.comment: Microsoft and Corel--Not Good News

A Life-Support Injection

So. Microsoft has pumped $135 million into what's left of Corel, the once-prosperous producer of CorelDRAW! and lately the publisher of various applications purchased from others, as well as a Linux distribution that makes newbies think that KDE is a Windows clone. Microsoft's entry comes weeks after the departure of the megalomaniacal Michael Cowpland, who had headed Corel from the start.

What does it all mean?

The speculation among Linux users who published their opinions at various websites runs chiefly in the vein that this is how Microsoft will insinuate itself into Linux. That speculation, I believe, is dead wrong. Microsoft is no friend to Linux. Microsoft is friend only to Microsoft. It begins:

"Corel Corporation and Microsoft Corporation (NASDAQ: MSFT) today announced that they have formed a strategic alliance that will see the two companies expand their relationship to encompass projects related to Microsoft's new .NET initiative."

Expand their relationship? What relationship? Last I heard, the relationship consisted chiefly of battles being fought by lawyers. Notice, too, that Corel's ticker symbol (NASDAQ: CORL) wasn't mentioned?

"As part of this expanded relationship, Microsoft has purchased 24 million non-voting convertible preferred shares at a purchase price of U.S.$5.625 per share or a total purchase price of U.S. $135 million."

Much has been made of the phrase "non-voting." Microsoft, though, has the one vote that counts: the unstated threat of dumping 24 million shares of Corel, which would produce a fatal selling panic (as indeed Microsoft's investment caused Corel share prices nearly to double in after-hours trading).

"The companies will also work together to support the development, testing and marketing of new products related to the .NET platform. Joint-marketing initiatives will include participation in product launches and trade show events and representation on mutual Web sites."

Can you say "Microsoft will effectively swallow Corel?" I thought you could.

"In addition, both companies have agreed to settle certain legal issues between Corel and Microsoft."

Absolutely typical Microsoft. Does anyone remember Stac, the data compression company whose technology somehow ended up getting usurped by Microsoft? Stac sued. Microsoft, seeing it had a losing hand, sensibly realized that if it lost the suit it would pay lots of money and get nothing. So it paid lots of money and bought a big piece of Stac, thereby ending the suit. Haven't heard a whole lot from Stac since then, have we?

"'We are pleased to announce this latest development in our relationship with Microsoft, and what we believe to be an important step forward in our strategy for long-term growth,' said Corel's interim President and CEO Derek J. Burney."

This means that the bandaid covering the bloody neck stump left when the head, Cowpland, was lopped off has seen this as the only possible way of maintaining the strategy of continued existence. He went on to utter some gibberish about how everybody will want to rent CorelDraw! and WordPerfect from web sites. Yeah, right.

"'Microsoft is very excited to see strong commitment from Corel for the .NET platform. Corel has some of the best-known software on the market and expertise in online-service delivery, graphics and interface design. Coupled with Microsoft's .NET initiative, our companies will be able to cooperate on projects that will benefit customers worldwide,' said Yuval Neeman, Vice President, Microsoft's Developer Division."

If there is anyone in the whole wide world other than Redmond who believes that anyone at Microsoft gives a toot about cooperation to benefit customers worldwide, I have not met that person and do not want to. Microsoft will cooperate with Corel in much the way that an anaconda cooperates with a capybara (the world's largest rodent). Cooperation on projects will involve absorbing such Corel technology as Microsoft finds useful while moving Corel's customer base to MS Office. And you won't hear a peep from the already mortally wounded Corel.

"While neither Microsoft nor any of its affiliates are [sic] entitled to convert the preferred shares, they will be saleable to, and convertible by other parties, into an aggregate of 24 million common shares of Corel. Based on the number of shares currently outstanding, the common shares issuable upon conversion of the preferred shares would represent approximately 24.6 per cent of the outstanding Corel common shares after the conversion."

There's the aforementioned one vote that counts. Microsoft owns a quarter of Corel, meaning that if Corel doesn't dance to Redmond's tune it can be converted instantly into a penny stock. Dumping the shares that it bought Monday would do much, much more than return share prices to their previous level. It would destroy Corel share prices. Microsoft can afford the loss. In fact, it's a bargain price for the killing of a competitor.