Sun, Microsoft CEOs Buddy Up

SAN FRANCISCO -- When Sun Microsystems Chairman and CEO Scott McNealy and Microsoft CEO Steve Ballmer exchanged Detroit Red Wings ice hockey jerseys on stage here Friday morning, they joined two of the industry's most visible adversaries in a landmark long-term partnership.

"I know a lot of you think this is kind of weird, he and I up here," McNealy said as he and Ballmer took adjoining seats to meet with media. But after years of fighting, McNealy said that at the behest of customers who told him to "cut the rhetoric and get interoperable," he called Ballmer in early 2003 seeking to settle the differences between Sun and Microsoft.

It took the companies about a year to reach an agreement. It is "complicated stuff," Ballmer said. "And we needed to rebuild between the companies--not just between Scott and I--a level of trust. In an environment that is litigious, it is hard to have open discussions."

"Everybody has to get comfortable with what they are willing to share," Ballmer added, talking about the technology-sharing that Sun and Microsoft have agreed upon.

Negotiations Recalled

The companies were close to a deal in December, but needed a little more "creativity," Ballmer said. Sun and Microsoft took a break from negotiations then, and in February Microsoft was distracted by the European Commission's antitrust decision, Ballmer said.

Most of the talks leading up to the agreement were done by phone, but company executives met occasionally in person. McNealy started the discussions by inviting Ballmer to play golf. They teamed against another--unnamed--pair, and met at a course where they could play in private. Ballmer and McNealy lost, they said. Later, they met at Microsoft's campus and at McNealy's house.

One day last July during a week Sun was closed, Ballmer and Microsoft Chairman and Chief Software Architect Bill Gates went to Sun's Santa Clara, California headquarters. At one point, Gates took a restroom break and wandered unescorted into the halls of Sun's inner sanctum. There he ran into a Sun worker with a dog, McNealy said.

"I think he just walked by thinking, 'man, that guy looked liked Bill,'" McNealy recalled.

The result of frequent meetings and, more recently, weekly phone calls was a broad agreement reached early Friday morning. The firms resolved antitrust and patent issues and established a framework to share technical information without infringing on each other's intellectual property.

As part of the deal, Microsoft will pay Sun $1.95 billion. Of that, $700 million settles Sun's antitrust case against Microsoft. Another $900 million is intended to clear up patent disputes, and $350 million is to license Sun technology, Microsoft and Sun say. The deal is not about the Microsoft payments, but about business opportunity, Ballmer and McNealy stressed. Both Sun and Microsoft expect significant revenue to result from their collaboration, they said.

Invoking Roots

The Red Wings jerseys are a symbol of McNealy's and Ballmer's Michigan roots. The two have been friends for a long time, McNealy said. They grew up across town from each other near Detroit and attended Harvard University and Stanford University together. Their friendship went sour with professional rivalries, with Ballmer at Microsoft and McNealy heading up Sun Microsystems.

The two companies have been fierce competitors for years, with Sun fighting Microsoft in court and McNealy giving many antagonistic speeches. Sun also played a major role in the antitrust cases against Microsoft in the U.S. and in Europe. But today, Ballmer and McNealy say they are buddies once again and Microsoft and Sun have struck a ten-year agreement to work together on product interoperability.

"We couldn't think of any other way to make a stronger statement to you all about how serious we are about this partnership other than to, as we head into playoff time, exchange gifts as long-time Motown Red Wing fans," McNealy said as he and Ballmer traded autographed jerseys of the Red Wings, Detroit's National Hockey League team.