Cross-examination of Dr. Warren-Boulton, cont.

November 30, p.m. session

Through cross-examination of Dr. Warren-Boulton, Microsoft lawyers showed the following:

1. When preparing his testimony about ISP contracts with Microsoft, Dr. Warren-Boulton focused on stated reasons which were most damaging to Microsoft, leaving out, for example, the fact that MCI wanted to go with Microsoft because it felt that being perceived as a major distributor of Microsoft software would be advantageous in the long run, outside of considerations about placement in the Internet Connection Wizard; and the fact that the primary reason for the creation of the ICW was the fact that connection to the Internet was one of the primary reasons most consumers bought computers, rather than as a means of leveraging inclusion in the OS as a tool to make ISPs use IE, as Dr. Warren-Boulton surmised.

2. That Microsoft has granted every request by an OEM to have its own Internet sign up materials appear before the ICW in the initial boot up sequence of Windows 98, making much of Dr. Warren-Boulton's testimony about the ICW in Windows 95 inapplicable to Windows 98. Furthermore, Dr. Warren-Boulton admitted he hadn't looked at the sign up sequences of the six OEMs who have taken advantage of this option in order to gauge whether or not the ISPs listed are ones which currently have agreements with Microsoft or not.

3. Q. HAVE YOU EVER HEARD ANYONE ELSE ON THE PLANET EARTH TALK ABOUT PORTING A WEB SITE?

A. NO. I'M TRYING TO MAKE A PARALLEL TO PORTING AN APPLICATION. Q. HAVE YOU EVER HEARD ANYONE ELSE ON THE PLANET EARTH DRAW A PARALLEL BETWEEN WEB SITE DESIGN AND AN APPLICATION? A. WELL, THEY'RE BOTH DONE BY SOFTWARE DEVELOPERS, SO YES. BUT I WILL SAY THAT USING THE TERM "PORTING" IS AN ATTEMPT TO--TO MAKE IT CLEARER.

4. Dr. Warren-Boulton, who admitted to not knowing what a mirror site was, didn't take into consideration an ISP's ability to create a mirror site for Netscape users when he made his determination about the effects of Microsoft's request that ISPs such as Mindspring use two ActiveX technologies in creation of their corporate websites. Dr. Warren-Boulton also acknowledged that he was not familiar with what costs would actually be involved in creating such a mirror site, but assumed based on an analogy to porting software that it was often prohibitively high.

5. Dr. Warren-Boulton acknowledged that when he compiled his testimony about the exclusionary restrictive effects of Microsoft's agreements with ICPs for inclusion on the Active Desktop, that he didn't take the time to learn that all of the contracts had already expired without being renewed. In addition, Dr. Warren-Boulton admitted that he only read four or five of the approximately 20 agreements, all of which were individually negotiated and therefore contained a great deal of variation. For example, Dr. Warren-Boulton neglected to consider the fact that Microsoft's agreement with Disney did not restrict Disney from distributing rival browsers, while Microsoft's agreements with the Hearst Corporation and the Hollywood Online Informational Service did not restrict their ability to enter into promotional agreements with Netscape, contrary to Dr. Warren-Boulton's claims about the exclusivity of these agreements.

December 1, a.m. session

In continued cross-examination of Dr. Warren-Boulton, Microsoft lawyers brought out the following key points:

1. In performing his study on the causes behind Netscape's steady decline in market share, Dr. Warren-Boulton admitted that he did not factor in Netscape's pricing of its software, and thus did not consider the fact that Netscape steadily raised its prices, even after it began facing competition from Microsoft. In addition, Dr. Warren-Boulton didn't consider what effect Netscape's reputation in the industry as being "arrogant, condescending, and not particularly helpful" had on its share of the browser market.

2. Dr. Warren-Boulton was unable to say what effect the proposed Sun-AOL-Netscape deal would have on the likelihood that Microsoft would achieve what he considered a "monopoly" share of the browser market, but acknowledged that such a deal would likely have an impact.

Re-direct testimony of Dr. Warren-Boulton December 1, a.m. session

1. Dr. Warren-Boulton gave an analysis of the cost of Microsoft's OS as proportion of the overall cost of a machine shipped by and OEM, and concluded that the fact that the proportion of the cost went up indicated that Microsoft was exerting monopoly power. What this analysis masks is the fact that the price for Microsoft OSs has only increased $30 (not taking into account inflation, which would bring the cost differential down), while the amount of utilities and value included in the OS has increased exponentially. Between 1991 and 1996, however, the cost of the OS as proportion of the total cost of a PC never exceeded 3%; in fact, the percentage of the cost attributable to the OS only increased two percentage points.

December 1, p.m. session

2. Dr. Warren-Boulton, during his analysis of the effect Microsoft's agreements with ISPs had on IE's market share in the browser market, also looked at several ISPs who had similar arrangements with Netscape.

Re-Cross of Dr. Warren-Boulton December 1, p.m. session

In their re-cross examination of Dr. Warren-Boulton, Microsoft lawyers elicited the following information:

1. Having previously testified that the cost of creating a new OS is very high, Dr. Warren-Boulton was asked what would happen to the price of OSs in a situation where most of the applications were written to a middleware browser plus Java application, therefore making the OS interchangeable with any other OS. Dr. Warren-Boulton answered that the price of OSs would necessarily go down; this would decrease the profit anyone could make off of a new OS product and make it difficult to recoup the large investment Dr. Warren-Boulton testified would go into any new OS. Further, with the large number of APIs in Windows 98, any attempt by a browser-Java application to become an alternate platform would require an extensive amount of development to compete effectively, especially since Microsoft continues adding APIs with each new release.

2. Mr. Sparks, whose testimony Dr. Warren-Boulton had relied on earlier, is an employee of Caldera, which is currently in the middle of litigation against Microsoft.

3. Dr. Warren-Boulton's assertion that consumers would see a cost savings if computers ran a middleware browser-Java application, plus an underlying OS, doesn't necessarily hold, since Sun plans to increase licensing fees of the Java technology if it ever becomes popular and well-entrenched, making it likely that the combined cost of Java, the browser, and the OS would equal the current cost for Windows 98 with the browser included for free.

4. Despite supposedly being forced to give away its browser for free, Netscape now earns more in portal, ad, and ancillary application revenues that it ever did from the sale of its browser.

5. The study which Dr. Warren-Boulton cited as proof that Microsoft exercises monopoly power, because it felt able to double the cost charged for Windows 98 with only a 30% decline in demand, was not in fact an economic study of Microsoft's market power. Instead, it was the results of a focus group of customers who were asked how much they would pay for Windows 98. Furthermore, while Microsoft investigated charging either $49, $89, or $129 for Windows 98, other OSs cost far more: OS/2 costs $249 , and Mac OS 8.5 costs over $129.

6. In performing his analysis of the percentage cost of the OS compared to other components of a new computer, Dr. Warren-Boulton did not compare the percentage cost of the OS to other software applications.

7. Dr. Warren-Boulton's additional testimony about the Adknowledge data, which attempted to correct for an understatement of the numbers of IE hits from AOL caused by caching, failed to take into account the fact that all major ISPs, not just AOL, use caching so that the numbers for other ISPs would also have been under-represented. In addition, Adknowledge implemented cache-fooling technology during the period covered by the study, causing an adjustment for caching to possibly overstate hits in some situations. Furthermore, the data provided by Adknowledge showed 98% of hits to come from Netscape and IE combined, despite the fact that at the time a large number of AOL users were still using Booklink, making any data which suggests that all other browsers accounted for only 2% of hits seem questionable. (In fact, there was some suggestion that Adknowledge simply counted all AOL hits as being from IE, rather than separating out IE and Booklink.)

8. During the time period Dr. Warren-Boulton studied to get his flow measurements of new browser usage, a non-Netscape, non-IE browser actually increased its usage dramatically: WebTV.

9. In Dr. Warren-Boulton's list of parity ISPs which it used as a control group to figure out the effect of Microsoft's agreements with ISPs on browser distribution, the six which were graphed were taken without further investigation from a Microsoft document listing them as "neutral" between IE and Netscape. In fact, upon calling those ISPs, Microsoft learned that four of the six offered only Netscape, one offered only IE, and the other didn't provide any browser, making the use of these six as a control group misleading.

-- Anonymous, December 07, 1998