Microsoft and the sforzando Lotus attack plan

Date: December 1, 1988

Synopsis
Plot to bankrupt Lotus through undermining its core product, then blackmail the CEO into financing your hostile takeover.

Snippet
To: Bill Gates; Jon Shirly; Rich MacIntosh; Mike Maples; David Vaskevitch; Pete Higgins; Phil Welt Cc: Jeremy Butler; Frank Gaudette From: Scott Oki Date: December 1, 1988 Subject: Kill Lotus Strategy

The purpose of this memo is to revisit the rationale for my proposal of super aggressive pricing action as integral part of the "Kill Lotus Plan" (more reasonably known as "Lets Get 30% Share for PC excel").

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Produced using Microsoft WORD 3.01 for the mac and the Apple Laserwriter Plus printer

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Lotus for all intents and purposes is a one product company. This is both good and bad .. The good part and one that was commented on by Billg, is that even a small erosion in their financial picture will tend to accelerate their negative spiral. There are certain things that Lotus cannot respond to in defending their position because of their overriding reliance on 1-2-3. Herein lies the opportunity.

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The price cut with all the other programs is affordable ... if Microsoft is willing to tolerate lower profitability for ISSMD during the crucial period of time during which we must win the spreadsheet and windows battles.

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Sforzando attack:

The pricing action I am advocating might best be illustrated using a musical term: sforzando. This results in attacking a note more loudly and with more force initially, and is typically followed by a crescendo. Similarly, we must launch a highly visible, targeted attack against Lotus in the short term in a way that leaves Lotus unable to answer. This must then be followed by a broad based attack aimed at preserving short term gains and the further increase in share, albeit at a probable slowed pace.

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Assuming we would be willing to launch a hostile takeover of Lotus. At a per share price of $25 to a buy-out of Lotus, we would need access to approximately $1.2 billion in financing (dept or equity).

Assuming Manzi wants to keep his job, we could probably negotiate a "green mail" price of say $30 per share.

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This is a win win scenario: We win if Lotus agrees to be "green mailed"; and, we win if our hostile takeover is successful. If the latter happens, we would command 90% of the spreadsheet market (which would throw off significant amounts of cash); obtain key in-roads to the Office Automation product that IBM is working on with Lotus; obtain significant R&D resources; obtain rights to interesting (and not so interesting) technology; NOTES, AGENDA, LEAF, etc; obtain access to a huge installed base of 1-2-3 users; obtain significant sales resources that can be leveraged across the Microsoft family of products.

Full Exhibit
http://boycottnovell.com/wp-content/uploads/2009/01/px00043.pdf