Microsoft Alters Price, Licensing

Microsoft Corp., reacting quickly to recent appeals court rulings on its antitrust case, is considering sweeping changes to its pricing models for hardware vendors and its largest corporate customers.

Microsoft Corp., reacting quickly to recent appeals court rulings on its antitrust case, is considering sweeping changes to its pricing models for hardware vendors and its largest corporate customers.

The Redmond, Wash., company is set to make computer makers, or OEMs, pay more for the Windows operating systems they ship with new hardware, according to sources. At the same time, Microsoft will lower the cost of the software for large corporate "named accounts" that buy licenses directly from Microsoft.

The moves follow licensing concessions Microsoft made last week, giving computer makers more flexibility regarding the placement of icons on the Windows desktop and user access to the Internet Explorer browser.

The concessions were made after the U.S. Court of Appeals ruled last month that a number of Microsofts licensing policies were "restrictive, anti-competitive and violated Section 2 of the Sherman Act."

Microsoft officials were not available for comment at press time. A source at one PC maker, who requested anonymity, said Microsoft is working on adjusting additional pricing and licensing issues.

"The latest figures we have show that named accounts will see prices fall from $76.50 to $70 a license. But operating system prices for the major PC makers will be raised to varying levels depending on their MDA [market development agreement]," he said.

MDAs are the contracts Microsoft requires of OEM Windows licensees. In the past, MDAs were more favorable toward the vendors that most heavily marketed and promoted Windows, IE and other Microsoft products. The more MDA provisions to which an OEM agreed, the better per-copy Windows pricing an OEM received, sources said.

Another source, who also declined to be named, said it appears that Microsoft is "looking to reduce the wide gap between what OEMs pay and what named accounts pay. Basically, Microsoft will be raising the fees it charges OEMs and slightly reducing the fees it charges named accounts. But OEMs will probably still pay significantly less due to their MDAs," he said.

One corporate user has also heard that Microsoft is preparing to adjust its licensing and pricing conditions. "Ive been trying to reach my Microsoft representative for two weeks without any luck," he said. "The reps in Redmond are probably just as confused as the rest of us about what changes will be made over the coming weeks as a result of the courts ruling."

Since these maneuvers are considered reactions to the court ruling, Microsofts competitors and legal opponents said they are not enough.

"This [IE and desktop] proposal falls far short of the remedies or relief we think are necessary," said Iowa Attorney General Tom Miller, one of Microsofts most vocal critics, in Des Moines, Iowa. However, Miller added, "[the concessions] make clear one thing we have argued for some time now—that [Windows] XP issues are a significant element to be considered in our case."

AOL Time Warner Inc., which competes with Microsoft on the instant messaging front, was equally dismissive of the licensing concessions. A spokeswoman said Microsoft still has a long way to go to address its anti-competitive actions, particularly with regard to "all the things like Windows Messenger that it is bolting to the operating system." But she declined to say if AOL Time Warner was preparing any legal action against Microsoft.

However, legal experts say the comments from Iowas Miller indicate the 18 attorneys general involved in the antitrust case may be preparing to hold out for stringent concessions from Microsoft in settlement negotiations.

Dana Hayter, a lawyer with Fenwick & West LLP, in San Francisco, and a former attorney in the Justice Departments Antitrust Division, said it is unlikely the concessions announced will satisfy federal or state officials. "The battle is far from over," Hayter said.

If a settlement is not reached, the matter could be appealed to the U.S. Supreme Court or heard by a new district judge.

Shawn Sanford, Windows XP group product manager, said the licensing concessions were merely a response to a "first reading of the appeals court opinion."

While some competitors are pleased with Microsofts concessions, they are wary about whether they will gain much actual freedom. AOL Time Warner is an investor in Gateway Inc., yet even Gateway officials are hesitant to say whether the desktop concessions will enable the company to boost its presence on Gateway PCs.

Hewlett-Packard Co. spokeswoman Diane Roncal, in Cupertino, Calif., said the company was pleased that Microsoft "is taking these steps with regards to Internet Explorer, and we look forward to the implementation of the courts ruling across additional areas to allow OEMs more flexibility to provide solutions for our customers."