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Microsoft on HP and Linux, 2002: oh, noes
Sunday, January 31 2010 @ 05:20 PM EST

I have another Comes v. Microsoft exhibit to share with you, Exhibit 9542 [PDF], a November 22, 2002 email to Jim Allchin and Orlando Ayala from Mike Oldham. It has to do with a planned meeting on the 25th between the two companies, on their "Better Together" theme. I think it will explain some things we've sometimes wondered about. One thing is clear. Microsoft was seriously concerned about Linux. And HP? Somewhat flexible, I'd say. Note the part about "the HP plan of record" to "bring a new Linux powered device into the mid-range marketplace" regarding NAS devices (network attached storage devices) and how Microsoft was able to convince them not to do that.

Here are some snips, but as with so many of the exhibits, the readability is low, so there may be errors, and you need to rely on the PDF for exactness:


When the product roadmap was announced in May 2002, HP was committed to only the low-end entry WP-NAS devices (S1000) and the high-end NAS/SAN fusion device (E7000). The HP plan of record was to bring a new Linux powered device into the mid-range marketplace (12K-100K). Since that time we have convinced HP to continue with the engineering and marketing of the B Series. In addition we emphasized the need for an offering below the $25K entry point. Just recently, HP determined that it could scale down the B2000 into the $7.5K range. While this is a step in the right direction, we still believe that HP needs to provide a very low-end offering in the $2.5-5K range to compete on the low end. We believe that without a low end offering, MS reps will be forced into a mixed vendor message where certain customer requirements demand a low-end NAS offering. This includes key enterprise opportunities in the branch office environments found in industry sectors such as retail, insurance and finance. Without an HP offering, the only offering to compete with low-end Linux offerings will be from other OEMs. THis poses the big threat to the HP Server group as a HP will lose account control in these mixed vendor shops. Rick Becker, (VP Software CTO, ISS) understands this deficiency and will to work with us to influence the NAS roadmap. But we still need an executive sponsor in the NSS team specifically Howard Elias or Roger Archibald....

Based on HP's server shipments, HP reports WIndows share is up one point to 73%, Linux is also up one to two points to 12-13%. This represents approx. 200K Linux servers in the next year. HP believes that a substantial part of the Linux growth is due to the declining share for Novell. However they believe there is a growing Linux threat in the enterprise space - especially financial accounts....

Current MICROSOFT-HP Emerging Markets efforts:

  • South East Asia. HP discontinued its Linux SKUs beginning on November 18th. This is based on joint marketing effort that spans six months to promote low cost Windows SKU's with $30 extra channel incentives that focus on white box resellers. The goal is to enable the whitebox resellers to offer HP branded PCs instead of naked PCs.

  • India. The plan is to jointly build a 2nd tier HP branded SMB channel using competence training/solution/demand generation to provide a profitable way to sell branded HP products with legal software. Target launch January '03.

Data points:

  • HP ships Business OS with +90% of all their Business PCs sold in all regions of the world incl. China and South East Asia. This reflects that HP's has been unsuccessful in SMB in the Emerging markets. Duane Ainzner has targeted HP to gain share against White Box vendors in all regions but most specifically in China/Asia.

  • As a merged HP + CPQ company PSG is under pressure to maintain volume. The top two priorities are: 1) selling direct, and 2) winning share against white box manufacturers. White Box require less than $400 price point
  • HP PCs will never win against local white box manufacturers. HP is today $300-$400 higher than white-box suppliers but hopes with new product range to get into a $100-200 price delta. HP's subs claim a $50-80 (8-12%) premium is acceptable.

  • HP ships today ~20k Linux per month World Wide vs 10k six months ago. We estimate HP will ship up to 45k Linux a month Summer 03 - 3% of HP's overall PC volume. The growth is generated by a world wide effort to target White Box volume which mainly ship without legal OS. HP has in the last 6 months created Linux Desktop PC sku's in 20+ new countries across all regions, including most recently the US.

  • HP is not advertising Linux sku's in NA and EMEA. However, they are advertising Linux sku's in Latin America, Asia, China. There is one Linux sku on HP's NA web site today at $520. Their lowest priced $899 notebook ships with Windows XP HE.

    [PJ: Chart of average monthly Linux PC volumes in Fall of 02 and Summer of 03, all showing growth, at least double, except Southeast Asia channel, which shows 2k down to 0k and footnote: "Assumes our joint Initiative continues. If not, HP's Linux Channel volume in SEA will be 5k/month Summer '03".]

  • HP will launch lower cost desktop PC in January 03 targeting a $300-399 street price incl. cpu and monitor excl. OS Design target is material cost of $230 excl cpu, monitor and processor vs. today $350 up. Jed Callaway organization has decided to provide Linux preload images in all regions 1H '03. There will be no promotion of sku's in Mature markets but the Linux offering will be available in all regions on Evo Desktop D300. We also expect Linux preload on future notebooks and consumer desktop PCs.

  • Local country/region PSG managers will decide degree of active promotion. HP has been selling Linux models actively in China, Germany and parts of Eastern Europe for two years. Monthly run rate has been ~10k of which 60% ws from China.

  • HP has since July 02 launched $600 Linux SMB sku's in 2nd tier channel in Indonesia, Thailand, Malaysia, Philippines, Vietnam, Taiwan, Korea, Greece, Middle East and Consumer PCs with Linux in India. These are seen as test cases for future low price efforts. This effort has hurt local MS subsidiary engagement as it is perceived as HP endorsing piracy in these markets.

  • HP is using low cost Linux Pavilion sku in India in ads to generate traffic to HP branded retail stores to upsell to Windows PCs to fight local manufacturers $400-600 price points.

  • HP's lowest cost Windows XP Pro Desktop PC in the US is $499 excl. monitor incl Celeron 1.8Ghz.


Microsoft on HP and Linux, 2002: oh, noes | 150 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Off topic posts below....
Authored by: dacii on Sunday, January 31 2010 @ 05:46 PM EST
Thsi is where the off topic posts belong.

[ Reply to This | # ]

Corrections to article below...
Authored by: dacii on Sunday, January 31 2010 @ 05:49 PM EST
Please post all corrections with the error followed by the correction to take
place. Like:

eror -> errors

just an example.

[ Reply to This | # ]

Microsoft on HP and Linux, 2002: oh, noes
Authored by: dacii on Sunday, January 31 2010 @ 05:58 PM EST
"This effort has hurt local MS subsidiary engagement as it is perceived as
HP endorsing piracy in these markets." Since when is Linux piracy? Heh, I
just bought a Dell XPS laptop and installed Fedora 12. I threw away the MS
Vista. It was useless to me. I imagine those in the other countries probably
feel the same way. Piracy indeed.

[ Reply to This | # ]

More Comes vs Microsoft Documents below
Authored by: dacii on Sunday, January 31 2010 @ 06:13 PM EST
Please indicate the other Comes vs Microsoft documents you are working on. So
others don't duplicate efforts.

[ Reply to This | # ]

News items should be entered below in this thread.
Authored by: dacii on Sunday, January 31 2010 @ 06:18 PM EST
Please place click-able links if referring to a news item that does not appear
to the right of the main page.

Thank you.

[ Reply to This | # ]

Microsoft on HP and Linux, 2002: oh, noes
Authored by: Anonymous on Sunday, January 31 2010 @ 06:21 PM EST
HP is, in my humble opinion almost as morally bankrupt as Microsoft. Once they
were a company concerned with the quality of their products. Today they are
concerned ONLY with their bottom line. How many of you recall the recent
'pretexting' scandal where the HP BOD spied upon itself using illegal tactics?
How do you feel about a company who earns more than half of its annual profit
(>$10B) from selling ink at over 1000 times what it is actually worth? What
about the practice of adding spyware to their PCs and then charging you extra to
remove it?

I for one am glad that HP stayed out of the NAS business. It opened the doors
for many smaller and more innovative companies to produce superior NAS products.

[ Reply to This | # ]

Dealing With Microsoft
Authored by: sproggit on Sunday, January 31 2010 @ 06:59 PM EST
Although the evidence that PJ shares may continue to render us speechless with
their audacity and arrogance, we should not be surprised by anything we read
documented here.

Microsoft has been a very profitable leopard for many years now, and that
creature will not change it's spots unless there is a good reason for it doing
so, or unless all other choices are forcibly removed.

We now have more than enough evidence of anti-competitive business practices,
ballot-box-stuffing of so-called independent standards bodies and, of course,
the apparently "legitimate" approach of lobbying.

So here's the deal, complete with evidence.

1. Microsoft will not change tactics or "spots".

2. It is not possible to reason, debate, or even to live in peaceful
co-existence with Microsoft.

3. As shown by the anti-trust trial and the posturing that Bill Gates made when
he flew to London and magically walked through the door of No. 10 Downing Street
(to discuss with then Prime Minister Tony Blair the notion of relocating
Microsoft's registered office locations to the UK), Microsoft will take any
threat seriously and fight with utter ruthlessness.

In case anyone is wondering what I mean when I mention Gates' visit to the UK,
it was simple. The United States' Government, through the anti-trust case, tried
to exert pressure on Microsoft to stop their anti-competitive behavior. Clinton
was still in power at this time, but nearing the end of his second term in
office. Gates made the visit to the UK to show the US government that if it went
through with it's threat to either break the company or force it to play on a
level playing field with the competition, Bill Gates would move it to the UK,
along with all that lovely tax revenue that goes straight into the coffers of
the US Federal Government.

What do you suppose the Administration did? Never mind the lobbying budget.
Never mind the fact that the US government runs on Microsoft software [imagine
what it would be like if Gates *really* threatened the Administration!], it is
the simple fact that a company that generates tens of billions of dollars in
earnings also pays billions of dollars in taxes every year. No politician in
their right mind wants to be remembered for kicking the "Golden Goose"
off the farm.

So, though it hurts me to write this, Microsoft are going to continue to get all
the incentives that they need to carry on with the behaviors that we have seen
before. They will try the divide and conquer route. They will attack individual
Linux luminaries. They will do everything they can to protect their business -
because it makes those at the top insanely wealthy.

The only way that I can see to take on Microsoft and win is to continue to
innovate in the free software space, to continue to develop software that is
better in every respect than anything that Redmond can produce. There are many
tech-savvy people out there, and despite all the posturing, if a Fortune-500
company can shave a few tens or hundreds of millions of dollars off their
expense base by switching from Microsoft Office to OpenOffice, then believe me,
they will.

Today we see companies typically run [or try to run] a single desktop platform,
OS and Apps. It makes support easier. I think we'll see a shift, with
corporations realising that really the only people who *need* MS Office are
going to be those who actually exchange documents with clients. Everyone else
will do just fine with OOo.

Then we'll see Developers want to move away from Windows as a desktop OS and
switch to Linux. It's effortlessly better for them.

The server farms and blade centres - and mainframes, come to think of it - are
already seeing the benefits.

FOSS just needs steady nerves and the courage of [our/their] convictions to hold
course here.

The great thing about FOSS is that it's all about the code.

We must never lose sight of that.

[ Reply to This | # ]

A wake up call for all y'all
Authored by: Anonymous on Sunday, January 31 2010 @ 09:24 PM EST
Us, you and I? We read this and think "How can these huge companies be
allowed to conspire so blatantly to fix the market in favor of their overpriced

A member of the United States Congress though, when he reads this, the only
thing - the ONLY thing - he or she sees is "jobs".

When we see cartels, they see lots of high paying positions. We see crooked
business practices, they see income taxes.

That's why it's allowed to continue. That's why it will ALWAYS continue. Are
we clear on that now?

[ Reply to This | # ]

Bait and switch
Authored by: NigelWhitley on Monday, February 01 2010 @ 08:14 AM EST
"HP is using low cost Linux Pavilion sku in India in ads to generate
traffic to HP branded retail stores to upsell to Windows PCs to fight local
manufacturers $400-600 price points."

Certainly this reads, IMHO, as a blatant effort to use Linux to attract
customers then aggressively push them towards Windows once through the door. We
must also assume from this that HP's profits on Windows PCs is higher than that
for the Linux PCs, even though Linux is zero cost.

Worth bearing in mind should a PC salesman try to convince you that the high
priced Windows PC is better value than the low cost Linux one.
Nigel Whitley

[ Reply to This | # ]

So was Bruce Perens canned from HP in Sept in prep for Nov mtg?
Authored by: Superbowl H5N1 on Monday, February 01 2010 @ 11:52 AM EST

So, was Bruce Perens canned from his job at HP to lead HP in Open Source in preparation for this agreement with Microsoft? What kind of backroom deals did go on? He was hired to work with FOSS and then canned because of it.

The timing is kind of special. HP let Perens go in September of 2002. He went quickly on to much more interesting things, HP was the clear loser in the deal, but if we ever want to get to the bottom of the Microsoft racketeering scam these details need to get brought to light.

[ Reply to This | # ]

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