Compaq-MS murky secrets II – an analysis

We piece together the story of how these two lovable companies conduct their business


The judge also revealed something very interesting when he asked: "Why in paragraph two does it provide that Microsoft reserves the right not to execute this Amendment unless it is signed by both parties on or before June 28th, 1996? Those terms make no sense at all to me, if this was a genuine agreement."

Rose said he did not know, but it is suspicious that such a provision existed. It is probably significant that the transcript does not record whether the Amendment was signed by Microsoft on or before 28 June, to validate the contract. It could be that Microsoft was offering good terms to Compaq if Compaq behaved itself until June of the following year. Rumours have suggested that Compaq paid Microsoft around $25 a shot for all flavours of Windows.

23 August 1995: An AOL agreement with Compaq contravened some terms of the 8/15 August agreement with Microsoft, according to Rose, who described it as a "communications breakdown" within Compaq. The AOL agreement was signed by Dunn for Compaq. In a deposition, Dunn subsequently said that Flannigan knew about the agreement.

February 1996: Compaq's systems division announced a server agreement with Netscape for Internet and Intranet partnership, which Rose claimed was still in effect.

8 May 1996: So aggressive was Microsoft with Compaq that the internal use of Netscape at Compaq was viewed most disfavourably. In a childish tit-for-tat move, Microsoft "initiated a number of activities with DEC and HP, reducing their emphasis on the Compaq partnership", according to an internal Compaq email from Lori Day.

8 May 1996: Lori Day [Compaq program manager responsible for the server relationship with Netscape] sent an internal email noting that Microsoft wanted Compaq to agree to shipping "new versions of IE as the default browser on all desktops and server platforms within 8 weeks from release. Compaq to display MSN icon on the desktop screen on all Windows 95 PCs". Now it seemed that Day too was unaware of the 8/15 August 1995 agreement with Microsoft.

10/13 May 1996: [signed by Jim Allchin for Microsoft on 10th and Gary Stimac for Compaq on 13th] Addendum to the Frontline Partnership, dealing with the Internet and Intranet, and apparently developed from the MOU of 15 August 1995.

29 May 1996: Dunn emailed Day and 11 others about the Microsoft Internet MOU: "The Consumer Division has contractual obligations which will prohibit compliance with the terms of the MOU. In support of the Consumer Division goal for return to profitability [that's interesting], a strategic initiative is to generate revenue from royalty sharing with third party partners on the Presario platform."

She went on to note that complying with the MOU would "jeopardise two profitable, revenue generating contracts" [which had yielded $6.4 million from AOL signups, and an estimated $2.6 million for 2H 1996 from a deal involving Netscape and Sprynet].

"In EMEA, AOL was recently named a preferred partner, and we understand that EMEA is generating some revenue for featuring AOL." Then came the comment and the revelation: "Microsoft does not have the market share or consumer mindshare of AOL or Netscape .... and has stated it will not share revenue with Compaq for its Internet/Intranet products." [It seems that one of the reasons for the friction with Microsoft was Microsoft's then-unwillingness to share revenue.] Dunn noted that favoured treatment of Microsoft may prevent us from featuring the Navigator "with no replacement for revenue lost".

Dunn said that "the AOL agreement requires us to position AOL services above all other online services on the user interface of our products and that we will highly recommend AOL to our customers. ... The agreement specifically states that MSN may be mentioned but AOL will be mentioned more ... and that the AOL icon is the only online service icon that can be displayed on the desktop. Displaying the MSN icon on the desktop is specifically not permitted. ... Netscape and AOL have a much more significant market share than Microsoft ..."

Dunn wanted a separate discussion with Microsoft regarding consumer Internet products, and that the MOU be "non-binding and compliance be at Compaq's discretion. Microsoft has already contacted CSBU [presumably a Compaq business unit] to notify us we are in violation of the 'Internet Agreement' ".

In a 23 October 1998 deposition by Dunn, who at that date was no longer a Compaq employee, Dunn said Michael Heil [Compaq head of worldwide sales] was supportive of the ultimate decision to remove the icons. Dunn agreed that Microsoft (Don Hardwick and his team, and people in Joachim Kempin's organisation) was informed of Compaq's plan to remove the icons before they were actually removed.

Nobody from Microsoft said that this would violate the implicit agreement not to remove MSN. The removal of the icons did not affect the performance, and as part of a certification programme, Microsoft was given copies of the software.


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