Submitted by: kirkland on Wednesday March 17th, 2004 at 01:27 PM EST

An exchange of e-mail messages that has become part of a Minnesota antitrust case provides a rare glimpse into the way Microsoft executives view their software business and how they try to persuade investors to buy into it.

In the trial in Minneapolis that began this week, lawyers who filed a class action suit on behalf of state residents claimed that Microsoft overcharged consumers for its Windows operating system and its Office application software. The suit, which asks for damages of up to $425 million, is one of a handful of class actions that Microsoft has not been able to settle.

A 1997 e-mail note from Jeff Raikes, a Microsoft group vice president, asks billionaire Warren Buffett to consider investing in the Redmond, Wash.-based software company. Some observers have likened Microsoft's lucrative operating system dominance to a "toll bridge," Raikes wrote in an exchange that was first reported by the Wall Street Journal. With a worldwide sales force of just 100 to 150 people, "this is a 90%+ margin business."

Buffett is the CEO of Berkshire Hathaway, a kind of umbrella company that owns brands like the Geico insurance company and portions of other businesses including 11.8 percent of American Express, 18.1 percent of the Washington Post Company and 8.2 percent of the Coca-Cola Company. One of the world's most successful investors, Buffett is famous for his aversion to technology stocks.

Raikes, who noted his own net worth was "well into" the hundreds of millions of dollars thanks to Microsoft, tried to convince Buffett to change his mind. "A PC is just a razor that needs blades, and we measure our revenue on the basis of $ per PC," Raikes wrote. "In FY96, nearly 50 million PCs were purchased and Microsoft averaged about $140 in software revenue per PC or $7 billion...I don't really see our business as being significantly more difficult to understand than the other great businesses you've invested in."

On the other hand, Raikes acknowledged, one difference between Microsoft and Coca-Cola is the width of the "moat" protecting the entrenched company from upstart rivals. "With Coca Cola, you can feel pretty confident that there won't be a fast shift in user preferences away from drinking sodas, and in particular Coke. In technology, we may more frequently see 'paradigm shifts' where old leaders are displaced by new. Graphical user interface replaces character user interface, the Internet explodes, etc.," Raikes wrote.

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