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Exclusivity and Tying

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  1. Exclusivity and Tying • Microsoft’s aim: to exclude rivals and potential rivals. • Practice of MS: • Tying. • Exclusive contracts

  2. Contractual Tying • Microsoft initially tied Internet Explorer to Windows contractually, by requiring that computer manufacturers who licensed Windows 95 for installation on new computers also install Internet Explorer, and by selling the two products bundled together at retail.

  3. Contractual Tying • Starting in 1996, Microsoft imposed additional requirements on computer manufacturers who licensed Windows: • they could not remove the Internet Explorer icon from the Windows desktop; • they could not place any icons on the desktop that were larger than the Microsoft icons; • they could not modifythe boot sequence or have programs that automatically launch at its conclusion,

  4. Physical Integration • August 1996: integrated some IE code into a version of Windows 95 • but IE could be removed with Window’s Software Uninstall function • August 1998: physical integration of IE into Windows 98 • Consumers could not remove IE from Windows

  5. Exclusive Contracts • MS signed contracts with various parties: • with 14 of the largest Internet service providers (ISPs) to tie access to Windows • with Internet content providers to tie placement in the Windows Channel Bar • with software vendors, containing exclusivity provisions

  6. Contracts with ISPs • ISPs will be placed in the Windows Internet Connection Wizard which made it easy for consumers to subscribe to and download access software from ISPs, if and only if they agreed: • not to offer other browsers to customers • not to offer web links to other browsers • to ship another browser only upon customer requests, but required typically that 75 - 85 percent of all browser shipments be IE • April 1998: some restrictions relaxed, but still required IE to be the ISP’s default browser and to be promoted as prominently as any other browser

  7. Contracts withInternet Content Providers • MS offers content providers to be tied in the Windows Channel Bar, which allowed consumers who enabled the Windows Active Desktop to connect more easily to their websites, if they agreed: • to promote for IE and links for it • not to include the same items for other browsers • not to pay other browser companies for promotion on the other browser company’s website • to develop their website using certain Microsoft technologies • to create “differentiated” content that would be viewed better with IE than with Navigator under some contracts • Later,contracts abandoned because Active Desktop was proved unpopular and due to pressure prior to the trial

  8. Contracts with Software Vendors • “First Wave” contracts with software vendors that in their early access to beta releases and other technical information, they have to: • use IE as their default browser for any software with a hypertext-based user interface • use Microsoft’s “HTML Help” which is accessible only with IE, to implement its software’s help system • Example: June 1997: Intuit (maker of Quicken) promised not to distribute any other browser with its software

  9. Reward • Rewarded particular computer manufacturers for promoting Internet Explorer over Navigator more explicitly through reduced Windows licensing fees, co-marketing funds, and other payments • Examples: • Compaq agreed in to “promote Internet Explorer exclusively” for its personal computer products. • Microsoft pressured Apple to make Explorer its default browser and to put icons for no other browsers on the desktops of its Macintosh computers, using in part the threat that it might discontinue its Office product for Macintosh computers