. This naturally limits Sun's interest in doing a special favor for us, yet without some kind of edge or unique advantage it is tough to compete with their own system software which has many built in advantages.

This is another way of saying that Microsoft is not much like Compaq - it is difficult to work up enthusiasm for buying into somebody else's game and their rules and still beating them through superior execution. Compaq only has experience in succeeding at this strategy against IBM, which is a very slow moving company that does not know how to execute all that well, and does not even understand how to press their advantage. With a couple of minor changes in strategy, IBM could have eliminated Compaq's big claims to fame - for example if IBM had wanted to do the 386 first, Intel would have put the fix in for them and the Deskpro 386 never would have been. With the right licensing terms and up front negotiations, IBM could have had Compaq and the rest of the industry locked into the MCA bus and there wouldn't have been an EISA. IBM is not ruthless, innovative or even all that ambitious, and Compaq may discover that they need new tactics against an opponent like Sun which is all of these.

Compaq's view of Sun as a company that can be easily out maneuvered in their home court, on a game that they invented is not one that I share. That goes for their system software as well as for their systems - either one is a very tough nut to crack.

If in fact we have to do this, the key will come through putting enough pressure on them that they need us, getting some initial breaks in this way, and then pressing our advantage with flawless execution. That is utterly different from what we are used to doing.

3. FOSTERING SPARC ALTERNATIVES

Julian Schwinger, a Nobel prize winning physicist, was often at odds with the rest of the physics community. One of his books starts with the quote

If you can't join 'cm, beat 'em!

This inversion of the usual homily is appropriate here - it behooves us to consider how we can beat, or at least impede SPARC, because joining the SPARC movement is going to be very difficult.

Note that this is a good idea even if we think that it is likely that in the long term we will join. There is no reasonable scenario in which it benefits us to sit back and let SPARC momentum continue. Anything which reduces SPARCs power and momentum is positive for us - it is either the opening that we need to compete with them, or it provides the leverage we need to negotiate a graceful entrance into the SPARC business.

Although the specter of Compaq throwing in with Sun is daunting, we should not forget that we have been dealt some very good cards:

- Windows is emerging as the key API for PC ISVs. This gives us the ability, if we are careful about it, to deliver these ISVs, and the attendant momentum of their support to Power PC.

- We have a great deal of influence. Much of the computer industry looks to us for guidance. They do not always like this and they can be resentful, but this doesn't mean that they won't do what we say.

- SPARC has powerful enemies. Many of the world's largest computer companies are committed to fighting SPARC, or die trying. This is a potent resource which we can tap and channel. The one thing that the anti-SPARC forces of the world lack today is leadership and a shared mission. Encouraging them to them is a high leverage role for us to play.

- Compaq will not compete directly with Power PC. They are sincere about avoiding their present channel and overlapping with their present market. Their support of SPARC is a strong endorsement to the industry, but they will not have anything which directly confronts Power PC as far as end users are concerned.

- SPARC is not ready to compete in the PC industry. Although they have their act together in the workstation arena, they do not have sufficient ISV support to mount a credible launch in the PC industry. Unless we mess up in a big way they will not attain this in the time between now and the shipment of Power PC for MIPS. As long as we can get a reasonable number of Windows applications to port, we can easily dominate them in a direct showdown.

If we play our cards right, we can parlay these advantages into a pretty complete victory. This will not be easy by any stretch - but it is possible.

3.1. Uniting the MIPS Community

The only RISC chip that has a hope of beating (or even slowing down) SPARC is MIPS, so the clear thing to do is to strengthen the MIPS camp. Our plan of record has basically ignored the MIPS based workstation market, and we have focussed only on a very elite group of PC manufacturers who build the reference platform primarily for NT Windows.

This strategy does nothing to slow down SPARC in the workstation business, and it gaits the availability of the reference platform to OEMs, chip vendors etc on the availability of our software. In a world where SPARC is getting a powerful edge it suggests that we revise this to give more near term benefit to the MIPS world:

- Cause the MIPS community to unite behind standards. We would use our influence with key OEMs to get every major Sun opponent to endorse a common MIPS based platform standard and a common UNIX standard. The key elements are an R4000 reference platform system (with associated chips) which we can supply from our own effort, and a single version of UNIX which we should cause to be knighted as the standard (and maybe participate in it business wise). We would approach the standard in such a way that some companies (such as DEC) could have incompatible hardware below the OS level (and thus do a lot of porting work) but there must be application level binary standard.

- NT Windows is the carrot, and Sun is the stick. We would tell these companies privately that we will support the MIPS standard with NT Windows and Power PC, and make an appeal against SPARC. We may or may not choose to make our support public early in the game. Our goal is that we get them all to support NT Windows - either as primary or in some cases as the secondary operating system. The key difference between this approach and our current plan in that we do allow/encourage them to go ahead and ship UNIX on our machine design - especially if the hardware is ready before our software.

- Allow a much broader initial group. We would target a much larger number of OEMs - at least for the agreement on the reference platform and the UNIX standard. We might restrict the initial availability of NT Windows to give a smaller set of OEMs an initial time advantage on shipping, or we might not.

- Announce early. We would make sure that the MIPS unification announcements happened as soon as there were enough signatories. We would also consider pre-announcing NT Windows & Power PC early as well. It is important to break the monotonic stream of good news about SPARC.

- Get Windows ISVs to support Power PC/4000. The one key card that we hold is Windows 3 and control of the Windows API. We must use this to ensure that Windows ISVs port their applications to Power PC, and to MIPS.

- Get Power PC/4000 to ship ASAP. The UNIX oriented standard is just a placeholder to slow Sun down and to give Compaq something to worry about in the UNIX market they are so eager to join. The real vehicle for blocking Sun is to get the PC industry to ship MIPS based Windows machines. We have to make NT Windows a priority like none before and get it done.

- Promote the hell out of NT Windows on MIPS. We will have to spend a lot of money and effort in promoting Windows on MIPS, even though it is likely to come installed on the hard disk rather than be a retail product. We would also require the OEMs to push very hard. There are a number of creative things that could be done to help establish the machine.

Once there is a strong unified appearance to the MIPS workstation market. Sun's momentum will lessen. For example, the UNIX ISVs are pretty much all platform neutral today in the sense that their apps are available on more than one machine - where the number 1 platform is SPARC and numbers 2 through N are random with no one platform getting a decisive margin. Once the market consolidates into just two mainstream platforms (plus the RS/6000 as a random wild card), it would be crazy not to support both of them. This helps to deny Sun a lock on the applications and slows the growth rate of SPARC unique applications.

This also helps the industry infrastructure gear up to make systems. Having the architecture spec and ASIC designs go out to chip manufacturers early on will bootstrap the process of getting good support chips, having third parties supply add ons etc.

One big plus is that achieving unification of the MIPS world is relatively cheap in terms of the commitment that we need to make. The primary activity would be flying around the world convincing people. All that Microsoft would really need to commit is that we would in fact make a version of NT Windows for MIPS and offer it for sale - along the lines of what we have to commit in the MIPS contract when we exercise the option. I do not think that we will need to commit to doing this exclusively by any means, so if we later need to try SPARC we will be able to do so. The reason we can get away with this is that the biggest companies, who are most likely to try extract such a promise, already hate SPARC and already want to compete in the UNIX market so much that they will pursue this course independently of whether we ever ship NT Windows.

The companies which are likely to join up include:

Company Market Area MIPS already? Probability

Olivetti Europe No 90%

Siemans/Nixdorf Europe Yes 90%

Bull/Zenith Europe & US Yes 90%

Apricot/Mitsubishi Europe No 70%

Nokia Europe No 70%

NEC Japan Yes 90%

Sony Japan Yes 50%

Acer Taiwan & US No 70%

Daewoo Korea & US Yes 90%

DEC US & World Yes 80%??

HP US & World No 50% (90% long term)

MIPS US Yes! 100%

Misc workstation World Mixed Yes & No 90%
(Silicon Graphics...)

Misc mini & mf World Mainly Yes 90% (will support but few products)
(Amdahl, Tandem...)

Misc 2nd & 3rd tier World No 50% - 90%
PC OEMs (AST,Dell...)

This list omits the more questionable companies, although we might want to give them a try. It also omits companies that would be very nice to have, but whose likelihood of joining is unknown. This category includes companies such as NCR (we should be able to get their Tower & mini division even if the PC side does not do Power PC right away) and Tandy (not normally high end enough for Power PC, but might lend support). AT&T is another random case - they might be worth bringing on and might not.

Europe is dearly the best geographical area - we should get a clean sweep of the major companies, because they are either already signed up for MIPS (Siemans, Bull) or could easily be influenced by us (Olivetti). Japan is also strong if we can get NEC, because they dominate the market so much. The US is actually the worst area for large name brand companies. Zenith comes along with Bull, which helps a lot.

HP and DEC are the most interesting since they have the biggest reputations and would help the image. They could be hard to convince. Each of them would join in an instant if they knew Compaq was going SPARC, but might drag their heels otherwise. One interesting thing about both of them is that their PC businesses are not doing as well as their workstation & mini businesses. We could position Power PC to them as a way to get synergy between their workstations and PCs to help fix this problem.

Note that this is the list for the general support of the strategy including Power PC, the reference platform, and the UNIX standard. We would select a subset of these companies for the Power PC consortium - which is omits the companies from outside the PC industry like Tandem or Amdahl. Their support is important image wise for confronting the SPARC armada.

3.2. Managing PC ISVs

The biggest single asset that we can bring to bear on the problem is our control of the Windows API, and therefore the PC ISVs. This will require careful management, since they basically hate us. On the other hand, they love to hate us - despite the bitching, they do make money and are not stupid enough to hurt their own businesses just to spite us.

The general idea for how we can manage the ISVs onto RISC is to work as hard as humanly possible at getting 32 bit Windows to be a reality on the x86, and make the recompile over to RISC seem like a compelling incremental investment. The basic plan goes as follows:

- Continue to encourage the rush to Windows. This hardly needs to be repeated here, but it is essential to do whatever we can to keep ISVs moving to Windows. Making clear statements about the future of Windows will help.

- Head off platform neutrality. We do NOT want the next priority after an initial Win 3 app to be a move toward platform independence. We obviously cannot stop people from being sensible about organizing their source code, but it is essential that we keep the Windows API moving toward our goal, and give ISVs something meaningful to do that helps our strategy.

- Promote the Win 32 API The first race to pick is taking advantage of the 386 fully with 32 bits - at first via the thunk toolkit, and later with a fully 32 bit system. The large increase in 386 sales due to Windows means that there will be a substantial installed base of Win 3 on 386 so this is a natural and compelling thing for ISVs to do. We should promote this with big seminars like the original OS/2 seminars - held worldwide etc. Depending on timing this might be x86 only, or we might want to promote our RISC strategy as well.

- Provide good tools for 32 bits and for RISC. We have to make this transition as smooth as possible. This is especially true of the move between 32 bit x86 and RISC - it must be very easy to do. In the case of moving from 16 bits to 32 bits on x86 we will have a lot of pull from the 386 installed base to help out, but we still need good tools. Our tool strategy should include evangelizing third party tool vendors as well as doing internal work.

- Evangelize Power PC. The dual nature of the standard makes this a particularly good way to get ISVs involved with RISC. Many horizontal applications will not have to do a great deal of work to support Power PC in an opportunistic way (i.e. they'll be nicer when on it, but not have a dedicated version), but it is still valuable to promote it. We need to get a few exciting high profile apps to show the way.

- Come up with ways to encourage ISVs to support RISC. This includes financial support and a variety of other inducements. Once we have gotten them to do a Win 32 app and made the port to RISC reasonably easy to do, it is only a question of the incremental investment that is necessary to make the release. The OEMs can help position this as an industry wide phenomena rather than something done at the bequest of Microsoft.

Every step is quite solid and independent of the Compaq SPARC issue until you get to the last point. It should be relatively straightforward to get ISVs to support the Win 32 API in one way or another no matter what Compaq does. The tricky point comes when we get the ISV to actually commit to releasing a version for our RISC version - that is the point where Compaq's support, or lack thereof, will make some of them balk, or at the very least take a wait and see attitude. The way to overcome that is primarily through good marketing to the ISVs and good promotion. We must also make sure that there is a solid perception that the machine has sufficient support from OEMs to be successful.

3.3. Wild Ideas

Here are some sample ideas about dramatic (or just crazy) things that could be done to enhance the plan discussed above. Be forewarned that they are not full proposals at this point - just

- Distribute apps (and/or working models) pre-installed on the hard disk. This is one of the ideas that has been discussed already for Power PC. This helps make the case to ISVs because they get very high visibility if their app is pre-installed. Ideally this is done via a machine serial number scheme so that you can buy the app by phoning an 800 number with a credit card and get a key. We can use our own applications to help force the issue - for example we could say that two apps in each category will be included (to be fair), and bootstrap the process with Excel and Win Word. This would put the pressure on Wordperfect and Lotus to either join up or see us get a real leg up.

- Convince someone to bet the farm. There are no end of companies, especially in Japan, that seem to want to spend insane amounts of money to break into the computer business. Some recent examples are Kubota (with Ardent), Matsushita (with Solboume) and Canon (with NeXT) - each has sunk around $100M so far, and don't have much to show for it. We could consider telling another such company that Power PC is enough of a paradigm shift that it is an excellent opportunity for them, especially if Compaq and IBM are sitting this round out. One obvious candidate is NEC - we could get them fired up about using this as their big entree into the international PC market. The total investment is not necessarily as large as the ones mentioned above - the key is to get them to be very active in promoting the machine.

- Attract software (or other) vendors which have a direct sales force or special distribution network. A good example here is Oracle (but Novell may also apply). If they had a very good position on RISC PC, they could be very effective at helping to establish the machine. This does not mean selling the hardware, but there are a variety of ways they could make it appear like a well supported mainstream choice to their customers. This ranges from just having their sales force push it, to offering special service and support services for configurations including the machine.

- Create a large marketing war chest This can be funded through contributions from our OEMs etc.

- Make a great cross development system for x86. One way to get software developers interested in the machine is to make it a very nice, fast environment for their own use. If it is a great platform for developing Windows apps for any machine, and there are cross development features so that you can produce x86 binaries, then you will get a lot of ISVs buying them (with a special discount from the OEMs) for their own purposes. There is nothing like having a fast machine in front of developers to get a lot of midnight projects going.

3.4. Conclusions

There is no silver bullet which we can use to stop SPARC in its tracks. This was true before the possibility of Compaq going with SPARC came up, and it is even more true afterwards. The ideas discussed in this section give us a very good chance of slowing SPARC down, and with good execution we have a solid chance of beating them. "Beat" in this context means to establish RISC in the Windows community in such a way as to prevent SPARC from gaining a foothold in the PC industry and retail channel.

4. RECOMMENDATIONS

The first, and obvious thing to do is to work as hard as possible to try to change Compaq's mind and not do a SPARC machine. In parallel we should:

1. Redouble our efforts to rapidly define and implement NT Windows. This includes both the portable Windows and kernel pieces. This is key technology in any all scenarios, and the quicker we have it the better.

2. Do not start work on any SPARC based software. The time required to port NT is very small, as has been demonstrated with the 386 port. There is no reason to confuse the development team or waste any resource at this time - we could port the system very rapidly at any point if it is required. The situation with our Apps group also does not require any new action - any spare bandwidth that they have should be directed toward moving to 32 bits, which will be required for SPARC as well as for x86 and MIPS.

3. Refine a plan for uniting the MIPS camp. This mainly involves figuring out what position we want with respect to UNIX with MIPS and SCO, and then taking the show on the road. Actual implementation of the plan should begin within the next couple of weeks once we have a chance to review it. There appears to be little downside in taking this approach, and it will benefit us

4. Define Power PC and work out the strategy in more detaiL This is a key part of any plan and we need to get it very solid very soon.

This list will obviously change as things move along, but it is a good place to start.

Vobis pays MS minumum $3,000,000 in two years
Windows 3.0
DOS 5.0
French, German, Portuguese, Spanish and Swedish Language packs for both products.
It also contains upgrade royalties and additional provisions.

From peterbra Tue Sep 4 12:05:42 1990
To: joachimk
Cc: jeffl richardf
Subject: RE: Competing with Sun
Date: Tue Sep 04 12:05:24 1990

Paulma and I had a call with Mike Clark this morning. Paul and I will meet with Stimac, Perez, Barnes, Clark, and maybe Swavaly (sp?) and Canion either this friday or next friday.

Purpose will be:

1. Position and market current 386SX to 486 products better. Working with Intel, Compaq, and others to better position the 486 against SUN.

2. Review our relationship with SCO and how MS and SCO are goin to work to more closely support OEMs like Compaq.

3. Go thru the RISC stuff. Listen to Compaq, and understand them better rather than try to cram some position down their throats.

>From joachimk Tue Sep 4 11:58:29 1990
To: billg bobmu (sp?) bradsi carls jbal jeremybu karenh mikemur nathanm paulma peterbra ralfha richardf russw steveb
Subject: RE: Competeing with Sun

Date: Tue Sep 04 11:43:38 1990

Why don't we get a task force going to define what needs to be done short term and long term instead of exchanging more lengthy e-mail?
This is getting non productive? comments?
>From carls Mon Sep 3 10:39:18 1990
To: billg bobmu (sp?) bradsi carls jbal jeremybu karenh mikemur nathanm paulma peterbra ralfha richardf russw steveb
Subject: Competeing with Sun

Date: Mon Sep 3 10:38:51 1990

(ed: This longer message is apparently in response to Nathan (Myrhvold?). It seems to regard RISC (processors) and Sun as a major threat to Microsoft's position, but also indicates that Microsoft plans to produce software for RISC machines. )

One message is of note:

From markche Mon Sep 10 13:04:55 1990
To: bobo flcam joachimk richardf ronh
Cc: billmi bradsi hansa markche jomle
Subject: Known Problems with DR DOS 5.0
Date: Mon Sep 10 13:01:57 1990

Bobo, pls distribute to ioem.

The following is a summary of compatibility problems that we have verified with DR DOS 5.0 based on internal testing and results from an outside test lab. This is a technical summary of confirmed problems with DR DOS 5.0 Comparisons between MS-DOS 5.0 and DR DOS 5.0 have been addressed in previous mail and so are not discussed here.

This information is being provide to assist in disproving DRI's claims that DR DOS 5.0 is 100% compatible with MS-DOS. It is, however, very confidential information and should be provided to customers only under non-disclosure.

(Ed: what follows is what the first paragraph says it is).

(one other message indicates that Microsoft folks consider Jerry Pournelle an important person)

To: Steve Ballmer, Mark Chestnut, Bill Gates, Scott Oki, Brad Silverberg, Marty Taucher, Russ Werner/Microsoft Corporation

From: Carrine Greason/The Waggener Group
Kathryn Hinsch/Microsoft Corporation

Date: September 11, 1990

Subject: What to Acknowledge About MS-DOS 5.0

This is about how to handle leaks of information about MS-DOS 5.0, which was in beta at the time of this memo.

Date: September 14, 1990

To: Duane Cowgill, AST Research Inc.

From: Jeff Daniels, OEM Account Manager, Microsoft

This letter explains Microsoft's pricing structure, and quotes prices for AST based on sales of 100,000, 250,000, and 500,000 computers per year.

Tough situation, we cannot allow him say "they are the same, all that matters is the price.." this may be true for some low end users but not all his customers, he needs to admit that to you, ther [sic] will be some % of his cust base that will want the same dos that IBM compaq and the like re shipping..

Do you have any idea of how many customers that is? (ie what % of thier [sic] business is non consumer?)
thanks
richardf

>From debbiefl Wed Sep 19 14:51:01 1990
To: richardf
Cc: debbiefl tedha
Subject: commodores dos price
Date: Wed Sep 19 14:48:17 1990

richard,
tedha asked me to email you to bring you up to date on the commodore dos situation. our relationship has broken down rather badly because of the problems in our delivery of the PC Works stuff and Jeff Scherb doesn't have much patience or faith in us at this point. Based on conversations with both Jeff Frank and Jeff Scherb, I believe that their quote on DOS from DRI is $5. Jeff S. has told me that it is a purely financial decision and if we give him a $5 price that he will tell DRI to go away.

It just so happened that while I was telling Ted all about this, Joachim walked by the office and suggested that we consider working out a 1% of srp deal with them, like had been done with Phillips. we wouldn't go any lower than $5, but that would give us a ballpark. As soon as I get the list from Jeff S-I actually got a page today, I will work up a spreadsheet to figure out the monetary repurcussions and comparisons with normal quote. We have been trying to get in there to see them to make a dos 5 presentation, but Jeff doesn't want to hear all that "crap" and wants a straight price over the phone. He will not see us until we give him a price. He keeps emphasizing the fact that it is strictly a price decision and he will go with the lowest price dos in the consumer channel.

debbie

Your Windows Penetration Plans.

Attached are everyone's Plans as you sumbitted them at the CMM. Thanks for the work you put into them. I have reviewed each memo and sent email comments on them to most of you.

If there is a single conclusion I reached after reading our plans to date, it is that we are still not setting high enough goals for selling Windows in the coming six months. Selling lots of Windows sockets for our applications this fiscal year, before WordPerfect and Lotus can get going with their Windows apps, is the biggest revenue opportunity we have had in years. Please make sure you reinforce this message to everyone in your subsidiary company.

Attached to this memo is the current penetration plan for the US. It was received too late to be included in the package. You may want to read through the US and other subs' plans. There are some good marketing ideas there!

The table below is a summary of your current FY91 sales estimates, that I wrote down at the CMM. The data does not include updates. It sure would be nice to do more that one million units of full product/new sockets in FY91!

[table; note that the referenced attachment is not included in the exhibit.]

PX00402.PDF - stamped as Plaintiff's Exhibit 402, and "Highly Confidential"
topic: DOS 5.0 Pricing Proposal

September 26, 1990
Mr. Jeff Scherb
Vice President, Applications and Technical Support
Commodore Business Machines, Inc.
1200 Wilson Drive
West Chester, PA 19380

RE: DOS 5.0 PRICING PROPOSAL

Dear Jeff,

Within this letter is the DOS 5.0 pricing proposal that you have requested. As a matter of
principle, I usually prefer to give my proposals in person. It has been my experience that this
fosters a spirit of cooperation, and it makes it much easier to work together towards mutually
beneficial solutions. However, I am aware that you are under pressure to get this issue resolved
quickly. so I will try and accomplish these objectives in spite of the format.

You have indicated to me that you will be making your decision based on a weighted average, and
that this weighted average needs to be significantly below your current $11.00 per unit price. You
also mentioned that your price needs to be very compatible on the low end, as this is where you
see the majority of your margin pressure. In our original conversation, you presented me with two
price scenarios. One, you want a price if you were to take all of your consumer machine business
(75% total units sold) to DRI. Two, you offered me the opportunity to quote such a competitive
price that you will not need to take your business to DRI. You have also mentioned several times
that price is the only factor in this decision. let me address both of these price scenarios.

If you were to take your consumer machines to DRI, this is what would happen. Your DOS
contract would go from a per processor agreement to a per copy agreement, when it expires at the
end of January. A per processor agreement keeps your price low, because we offer a premium
price to those customers who bundle our product with every processor. For those customers who
choose not to bundle our product with every processor, their price is adjusted accordingly. This
price adjustment reflects the decade of work we have invested. In making our DOS product an
industry standard that is compatible with practically every personal computer on the market today.
What does this mean to you? If you choose to take your consumer business to DRI, your unit
volume decreases 75% and you no longer have a per processor agreement. Therefore, your new
price on all DOS products will jump to $30.00 per copy.

However, I do not believe that this scenario is in either of our best interests. Let me elaborate on
the scenario where you would receive a lower average price per unit. Looking at FY90's unit sales,
I noticed that 51% of your sales were 8086 machines. 45% were 286's and 4% were 386's. What I
propose is that we offer you a substantially lower price on 8086 machines (where the majority of

X 221348
CONFIDENTIAL

MS-PCA 1176606

PLAINTIFF'S EXHIBIT 181

your business is). and adjust your royalties on the other higher end processors. Specifically, your
pricing under this new agreement would be:

8086 $6
80286 $10
80386 $16
80486 $16

Using the figures from FY90, your weighted average would be $8.22. This is $2.78 less per unit than
your current average price. this pricing means that you would have paid MS $805,310 less in
FY90 than you actually did. To get such a royalty pricing schedule, we would expect to see a
minimum commitment of $660,000 per year, as this would be an entirely new DOD agreement. This
$660,000 is based upon your 8086 royalty multiplied by the number of 8086s shipped last year.
the term would be for 3 years and the effective dates would be February 1, 1991, which is the date
your current DOS license expires.

I believe this pricing should be very close to your expectations. Let me also point out that these
are extremely aggressive prices, especially since you are only shipping 220,000 units a year. you
will be paying 25% less than you currently pay for a superior product, lower support costs
and the ability to localize the product. As this pricing should show you, MS is aware of the
competition you face at the low end and we want to work with you.

I will be calling you very shortly to discuss this proposal.

Sincerely,

Deborah K. Flynn
OEM Account Manager

CC:
Richard Fade
Ted Hannum

[handwritten] What will our mix continue to be - 3 years a problem
adjusted pricing over the years

[the second page of this PDF contains a scanned .xls table titled "Commercial DOS Pricing Strategy"]

Microsoft Ltd

Systems Report - October, 1990
Sandy Duncan - OEM Sales Manager

Sales Results
[below is the text from a table shown in the original]

$ Dollars

October Billings 8,046
October Budget 108,000

Billings QTD 8,046
Budget QTD 108,000

Billings YTD 3,558,753
Budget YTD 1,740,875

% of Budget YTD 204%

Forecast - November 75,000
Forecast - December 2,000,000
Forecast - January 100,000

October was a quiet month for billings. This is reflected in the budget. Not clear where the $108K comes from as it was under the heading of "Lic Other".

Packaged DOS sales were excellent at 206% of budget this month at 2,582 units. This compares with 974 units for the same month last year. The spread of business throughout our top twenty accounts was encouraging and DOS 4.01 sales were 73% of total sales.

News

Amstrad meeting with Jeff Lum was a very positive one. We will be pursuing the Windows, Works and mouse driver opportunities aggressively.

Brother Europe have agreed to extend their DOS license to a 20K unit commitment and add Windows 3.0 per system ! - This is worth an extra $1 Million over the remainder of their contract.

Opus agreement has finally been signed by Redmond. Another prospect bites the dust with a per processor DOS agreement. Opus look good for a Windows license in March/April next year.

Internal rumours suggest that Amstrad are having a tough time financially. Roland Perry has quit as technical consultant.

HIGHLY CONFIDENTIAL X 561937 CONFIDENTIAL - MS-PCA 1176614 CONFIDENTIAL - PLAINTIFF'S EXHIBIT 184

Successful OEM briefings Done

Exceed FG DOSS budget by > 50% Done (106% !)

Close Windows business at ICL Ongoing

Close Windows business at Brother Done !!

Progress/Close Amstrad PC Progressing well
4000/5000 opportunity

Clear up outstanding license Opus, done
issues with Opus, RML and ICL

Keep up momentum with Ongoing
DOS 5 beta program

Meet with Active Book Company Done

Principle Objectives November

Exceed FG DOS budget by at least 50%

Sign Brother Amendment

Sign Torus Amendment

Continue Dale Borland's induction

Progress ICL/Windows Opportunity

Close Amstrad PC4000/5000 business

Ship DOS 5 Beta III to UK OEMs

Set objectives for next review period

Complete all outstanding account plans.

HIGHLY CONFIDENTIAL - X 561938 CONFIDENTIAL - MS-PCA 1176615 CONFIDENTIAL

PLAINTIFF'S EXHIBIT 411A
Gordon v. Microsoft

From: nathanm Mon Oct 01 11:42:05 1990
To: billg bradsi jeremybu joachimk mike? paulma riscpc steveb
Subject: SPARC, MIPS & Compaq
Date: Tue Oct 02 22:57:14 1990

Recent events show that we are more in danger than ever of losing the key early ground to SPARC which puts our long term systems business in serious doubt. Compaq is considering SPARC, as well as friendlier options, and now Olivetti is too.

At present we are paralysed because Compaq is reluctant to take the kind of role that is required to push our software and combat Sun in a reasonable way. They want to push UNIX (they'll relent to giving us equal billing, but they will expend major effort in making UNIX successful), they are considering SPARC, and they are considering a number of ? non-SPARC responses.

There is considerable sentiment that we should adopt a strategy of appeasement toward Compaq. This means not pushing any other strategy for fear that it will enrage them and push them to SPARC. If we succeed in appeasing them, we'll have their halfhearted support, and if they go with SPARC or a poor non-SPARC strategy then we lose our systems business.

This approach is crazy because there is no recovery plan. It is motivated by our fear that without Compaq we won't have a market - the Big Deal syndrome. I think that the time has come to start pursuing our own strategic direction

There is no point in [Ed: language] Compaq off deliberately, but we should adopt the following plan:

1. Give our hardware design to MIPS. They would license it openly, including licensing the ASICs to the semiconductor partners, and te board designs to OEMs. MIPS would be the official source - we would not have MS copyrights or anything else on the stuff. This is not a deadly secret, it is just that there is no point in being high profile about it. People may assume that we had input because of our software role, but MIPS will be viewed as the source by almost everybody.

Note that our design has a large advantage over things that MIPS has done in the past (or the DEC design) is that it can be built cheaper, and it allows you to trivially add any PC style bus or chips (EISA, MCA etc) because one of our chips mimics the signals of a 486 bus.

2. The slogan for the hardware design will be "The First Open System". Today, the SPARC is open, but the system design is NOT open - you need proprietary LSI logic chips etc. This system will be licensed in a similar fashion to the R4000 - you can buy an Architecture License which gets you the spec and the right to make your own custom implementation, or you can get the full Semiconductor License which lets you manufacture the present ASICs. This is actually a very major point, which would be taken as a big deal in the industry. The announcement of the platform would play up many of the points in the Trends in the Microprocessor Industry memo - that systems vendors must get involved in making high integration "PC on a chip" solutions and the ONLY way for them to do so is to be able to license both the CPU and the rest of the system architecture. This announcement lets them do this for the first time.

3. The MIPS camp, like the UNIX world as a whole, is divided between OSF and AT&T factions. We will not succeed in unifying this as we once thought, and I do not believe that we should even try. If MIPS and/or SCO offer a product - fine, but it is not a big deal to us and we would NOT expend huge effort to ram a MIPS UNIX standard down anybody's throat. Oddly enough it is not a big deal to the UNIX market players themselves either - they will pursue their present fractured strategies quite happily.

4. Concurrent with MIPS pushing this hardware platform to OEMs, we would deliver the following software message to most relevant OEMS (see below for list). The message is:

- We will have an NT Windows binary application standard for R4000 MIPS with our byte ordering. It is our primary RISC strategy, and we will not put it on SPARC.

- The simplest way to get this app level binary standard is that we will have a system software release of NT Windows for the MIPS reference platform - if you buy the standard chip set and board design from the various vendors, there is no adaptation work.

- We may also provide source code to people that want to adapt to another system architecture (but still MIPS & same byte order). This is the message to DEC, or to anybody that balks at the standard platform. We do NOT care what the mix is of DEC designs versus our design any more than we care about ISV versus MCA versus EISA today. It is VERY important that people have at least one easy to build, cheap system that connects to PC busses which is why we are putting our design out, but given competition we don't care long term.

- We are NOT pushing the MIPS hardware platform per se, but we ARE saying that we will push a binary standard which consists of the Win 32 API and the R4000 with correct byte order. The hardware platform is just the easiest way to build one, and the only open design that anybody has asked us to endorse so far.

- Some OEMs will just offer the machine as NT Windows only (PC industry types), and some will offer NT Windows as a side line to their UNIX workstation business. We will not require people to trash UNIX to sign up - we will encourage them to position this as adding a new binary standard to their line up which will give them access to Win 32 applications.
The message above would be delivered to OEMs as early as next week (Olivetti needs to hear this) and we would give it to a fairly long list of OEMs (see below).

5. Our goal is to shoot for an announcement by the end of this year, or early next year. We may want to pull this up in fact. MIPS should announce their hardware reference platform independent of us, but either just before or just after our announcement. Our message would be:

- We would formally announce Win 32, and make sure that a portion of the announcement mentioned x86 as well.

- We would announce the creation of the Win 32/MIPS binary standard discussed in point 4 above. We would publically hit on each of the points mentioned there.

- We would get a list of OEMs to come up on stage and announce their support.

- SDKs would be available in 91 and the product would ship early 92.

- The positioning of the machines is as the world's fastest Windows machines. We would make a big deal about source compatibility between x86 and MIPS for OS/2 2.0 server apps and for Win 32 apps.

- The tone of the MIPS side would be that RISC offers some unique advantages for a specialized part of the Windows market where people need very fast desktop machines. We would NOT be create any expectation that they would take over the earth. We would show our slide that shows 486 fastest for existing apps and this platform great for new apps, but slow on existing apps. It is really a balanced future oriented message.

- A major part of the message is that your investment in Windows is safe - we are going to address 32 bits, and beyond that we will address RISC. You can go ahead and ignore Sun and that crap because Windows has all bases covered.

- We would also talk about the OS/2 3.0 kernel that is underneath NT Windows, how it is an industrial strength kernel for servers etc and it will serve advanced desktops etc.

- Our announcement would not include SCO or push any UNIX standard. We could say that UNIX addresses a present well defined market that has little if any overlap with the mainstream Windows desktop market. It is nice that this specialized system is available on the same hardware as NT Windows, and for customers in that market it may be the right choice. Our simple goal is the realm of Windows Computing. Over the next several years it will expand to include applications that require the performance that the R4000 can deliver, and we are taking the steps to make sure tht this is possible.

The purpose of announcing early like this is to freeze the market at the OEM and ISV level. In this respect it is JUST like the original Windows announcement. This time we have a lot better development team, so the time between announce and ship will be a lot smaller. Nevertheless we need to get our message out there.

One might worry that this will help Sun because we will just have vaporware, that people will stop buying 486 machines, that we will have endorsed RISC but not delivered. After thinking about this, I think that this is emphatically NOT the case:

- We answer the charge of "vaporware" by pointing at Windows, (after all, we are porting it). Windows is shipping a zillion copies an hour and that isn't vapor at all. Every Win 3 sold and every new Windows app is a nail in Sun's coffin. We would go on a PR offensive with exactly that mission. The big news is that now that MIPS will have Windows, and gain all of the momentum that is building - how can Sun survive? So, Scott, do you really think you can fight that avalanche?

- The "Osborne effect" is not relevant here. A long term announcement for MIPS based Windows in 92 will NOT freeze the end user market. It is just an endorsement that Windows has a future - it is too far off to hurt immediate sales, and in fact it will help. The original Windows announcement did not hurt Dos sales because people decided to wait for it. The only time when you get into an Osborne effect is when you annouce something near term that is a viable alternative.

We certainly do need to follow this announcement up with a good demo in 6-8 months when the SDK ships, but preannouncement is going to give Sun a real problem.

6. We would embark on the PR campaign mentioned above to reinforce the notion that Windows was the desktop API for the next 10 years, just as Dos was for the first 10 years. Sun and others that covet the desktop would have to beat Windows - and who can do that? This should be a real push - analysts, ISVs etc. We would really go on the offensive about how strong Windows is, and how irrelevant Sun and others are as would be challengers.

7. One potential sop to IBM would be to announce TWO binary standards for RISC for Win 32 and OS/2 3.0 - MIPS and RIOS. I think that the Austin guys would actually do this, and they would not even be mad about MIPS being the other one because it hurts SPARC so much. If we do this, then we would announce that we will not port to any other architecture for 3 years (obviously non binding) to really rub it in that SPARC is out. The way to position this to them is that we've seen Sun building steam and we need to support the MIPS world as a generic RISC. Ideally we would do this with a short enough lead time that they couldn't mess around too long. All we would do is announce a long term statement of direction that the technology would be available on RIOS - this is safe for them, and it makes Sun look bad, so we could probably make it an easy decision for them.

8. In the past we've talked about Power PC - a next generation PC spec with advanced audio and video for both x86 and MIPS. We would still do this, but it does not have to be part of the announcement or the base level hardware that MIPS would push. We could reserve this as an exclusive club the way that we originally planned RISC PC, or we could go public with it later on. There is no need to make this part of the early announcement. The system design that MIPS would push has a video daughtercard with a connector so we could always add the new stuff to these systems if that was important. Note that machines would not ship in volume until 92 anyway so we would have until this spring to finalize the Power PC hardware.

9. Our stance to Compaq on this is as follows:

- We do not tell them about this until we have had enough initial discussions to confirm that this direction is viable. This means getting the framework of an agreement in place with MIPS on the hardware platform and also getting agreement from at least 5 OEMs. This is NO different than them talking to Sun wihout telling us first. It mainly means that we don't tell them we are going to do something until we know that it is really possible and will play out like we think. This initial activity has to start soon.

- We then tell them that there is enough steam building under the MIPS camp, and enough uncertainty from Sun's progress that we feel compelled to announce an application level binary standard for NT Windows as a future product. This in NO WAY hurts their plans - UNLESS they are really planning to go with SPARC. Since we are not saying that people have to use one system design, they can come out with their "superior" Compaq/DEC design at any time.

- Compaq can either sign up and attend the annoucement, or not as they see fit but we should set a stake in the ground and not move it for them.

- We can present to them why we think that this is harmless to their present business, and will not harm current sales.

- This is not something rude that we should let them make us feel guilty about. They have outlined three alternatives for their actions, two of which are extremely bad for us, and the remaining one is not very attractive, could get [Ed: language] up and at best puts us on an equal footing with UNIX which is a big step down from the present situation. We are just presenting them with something which is highly compatible with one of their options.

- If Compaq really went with SPARC over this plan, then they were heading there anyway. The environment that this plan would create is much more friendly to them than the SPARC environment. We are just helping the MIPS community to come even part way towards where SPARC already is.

10. The OEMs to contact are basically the same ones listed in previous mail about uniting the MIPS world: Olivetti, NEC, HP (a long shot but worth it), DEC, Bull/Zenith, Siemans/Nixdorf, Nokia, Sony, and finally selected people in the pure PC camp - Acer, AST etc. MIPS can throw in a number of big companies which will endorse but not say much (Amdahl, Tandem ...). In the final weeks we could consider adding just about anybody else who had reasonable volume. The idea here is not be be exclusive - it is to get a reasonably large list of reasonably credible companies.

The first comment is likely to be "do you have anything without Compaq and IBM?". There are two answers:

First, the goal is NOT to make this machine sell zillions of copies in 1991 - it probably won't even ship then. What we need to do is announce a long term direction for making high end Windows machines - and freeze Sun out of our OEMs, our ISVs, and from industry perceptions at large. The idea that Microsoft will move Windows to MIPS is a very powerful concept that can be used to put Sun on the defensive. As mentioned above, we need people to view every sale of Windows or a Windows app as a vote (and investment) against Sun. The OEMs listed above are plenty credible to achieve our goals.

Second, I think that we grossly overestimate Compaq's ability in this area. They have a great reputation, but at present their plans are NOT in sync with ours - they are on a mission to clean up in the workstation market - and all signs are showing that if any cleaning is done, Sun will mop the floor up with them. Perhaps they can win competeing against Sun in their own backyard where everybody else has lost, but I doubt it. Even if they do succeed, they are presently off to push UNIX not our stuff.

[PJ: Earlier excerpts transcribed:]
[Admitted on 08-Jan-2007 and 16-Jan-2007, hard to read] 01-Oct-1990 Memo from nathanm to billg, subject: SPARC, MIPS and Compaq.
"Compaq is considering SPARC, as well as friendlier options, and now Olivetti is too."

[excerpt 1]"The purpose of announcing early like this is to freeze the market at the OEM and ISV level, In this respect it is JUST like the original Windows announcement. This time we have a lot better development team, so the time between announce and ship will be a lot smaller. Nevertheless we need to get our message out there."[excerpt 1]

---
[excerpt 2]"One might worry that this will help Sun because we will just have vapourware, that people will stop buying 486 machines, that we will have endorsed RISC but not delivered. After thinking about this, I think that this is emphatically NOT the case:

We would embark on the PR campaign mentioned above to reinforce the notion that Windows was the desktop API for the next 10 years, just as Dos was for the first 10 years. Sun and others that covet the desktop would have to beat Windows - and who can do that? This should be a real push - analysts, ISVs, etc. We would really go on the offensive about how strong Windows is, and how irrelevant Sun and others are as would be challengers."[excerpt 2]

---
[excerpt 3]First, the goal is NOT to make this machine sell zillions of copies in 1991 - it probably won't even ship then. What we need to do is announce a long term direction for making high end Windows machines - and freeze Sun out of our OEMs, our ISVs, and from industry perceptions at large. The idea that Microsoft will move Windows to MIPS is a very powerful concept that can be used to put Sun on the defensive. As mentioned above, we need people to view every sale of Windows or a Windows app as a vote (and investment) against Sun. The OEMs listed above are plenty credible to achieve our goals."[excerpt 3]

-----------------------------
PLAINTIFF'S EXHIBIT 411A Gordon v. Microsoft Depo. Ex. 1304

From: nathanm Mon Oct 01 11:42:05 1990
To: billg, bradsi, jeremybu, joachimk, mikebu, paulma, ????, steveb
Subject: SPARC, MIPS & Compaq
Date: Tue Oct 02 22:57:14 1990
Recent events show that we are in more danger than ever losing the key early ground to SPARC, which Puts our long term systems business in serious doubt. Compaq is considering SPARK, as well as friendlier options, and now Olivetti is too.

At present we are paralysed because Compaq is reluctant to take the kind of role that is required to push our software and combat Sun in a reasonable way. They want to push UNIX (they'll relent to giving us equal billing, but they will expend major effort in making UNIX successful), they are considering SPARC, and they are considering a number of ********* ***-SPARC responses.

There is considerable sentiment that we should adopt a strategy of appeasement toward Compaq. This means not pushing any other strategy for fear that it will enrage them and push them to SPARC. If we succeed in appeasing them, we'll have their half-hearted support, and if they go with SPARC or a poor non-SPARC strategy then we lose our system business.

This approach is crazy because there is no recovery plan. It is motivated by our fear that without Compaq we won't have a market - the Big Deal syndrome. I think that the time has come to start pursuing our own strategic direction

There is no point in pissing Compaq off deliberately, but we should adopt the following plan:

1. Give our hardware design to MIPS. They would license it openly, including licensing the ASICs to the semiconductor partners, and the board design to OEMs. MIPS would be the official source - we would not have MS copyrights or anything else on the stuff. This is not a deadly secret, it is just that there is no point in being high profile about it. Peopel may assume that we had input because of our software role, but MIPS will be viewed as the source by most everybody.

Note that our design has a large advantage over things that MIPS has done in the past (or the DEC design) is that it can be built cheaper, and it allows you to trivially add any PC style bus or chips (EISA, MCA etc) because one of our chips mimics the signals of a 486 bus.

2. The slogan for the hardware design will be "The First Open System". Today, the SPARC is open but the design system is NOT open - you need proprietary LSI logic chips, etc. This system will be licensed in a similar fashion to the R4000 + you can buy an Architecture License which lets you manufacture the present ASICs. This is actually a very major point, which would be seen as a big deal in the industry. The announcement of the platform would play up many of the points in the Trends in the Microprocessor industry news - that systems vendors must get involved in making high integration "PC on a chip" solutions and the ONLY way for them to do so is to be able to license both the CPU and the rest of the system architecture. This announcement lets them do this for the first time.

3. The MIPS camp, like the UNIX world as a whole, is divided between OSF and AT&T factions. We will not succeed in unifying this as we once thought, and I do not believe that we should even try. If MIPS and/or SCO offer a product - fine, but it is not a big deal to us and we would NOT expend huge effort to ram a MIPS UNIX standard down anybody's throat. Oddly enough it is not a big deal to the UNIX market players themselves either - they will pursue their present fractured strategies quite happily.

4. Concurrent with MIPS pushing this hardware platform to OEMs, we would deliver the following software message to most relevant OEMS (see below for list). The message is:

- We will have an NT Windows binary application standard for R4000 MIPS with our byte ordering. It is our primary RISC strategy, and we will not put it on SPARC.

- The simplest way to get this app level binary standard is that we will have a system software release of NT Windows for the MIPS reference platform - if you buy the standard chip set and board design from the various vendors, there is no adaptation work.

- We may also provide source code to people that want to adapt to another system architecture (but still MIPS & same byte order). This is the message to DEC, or to anybody that balks at the standard platform. We do NOT care what the mix is of DEC designs versus our design any more than we care abot ISV versus MCA versus EISA today. It is VERY important that people have at least one easy to build, cheap system that connects to PC busses which is why we are pulling our design out, but given competition we don't care long term.

- We are NOT pushing the MIPS hardware platform per se, but we ARE saying that we will push a binary standard which consists of the Win 32 API and the R4000 with correct byte order. The hardware platform is just the easiest way to build one, and the only open design that anybody has asked us to endorse so far.

- Some OEMs will just offer the machine as NT Windows only (PC industry types), and some will offer NT Windows as a side line to their UNIX workstation business. We will not require people to trash UNIX to sign up - we sill encourage them to position this as adding a new binary standard to their line up which will give them access to Win 32 applications. Te message above would be delivered to OEMs as early as next week (Olivetti needs to hear this) and we would give it to a fairly long list of OEMs (see below).

5. Our goal is to shoot for an announcement by the end of this year, or early next year. We may want to pull this up in fact. MIPS should announce their hardware reference platform independent of us, but either just before or just after our announcement. Our message would be:

- We would formally announce Win 32, and make sure that a portion of the announcement mentioned x86 as well.

- We would announce the creation of the Win 32/MIPS binary standard discussed in point 4 above. We would pubically hit on each of the points mentioned there.

- We would get a list of OEMs to come up on stage and announce their support.

- SDKs would be available in 91 and the product would ship early 92.

- The positioning of the machines is as the world's fastest Windows machines. We would make a big deal about source compatibility between x86 and MIPS for OS/2 2.0 server apps and for Win 32 apps.

- The tone of the MIPS side would be that RISC offers some unique advantages for a specialized part of the Windows market where people need very fast desktop machines. We would NOT be create any expectation that they would take over the earth. We would show our slide that shows 486 fastest for existing apps and this platform great for new apps, but slow on existing apps. It is really a balanced future oriented message.

- A major part of the message is that your investment in Windows is safe - we are going to address 32 bits, and beyond that we will address RISC. You can go ahead and ignore Sun and that crap because Windows has all bases covered.

- We would also talk about the OS/2 3.0 kernal that is underneath NT Windows, how it is an industrial strength kernal for servers etc and it will serve advanced desktops etc.

- Our announcement would not include SCO or push any UNIX standard. We could say that UNIX addresses a present well defined market that has little if any overlap with the mainstream Windows desktop market. It is nice that this specialized system is available on the same hardware as NT Windows, and for customers in that market it may be the right choice. Our simple goal is the realm of Windows Computing. Over the next several years it will expand to include applications that require the performance that the R4000 can deliver, and we are taking the steps to make sure that is possible.

The purpose of announcing early like this is to freeze the market at the OEM and ISV level, In this respect it is JUST like the original Windows announcement. This time we have a lot better development team, so the time between announce and ship will be a lot smaller. Nevertheless we need to get our message out there.

One might worry that this will help Sun because we will just have vapourware, that people will stop buying 486 machines, that we will have endorsed RISC but not delivered. After thinking about this, I think that this is emphatically NOT the case:

- We answer the charges of "vaporware" by pointing at Windows, (after all, we are porting it). Windows is shipping a zillion copies an hour and that isn't vaporware at all. Every Win 3 sold and every new Windows app is a nail in Sun's coffin. We would go on a PR offensive with exactly that mission. The big news is that now that MIPS will have Windows, and gain all of the momentum that is building - how can Sun survive? So, Scott, do you really think you can fight that avalanche?

- The "Osborne effect" is not relevant here. A long term announcement for MIPS based Windows in 92 will NOT freeze the end user market. It is just an endorsement that Windows has a future - it is too far off to hurt immediate sales, and in fact it will help. The original Windows announcement did not hurt Dos sales because people decided to wait for it. The only time when you get into an Osborne effect is when you announce something near term that is a viable alternative.

We certainly do need to follow this announcement with a good demo in 6-8 months when the SDK ships, but preannouncement is going to give Sun a real problem.

6. We would embark on the PR campaign mentioned above to reinforce the notion that Windows was the desktop API for the next 10 years, just as Dos was for the first 10 years. Sun and others that covet the desktop would have to beat Windows - and who can do that? This should be a real push - analysts, ISVs, etc. We would really go on the offensive about how strong Windows is, and how irrelevant Sun and others are as would be challengers.

7. One potential sop to IBM would be to announce TWO binary standards for RISC for Win 32 and OS/2 3.0 - MIPS and RIOS. I think that the Austin guys would actually do this, and they would not even be mad about MIPS being the other one because it hurts SPARC so much. If we do this, then we would announce that we will not port to any othe architecture for 3 years (obviously non-binding) to really rub it in that SPARC is out. The way to position this to them is that we've seen Sun building steam and we need to support the MIPS world as a generic RISC. Ideally we would do this with a short enough lead time that they couldn't mess around too long. All we would do is announce a long term statement of direction that the technology would be available ** RIOS - this is safe for them, and it makes Sun look bad, so we could probably make it an easy decision for them.

8. In the past we've talked about Power PC - a next generation PC spec with advanced audio and video for both x86 and MIPS. We would still do this, but it does not have to be part of the announcement or the base level hardware that MIPS would push. We should reserve this as an exclusive club the way that we originally planned RISC PC, or we could go public with it later on. There is no need to make this part of the early announcement. The system design that MIPS wouod push has a video daughterboard with a connector so we could always add the new stuff to these systems if that was important. Note that machines would not ship in volume until 92 anyway so we would have until this spring to finalize the Power PC hardware.

9. Our stance to Compaq on this is as follows:

- We do not tell thm about this until we have had enough intial discussions to confirm that this direction is viable. This means getting the framework of an agreement in place with MIPS on the hardware platform and also getting the agreement from at least 5 OEMs. This is NO different than them talking to Sun without telling us first. It mainly means that we don't tell them we are going to do something until we know that it is really possible and will play out like we think. This initial activity has to start soon.

- We then tell them that there is enough steam building under the MIPS camp, and uncertainty from Sun's progress that we feel compelled to announce an application level binary standard for NT Windows as a future product. This in No way hurts their plans - UNLESS they are really planning to go with SPARC. Since we are not saying that people have to use our system design, they can come out with their own "superior" Compaq/DEC design at any time

- Compaq can either sign up and attend the announcement, or not as they see fit but we should set a stake in the ground and not move ot for them.

- We can present to them why we think that this is harmless to their present business, and will not harm current sales.

- This is not something rude that we should let them make us feel guilty about. They have outlined these alternatives for their actions, two of which are extremely bad for us, and the remaining one is not very attractive, could get [redacted]ed up and at best puts us on an equal footing with UNIX which is a big step down the from the present situation. We are just presenting them with something which is highly compatible with one of their options.

- If Compaq really went with SPARC over this plan, then they were heading there anyway. The environment that this plan would create is much more friendly to them than the SPARC environment. We are just helping the MIPS community to come even part way towards where SPARC already is.

10. The OEMs to contact are basically the same ones listed in previous mail about uniting the MIPS world: Olivetti, NEC, HP (a long shot but worth it), DEC, Bull/Zenith, Siemans/Nixdorf, Nokia, Sony, and finally selected people in the pure PC camp - Acer, AST etc. MIPS can throw in a number of big companies which will endorse but not say much (Amdahl, Tandem...). In the final weeks we could consider adding just about anybody else who had reasonable volume. the idea here is not be be exclusive - it is to get a reasonably large list of reasonably credible companies.

________

The first comment is likely to be "do you have anything without Compaq and IBM?". There are two answers: First, the goal is NOT to make this machine sell zillions of copies in 1991 - it probably won't even ship then. What we need to do is announce a long term direction for making high end Windows machines -

and freeze Sun out of our OEMs, our ISVs, and from industry perceptions at large. The idea that Microsoft will move Windows to MIPS is a very powerful concept that can be used to put Sun on the defensive. As mentioned above, we need people to view every sale of Windows or a Windows app as a vote (and investment) against Sun. The OEMs listed above are plenty credible to achieve our goals.

Second, I think that we grossly overestimate Compaq's ability in this area. They have a great reputation, but at present their plans are NOT in sync with ours - they are on a mission to clean up in the workstation market - and all signs are showing that if any cleaning is done, Sun will mop the floor up with them. Perhaps they can win competing against Sun in their own backyard where everybody else has lost, but I doubt it. Even if they do succeed, they are presently off to push UNIX not our stuff.

_____________

PLAINTIFF’S EXHIBIT 416
Comes v. Microsoft

Eric.

From anthonys Fri Oct 5 11:00:20 1990
To : tomle
Subject: RE: Summary of "the meeting"
Date: Tue Jul 07 10:39:48 PDT 1992

It was kind of random at times, various descussions of tiny little
technical details. However the main conclusions were:

- hpfs/long file names should not be part of the DOS 6 team’s charter.
Bill said he viewed "the next file system" problem as belonging to
my data storage group, and he thought hpfs might be "stopping half
way", ie not the complete solution for win 4.

- bill said we should prioritise features according to the needs of the
following clients in order:

- win on 386
- win on 286
- standalone 386
- standalone 286
- standalone 8086

We didn’t decide in/out for any features other than hpfs. I think this
is going to be your job. It is clear though with these priorities that
end user configurable kernels aren’t very important. Brad also made the
interesting point that most new 8086 machines will have DOS in ROM. Brad
thinks the upgrade market for existing 8086 machines is non-existant.

Bill is clearly more enthusiastic than everyone else about the general idea
of revamping the DOS technology, being a moving target for DEI etc. And he
seemed quite willing to require utilities and extensions to rev if they have
become dependant on undocumented interfaces or data structures.

Gordon is going to read the memo I wrote from your email. He said some of the
things on there were hard. I think your Job is going to be to collect everything
from the current DOS 6 spec, our list and any other ideas then prioritise them
within Bill’ s overall framework.

From davidthi Fri Oct 5 11:10:38 1990
TO: a-chrisr Johnen
Co: dosdev
Subject: Re: Confidential Info for my status report
Date: Tue Jul 07 I0:39:~8 PDT 1992

I agree with what you said totally. Because of the way it was pushed when I
worked at Martin Marietta, I refused to join and made contributions to
individual charities.

My disgust was with the low level (which is actually 36%). However, I didn’t
want to re-broadcast to dwgroup just to state that.

- dave

MSC 008001721
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WinMail 1.21 brucen Tue Jul 07 10:37:38 1992 Page: 19

Date: Mon Oct 15 08:57:11 1990

>we need to meet on this this week. ok?

Ok, but...

What do you want to cover? Is there anything I should do to prepare?

bob

#######

From w-carrin Mon oct 15 12:18:05 1990
To: bradsi
Subject: Getting the word out about DR DOS
Cc: kathrynh russw
Date: Mon Oct 15 12:09:08 1990

Concerns have been raised that DR DOS incompatibilities and flaws are being overlooked by reviewers. Bringing competitors flaws to the press attention is always tricky, especially as Microsoft becomes larger and is seen as domineering over the PC industry. However, we do want reviewers to know about these problems. Below is the approach that Kathryn and I recommend taking:

Over the next couple of months, kathryn and I are going to be in touch with a lot of editors regarding MS-DOS 5.0. We'll basically be covering all of the key editors except for the weeklies and we'll be talking to them about other things.

We recommend that we "informally" plant the bug of FUD in their ears. "have you heard about problems with DR DOS?" " That security feature is a neat idea and, gosh, such a feature would be great, but it's just too easily circumvented." "Gee, it's unfortunate that DR DOS can't be loaded high all of the time. MS-DOS 5.0 can." We'll do this very tactfully.

Here's why we think this approach, rather than a more publicly aggressive approach is best:

• Our long-lead tours alone should have raised a lot of FUD about DR DOS, as MS-DOS 5.0 has everything DR DOS has plus a little more, and it is from Microsoft at half the price. We saw this in the PC Computing piece.

• There are two real problems, both features of DR DOS that MS-DOS 4.0 doesn't have - load DOS high and security features. The "load high" makes life annoying as it doesn't work all the time. The security features may lead someone to a false sense of security and someone may break into their payroll.

• There is a DR-DOS forum on CompuServe that editors can tap into if they want information. If there is a lot of noise from users, it will get into the press.

• If Digital Research came to Microsoft for help making DR DOS work with Windows, would Microsoft help them? Maybe not?

• The press is looking for instances of "big, bad Microsoft" tromping on little guys who are trying to make the world a better place - in this case by offering a "better" DOS.

We should absolutely get the word out - in a personal, noninflammatory way.

Thank you for providing the details. It is still possible, no matter how thorough we are, that a random reviewer will not be covered, or that an editor will choose to only present the positive side of DR. DOS's story.

Please let us know if you feel comfortable with this approach. Carrine/Kathryn

The first page is stamped at the bottom with "DEPOSITION EXHIBIT 908"

This series of emails are dated in October of 1990 and discuss issues of openness (i.e. GDI code sharing) during the early DOS 5 beta program and addressing concerns regarding perceptions that they may be trying to "pre-empt DR DOS 5 sales." An interview with Paul Sherer is also discussed

This page is stamped at the bottom with
"DEPOSITION EXHIBIT 908"

#####################################

1007
From bob??? Wed Oct 17 15:11:49 1990
To: ?????
Cc: bradsi davec davidw paulma ?????
Subject: RE: Quick Thunks[?]
Date: Wed Oct 17 15:06:49 2990

There is an unresolved issue which makes it difficult to determine when DOS/Win can ship SDK; that issue is code sharing, particularly GDI code sharing.

If ?? DOS and NT don't share GDI code, the earliest possible time I could imagine for a DOS SDK (based on the real stuff, not quick chunks) is April of 91. However, it could be later than that depending on when all the other pieces fall into place. We really need a "final" api before we can establish a good schedule.

If we do share GDI, the timeframe for DOS and NT are roughly equivalent. i.e. mid next year.

bob

#####################################

1008
From markche Wed Oct 17 15:15:5? 1990
To: w-carrie Cc: bradc bradsi kathrynh lorisi ??????? ?-??????
Subject: RE: Please call Paul Sherer
Date: Wed Oct 17 15:12:22 1990

I'm afraid that this guy is going to write that we are being open about DOS 5 beta because we are trying to pre-empt DR-DOS 5 sales. I tried real hard to present a different point of view, but I don't think he bought it. I mentioned that one of the things that Win 3.0 taught us was that it was better to at least acknowledge publicly that the product exists so as to ref??? customer confusion (this was outside the game plan, but I was trying to get the point across that there was good reason for us to acknowledge that DOS 5 exists as rumors started to appear in the press).

I' concerned that this article may make us look bad. Can you guys follow up and see if we need to do some damage control?

This was the toughest interview I've done. I felt like Richard Nixon giving his "I am not a crook" speech.

X 207961
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MS-PCA 1149487
CONFIDENTIAL

>From w-carrie Wed Oct 17 13:46:1? 1990
To: markche
Cc: bradsi kathrynh lorisi
Subject: Please call Paul Sherer

Date: Wed Oct 17 13:41:19 1990

Mark wants to talk to you about the beta program and why we are being somewhat more open about MS-DOS before it ships than we have been with past products.

Here's what I think he's doing: He's trying to put together a story suggesting that Microsoft chose to have this large beta program and is being more open is a deliberate attempt to squash DR DOS. In the past, I've been able to convince him that there is not a world conspiracy, when he's come up with these kinds of theories, I think you can too.

Here are some points you may like to make:

Yes, MS DOS version 5.0 exists in beta.
It is a huge beta program.
We are being somewhat more open because we know it is a huge beta program and that there are going to be leaks.
We have a huge beta program because MS-DOS is currently running on 50 million personal computers and making sure a product that important is stable is of utmost importance.
Windows 3.0 was extremely clean and we hope to do as well or better with MS-DOS version 5.0.
So, as there are going to be leaks, we felt it was appropriate in this case to confirm some of the information that leaked.

Don't bring up DR-DOS unless he asks. If he asked, you might say you've heard of some problems loading high and some security issues. But don't bash it.

And if he still persists in asking why we are being more open, ask him if he's saying he'd rather we not be. And that beta testers are under NDA just as they always have.

P.S. It is possible that he has the DOS long-lead presentation, but that certainly doesn't help his story here.

He'd like to hear from you tonight or early tomorrow. 617/375-4062.

Carrine

Finally, he likes to play with silence, making a person uncomfortable so

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that the person just continues babbling. If he's quiet, you can be quiet too, waiting for him to talk.

#####################################

1009
From davidw Wed Oct 17 15:22:34 1990
To: bob?? ??????
Subject: RE: Quick Thunks[?]
Cc: bradsi dvec paulma scott??
Date: Wer Oct 17 15:19:14 1990

If we do share GDI then since NT GDI is not even scheduled to be code complete until june (correct me if i'm wrong dave) i don't understand how anyone thinks a useful SDK can be shipped before sept at the earliest

#####################################

1010
From markche Wed Oct 17 15:24:51 1990
To: bradsi
Subject: RE: dos package
Date: Wed Oct 17 15:19:55 1990

could you forward me your mail to scotto again and I'll send it out under my name? thanks

>From bradsi Wed Oct 17 14:3?:40 1990
To: bradc markche
Subject: RE: dos package

Date: Wed Oct 17 14:40:15 1990

yes, it really does need to be brought to scotto and valerie's attention. actually, I think it should be sent by you, Mark. cc me, and then I'll take it from there. they have to know they cannot change direction without our agreement.

my primary goal is accomplishing the bu objectives. good relations perse with ?????? is not a goal; we could achieve those just by bending over all the time.

i think we can have both - achieve our objectives and good relations - but it can only come if they know we're the client and won't accept it any other way.

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PLAINTIFF’S EXHIBIT 438
Comes v. Microsoft

Memo to: Terry Rogers
From: Alex Morrow
Subject: Applications Integration for Rockport
Date: October 25, 1990

Summary

Windows 3 provides Dynamic Data Exchange (DDE) as a facility for application integration.
Although DDE has some shortcomings, notably its lack of protocol specifications, Rockport
must support DDE to be a full windows product.

Microsoft is positioning its Word/Excel/Powerpoint offerings as a DDE-integrated suite ideal for
Windows 3. It is likely that Informix Wingz would attempt similar positioning through coopera-
tive marketing. It is vital for Lotus to provide superior DDE-based application integration
between Rockport and its other Windows 3 products, in particular Remington and Notes.
Wordperfect looks like it will be late. Rockport marketing should act decisively to select part-
nership products for mutual integration testing and later joint promotion.

We have assembled a technical steering committee for application integration, which has met
once on the topic of Rockport/Remington/Notes integration on Windows 3. We will have a mar-
kering advisory group as well, with an initial meeting before Comdex.

Rockport currently has a very reasonable development plan for DDE support, but does not plan
support of the Impress draw layer. With some additional resource Lotus can provide enough
support for add-ins to permit draw layer support to be developed in parallel with Rockport, gain-
ing a competitive advantage over Excel in graphics integration and Wingz in spreadsheet func-
tion.

We should also identify other opportunities for leadership, such as the use of WK3+ as a prag-
matic standard for compound document exchange, and finding creative solutions for the current
lack of DDE protocol specifications and test suites.

Remington will support Rockport links well through a proprietary protocol It also provides
good support for normal DDE hot links, but no DDE execute support.

The Notes Version 2 plan for DDE seems quite good. Notes will provide for the distribution of
embedded documents through a proprietary convention that depends on server support for stan-
dard DDE hot links and four DDE execute commands.

Immediate plans are for Comdex visits with other Windows 3 DDE vendors to better understand
the issues and look for partnership opportunities.

A detailed discussion of each of these topics follows.

CONFIDENTIAL
IBM 7510255549

It was very effective in its first meeting on 10/23 in agreeing on Rockport/Remington/Notes
goals and gaining concensus on Microsoft’s probably plans for next year. Its members are:

Marty Roth: Ariel, Dave Reiner, DataLens, Richard Wolf: GUI/Walden, Doug Knowles: Hou-
dini, Pito Salas: Improv, Ray Ozzie." Notes, Dave Love and Ed McNierney: Rockport, John
Booth: Remington, David Reed and me.

Competition

There are two key Rockport competitors on Windows 3, who will have been out a year when
Rockport ships: Microsoft Excel and Informix Wingz.
Microsoft

Microsoft has defined a new market with Windows 3.0

The success of Windows 3.0 has defined a new market, and has given Microsoft (MS) a
new opportunity to sell its desktop applications -- MS Word, Excel, and Powerpoint --
against Lotus on the basis of their integration, rather than on their individual merits.

While the DDE integration of these products is currently far from perfect, MS has a year
development lead on Lotus on native Windows products, and is in a position not only to
fix the application products, but also to adjust Windows if need be.

One possible Microsoft action to achieve Windows market share with Excel by providing
heavily discounted combination packs - probably repackaged and enhanced with addi-
tional applications - of Excel, PowerPoint and Word into appropriately selected submar-
kets, such as college students.

Now: Word and Excel for Windows support paste link

Microsoft Excel and Microsoft Word for Windows have had DDE links since Windows 3
shipped. These links permit Word to act as a desktop publishing front end to Excel.
Curiously, Microsoft PowerPoint does not currently support DDE as either a client (a
document in which another is embedded) or a server (an embeddee), but it does use it for
internal connections between its charting and drawing sections.

The press finds the notion of a DDE-linked desktop suite attractive and superior to an
integrated application. However, they also identify problems with the actual Microsoft
suite, such as its lack of PowerPoint support, Word/Excel format conventions that round
fractions incorrectly, long paste link times and the slowing of printing and response time
when hot links are active.

We should look carefully at the actual products as soon as possible. All Lotus employees
at Comdex should be encouraged to try the suite and report their impressions in their trip
reports. There are clearly some things we could learn from Microsoft’s initial attempts
that would be valuable.

1Q91: Excel adds native data, launch; Draw layer probably later

We expect Excel to add support for native data -- between copies of Excel at least -- and
to be able to launch linked in applications in early 1991. Excel is not expected to have
draw layer support at this time, which probably means it will not be available until 1992.

CONFIDENTIAL
IBM 750255550

2Q91: Word updated, probably will provide embedded document support

The summer release of Word for Windows is expected to be able to launch Excel or other
attached programs, and save copies of the files representing embedded documents. This
support will probably be the first implementation of the currently evolving Microsoft
specification for embedded compound documents entitled Compound Document Protocol
(CDE).

Microsoft will surely make a major announcement of this in early 1991 as the new stan- dard for application integration. 2H91: Powerpoint client

We expect Powerpolnt to be upgraded with external DDE support in the second half of
1991, initially as a DDE client rather than server. The fact that Powerpoint will be late is
expected to give us at least a reasonable chance of having a Remington/Rockport DDE
link superior to that available from Microsoft, if we plan for it now.
Informix Wingz

Wingz differs from Excel in that it has a draw layer. Wingz 1.0 permitted any graphic passed
through the clipboard to be pasted on top of the sheet. With Wingz 1.1, this same facility is
made available via DDE. This means that Wings can be both a DDE client and a server to
most applications. The draw layer and Informix' strong charting and HyperScript support
demo very well, and will look even better as part of an integrated application package.
If Informix is smart, they will attempt to arrange for DDE-based marketing packages
between Wingz and leadership DDE graphics and desktop publishing packages, such as
Micrografx Charisma and Samna Ami Pro and go head-to-head with Microsoft on DDE
application integration.

We should work on our parmership selections aggressively. Rockport Plans

On the basis of several discussions with Ed McNierney, we have agreed on the following action
plan for Rockport DDE.

Wordperfect paste link support

Rockport will continue the DDE support negotiated with Wordperfect for 1-2-3/G. It is felt,
however, that Wordperfect will not be shipping its Windows version any time soon.

Remington client

Rockport provides good server support to Remington. The interface is such that Remington
has both access to the graph settings in Rockport and control over the final rendering of the
graph. The Remington plan is summarized below.

With some additional resource, Rockport can also be a Remington server.

Proprietary Notes embedded document mechanism

Ed McNierney has agreed with Ray Ozzie to provide all necessary services for the propri-
etary Notes embedded document mechanism, and to update the win.ini file with necessary
strings during Rockport install. The primary issue that remains is saving FM3 format files
within WK3+ files so that Notes can have a single file to embed. See File Formats.

CONFIDENTIAL
IBM 7510255551

Cross-testing with Excel, Word

Ed plans to test against the current versions of these products and any early copies he can get
of the forthcoming versions. This will provide some measure of assurance that Rockport will
work with other products that use Excel and Word as test cases for the correct implementa-
tion of DDE.

Marketing making testing arrangements with other vendors

Rockport marketing (Scott xxx) is making plans to contact other Windows DDE vendors to
work out mutually acceptable interoperability testing plans.

File Formats

Pat Stimpson is working on an extension to WK3+ to permit FM3 records, and in general any
add-in’s auxiliary files, to be maintained within WK3+ "dirtbag" records. This will permit
Rockport to provide Notes embedded document support for itself and for other add-ins. Pat
is concerned about the size of the WK3+ and with the potential for going off track in getting
to "clean" WK3+ file formats, but sees no technical obstacles.

Interchange Formats

Rockport will use a subset of WK3+ as its compound document interchange format With
the extensions proposed, it could easily become a defacto standard for compound document
exchange and storage. It would probably be a good idea to encourage this quietly, before the
Excel BIF file supplants WK1 as the spreadsheet interchange format on Windows. General Interprocess Communication and DDE

DDE is not the most robust means of doing interprocess communication. What Ed is plan-
ning is to provide add-ins with the ability to use other mechanisms to do application integra-
tion.

User Interface

Rockport is planning to provide users with access to all combinations of paste link through an
extended options menu in the edit pulldown. Roger Wolf is working with Notes and others
to ensure that Lotus has a standard mechanism for setting up hot links and embedding.

Command language

Users will be able to use the Rockport keyboard equivalent command language to cause links
to be set up. There are currently no plans to provide direct control of DDE facilities, such as
Execute, from the macro language.

Impress draw layer support through Add-ins

Rock-port is taking great pains to ensure that add-ins will be able to participate in DDE
exchanges in which a region of the sheet is designated as the source or target area. Add-ins
will be given access to any unrecognized DDE format types through event calls. They will
be able to use the standard LPI interfaces to interact with the sheet. They will also be able to
interact with the Impress quasi-draw layer, all through events. They will be provided with a
means of saving state information within the "dirtbag" records of WK3+, probably through a
virtual file interface. They will be handed a Windows display context when actual screen
rendering is required.

CONFIDENTIAL
IBM 7510255552

By providing these services, we can start an immediate parallel activity to add draw layer
support to Rockport. Ed estimates this would be 8 to 10 people. This would give us superior
support to Excel in graphics and far superior support to Wingz on spreadsheet basics.

1991 Lotus Windows 3 product plans

Only Notes, Rockport, and Remington are planning to supporting Windows 3 in 1991.
Notes

Will support DDE embedded documents through standard MS formats and private embed-
ding protocol. These documents can be sent over the Notes network and, where appropriate,
will use a Notes private DDE protocol to launch applications for attached documents.

Remington Plans

Remington will support:

Paste link from Rockport or other DDE server, using Windows metaffle (WMF) format.
Paste link of charting data from Rockport or other DDE server, using TEXT
format.

Copy and paste of graph from Rockport, creating a Remington chart object with all data
links to Rockport sheet established. (This is done using WK3 clipboard format.)

Copy and paste of Remington graphics into Rockport using CGM format. Pasting into
Rock-port will be done either by (1) creating a CGM file and passing the filename to
Rockport on the clipboard, or (2) putting CGM dam directly on the elipboard. The Rock-
port team has said they will try to add support for at least the first of these, but they have
not firmly committed to it.

Remington can act as DDE server using Windows metafile (WMF) format. Notes or
other applications can do Paste link of Remington graphics (one slide).

Some things that are not in the schedule:

Remington does NOT have plans currently to support DDE_EXECUTE, which means
that the embedding system that Notes uses will not work. This support could presumably
be added, but it is not in the schedule.

Remington does NOT currently plan to support double-click on a linked object to bring
up that object in the server. They are investigating the possibility, however.

Other Lotus Application Integration Plans

Ariel

Ariel currendy has no firm plans about DDE support, but will be making plans to support it
as their product plan firms up.

Walden

Windjammer is currently not planning to support DDE. We will revisit this as we continue
this work.

Unix does not yet provide Cornerstone with an applications integration model. The X Con-
sortium is taking up preliminaries of this battle, but most of the players I contacted feel that
this work will be driven from one or another of the other standards organizations, since the X

CONFIDENTIAL
IBM 7510255553

interclient communication protocol (ICCCM) is inappropriate for exchanging large amounts
of data. Clearly, Unix has no lack of interprocess communication schemes, and has native
support for multitasking. This is an area Lotus could provide leadership in.
Houdini

Houdini has no plans for application integration, since the required support is not available
until System 7, which is not anticipated until 1991. They feel that while Microsoft may pro-
vide early System 7 support, it is more important for Houdini to be a strong, timely Lotus
product than to support features of an operating system that prudent Macintosh buyers will
take some time to adopt.

lmprov

Improv is still in post-partum mode to some extent, and has not yet decided to move to Win-
dows. They have some limited support in Mach for interclient communication.

Wordperfect

Wordperfect plans to support the Lotus/Wordperfect paste link convention, although there is
some uncertainty about the User Interface that Richard Wolf is investigating. Unfortunately, as
mentioned above, they appear to be far from a leadership Windows product. They are reported
to be producing a videotape for Comdex, rather than a live demonstration of worldng code.
Also, it is reported that consultants who had previews of their current development prototype
were not impressed with their progress. We expect to clear this up at Comdex.

WPMA

It is clear from our participation in the Windows Presentation Manager Association (WPMA), a
group that has been focussing on standardizing some aspects of DDE, that most desktop publish-
ing companies are taking DDE and application integration very seriously.

We must work with these vendors to ensure that our products meet their needs and are integral to
their testing plans. Windows products like Aldus PageMaker with "open" application integration
interfaces based on DDE will probably replace the current monolithic publishing packages, such
as Interleaf because of their greater choice and flexibility.

Partnerships

One of the most important things we can do with DDE immediately is to identify the companies
we want to have testing and promotion partnerships with, and enter into these before our compet-
itors do. Potential partners are listed below. This will be a topic of the marketing meeting next
week.

CONFIDENTIAL
IBM 7510255554

___________________________________________________________________________
Aldus. PageMaker. (Publishing Package)
Access Softek. Dragnet 2.1 (Utility program); Prompt 2.0 (Utility program)
Asymetrix Corp. ToolBook (Program development software)
Corel. DRAW!.
Digital Communications Associates Inc. Crosstalk Communications Div. Crosstalk for Win-
dows 1.1 (Communications software).
Finalsoft Corp. Synchrony (Communications software).
Future Soft Engineering Inc. Dynacomm 3.0 (Communications software).
IBM Desktop Software. Current 1.1 (Personal information management system).
Knowledge Garden Inc. KnowledgePro (Program development software)
Matesys Corp. Object Script (Program development software)
Micrografx Inc. Designer, Charisma (Computer graphics software).
Microsoft Corp. Microsoft Word for Windows (Word processing software).
NBI Inc. Legend 2.01 (Word processing software).
Owl International Inc. Guide 3.0 (Program development software)
Pioneer. Q&E. (Database access software)
Precision Software Inc. Superbase 2 1 ;2 (Data base management system)
Prisma Software Corp. YourWay (Personal information management system)
Publishing Technologies. BatchWorks
Samna Corp. Ami Professional 1.1B (Word processing software).
Softbridge Microsystems Corp. Bridge 2.0 (Program development software).
Viewpoint Systems Inc. I/F Builder 2.1
___________________________________________________________________________

Next Actions

Get approval for additional Rock-port resources for draw-layer add-in.

Kickoff marketing advisory board with Comdex Application Integration activies.

Produce plan prior to Comdex for Application Integration strategy development.

CONFIDENTIAL
IBM 7510255555

"Jeremybu stated that there is a difference between Apps and Systems products and that international
currently has a multi-channel strategy. Also, that hard bundles are important to MS at the right price but
soft bundles are complicated.

OEM sales people are confused about the U.S. multi-channel strategy according to Richardf. They
require a set of policies to increase business through OEMs. The policies initially require internal
development, then agreement, an understanding by sales personnel, and consistent implimentation.

________________________________________________________________

PLAINTIFF'S EXHIBIT 441
Comes v. Microsoft

Microsoft Memo

To: Scotto, Richmac, Jeremybu, Lewisl, Marysn, Mikemap, Richardf, Tedha

Cc: Garygi

Date: October 30, 1990

FROM: Mikene

RE: Summary & Action Items - October 25 Pricing Meeting

_______________________________________________________________

The objective of this memo is to provide a top line meeting summary, decisions made, and action items.
This memo is a follow-up to Richmac’s e-mail dated October 29 to all above discussing the general
guidelines for the pricing equations.

Top Line Situation Summary

The ojective of the meeting was to gain consensus on the policies for Applications products bundles
with OEMs, resellers, VARs, and distributors. Lewisls memo dated October 22, 1990 entitled OEM
Pricing Recommendations for Applications was the basis for the discussion. Richmac stated that we have
defined the channel policies in terms of our current USSMD resellers. Now it is appropriate to define the
rest of the channels that may choose to bundle applications products. The policies must be implemented
consistently with minimum current channels conflicts.

Jeremybu stated that there is a difference between Apps and Systems products and that international
currently has a multi-channel strategy. Also, that hard bundles are important to MS at the right price but
soft bundles are complicated.

OEM sales people are confused about the U.S. multi-channel strategy according to Richardf. They
require a set of policies to increase business through OEMs. The policies initially require internal
development, then agreement, an understanding by sales personnel, and consistent implimentation.

Decisions

1. We would not offer soft bundles.
2. OEMs may purchase packaged products, with minimum commits, at 46% discount and for VARs
44% through a direct relationship. These bundles of packaged products must be sold with
hardware or sold with software solution and cannot be called out on price lists in any fashion. This
policy would apply to Apps and Systems packaged products. This is consistent with the LM/SQL
programs under development for OEMs.
3. We would develop consistent policies for hard bundles through OEMs and resellers as follows:

Hard Bundle Type Customer Mfg. & Supports MS Mfg. & MS Supports
Hardware OEMs Yes Yes Resellers No Yes Maples
DEPOSITION
EXHIBIT 9

X 190798
CONFIDENTIAL

4. A hard bundle is MS packaged product disks and full documentation incorporated in the hardware
SKU by model with 100% penetration. A model is defined as the CPU chassis and
processor. In addition, all the various configurations of the model number would have hard
bundles to meet 100% penetration requirement. The products may or may not be installed on the
hard drives.
5. Minimum dollar commitments will be developed.
6. 100% penetration of hardware model sold will be required. The definition in #4 above seems
workable.
7. Richardf will handle OEMs requiring to sell Apps off a system instead of with hardware as an
exception. An example is AT&T Rhapsody.
8. Jeremybu stated Systems products, Win 3, should be sold on royalty basis and not to focus on the
product during the development of these packaged product hard bundle policies.
9. No AE products may be sold as a hard bundle. 10. PC Works aggressive pricing will remain as an exception to policies developed.
11. Apps hard bundle business from OEMs will not be used to offset Systems commit payments due.
12. Standard auditing procedures will be developed and enforced to ensure compliance.

Action Items

1. Lewisl, Richardf, Marysn, and Mikene will form a task force to develop the policies, pricing for
each hard bundles type in the table above, and consistent minimum commitments. The focus will
be on high end Applications products.
2. Profitability models and recommendations will be prepared and reviewed to incorporate within an
internal memo for sign-off.
3. Marysn will review the Legal rational to offer minimum commit based hard bundle comparative
discount programs to OEMs and resellers.

Within three weeks a memo will be agreed upon and provided to Mikehal for signature of MS policy
regarding hard bundle programs with resellers and OEMs. Should you have any questions or require
additional information please inform me.

X 190799
CONFIDENTIAL

Summary & Action Items
October 25 Pricing Meeting

Microsoft Memorandum

To: List
From: Deborah McFarlane
Date: 11/6/90
Re: AMC Minutes

Distribution List
Darrell Boyle - Graphics Business Unit
Susan Boeschen - 6/2
Randy Kahle - 1OS/I
Bob Gaskins - Graphics Business Unit
Lewis Levin - 1OS/2
Pete Higgins - 1ON/2
John Morey - 5/1
Pete Morse - 6/1
Jonathan Reingold - 5/2
Jeff Raikes - 5/2
Vijay Vashee - 10N/2
Mike Maples - 1ON/2
Hank Vigil - 1ON/2
Charles Stevens - 1OS/1
Tom Buttons - IOS/1
Lisa Brummel - 1OS/2
Connie Clark - Graphics Business Unit
Brad Chase - 10S/2
Mike Conte - 10N/2
Bruce Jacobsen - 1/2
Jim Dunnigan -10N/2
Mike: Slade - 4/2
Mary Engstrom - 10N/2
Melinda French - 6/2
Bias Garcia - 5/2
David Primhard - 10N/2
Cathy Harris - Graphics Business Unit
Laura Jennings - 6/2
Mike Johnson - 10/1
Cynthia Kraiger- 10S/2
Leslie Koch - 5/2
Ruthann Lorentzen - 5/2
Don Miller - Graphics Business Unit
Shirish Nadkarni - 5/1
Kathleen Schoenfelder- 5/1
Ron Souza - 5/2
Rich Tong - 10N/2
Liz Welch - 5/2

MICROSOFT X 583899 CONFIDENTIAL

Microsoft Memorandum
Applications Marketing Council Minutes - 10/31

1. Board Meeting/Status of Windows Applications in the US:

Since Windows has shipped, Excel has grown by 80% and WinWord by 60% based on sell through domestic units. Microsoft is selling 55% of all applications for Windows or 3 applications per Windows sale compared to 1.7 applications per Mac sale. The Word character application growth has slowed, but less than the rate that Win Word has grown. Significant competition is expected from WordPerfect and Lotus while Quattro pro has actually gained market share. We need to be aware of this and articulate our Win Apps features. (memo#1)

2. Windows computing:

Windows computing, T3, will end in December. It has consisted of:
- Windows launch
- Win line interoduction
- Two new application announcements
- Win Computing Introduction
- Working models
- PST
- Road show
-T3 in store for Win Apps

New plans for the Win computing are:
-Extension of T3, called T1, Consisting of the continuation of the above promotions as well as, RSP outbound, Windows display station, demo stations, and a mew addition of bundling Windows and Win Apps with hardware.
- New Win line ad, for individual product ads with a line ad added at the end. The ad would let people know we have the best spreadsheet and word processor, then sell the line idea. The current ad concept is: "The process of the work you do every day is easier."
-Winworld, an industry trade show paid for by the industry and sponsored by Microsoft. This has been subsequently approved and will occur as part of Spring Comdex in Atlanta.
- Windows Discovery Days, a mini trade show patterned after the Apple Business Expo. It would focus on small and medium-sized businesses, show in 30 cities, and cost $3.6 million with 1.5 million provided by Microsoft and the balance by ISV's. It would involve the software/hardware ISV's, but it would probably be difficult to have them contribute the needed money.

3. Direct Marketing:

There are three parts to the Direct marketing program that will take place in January:
- Direct Marketing in EBU, this will consist of all their products, except Works. The price will be the standard SRP with a two week minimum delivery. There will be no price conflict across the channel.
- WinWord Test. This will be on a small scale, testing price sensitivity and the value of repeat mailings.
- Price structure focusing on Excel, and partially on Word which will be marketed directly for a lower price. The same price structure will apply to the customer as well as to the reseller, but the Product Manager will decide how many will go to the reseller.

There is concern about the channel. At this time Microsoft does not have the capacity or bandwidth to be the channel if we went direct. We support the channel. If we started selling more direct we can put some of the smaller resellers out of business. That is not our intent. There is also concern about price wars when dealing with direct marketing.

4. OEM Pricing:

The new pricing will effect high end applications (Works is an exception and needs to be tracked by the Product Manager). Everyone must follow the price schedule. Any deviation from this must be approved by the VP. The price schedule has not been set yet, but it would be about 60-65% for finished goods. This may approach 80% during a Windows launch. All OEM pricing will be hard bundle only. This means that when a CPU is sold with the software. A customer can not ask how much less would the computer be without the software, because it will not be available without the software. Both resellers and OEMs can do hard bundles.

MICROSOFT X 583900 CONFIDENTIAL

Applications Division - Mike Maples

Board Meeting

Status of Window Applications in the US
October 26, 1990

MICROSOFT X 583901 CONFIDENTIAL

Summary

- We are experiencing growth in Windows applications Excel - 1.8, Win Word - 1.6
- We are a significant part of all Windows applications - 55%
- We are selling .3 applications per Windows sale
- Word character application growth has slowed, but not at the rate that Win Word has grown
- Significant competition expected

WORDPERFECT 1Q91
LOTUS 2Q91

MICROSOFT X 583902 CONFIDENTIAL

Data Caveats

Shipment data - easily distorted in short term
Sell through data
Depends on Reseller reporting accuracy
Covers 4 of 14 channels that represent 75-85% of the total US business
Not all direct resellers report every month
Windows data
OEM channel volumes
Run times prior to Win 3
Upgrades - double counting, big number
ACIS data - a special situation
Win Word update - 8/90
Excel update - 8/90
MICROSOFT X 583903 CONFIDENTIAL

This page contains a graph showing the "Sell Thru Data" from "Direct Resellers" as well as the percent of "Directs" not reporting.

MICROSOFT X 583904 CONFIDENTIAL

Excel
Average

June-Sept 90 13805
June - Sept 89 8143 1.7
June 89 - May 90 7841 1.8
Feb - May 90 7432 1.9

Word June - Sept 90 12447
Jan - May 90 7803 1.6

MICROSOFT X 583905 CONFIDENTIAL

Contents: 2 graph images titled: Windows, "Windows 3 USSMD Shipments" and "Windows 3 Sell-through"

MICROSOFT X 583906 CONFIDENTIAL

Contents: 2 graph images titled: Excel, "Win Excel USSMD Shipments" and "Win Excel Sell-through"

MICROSOFT X 583907 CONFIDENTIAL

Contents: 3 graph images titled: "Word for Windows - USSMD Shipments", "Win Word Sell-through" and PC Word 5 Sell-through

MICROSOFT X 583908 CONFIDENTIAL

This page is titled "PowerPoint for Windows" - with 2 graphs titled "Win PowerPoint USSMD Shipments" and "Win PowerPoint Sell-through"

MICROSOFT X 583909 CONFIDENTIAL

This page is titled "Windows Project" with 2 graphs titled "Win Project USSMD Shipments" and "Win Project Sell-through"

MICROSOFT X 583910 CONFIDENTIAL

2 graphs are titled "Excel USSMD" and "Win Word USSMD"

MICROSOFT X 583911 CONFIDENTIAL

Titled: DOS/Windows Spreadsheet Analysis - Domestic Market Share (US and Canada) - compared to Lotus 1-2-3 and Borland Quattro Pro

MICROSOFT X 583912 CONFIDENTIAL

Titled: Word Processing Market Analysis - Domestic Market Share (US and Canada) - compared to WordPerfect, PC Word, WinWord and others

MICROSOFT X 583913 CONFIDENTIAL

Penetration Calculations, US, from FY88 to FY91 (Post Win3), for Win Word, Win Excel, Win PowerPoint, Win Project

MICROSOFT X 583914 CONFIDENTIAL

[continued] Penetration Calculations, US, from FY88 to FY91 (Post Win3), for Win Word, Win Excel, Win PowerPoint, Win Project

MICROSOFT X 583915 CONFIDENTIAL

[Contents: PowerPoint slide image]
Applications Division - Mike Maples

Word Perfect - Window Word Processor

- Schedule 1Q91

- Advantages
WordPerfect 5.1 keystroke, file compatibility
Nice graphics
Enhanced file manager
Excellent printer support

- Disadvantages
Cluttered, keystroke intensive, interface
12 top level menus, lots of sub menus
Limited customization - no document templates, no macro language

MICROSOFT X 583916 CONFIDENTIAL

[Contents: PowerPoint slide image]
Applications Division - Mike Maples

Lotus 1-2-3 for Windows

- Schedule 1Q91

- Advantages
1-2-3/G interface and features
keystroke/macro compatibility
3D
- Disadvantages
Large
Limited presentation capabilities
No Mac version
First Windows app

MICROSOFT X 583917 CONFIDENTIAL

[Contents: PowerPoint slide image]
Applications Division - Mike Maples

Borland Quattro for Windows

- Schedule 2Q91

- Advantages
Quattro 2.0 - good solid product
Market momentum
Presentation features
- Disadvantages
No Mac version
First Windows app

MICROSOFT X 583918 CONFIDENTIAL

These graphs show both results from a "Corporate User Survey" and a "Registered User - Base User Survey" regarding the use of various brands of word processing software.

MICROSOFT X 583919 CONFIDENTIAL

Continued: Results from a "Corporate User Survey" and a "Registered User: Base User Survey" regarding the use of various brands of spreadsheet software "Pre-Windows" and under Win 3.0.

MICROSOFT X 583920 CONFIDENTIAL

This page shows results of question 7) of the "Corporate User Survey": "Are you planning to purchase Windows-based applications?" - and sub question: "If no, why not?"

MICROSOFT X 583921 CONFIDENTIAL

This page shows results of question 8) of the "Corporate User Survey": "Are you waiting for Windows versions of a particular product to be introduced?" - and sub question: "Which?" MICROSOFT X 583922 CONFIDENTIAL

This page of "Penetration Calculations" shows USA percentages of growth for "Microsoft's Share of Win apps" between fiscal years 1988 and 1991. The apps listed are Win Word, Win Excel, Win PowerPoint and Win Project.

MICROSOFT X 583922 CONFIDENTIAL

This page is a continuation of the previous "Penetration Calculations" page.

MICROSOFT X 583923 CONFIDENTIAL

This page is a continuation of the previous two "Penetration Calculations" pages.

MICROSOFT X 583924 CONFIDENTIAL

PX00402.PDF - stamped as Plaintiff's Exhibit 402, and "Highly Confidential"
topic: DOS 5.0 Pricing Proposal

September 26, 1990
Mr. Jeff Scherb
Vice President, Applications and Technical Support
Commodore Business Machines, Inc.
1200 Wilson Drive
West Chester, PA 19380

RE: DOS 5.0 PRICING PROPOSAL

Dear Jeff,

Within this letter is the DOS 5.0 pricing proposal that you have requested. As a matter of principle, I usually prefer to give my proposals in person. It has been my experience that this fosters a spirit of cooperation, and it makes it much easier to work together towards mutually beneficial solutions. However, I am aware that you are under pressure to get this issue resolved quickly. so I will try and accomplish these objectives in spite of the format.

You have indicated to me that you will be making your decision based on a weighted average, and that this weighted average needs to be significantly below your current $11.00 per unit price. You also mentioned that your price needs to be very compatible on the low end, as this is where you see the majority of your margin pressure. In our original conversation, you presented me with two price scenarios. One, you want a price if you were to take all of your consumer machine business (75% total units sold) to DRI. Two, you offered me the opportunity to quote such a competitive price that you will not need to take your business to DRI. You have also mentioned several times that price is the only factor in this decision. let me address both of these price scenarios.

If you were to take your consumer machines to DRI, this is what would happen. Your DOS contract would go from a per processor agreement to a per copy agreement, when it expires at the end of January. A per processor agreement keeps your price low, because we offer a premium price to those customers who bundle our product with every processor. For those customers who choose not to bundle our product with every processor, their price is adjusted accordingly. This price adjustment reflects the decade of work we have invested. In making our DOS product an industry standard that is compatible with practically every personal computer on the market today. What does this mean to you? If you choose to take your consumer business to DRI, your unit volume decreases 75% and you no longer have a per processor agreement. Therefore, your new price on all DOS products will jump to $30.00 per copy.

However, I do not believe that this scenario is in either of our best interests. Let me elaborate on the scenario where you would receive a lower average price per unit. Looking at FY90's unit sales, I noticed that 51% of your sales were 8086 machines. 45% were 286's and 4% were 386's. What I propose is that we offer you a substantially lower price on 8086 machines (where the majority of your business is). and adjust your royalties on the other higher end processors. Specifically, your pricing under this new agreement would be:

8086 - $6
80286 - $10
80386 - $16
80486 - $16

Using the figures from FY90, your weighted average would be $8.22. This is $2.78 less per unit than your current average price. this pricing means that you would have paid MS $805,310 less in FY90 than you actually did. To get such a royalty pricing schedule, we would expect to see a minimum commitment of $660,000 per year, as this would be an entirely new DOD agreement. This $660,000 is based upon your 8086 royalty multiplied by the number of 8086s shipped last year. the term would be for 3 years and the effective dates would be February 1, 1991, which is the date your current DOS license expires.

I believe this pricing should be very close to your expectations. Let me also point out that these are extremely aggressive prices, especially since you are only shipping 220,000 units a year. You will be paying 25% less than you currently pay for a superior product, lower support costs and the ability to localize the product. As this pricing should show you, MS is aware of the competition you face at the low end and we want to work with you.

I will be calling you very shortly to discuss this proposal.

Sincerely,

Deborah K. Flynn
OEM Account Manager

CC:
Richard Fade
Ted Hannum

[handwritten] What will our mix continue to be - 3 years a problem adjusted pricing over the years

[Ed: the second page of this PDF contains a scanned .xls table titled "Commercial DOS Pricing Strategy"]

__________________________________________
(Handwritten at top): Presented by Bradsi at Strategy Meeting on Nov 9, 90

[Slide 1]
Agenda DOS RUP 5.0 Overview

- Mission & Product Overview
- Strategic Summary
- Business & Marketing Overview

[more handwritten names and notes at bottom]

[Slide 2]
Mission DOS RUP 5.0 Overview

DOS 5.0 - The new DOS standard

- The only version of DOS worth owning

- Replacement for 3.3, 4.01

[Slide 3]
Product Objectives DOS RUP 5.0 Overview

Compelling product

- Exploits the 286/386 - more speed, more space for DOS apps
- Safe, No risk
- Easy to purchase and install
- Get more done - A more hassle free DOS
- New Utilities and on-line help

Rock Solid 5000 Beta sites
Polished product, "fit and finish"

[Slide 4]
Schedule DOS RUP 5.0 Overview

(Handwritten at top): Beta 3 release on Nov 19

Beta 3 & Beta OAK November 1990
RTM/OAK Release January 30, 1991
Announce March 1-15, 1991

[Slide 5]
Strategy - The Game Plan DOS RUP 5.0 Overview

Immediate Pervasiveness

- Build pre-release excitement
- Overwhelming support from OEMs at launch
- Aggressive marketing programs to support retail upgrade availability
- Newsworthy, dynamic launch

[Slide 6]
Strategy - The Game Plan DOS RUP 5.0 Overview

Target Influential End Users (includes Power users) and Corporate MIS/DP

Focus on 286/386 and Windows users, particularly those that use memory hungry or multiple DOS applications and networks.

Ensure users have a great experience with the product

Create a exciting short piece on "Getting the most out of DOS 5.0".
It will go in the box and be offered to OEMs.

[Slide 7]
OEM DOS RUP 5.0 Overview

IBM, Compaq, Memorex/Telex, CompuAdd and HP have already signed
Everex, Tandem and Zenith should sign in a week or two
All other significant OEMs are committed

[Slide 8]
Major Accounts DOS RUP 5.0 Overview

Beta Program

Seed 1700 DOS Beta version 3 into 50% of the Fortune 500 and 50 large federal, state and loval government agencies.

Presentations to the key accounts

"DOS days" seminars for our major accounts in every sales office.

[Slide 9]
Business Overview DOS RUP 5.0 Overview
(Handwritten at top): FY 91 US Only

--------Original RUP Plan Revised RUP Plan Absolute Change % increase
_______________________________________________________________

Units - 212,000 - 450,000 - 23,000 - 112%
Revenue - $8.71mm - $25.56mm - $16.85(million) - 193%
Price - $79.95 - $99.95 - $20 - 25%
Marketing* - $1.40mm - $2.78mm - $1.38mm - 99%
PSS - $.42mm - $1.95mm - $1.53mm - 366%
BOI - $2.95mm - $10.06mm - $7.11mm - 241%

*Includes OEM marketing
(slide 9 contains other handwritten notes)

[Slide 10]
Business Objectives DOS RUP 5.0 Overview

Ship 450,000 domestic units of the DOS RUP in FY91 for revenue of over $25mil

315,000 to the reseller channel
15% of this in MLPs
4,500 outlets
15% direct sales through fulfillment
Direct mail, direct response advertising

[Slide 11]
Business Objectives DOS RUP 5.0 Overview

100 key corporate account wins in the first year

Defined as over 500 units installed

Obtain distribution in 4,500 direct outlets in 120 days

3,300 indirect outlets

[Slide 12]
Price DOS RUP 5.0 Overview

Recommended SRP is $99.95

Allows for strong profit contribution
- Net Revenue for FY91 for the DOS RUP of just under $25 million, versus plan of $8.2 million

- DOS business unit BOI increases to $206.8 mil from $199.5 (includes incremental operating expenses/allocations)

Allows for aggressive street price of $69.95. Minimizes conflict with OEM packaged product

[Slide 13]
Product Support DOS RUP 5.0 Overview

Provide 90 days of free support on installation issues only

Charge $2.00 a minute for all other support via 900 phone number

Allocating 6% of DOS RUP revenues to PSS support

Will fund 48 additional support staff
Staffing can be increased if demand warrants
Will support Compuserve forum
(There are also handwritten notes on this slide)

[Slide 14]
Packaging DOS RUP 5.0 Overview

Must make counterfeiting difficult

Considered plastic packaging and variant of standard MS packaging w/hologram, metallic and florescent inks

Moving forward with variant of standard MS packaging
- Holograms have been effective against counterfeiting
- Large upfront costs of plastic packaging

COGS: 5.25 - $9.28, 3.5 - $9.02, MLP - $2.03

[Slide 15]
PR DOS RUP 5.0 Overview

Press tour for long-lead publications done in September. One dynamic event held in NY four around 400 people
- Movie theme - Honey I shrunk the DOS
- Participation from third parties and OEMs
- Consider introducing ROM DOS at this event

- A thorough reviewers guide
- Will try to get beyond the PC press
- User Group tours, including intra-company user groups

[Slide 16]
Adv & Direct Response DOS RUP 5.0 Overview

Work with direct mail consultant and USSMD to determine direct mail strategy

Current Plans for FY91:
- Direct Mail to "power users" twice
- Direct Response advertising
- - One Enthusiast campaign in FY '91

[Slide 17]
Marketing Budget DOS RUP 5.0 Overview

[This slide contains a table comparing the "recommended budget FY'91" and the "current budget" with various categories (sales materials, telemarketing, research, etc.) and totals at the bottom]

[Slide 18]
International DOS RUP 5.0 Overview

US RUO not developed for international markets

The RUP has huge potential internationally

Issue: Learning about product issues unique to international

Proposed Program
A local beta program in each sub
- Needs to be done now to uncover problems before US RUP bleeds into international markets and creates serious support problems.

[Slide 19]
International DOS RUP 5.0 Overview

Major Issue:
International is not experienced in running beta programs and does not have resources allocated

[This slide also includes handwritten numbers and notes]

[Slide 19]
Open Issues DOS RUP 5.0 Overview

Launch Size

Registration Incentive
- Considering an additional 90 days free installation support

Business Press Advertising

- The WSJ pulled well for the Windows Computing ads
[End of slides]

>From gregs Mon Nov 19 13:32:16 1990
To: tereesach
Subject: NCR & Co
Cc: pradeeps richardf
Date: Mon Nov 19 13:29:20 1990

I am not sure how much you have talked with Pradeep, but based on several discussions with ISVs and others at Comdex (and meetings that NCR stood us up on),it looks very much like NCR is going to sign with Go for their notebook PC. They still claim they are also going to work with us, but they are being evasive. Pradeep is leaving town again so I want to followup. Unless you have a better suggestion, I am going to call Alok Mohan to see what I can find out. We need to figure out how to change their mind (if possible, it may be too late) and if that can't be done, we need to reduce the damage by getting them to also endorse Pen Windows in some fashion as they have already agreed.

By the way, effective any day now (as soon as Jeffr announces it), I am the Pen Win unit manager. Pradeep and Lloyd wil1 report to me.

Date of Meeting: November 20,1990

Attendees:
Commodore: Medhi Ali, President
Tony Ricci, Director of Finance

Microsoft: Joachim Kempin
Richard Fade
Debbie Flynn

OBJECTIVES
1) Agree on a DOS price
2) Prevent Commodore from making a DRI DOS decision.
[ED: Details about how they got the sale, despite DRI's lower bid before the meeting, and the terms.]

From: Mike Hallman
Date: November 27, 1990

Pricing of Applications to OEMS in the United States [Ed: 16 pages on how to price, what to bundle, etc. for OEMs in the US.]

I think what dang suggests is reasonable. I'm of the opinion that people like dri get this stuff anyway and we need to give equal access to equivalent third parties to this sort of info.

However... I know that I may be in the minority on this.

What think gang?
* * *
>From dang Wed Nov 28 10:38:36 1990
To: richab
Subject:FW: calls for LoadHi VxD support
Date: Wed Nov 28 11:35:12 PDT 1990

Hi Rich,

What do we do with this? I think its reasonable to give them the latest version of this VxD and tell them it is unsupported.

Thanks,
Dan

>From amitc Tue Nov 27 12:47:41 1990
To: danq
Cc: ralphl timm
Subject: FW: calls for LoadHi VxD support

Date: Tue Nov 27 12:44:07 1990

I have been told that I will not need to answer support questions on the VxD anymore. Some people still have my number and they call me. I told them that we now have a different group handling support issues and that Tim is the person to talk to. However, I think it has been decided taht Digital Research will not be supported. Rich Abel should have the list of vendors whom we do not want to support. Quite some time back DRI was sent a very early version of the VxD. I don't know what to tell them. I guess, we must somehow politely let them know that we don't want to support them. I don't feel very comfortable in this situation and would not want to deal with Digital myself.

Thanks,
Amit.

From danq Tue Nov 27 11:20:16 1990
To: amitc
Subject: FW: calls for LoadHi VxD support
Date: Tue Nov 27 12:16:31 1990

Hi Amit,

You forwarded a phone call about the loadhi VxD to Tim from Digital Research. This mail seems to indicate that you do not wish them to have access to this information.

How do you wish us to proceed?

Thanks,
Dan

>From: timm Tue Nov 27 10:58:12 1990
To: danq
Subject: calls for LoadHi VxD support

Date: Tue Nov 27 10:57 10:30:21 1990

A couple of guys had called me for support of this VxD. One of them I think was Digital Research. Please make sure that you don't discuss the VxD with them and others who are not supposed to know about this. Rich Abel is the person to decide on who gets to know and who don't.

Thanks,
Amit

Bob has misquoted me. I informed him that the undocumented call in 3.0, ControlPanelInfo(), would be removed and replaced in 3.1 by SystemParametersInfo(), which *will* be documented. DavidDS and ChrisG can explain why we shouldn't just document ControlPanelInfo() instead of replacing it.

The Windows group has been proactive on these issues. We went to them with the Control Panel hook. We discovered that their tracking would break in 3.1. And it's likely that we didn't actually tell them about the undoc call, but that they discovered it in source code....

[31 pages, and the index lists the following: Revenue, New Business Signed, New Business Pending, News, Issues, People, DOS 5.0 Watch, Packaged DOS, Laptop Watch, RISC Watch, Per Copy Sales Activities, Product Marketing Feedback, Miscellaneous, Account Summaries, Attachment A (Revenue Performance Summary by Subsidiary) and Attachment B (DOS 5.0 Watch Table). The document is stamped "Microsoft Secret". On page 11, in the subheading Philips, an underlined section reads, "The Philips networking group has committed that they will drop their relationship with Novell and commit totally to LAN Manager if MS can work out a strategy through our European Subs for Philips to distribute FG LANMAN directly to their customers. On page 16, December's OEM European Sales Status Report begins. Index is Revenue, New Business Signed, News, People, Issues, DOS 5.0 Watch, Packaged DOS, Embedded DOS, Laptop Watch, RISC Watch, Per Copy Sales Activities, Product Marketing Feedback, Account Summaries, Attachment A - Revenue Performance Statistics, Attachment B - DOS 5.0 Watch, Attachment C - OS/2 1.21 Shipment Status, Attachment D - European OEM Sales Organization. On page 19, there is a report of a police raid on a "suspected pirate called TETRATE "leaving" MS-DOS 3.3 on hard disks and then selling them without a license. Raided some firemen who got the machines also, and the action was taken "in order to frighten pirates." This was under the header MS SARL.]