AOL takes shape as major threat to Microsoft

As Microsoft says, the proposed AOL-Netscape deal shows that the company’s enemies can band together to resist it, but although the deal may be welcome to Microsoft from a legal standpoint, the cold, hard figures show that otherwise it’s very bad news indeed. In the first half of this year Microsoft’s browser market share had continued its steady rise, up from 23 per cent in 1997 to 28 per cent. Netscape slid from 51 to 42 per cent, while AOL notched up 16 per cent. That 16 per cent is kind of important to Microsoft, because AOL uses a tailored version of Internet Explorer, so by the middle of this year you could say IE’s share had actually gone up to 54 per cent. Since then it’s gone up some more, although it remains the pattern that IE’s unaided climb is desperately slow. The launch of Windows 98 with a hard-wired browser will have helped as well (subject to legal matters covered elsewhere), but the likely imminent defection of AOL to the Netscape camp would swiftly reverse the league table. And it would also have far longer-term implications as the mooted strategic alliance of AOL and Sun came into force. Many things about Microsoft’s relationships with AOL and Netscape in and around 1995 remain opaque, but it is absolutely clear that Gates’ company saw AOL as vitally important then. In the run-up to the launch of Windows 95 there was a strong possibility that AOL (then the enemy) would persuade the DoJ to block the bundling of software for The Microsoft Network (MSN) in 95. MSN initially was the only online system with an icon on the 95 desktop. Giving AOL similar prominence was one of the prices Microsoft was prepared to bring the company on-side. AOL also extracted the tailored version of IE and some useful marketing funds. Maybe it did the Microsoft deal through fear, maybe for commercial reasons (AOL execs have said both), but at the time it most certainly feared Microsoft. AOL deluged the world with CDs and promotional literature, and the upshot was that although MSN was a failure, AOL wound up as the world’s biggest ISP. Which is where we come in now. In its field, AOL is actually in a pretty Microsoft-like position. It has seen off all the serious challengers and taken over CompuServe, and it’s spreading its wings in the portal area and in content. It has started to blur boundaries with TV, entertainment and multimedia to the extent where it’s at least a wannabe media/publishing operation as well as an ISP. In these areas it’s also a direct competitor to MSN, which Microsoft has been busily revamping, but AOL also has the advantage of owning quite a lot of the access routes as well. It has over 14 million subscribers now, and like Microsoft it will have to start looking at different classes of device and different kinds of access routes for future growth. The difference is that while Microsoft’s ability to leverage standards is based on its ownership of PC real estate, AOL, if it takes the Sun shilling along with picking up Netscape, has the potential to be able to leverage far more broadly. It could hitch a lift on Java and Netscape into interactive TV systems and low resource devices, and it could make its prospects in these areas look just as good as Sun’s. So if, in five years time, we’re reading subpoenaed Microsoft memos from 1998-99, don’t be surprised if AOL comes up a lot. ®