Rivals Enjoy FTC Inquiry of Microsoft : Computers: The aggressive software company has been accused of unfair business practices.

Heidi Roizen still remembers the day her friend and arch-competitor, Microsoft Corp. founder and Chairman William H. Gates, gave her an unsolicited business tip.

“Never tell me anything I could use against you in business because I will,” Roizen recalls Gates as saying.

“I believed him then,” adds Roizen, owner of a tiny Silicon Valley software business. “And I still do.”

Why would Gates--head of the world’s largest personal computer software publisher with sales this year expected to reach about $1.8 billion, more than its top four competitors combined--care about Roizen’s puny $6-million-a-year operation?

“Bill Gates is a megalomaniac,” responds Trip Hawkins, chairman and chief executive of Electronic Arts, a San Mateo, Calif., entertainment software publisher. “He’s a fearsome competitor who wants to win at everything he does.”

But Gates’ fiercely competitive, “take-no-prisoners” business tactics have angered competitors to the breaking point.

Sometime last year, according to industry wags, one or more disgruntled rivals complained to the Federal Trade Commission that Microsoft was engaged in anti-competitive practices. Now the Redmond, Wash.-based company faces an investigation that has more than a few rivals smiling broadly.

The FTC has repeatedly refused to comment on the investigation. Microsoft has said the probe focuses strictly on a software development arrangement between itself and International Business Machines announced in late 1989 and since disbanded. However, executives at competing software companies say they have been contacted by the FTC, and they claim that the investigation is broader.

“This is serious stuff,” says Philippe Kahn, chairman and founder of Borland International, a Silicon Valley software publisher. “A lot of people have been contacted by the FTC.”

Few analysts believe that the investigation will uncover anything of substance. Nevertheless, industry insiders say, Microsoft’s unusually aggressive business style and its persistent dominance of the market for operating systems software that control personal computers have made the probe’s purpose seem plausible--and perhaps even justified.

“Microsoft throws its weight around in unpleasant ways sometimes, and I can understand why people have gotten upset,” says Esther Dyson, a personal computer industry analyst in New York. “But just being successful isn’t illegal . . . . Life isn’t fair. Microsoft has earned its position on top.”

Furthermore, other analysts say, bringing government investigators into the fledgling software industry’s attempts to sort out market shares and rankings will inject rigidity and stifle innovation at a time when U.S. companies should be focused on maintaining their lead on the cutting edge of this technology front.

Not surprisingly, Microsoft agrees.

“There are important legal issues to be faced in software, including piracy and copyright protection,” says Michael Hallman, Microsoft’s president. “But anti-competitive behavior isn’t one of them . . . . We are aggressive, but we don’t cheat.”

At the heart of the furor surrounding Microsoft is its unique strategy of providing both operating system software as well as application programs, such as word processing and spreadsheet packages.

Critics argue that because Microsoft’s operating system software, including MS-DOS and Windows, are used on well over 80% of personal computers, the company has an unfair advantage over competitors in developing application programs to operate with that system software.

However, the facts, as Hallman contends, don’t support such conclusions. Microsoft is still a distant No. 2 to Lotus Development in PC spreadsheet programs and is an also-ran to WordPerfect in word-processing packages. Novell has the top-selling networking program, and Ashton-Tate is still the leader in database management software.

In fact, Microsoft has No. 1 application programs only for the Apple Macintosh, where it has no control over the system software and must compete head-on with Claris, the Apple-owned software publishing operation.

Still, Dyson, a longtime personal friend of Gates, acknowledges that some of Microsoft’s business practices, while not illegal, “border on the unethical.”

She cites a Microsoft announcement last last year of its future plans for handwriting recognition computer software that was timed exactly to coincide with a similar long-awaited product unveiling from Go Corp., a Silicon Valley start-up. Others complain that Microsoft deliberately keeps its potential rivals off guard and befuddled with a steady diet of misinformation about its own business direction and strategy.

Jeffrey Tarter, publisher of a software industry newsletter in Boston, says he believes Microsoft is a “remarkably good, ethical, smart company” when dealing with its customers. However, Tarter says, when the company deals with its rivals, “its evil twin” is put into play.

But the more explosive issue for many software publishers is whether Microsoft misled them about their intentions for Windows, its newest operating system software. In its joint announcement with IBM in November, 1989, Microsoft said Windows would be a system for less-powerful machines, while OS/2, which Microsoft and IBM were jointly writing at the time, would be the dominant personal computer system.

But last May, Microsoft introduced a new version of Windows that has since sold 2.75 million copies. Microsoft and other software publishers have introduced application programs to run on Windows, while several larger publishers haven’t yet.

And some of these larger companies are complaining that they were misled by being told that OS/2--not Windows--would be the primary operating system.

Microsoft has repeatedly said it never misinformed anyone and has always urged others to develop applications programs for Windows.

“We’ve been pushing Windows since 1985,” says Cameron Myhrvold, manager of Microsoft’s developer relations. “It’s been difficult even to convince our own programmers to do it.”

Microsoft’s Market Position Microsoft’s pre-eminence in operating systems. . . 1990 unit shipments of personal computer operating systems: MS-DOS (Microsoft): 14,021,000 Windows (Miscrosoft): 2,039,000 Macintosh: 1,946,000 UNIX: 399,000 OS/2 (a joint development of Microsoft and IBM): 300,000 is a major reason for its growth. . . Microsoft’s revenue and income (in millions) but lags in application software. Market share based on 1990 U.S. shipments for personal computers.* Word processing Other: 15.4% AshtonTate: 4.6 Microsoft Word: 16.2 Wordperfect: 63.8 Spreadsheets Other: 8.3% Borland Quattro Pro: 11.8 Microsoft Excel: 12.4 Lotus: 1-2-3: 67.6 Graphics Other: 15.7% Microsoft Powerpoint: 6.6 Lotus Freelance Plus: 12.1 Software Publishing: 65.8 *May not add up to 100 because of rounding. Source: Database