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Jim Allchin (2002): “There’s Going to Be a Patent Lawsuit on Linux” (Analysts Cartel Part V)

"[Microsoft's] Mr. Emerson and I discussed a variety of investment structures wherein Microsoft would 'backstop,' or guarantee in some way, BayStar's investment.... Microsoft assured me that it would in some way guarantee BayStar's investment in SCO."

--Larry Goldfarb, Baystar, key investor in SCO

"IT WILL be simply, "Hey, these guys took intellectual property." And whether the lawsuit comes from Wind River or in X, Y, Z, there’s going to be one. Guaranteed," said Jim Allchin less than 6 months before SCO attacked Linux. That's the third such circumstantial evidence from September 2002, which includes:

Here's what we have today [PDF], coming from the mouth of a high executive from Microsoft:

MR. ALLCHIN: Let me ask you another question. When you install these boxes of Linux for customers, do they even think about any of the licenses? Do they worry about the issue that there’s indemnification -

MR. VINOKUR: That’s the first thing the first thing they ask is, what about this licenslng on Microsoft? No, there’s no licensing.

MR. ALLCHIN: But do they -- but there is licensing.

MR. VINOKUR: There is, but -

MR. ALLCHIN: And there’s going to be a patent lawsuit on Linux. It’s bound to happen. I’m just asking -not and the patent lawsuit won’t really be about the license. It will be simply, "Hey, these guys took intellectual property." And whether the lawsuit comes from Wind River or in X, Y, Z, there’s going to be one. Guaranteed. As I sit here today, I will guarantee you at some point there's going to be a challenge about the patents. Not about the license per se.

MR. MARTIN: Class action lawsuit.

MR. WATTS: The ones we deal with, as I said, most of those right now are a lot of the law enforcement, and lot of those guys have -- of course they think they’re impregnable even with the Microsoft license. They have a hard enough time with that one. Someone gets XP and they all want to put it on. Guys, you don’t do that. But as for that part, they think -

MR. ALLCHIN: Not just -- no one’s thinking about it. They think there is no license.

MR. WATTS: Yeah.

MR. VINOKUR: Well, no, you’re talking about, you know, how it’s freely available. You buy one box from Redhead and then you go put it on a hundred if you want. And they say it themselves, Redhead says it, Suse says it, you know. It’s the support that they want from you. Or if you need the support because you have questions, then you call them -

MR. ALLCHIN: The point that I’m trying to understand, that there’s -- there’s indemnification that is being passed on when you buy products from Microsoft. You don’t get that. And eventually, you know, in the litigious society that we live in, something is going to happen.

The text below is the remainder that we did not include in the previous part of this series (also see part 1, part 2 and part 3 for context). It's worth adding that, charmingly enough, the assistant who transcribed the minutes turned Red Hat into "Redhead". There are some other translational/transcription errors that are more minor and indicate lack of familiarity with some technology (e.g. SQL).

Appendix: Comes vs. Microsoft - exhibit px07175, as text - Part II

Part I here

MR. ALLCHIN: So we’re going to go on a campaign here where we’re going to spend a lot of dollars talking about the scenarios that are enabled with Windows XP. We are probably going to be romancing, you know, the things that you may already -- that people may already know about, what you can do in media. And that may or may not be exciting, depending upon the business, but what you can do in media. We’re going to talk about what you can do in -- with -- with the Windows Messenger. The face you can do voice calls and video calls and ap sharing. We’re going to do examples of that stuff.

MR. MARTIN: It’s just that, you know, I get

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customers all the time who are constantly saying, I would love to be able to do this, but I can’t figure it out. Looks so easy to do; but then when they try to do it, it doesn’t work.

MR. WATTS: A lot of stuff they got like the Word 2.0, some of that stuff. A lot of time there was a little tutorial that you don’t see as much any more. That’s what it sounds like what you’re talking about.

MR. ALLCHIN: Yeah. Imagine that they’re screen captures that we put on DVD’s that we’re lust going to drop from airplanes as well as from the Web site so that people can actually

MR. VINOKUR: If you can do an AOL lob, I mean, that would -- that -- the first thing that -

MR. ALLCHIN: It wouldn’t be the actual Windows XP.

MR. VINOKUR: Just exactly what I’m saying. Every time I see an AOL CD the first thing that comes to my mind is Microsoft should have done this five years ago.

MR. ALLCHIN: Okay. So our whole idea would be on the Web site to show screen cams of this is how you would actually do a Windows Messenger voice call. This is how you would do remote assistance.

MR. MARTIN: Little tutorials --

MR. ALLCHIN: Little tutorials, but more in terms of visual presentation instead of white papers which nobody has time to --

MR. MARTIN: Yeah, you hand a piece of paper to a customer, they don’t want to read it -

MR. WATTS: Well, that’s another thing too people don’t realize, is that people learn different ways. This comes in under learning disabilities or development.

67 percent of us actually pick up visually. And

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about 39 percent of those have :o rely on visual rather than text. And most of the markets that you have working out -- especially working in technical with that, a lot of them are in that category of visual. A lot of them are pushed into it, because they’re more text-orientated, and the reason they’re there is because everything’s in text. So what you’re talking about there is you’re going to bring up a good chunk of the market that’s going to start looking - actually looking at XP because of the capabilities that you have.

MR. ALLCHIN: In terms of sort of the concrete plumbing aspects, not the frills, what are the things you -- you know, you asked them about the reliability of what they had. What are the things that you think we should push on? Reliability, security -

MR. VINOKUR: Compatibility.

MR. ALLCHIN: Compatibility?

MR. MARTIN: Compatibility.

MR. VINOKUR: Because the big risk - who was it that mentioned the 2000 Pro? I can’t begin to tell you how many -- it’s like when we went -- when you guys went from DOS 6.0 to 6.21 or whatever it was and half the applications didn’t work. It was the same scenario. And when Windows XP Pro came out, it was so hard to try to sell it because it was --

MR. MARTIN: They already had the stigma. The stigma was already on it. MR. VINOKUR: -- is it going to work?

MR. ALLCHIN: You want to say something?


MS. HUTCHISON: Okay. A couple of things. There’s such an explosion of so many new servers, so many new Microsoft servers. And, you know, you know how long the

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list is and -

MR. ALLCHIN: Just a breakdown of the product line, Sequel server, ISA server, you know -


MR. ALLCHIN: Yeah, Biz Talk server.

MS. HUTCHISON: Commerce. Okay. I think that businesses small or large, and I’ve been in both, need an orderly migration plan. They need to -- they need to get the big picture of moving diverse users into different operating systems rather than everybody running out to CompUSA and picking up a copy of -you know, if you have a company where there are no real system policies and the users can just pretty much get what they want. And then, oh my -- you know, it’s just such a nightmare. And I have a limited experience with -- with XP that I want to mention and that is -- I can’t believe I’m going to be talking about XML. Correct me if I’m wrong. But say you’re in an application and this is an operating system - let’s say it’s Office for a moment here. You -- you’re in Excel. You want to publish a pivot table as a Web page. Gee, it worked really great when we were running Office 2000. Now we’ve got Offlce XP. Guess what, the only people who can see this pivot table on a Web page are other XP users.

MR. ALLCHIN: Oh, I didn’t know that.

MS. HUTCHISON: I can share some later that -

MR. VINOKUR: (Not audible) and if someone had to -doesn’t have it, they won’t see it.

MR. MARTIN: There’s a ton of issues with the fact that backwards compatibility for -- you know, you design a Web site or Web portal around, you know, the latest technology and 90 percent of the people out there can’t see it.

MR. VINOKUR: It’s just an empty site -

MR. MARTIN: Exactly. Or you get the -- a little

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MR. VINOKUR: If -- in a proper use, i.e., if you have it selected to show you where the image is supposed to be, at will actually give you a little red -

MR. ALLCHIN: i understand. Fine. This is data for me I didn’t know.

MS. HUTCHISON: Jund just another little piece of history about companies’ migration plans. Windows 95 came out in what, ’96? I was with a firm, Ernst & Young, 8,000 people. And it took them until almost the year 2000 to move to Windows 98. Because there are so many issues. And when you have strict technology policies in place for an enterprise and they say we support this software, this application, this operating system, if you go beyond it, if you want to be a maverick and go out and buy Microsoft's Front Page to run your Web site, guess what. The first time -- first time anything goes wrong, we’re uninstalling it, you’re on your own, you know. So -- but just the fact that it took that long for them to move to 98. I don’t know what they’re doing now, but that’s just an example of a - of an organization that manages and plans to deploy the applications as opposed to some of the others where everyone is just a big free-for-all.

MR. VINOKUR: I apologize. An example, for the last probably six, seven years I’ve been keeping an eye on Dell and Intel with Microsoft and just to see -- every so often I go back the to look at some of the notes I may have made to see the product line and the projections of where the companies axe going. And I think Dell and Intel are doing a much better lob than Microsoft in lining out the path with Intel. I mean, they go seven, eight years forward telling you what processor they’re going to be at, what core is going to be at. You know, just go to their Web site and yon can see that graph.

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Dell -

MR. MARTIN: Or on all their commercials you see -

MR. VINOKUR: They tell you exactly what they’re going to do. Every so often they’re six months off, two or three months. That’s normal.

Dell, very, very basic. Intel comes cut, we’re going to have it in a month.


MR. WATTS: It is a little easier to do it with hardware than software.

MR. VINOKUR: That’s for sure. But ---

MR. ALLCHIN: I hear the road map message. I hear it.

MR. VINOKUR: I’m not so sure that you could see it with Microsoft.


MR. O’NEILL: We have about 15 minutes left. I want to make sure if there are other topics -

MR. ALLCHIN: want to switch gears unless you have one last thing.

MR. VINOKUR: Well, one of the questions you had - part of the question you had was Linux.

MR. ALLCHIN: Yeah, I’m about to get there.

MR. VINOKUR: I will let you lead.

MR. ALLCHIN: - want to know first your -- you guys are important partners for us so -- and you’re out promoting our products.

We feel a huge threat from Linux. Maybe we shouldn’t, which is a question you could answer from your perspective, but we’re trying to -- you know, there’s many charaeterlstics of Linux. There’s Linux the community. We’re

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going to learn from Linux the community. Incredible what they aid. You know, our shared source effort, people on our news groups, our commitment to MVP’s. We’re on that one. We’re going to woodshed, woodshed. We’re going to practice and practice and practice.

MR. VINOKUR: I don’t -

MR. ALLCHIN: I don’t knew if you know what "woodshed" means. If you grew up in the deep South -- "woodshed" just means you’re going to go to the back, you’re going to practice and you’re going to get better -

MR. VINOKUR: Oh, okay. Chopping up wood.

MR. ALLCHIN: -- and improve. The second is GPL. GPL is the licensing model. We think it’s very bad for -- on an education, telling the world why we think it’s bad. We don’t think it’s the same as public domain. Somebody wants to put in a free DSB, we don’t have a problem with that, at least on licensing. But GPL, we think it’s very bad basically for the world, but especially for the United States.

Third is the product and we’re going to go compete with Linux. So what I want to know is how, from your perspective, are our products not matching up today; what should we, in your opinion, be doing about it? It could range from, "Nothing. It’s not a problem. Don’t worry about it," to, "Boy, you got a real problem here and you’d better do X." So that’s what I would like to hear about.

MR. MOHAMED: The key thing about Linux is the price. That’s what we get from the customers, it’s free, for the initial purchase, at least. You know, when where they see the price of Windows. And they’re able to do all of their basic functionality with it. They’re able to get to print servers, file servers. there’s -there’s - for a business that’s cash strapped, you

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know, especially the small business market, it just doesn’t really make sense to Look at spending more money on Microsoft solutions rather than -- you know, when you can get Linux for free, basically.

MR. ALLCHIN: Don’t you think -- just to push on that a little bit. For the whole discussion that we just had about that it’s a traction of the cost. And we know -- there’s a study going to come out from IDC that shows that Linux costs companies more, but -

MR. MARTIN: But consumers aren’t educated on that

MS. HUTCHISON: Education.

MR. MARTIN: Y’all know that -

MR. RATAJCZAK: Linux ms like the ink jet printer. They’re cheap, but when you go to buy the cartridge -

MS. HUTCHISON: cartridge, it costs more.

MR. FLEET: Long term costs associated with Linux -

MR. WATTS: You know, the other thing too, as more bells and whistles start coming out with the different things, Linux is all right for the guy that can sit there and write programs or work out -- set an IT. As you start getting more and more complicated, the way we communicate and things we do, it’s going to get harder and harder to do that. That percentage of guys that can do it is going to come down and they’re going to get tired of paying the additional costs, because these guys, unlike service with Microsoft, is getting cheaper and cheaper because any smart grade school kid can do it. Linux is going to be getting tougher and tougher so that price is going to be going up on top of what it is now.

MR. ALLCHIN: Why do you think it’s going to get tougher and tougher?

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MR. WATTS: Because as you start getting to where you’re going to be writing more and more code to make Linux capable of doing what


MR. WATTS: -- down the road you guys are doing -

MR. ALLCHIN: I got you

MR. VINOKUR: Can I argue now?

MR. ALLCHIN: I want to hear the counter view.

MR. VINOKUR: We’ve set up a few Linux boxes, primarily -- I’m sorry, what’s your name?

MR. MOHAMED: Shazad.

MR. VINOKUR: Shazad, sorry, has mentioned. markets just want file and print sharing. The rest -

MR. MARTIN: That’s true.

MR. VINOKUR: What do they run on the servers?

Nothing. File and print sharing. The file structure -- because if you’re trying to do 10 people on the network on Windows 95, 98, thank God you came out with 2000 Pro. But if you try to share folders on 95 and 98, my God, you would have -- I mean, I had a few clients where I had to camp out there. I had my own office there.

MR. ALLCHIN: Yeah, yeah.

MR. VINOKUR: So with Linux when it came our, I can take a -- I had one customer, just to show them what we can do, because he was trying to save money, really trying to save money.

We took a 486 DX266 with -- I don’t remember how much memory, 64 -- I don’t remember, I really don’t. I think he needed like 5 megs worth, because it’s primarily XML doctuments, Word documents. He was happy, 100 bucks later and maybe 6 hours of my time and the computer that he had sitting holding a door open. so there’s -- there’s that - and I have more and

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more clients asking me about it. Two or three years ago nobody would ask me. Now they’re asking me. Now one of the clients who has two of those machines is asking me about work stations. Because all we do is documents and spread sheets. Star Office just came out -- I mean Sun just came out with Star Office 6.0. I hate to say it, but for the honey -- the $67.00, it’s incredible. Mac, Apple -- I mean, Apple, Windows and Linux and Solarls.

I mean, it’s -- so it’s -- it’s it’s that competitive side. So is Linux going to be harder? I disagree with you. There are so many tools out today that are also getting to be -- because the real reason why Microsoft is easier is because you have utilities that are graphics. Click, click, click you’re done. Same thing with Linux. Is it something to worry about? I believe so. The biggest -- the way I have always -- the reason I came back to the smaller market is because those 5 to 10 user companies will grow. If you help them, they will grow. And that’s a huge market out there that Microsoft just can’t seem to step in.

Desktop, okay, because a lot of it was not possible to get anything other than. Today, Dell, IBM, HP, they’re all selling other than Microsoft OS. So you can order a Redhead on the regular desktop and save 150 bucks or whatever the difference is. So it is -- it is going to be harder. And the tools that are coming out, and then the Linux community is learning from Microsoft. We need tools, we need to make it easy. The idea ms the more techies cut there that can support us, the more Linux is going to be in the market.

So - now commenting back to Microsoft. The top net servers that we -- the downloader holds about 150 megahertz, made a CD and set it up -- and the roll idea is very interesting, the fact that POP-3 server is built in is very cool. Because I remember in the 2000 server we did not have the Messenger server.

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That was missing. The POP and all that -


MR. VINOKUR: It’s beautiful that you brought back. I mean, this is one of the main things for small -- this is perfect.

Now, the only thing is, go back to the price structure, you have to address the price structure for the small companies that can’t afford the $I,000.00 cost.

MR. ALLCHIN: How many of you install the small business server? If if -

MR. VINOKUR: You don’t need the entire package of small business -

MR. MARTIN: That's true.

MR. ALLCHIN: We’re in the middle of changing what we plan to do with the small business server. Imagine that it stays as it is today, but there’s a baby small business server. That baby small business server is, instead of the island, will become the first server that you install. And you can sell additional servers, regular servers after you sell the first one. And this first server is, of course, a lot less money than what the bigger SVS server is. And it would have less functionality. For example, the Sequel server wouldn’t be there, so we could drop the price on that thing. And the price would be dramatically less. Targeted to be able to offer a small business, this is your first server, cheaper price. It is not free. We’ll never meet free. What do you think about that?

MR. VINOKUR: Will never be free? There’s a -

MR. ALLCHIN: Imagine it as half the price

MR. VINOKUR: There’s an old Russian saying that if something’s free don’t take it. It’s going to bite you later. I think it’s just human nature that people want to pay for something,

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because then they feel like they’re getting something. If it’s free they’re expecting something. There’s a certain negative - negativity there. But the primary -- we mentioned before, primary issues are sharing folders or sharing the storage space and print services.

MR. ALLCHIN: Well, in this new SVS [here would be share point in V-2. Sm the share point is coming out next year. The share point that exists today is prehistoric compared to the share point that we’re going to come out with second quarter of next year. And that will be in this small business server.

MR. VINOKUR: Just to get an idea, what’s the price range, about?

MR. ALLCHIN: Say half what it is today. 750. Say 750.

MR. RATAJCZAK: Can we put a second domain on the SVS? Allow for a second domain on SVS?

MR. ALLCHIN: Can you put a second domain there?


MR. ALLCHIN: I understand you don’t mean put another domain on the net.

MR. RATAJCZAK: Allow for one.

MR. ALLCHIN: Do you mean two SVS’s on the same network or not? I’m trying to understand -

MR. RATAJCZAK: Run SVS, just big difference -- a big something loose with SVS -

MS. FREED: Running two domain controllers on one box.

MR. RATAJCZAK: Exactly. Because that’s what you loose with SVS when you only have one domain, which is normally not a problem, but I would like

MR. ALLCHIN: When I said make it your first server,

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the whole concept would be to be able to make it really your first server. So you could grow. Today there’s a cliff that we see with businesses when they start with SVS. There’s a huge cliff you can’t get up to the next level. So we’re trying to take and say, you get the full meal, but you start really small and then you can add to it. So are there some limitations? Yes. But the concept would be that you could grow up, so I can’t remember the specific feature, but I think you can in fact put multiple

MS. FREED: I don’t know from the first server whether you can or not.

MR. ALLCHIN: : don’t know.

MR. VINOKUR: So you’re saying you can go from the SVS to .Net standard or there’s that migration -

MR. MARTIN: That was my other -

MR. VINOKUR: That was my other point with the SVS.

MR. ALLCHIN: The whole idea would be, it would be your first server, so it’s really part of the whole line. Instead of bringing in a separate thing, it would be part of the whole line.

MR. VINOKUR: Separate.

MR. ALLCHIN: It would be part of the whole line.

Let me -

MR. RATAJCZAK: The cost of SVS is not $1,500.00. It’s like 6,000 or whatever it is.

MR. VINOKUR: 4,500 or so.

MR. RATAJCZAK: Not the price tab for the box or the package, but you’ve got to do the service and the maintenance and all that kind of stuff.

MR. ALLCHIN: Let me ask you another question. When you install these boxes of Linux for customers, do they even think about any of the licenses? Do they worry about

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the issue that there’s indemnification -

MR. VINOKUR: That’s the first thing the first thing they ask is, what about this licenslng on Microsoft? No, there’s no licensing.

MR. ALLCHIN: But do they -- but there is licensing.

MR. VINOKUR: There is, but -

MR. ALLCHIN: And there’s going to be a patent lawsuit on Linux. It’s bound to happen. I’m just asking -not and the patent lawsuit won’t really be about the license. It will be simply, "Hey, these guys took intellectual property." And whether the lawsuit comes from Wind River or in X, Y, Z, there’s going to be one. Guaranteed. As I sit here today, I will guarantee you at some point there's going to be a challenge about the patents. Not about the license per se.

MR. MARTIN: Class action lawsuit.

MR. WATTS: The ones we deal with, as I said, most of those right now are a lot of the law enforcement, and lot of those guys have -- of course they think they’re impregnable even with the Microsoft license. They have a hard enough time with that one. Someone gets XP and they all want to put it on. Guys, you don’t do that. But as for that part, they think -

MR. ALLCHIN: Not just -- no one’s thinking about it. They think there is no license.

MR. WATTS: Yeah.

MR. VINOKUR: Well, no, you’re talking about, you know, how it’s freely available. You buy one box from Redhead and then you go put it on a hundred if you want. And they say it themselves, Redhead says it, Suse says it, you know. It’s the support that they want from you. Or if you need the support because you have questions, then you call them -

MR. ALLCHIN: The point that I’m trying to

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understand, that there’s -- there’s indemnification that is being passed on when you buy products from Microsoft. You don’t get that. And eventually, you know, in the litigious society that we live in, something is going to happen.

MR. VINOKUR: The answer has been -- or the feeling that comes from the conversations is that -

MR. MARTIN: It won’t affect me.

MR. ALLCHIN: Everybody’s doing it.

MR. MARTIN: Right.

MR. VINOKUR: -- how does it affect me right now? Is it going to come? Okay. If it comes I will deal with it then. When is it going to come? Oh, you don’t know? There’s nothing the news? You don’t -- you didn’t hear -- okay. so when it comes, we’ll deal with

MR. ALLCHIN: Okay. Fine.

MR. VINOKUR: But today I don’t have to spend the thousand bucks.

MR. ALLCHIN: So have you guys seen the features or seen any demonstrations of the share point -

MR. VINOKUR: The one existing or the -

MR. ALLCHIN: Okay. So I -- it’s not fair to ask you whether you think that’s going to really impact this -- you say all they want to do is file and print sharing. Well, what you can do in sharing of files in share point is pretty impressive when you move to V 2. So the question is, you know, you can set up these projects very, very simply.

MR. VINOKUR: Can I be argumentative again?


MR. VINOKUR: Can I be argumentative again?

MR, ALLCHIN: Absolutely. Please, that’s -

MR. VINOKUR: Office 97. Can it share to share

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point -- the new version, can you do the same functions with Office 97?

MR. ALLCHIN: So you’re questioning on the client slde what do you have to have installed there?

MR. VINOKUR: Right. Exactly. Because now you’re going back to that original -- to that - back to the concept, what co I have to have on each computer before we can use this technology. I think you mentioned that -


MR. VINOKUR: You still run into the same thing -

MR. ALLCHIN: Suppose you could.

MR. VINOKUR: Suppose you could. Then it helps -

MR. MARTIN: It would be a no-brainer.

MR. VINOKUR: At 750 bucks, it’s easy.

MR. WATTS: I mean, a lot of your stuff -- I mean, to tell you the truth, if you call my private office at home my voice mail’s on 311 because it’s the only thing that doesn’t crash. Unless I get a power outage that outlast my battery backup, it ain’t going down. My -- my virtual cache, the file’s totally wiped out on it. Haven’t had time to fix it. That was four years ago. I Still haven’t messed with it. So, I mean, it’s like the 3- -you got 311 that’s beating out everything else, you know, and it’s all 486. My fan quit a year and a half ago on the CPU and it’s still running. Still running.

MR. ALLCHIN: There are a lot of nice facilities. The share point stuff has really taken off. it’s like Microsoft. You start a new project, you start anything, create a share point site and you can start to share the documents. And then today it’s not very integrated, but in V-2 it drops down where it’s much more integrated.

MR. MARTIN: But it still comes back to the issue of

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educating the customer -

MR. WATTS: That’s it. Yeah, mini tutorial, things like that. Our software does the same thing since 1982, where I see your share point, I keep thinking what’s where you already are because I see ours. And then I see when they’re demonstrating it now by going out -- I know you guys are going to get it shortly down the way, because

MR. VINOKUR: That’~ where it’s going. We still have a client or two clients that have NT-351, believe it or, and NT-4 obviously. But all they’re using it for is file sharing and print service.

MR. MARTIN: See, I think that’s where Microsoft missed the boat on the biggest issue As that customers look at it and say, "Wow, these features are great, but you know what, 90 percent of it I don’t need. I just need simple little 10 percent that, one, A, isn’t going to have a service guy coming out and fixing it; B, isn’t going to cost me a lot of money for licenses; C, is reliable. It’s -- does it -- once you set it up and it runs by itself, nobody has to touch it.

MR. VINOKUR: One more. Small Business Office you can only get it OEM. Clients should be able -- a business should he able -- that’s just a suggestion, should be able to go and buy a $200.90 Microsoft Office product that has Word, Excel and Outlook.

WATTS: As an OEM, I like it like that but -

MR. VINOKUR: Well, you know there is I have a mortgage company as a client, an accounting firm as a client. They don’t care about it.

And do you know how many calls I get about "I don’t know what’s happened. I opened up my Word and it’s just typing." And you sit there and scratch your head, well - because it’s on

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Microsoft Vendor Meeting 9/25/02

the phone. You come out there and you look at it and you realize that they somehow clicked on that microphone to turn on.

MR. WATTS: See, I like the microphone, because -

MR. VINOKUR: The features are great. We’re not saying that. But it’s you know how many calls I had probably in the first three months with the eye thing in Office XP?

MR. MARTIN: You know what would be nice? If that was turned off by default.

MR. VINOKUR: By default. And not be put somewhere on the task bar.

MR. ALLCHIN: Yeah, yeah, yeah.

MR. WATTS: Actually, there’s a good tutorial for how those turn on and turn off and what you can do with them. And could we have another voice, please?

MS. FREED: How important is the multiple demand on line?

MR. RATAJCZAK: Probably less important than turning off the Java skips that I have to -- I can’t lust do a button to turn that off and on. Just an example of something else I would like to see.

MR. VINOZUR: You will find -- you will find there are some small businesses that will have multiple businesses running from the same office.

MR. RATAJCZAK: That’s the reason, yeah.

MR. VINOKUR: And they want to actually separate the two businesses.

MR, MARTIN: But they don’t really exist as two separate entities.

MR. VINOKUR: Right. it’s not a question of the corporate, per se, structure or the official structure. It’s how they run the business.

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Microsoft Vendor Meeting 9/25/02

MR. WATTS: Well, it’s the accounting and -- part two, tax reasons. You can’t be using money from one company legally in another company.

MR. VINOKUR: Right. Well, on the technical side it’s really about separation of the two functions.

MR. WATTS: Technical, financial, all that really. The other thing is too, small businesses, we go to everything like government, large ones clear down to five people and up. And it’s the small ones that might be 5 to 50 that next year can be double or triple. You’re not going to take a 5,000 employee business and make It 10,000 very easy unless you’re, you know, McDonnell Douglas, and you get a $i00 billion contract and you’ve got to start booting up. So the small ones -- if you’re looking for growth and things, the smaller -- the smaller ones and smaller mediums are the ones that are going to grow the quickest anyhow. But they’re also the ones that need the most information in whatever part it is as to what they have. Then like I said, they like -- you know, they did the file servers and everything -just like the ones I saw. The guy didn’t even -- he had four computers sitting there from 486’s on up to P-IV’s and never used it until he accidentally went ahead -- I told him -- he called me up about - he needed to send some pictures. Plug it In -- turn your P-IV on, plug it in, stick your camera data in -- so he took out a package, didn’t read anything, like they normally do, plugged it in, and got the pictures and sent he’s like -- the how -- he thinks -- goes like this. And then he’s like, now, I don’t have a problem with going to the new stuff at Microsoft. Is there anything newer that I can order? How long is this going to be new? And then because it -- in -- again it - it’s two part. They have to get exposed to it. Once they are, then they’re going to do more than just file serving.

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Microsoft Vendor Meeting 9/25/02

MR. VINOKUR: I have one more question. Different subject. The licensing issue -- if we’re f we’ve killed this issue, then we can -- because I know you're --

MR. ALLCHIN: No. No, you’re never going to sell any CMX when it’s killed. Go ahead.

MR. VINOKUR: I actually have learned to -- you know, you were talking about doing coding with Linux. It’s actually -- I have been following it for the last three, four years, Linux, and for the longest time I’ve been saying it’s for those people who have enough time on their hands.

And in the last probably year or so you have documents

MR RATAJCZAK: It’s getting -

MR VINOKUR: It has got -- and that’s what I keep saying. It’s going to get even easier. It will catch up with utilities and so on. And it’s already there. So I think it’s very close to being there.

Now my question is, the next question is the licensing issue. Not so much the licensing on the structure, but the License On-line. Because a lot of us who resell Microsoft products, there is a decent margin. When you sell a computer, you make -- on a thousand dollar computer you will be lucky to make a hundred dollars. When you sell a Microsoft product for the same thousand dollar cost or gross sale, you have a higher margin. And I actually see - maybe a totally different subject that shouldn’t even be addressed here, but I can see -- I think I see where it’s going. And if that’s true, than doesn’t leave any room for resellers.

MR. WATTS: Yeah. That’s the one I -

MR. RATAJCZAK: That needs to be more -

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Microsoft Vendor Meeting 9/25/02

MR. VINOKUR: That’s the problem -

MR. ALLCHIN: We’re going to get it in some direct way.

MR. VINOKUR: I don’t see why not. It’s not not being argumentative -

MR. ALLCHIN: No, no.

MR. VINOKUR: - I’m simply saying from the business point from Microsoft’s side, why not? Why -- why not? All you’re doing -- in two, three years I can very easily see where you don’t even need to send media. You don’t need to send anything. Today you can get your licenslng -- all your licensing information via e-mail electronically. You can get - once you got the license then you have the ability to download it. And DSL or T-l’s are prevalent. Then you can download it just like I downloaded .Net server. You download it, you cut your own CD. God knows, everybody’s got CD writers now. And you’re done, if you do it that way. So I don’t see I kind of -- I am curious how you foresee keeping the resellers in the

MR. WATTS: Keeping the channel going.

MR. VINOKUR: -- in the fold. As I said, I keep an eye on 5, 6, 7 years how things progress. I have seen a very big push by Microsoft from the channel -- what the other one?


MR. VINOKUR: SyNex. And now in the last probably two, three years I have been seeing the move away from the channel, going direct to resellers by many manufacturers.

MR. MARTIN: Yeah, HP’s doing that.

MR. VINOKUR: The next progression is direct. Dell did it a long time ago and they’re very successful. I don’t see why -

MR. ALLCHIN: I think they’re back the other way now.

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Microsoft Vendor Meeting 9/25/02

MR. VINOKUR: Well, no, they’re coming back to the OEM side to bring to bring in the resellers. But then once you -- how do I put this. Once you have collected enough data, what do you need the resellers for?


MR. VINOKUR: Do you see what I’m saying? It’s kind of hard to put it into words without being

MR. ALLCHIN: No, no, I see what -

MR. WATTS: There’s a spin to that too though -- it’s like, yeah, they say okay -- they keep trying to tell you, well, you can get it -- servicing. Well, little small companies are going to grow -- Soha’s and those, are the ones that -- servicing isn’t something that they’re wanting to spend money on. And they’re cutting back on the amount of money we can make at -- to romance them, get them to go to XP or something like that, and they don’t want to do very little -- pay for very little servicing. There’s not much money for us to be able to go there. And we basically go out and do the marketing and sales and everything else, because it’s great that you put it out there -

MR. ALLCHIN: But that’s -- that’s my view of it. That’s why. IE w~ll never go the full way.

Well, I can imagine -- we’re trying to build an infrastructure for distribution -

MR. WATTS: We’ve got one problem with that that I might add too -- the other part to. The other part I have is, we’re doing the romancing to get them out, spending our time and monies. But the part that’s difficult is like License On-line. That’s a good one.

Now, originally when it came out they had set it up to where either the -- well, it was supposed to be -- I had talked to Microsoft and the president, David, whatever his name

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was. I said, "How can you promise me that the people that I spent two years romancing to come up aren’t going to go around me and buy it?" They sald, "Well, they can’t do it." I said, "Yeah, they can."

MR. VINOKUR: Yes, they can.

MR. WATTS: I can go out for 25 bucks in Dallas, 5 bucks in rural, and get a d/b/a, apply for a tax nurser, come in to get a license as an OEM or a developer, buy the software -- what I do is, I’m the buyer for the company. I’ve found out from -- from David or John or whoever about License On-line, and I would want to have my brother go do this, to get a license and come in, and I’d buy from him and we’d split the profits on the thing.

A lot of the companies, even medium sized companies, do that, and there’s no way you keep it -

MR. ALLCHIN: Actually do it? Is that your -

MR. WATTS: Sure.

MR. VINOKUR: You don’t even need to do that any

MR. WATTS: You’re right.

MR. VINOKUR: If you go License On-line you don’t have to even -- there’s a deal where you select who your reseller is, type in your reseller. You don’t even have to do that. You just type in who you are, what you’re purchasing and push "submit."

You’re done.

MR. WATTS: And if you remember Flagship -

MR. MARTIN: Oh, see, I didn’t -- they’re not supposed to be doing that -

MR. WATTS: Flagship was one that used to be -y’all were going to for selling and stuff like that -

(Interruption by the reporter.)

MR. O’NEILL: I’m at a point I have to go. We are

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Microsoft Vendor Meeting 9/25/02

over schedule. It always happens when you get to a great discussion, that’s when it stops. Can you give us a two minute quick recap of what you think you’ve taken away? What you heard?

MR. ALLCHIN: Okay. First, thank you. I appreciate it that, you know -- you just opened up there.

MR. VINOKUR: I’ve never been told that before.

MR. ALLCHIN: I appreciate all your time. I learned a lot. There are some specific action items that I can see from a communications perspective that we can do. Whether -- you know, it started with security and we covered a whole set of different things.

There’s some things that you reaffirm for me, I think, that we’re on the right path with things like SVS, what we’re trying to do there. And I think we’re on the right path dealing with -- explaining what you can do with these technologies. That we’re not communicating, whether it be -- the scenarios that we can co, for example, with Windows XP. So you will see us do those sort of things.

And in terms of the License On-line, I personally need to go spend time there. And it’s not in my organization, but I have a direct desire to ensure that you guys get compensated for your work in selling our products. And I don’t believe it can be a full -- you know, especially the businesses -- that direct Microsoft relationship. That’s just my personal opinion on that.

We are -- I did want to say this. We are building a distribution infrastructure that will be able to help, in your site or in the bigger companies, be able to have staging servers that information will flow into so you can distribute -- we’re primarily doing that not to circumvent, but to help on the security distribution and updates so that you can aggregate those together and then push those out in a very simple way. So, for example,

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Microsoft Vendor Meeting 9/25/02

SP-1 of Windows XP has a new capability which most people don’t know about, if you install it, go look in "My Computer" properties. Look under -- is it auto update? What does it say there? There’s one other tab there. There will be a new selection for Windows update that you can select it to say, "Don’t just tell me when there are changes. Don’t just download them and then tell me about changes, but actually install these things and if you haven’t done it by this time, then even force a reboot if necessary." So you can end up helping customers -- if it’s a consumer, they’ll set this on directly. If it’s one of your accounts, what we’re going to do is build a stagging piece of software that will pull all this stuff town to your site and then you can -- you can set the -- where these clients or servers look to for their fixes, then you can push them out to your customers. So that -- we are building that. And so I -- I guess I have to end, but I do want to thank you for the time. This is very helpful. Very helpful and hopefully you got some --

MR. WATTS: Thank you for everything.

MR. MARTIN: Thank you for your time.

MR. O’NEILL: If all of you can hold for just a little bit we’ll get Jim out and I will make sure I will answer any questions you might have.

(Meeting concluded.)

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