October 11, 2000

In a Word, Perfect

Author: JT Smith

By Jack Bryar
NewsForge Columnist

Open Source business

If you thought the Microsoft deal with Corel was
interesting from
where you sat, it gets even more interesting the further
north you go.
New CEO Derek J. Burney got just what he wanted, and in the
process he
showed how they do business Canadian-style.
Once in a while you have to hand it to the boys in the
corner
office.

Last week I reported on the consensus among investment
wise guys that
Microsoft had lost its touch and that its .NET
initiative was in deep
trouble. A week later, Microsoft pulls off one of the most
brilliant
tactical ploys I have seen in years, with Corel, of all
people. For an
investment that was the equivalent of chump change, the
boys from
Redmond have insulated themselves against international
regulatory
trouble, have given themselves a perfect perch from which
to influence
the Open Source software movement, and have consolidated
their
death-grip in desktop applications. Not bad.

But as impressive as the Microsoft/Corel deal is from
the viewpoint
over in Redmond, the deal is even more impressive if you
look at it from
the perspective of the Canadian residents of the Ottawa
valley, Canada's
would-be Silicon Valley North. New CEO Burney
managed to get a
desperately needed cash infusion, a bump in company stock
price, and a
possible role in transitioning Microsoft to the brave new
world of open,
'Net based systems, not to mention a permanent job. He even
managed to
put Corel in a position to play Linux devotees, Sun haters,
Microsoft
haters, and two sets of national regulatory agencies off
each other
until he gets bored with the game.

And by all appearances, Burney did it the old fashioned
"Canadian"
way. Hint -- it ain't how business gets done in the USA, but
it works.

When Microsoft spent a whole day's worth of Bill Gate's
income to
pick up 24% "non-voting" of Corel, a lot of tech-watchers
went crazy
trying to figure out what was really going on. Many
analysts assumed
that Microsoft's Corel "investment" was part of the same
tired strategy
that induced Microsoft to bail out Apple a couple of years
ago, or which
recently caused them to overpay millions to re-float
Inprise/Borland
Corp. via payment of a one-time "license fee." According to
this theory,
Microsoft has figured that throwing a few dollars at WordPerfect was a
good way to keep the U.S. Justice Department away. It's a
nice theory, and
well-supported by a quirk in American antitrust law that
allows a
company to be a monopoly as long as it doesn't act like
one. By keeping
Corel on life support, the company can ensure it has
minimal, defanged
competition, the better to go after any real competition
that might
come out of a combination of Sun's Star Office, Eazel, and
the GNOME
project.

This theory doesn't quite match up with one important
fact, which is
that Corel, even in its severely weakened condition could
fight back.
It's a Canadian company, after all. And Canada takes care
of its
own.

Most Americans pay little attention to Canada, and when
they do, they
tend to see a mirror of themselves, only colder, slightly
more liberal,
and with a French accent, kind of like a bilingual version
of Minnesota.
They would doubtless assume that the Canadians are hostile
to business,
and they would be wrong, especially when it comes to
certain types of
businesses.

For example, the communications and transportation
sectors have a
unique place in a country with a thin population stretched
across long
distances. Study American history and you'll read about
great principles
and greater wars. Read Canadian history and you'll read
about railroads
and telecom. As such, firms like CN Railway and Bell Canada
hold special
places in Canadian life. While private companies,
management ranks at
these and similar firms are heavily stocked by Canada's
unique mix of
mandarin officials who have mixed senior government posts
with tenures
as corporate heads. And ever since the days of John
Macdonald, Canada
has done what it could to make sure that these companies
and similar
"strategic" firms thrive.

Somewhere along the line, high technology became a
similarly
"strategic" business. But one of the most prominent of
those high-tech
firms never quite figured out how to fit in. Whatever his
strengths or
weaknesses as a CEO, Michael Cowpland was never a part of
that circle of
Canadian leaders. As a Brit with seemingly more flair than
taste, his
loud and extravagant lifestyle won him few friends he could
count on
when he really needed them.

By comparison his successor, Burney, is well-regarded up in
Ontario, where good bloodlines still count for a lot. Derek
J. is the
son of Derek H. Burney, a former Canadian ambassador to the
United States and
former chief of staff to Prime Minister Brian Mulroney.
After his stint
in politics, Derek the elder was president of Bell Canada
International,
the holding company for Bell Canada Enterprises' overseas
wireless and
carrier businesses.

While Burney the younger has spent his career in high
tech and is a
relatively long-term employee of Corel, the company's new
chairman has a
more traditional Canadian executive resume. James Baillie
is former
advisor to the Canadian National Railway. He's also the
former chair of
the Ontario Securities Commission. That's just the type of
fellow a
company like Corel -- a company in some trouble for alleged
insider
trading -- might want to have as its new corporate head.
Baillie is also
chair and partner at Tory, Tory, DesLauriers &
Binnington of
Toronto; one of the most important legal and investment
firms in Canada,
and the authors of a book on doing
business and
raising capital in Canada
created for Industry Canada.
Doing a
merger in Canada? Contemplating a takeover? Baillie has
been involved in
some of the most
contentious
. In his spare
time Baillie
has run the non-profit that manages Ontario's Electricity
grid, and he
previously headed a the Canadian government's task force on
managing the
country's financial sector. Mr. Baillie is connected.

Corel has other high-power board members as well.
Among them is
Barbara McDougall, who has served in parliament and senior
government
posts as Minister of State for Finance, Minister of
Employment and
Immigration, and Secretary of State for External Affairs.
Today she
heads the Canadian Institute for International Affairs, an
excellent
advocate for a firm suffering from an unfair corporate
competitor from
south of the border.

Along with all this power in the boardroom comes a
certain style.
It's very quiet, very Canadian, and very effective. So you
never heard
the idea of suing Microsoft for antitrust, or potentially
examining
Microsoft's competitive practices in front of a Canadian
court or
bringing up the problem as a bilateral trade issue. But you
didn't have
to. All you saw at the end of the agreement was a vague
reference to
Corel "waiving its right to claim damages," the appointment
of a new
head of Microsoft Canada, and the right to have Corel
software vended
out of the Microsoft servers plus early access to .NET
architecture.

Derek J. Burney has never been a Microsoft hater. In
fact he has
argued against "...a bunch of Baby Bills running around,"
saying all you'd
have is "Bill Gates running one company and Steve Ballmer
running the
other... in four seconds the 'Office' company would
announce they have
their products ready for Linux." That scenario was not
nearly as
appealing as the deal that Burney and his board have put
together.

Now all they have to do is go back and try to build a
business from
it.

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