Is it 1995 all over again for Microsoft?

Back in 1994, after a protracted battle with the DOJ, Microsoft agreed to stop the practice of "per processor" licensing. Admitting no wrongdoing, Microsoft stopped charging OEMs (original equipment manufacturers) royalties on DOS/Windows for every PC shipped, regardless of whether the PCs actually included Microsoft's operating system and "shell." (Remember, at the time DOS was the operating system and Windows was just a graphical user interface that ran on top of DOS, commonly called a shell.)

Microsoft also agreed it would not require OEMs to purchase a minimum number of copies of DOS/Windows, nor sign a license with terms longer than one year. As part of the agreement, the software company further pledged it would not tie the sale of any of its software applications to the sale of its operating system.

The decree was supposed to have given DOS/Windows competitors IBM OS/2 and Novell DR-DOS more than a fighting chance to dent Microsoft's desktop hegemony, if not usurp its dominance altogether. But it didn't work for OS/2 then and it's unlikely to work for Navigator now.

The agreement between DOJ and Microsoft prompted this headline in the July 24, 1994, issue of The New York Times:

"Microsoft's operating system rivals get a boost, sort of; a consent decree levels the playing field, but MS-DOS still dominates the game." This pretty much summed up what actually transpired in subsequent months.

With the consent decree in place, IBM officials were whooping it up, confident that PC makers would now want to get out of Microsoft's powerful clutches and into IBM and OS/2's arms. "This has really opened the door. We've gone out proactively, contacting hundreds of PC manufacturers already," IBM executive John Soyring told PC World in October 1994. He added that he expected some "major North American manufacturers" to preinstall OS/2.

In fact, no major North American PC manufacturer switched to OS/2. The general consensus was that the Justice decision came too late in the game, as Microsoft had already built up a huge installed base. More important, it had won the application war. Most software developers were writing applications for the DOS/Windows platform, and pretty much ignored producing applications for OS/2. Without application support, OS/2 was pretty much neutralized.

Now the Justice Department is seeking to bar Microsoft from requiring OEMs to ship Explorer with Windows 95, ostensibly to make room for other browser competitors like Netscape Navigator. To that end, a federal judge last week issued a preliminary injunction ordering Microsoft to cut out the practice until he can reach a final decision. Granted, the circumstances are a bit different from those of 1995, when the previous decree was finalized. One big difference: Netscape's Navigator is currently the dominant browser player, unlike IBM's OS/2, which was the upstart trying to dethrone Microsoft's operating system.

But the parallel is there nonetheless. Back in 1995, the OEMs chose not to switch because that was the safest business practice. In 1997, having been cowed into submission on the IE front, OEMs are not very likely to venture into Navigator territory. In fact, many of them have gone on the record as saying they have no intention of moving away from bundling, or preinstalling, IE 4.0.

For computer makers still not convinced of Microsoft's intent, the company made sure they really understood the consequence of failing to "voluntarily" decide to preinstall IE with Windows 95. Microsoft officials this week said they plan to appeal a judge's preliminary order requiring the company to offer a browser-free version of Windows 95; but in the meantime it will comply with the order, sort of.

This being Microsoft, the company's idea of compliance is to push the legal envelope. It plans to offer computer makers, these, ahem, options: (1) Take a two-year old version of Windows 95 without Explorer bundled in, or (2) Uninstall Explorer from the existing release, a course Microsoft can't recommend because doing so may cause unspecified problems for users.

Given these choices, how many OEMs are realistically going to say "no thanks" to Microsoft's request that they "voluntarily" accept the bundling of IE with Windows?

Of course, the Justice Department has also wised up since its last run-in with Microsoft, and yesterday demanded better alternatives, asking the court to go ahead and find Microsoft in contempt and enforce the threatened million-dollar-a-day fine for this little bit of nose-thumbing. But for now, Microsoft is standing firm that it has fulfilled the judge's temporary order right up to the letter of the law, if not the spirit.

Netscape chief Jim Barksdale said this week he's talked to some computer makers about their bundling Navigator since last week's decision. Is he ready to make this list of OEM partners public anytime soon? Barksdale would only say, "I can't comment on that."

Do the words uttered in 1995 by IBM's Soyring ring a bell? IBM too was "working" with OEMs on the OS/2 bundling deals. The actual announcements, however, never came. What's more, OS/2 (in its initial incarnation) is history.

When all is said and done (including the possibility that Justice does prevail in barring Microsoft from bundling IE), will the competitive landscape in the browser business change any? Will Netscape keep playing left-out whenit comes to OEM bundling? Does anyone hear history's footsteps?