October 19, 1998
New York Times
Push to Buy Palm Shows Microsoft's Aggression Is Consistent
By JOHN MARKOFF
SAN FRANCISCO -- In a recent move that indicated he has no intention of backing away from his company's aggressive business tactics, Microsoft Corp.'s chairman, Bill Gates, has proposed acquiring the software business behind 3Com Corp.'s popular Palm Pilot hand-held computer, according to people who have been briefed on the discussions.
The offer, made in an August meeting with 3Com's chairman, Eric Benhamou, was not accepted by 3Com executives, those people say.
But certainly, Gates is said to have dangled an alluring kingmaker's deal: If 3Com were willing to sell off its software business, a market favorite compared with Microsoft's Windows CE operating system, Gates would make the company's remaining Palm Computing hardware business, "the Compaq Computer of the hand-held market."
Officials of both companies declined to confirm or deny word of the meeting at Microsoft's Redmond, Wash., headquarters, at which the two executives discussed a variety of strategic possibilities between the two companies, according to several people privy to the discussions.
Though the proposal was unsuccessful, the approach provides graphic insight into Microsoft's business tactics. As in its abortive 1995 deal to acquire the financial software maker Intuit, which was rejected not by Intuit but by the Justice Department, Microsoft is increasingly looking to buy its way into markets where its own products are not competitive enough to unseat established brands.
And the Palm Pilot offer would appear to indicate that Microsoft has not scaled back its ambitions in the face of the Justice Department's antitrust suit. The antitrust suit, initiated last October, originally focused on Microsoft's linking of its Internet Explorer World Wide Web browser with the industry-dominant Windows 95 operating system. But more recently, the Justice Department has begun to examine a wide range of the company's business practices.
Negotiations to control development and production of the software that powers the most popular hand-held computer, the Palm Pilot, are significant, analysts said, because hand-held devices, from note-taking aids to cellular telephones, are one part of the market where Microsoft does not appear to be quickly gaining ground. The market is seen as growing more quickly than the computer industry over all.
"Maybe Bill Gates was trying to get rid of a competitor," said Andrew Seybold, a computer and communications analyst and publisher of his own newsletter, based in Boulder Creek, Calif. "I don't think the Windows CE products have slowed them down at all."
A tempting deal offers insights into market strategy.
While Microsoft officials did not directly dispute word of the overture to 3Com, they rebutted suggestions that they had lost confidence in the Windows CE software.
"Any statement suggesting that Microsoft would license or buy the Palm software in lieu of Windows CE is flatly false," said Greg Shaw, a Microsoft spokesman.
"3Com is a great partner and we have frequent discussions with them," he added. "But it would be inappropriate to comment on those discussions."
A spokeswoman for 3Com simply said the company would not comment on any of the discussions the company had held with Microsoft.
Though the two companies have had a broad set of partnerships in other areas of computing, they have been bitter enemies in the market for hand-held computers.
Earlier this year, 3Com filed suit in Germany after Microsoft introduced a clone of the Palm Pilot, which it called the Palm PC. Microsoft backed down, renaming its hand-held unit the Palm-sized PC.
The Palm Computing business of 3Com has shipped more than 1.5 million copies of its hand-held device, making it the dominant player in the market for so-called personal digital assistants after earlier efforts like Apple Computer Inc.'s Newton failed to gain broad acceptance.
By comparison, only about 750,000 Windows CE-based hand-held systems have been shipped, according to Rob Enderle, an analyst at Giga Information Group in Santa Clara, Calif.
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