Philip Baczewski, Associate Director of Academic
On Friday, May 30, it was announced
that Microsoft and AOL Time Warner had settled the lawsuit filed by
AOL's Netscape division. That lawsuit had claimed anticompetitive
practices on the part of Microsoft (I know I'm shocked). According to
News, "AOL had a relatively strong case, legal analysts
said. But it also faced anywhere from three to five years of
litigation and appeals. At the same time, AOL has been searching for
ways to pay down its massive debt left from its blockbuster
acquisition of Time Warner in 2000."
This is quite a turnaround considering that in January of 2002,
Microsoft denounced AOL as a company that would rather litigate than
innovate. It was billed as a clash of the Titans: AOL, the company
that could fill your mailbox with free diskettes and CDs, and
Microsoft, the company that could shove their inferior 1980s
technology (oh, pardon me,
I meant "innovation") down your throat because they could blackmail
their OEM dealers into selling nothing else. On the face of it,
however, it was a battle of the network browsers. The
longtime-dominant Netscape versus the scrappy challenger backed by the
unlimited bankroll, Internet Explorer.
The bigger stakes were online services. If Microsoft could make you
use its browser, they could snare you onto their online service before
you learned there were alternatives. If you had a choice of browser,
then you could have a choice of service providers and AOL was in the
best position to get you to install their virus, uh, I mean
"software." He who controlled the network controlled the content and
that was enough to lock the horns of these two mammoth companies.
(As it turned out, most people were smarter than MS thought and the
Microsoft Network butterfly has remained just another MS bug.)
It seems that reason has now prevailed. All it took was a friendly
call from Bill Gates of Microsoft to Dick Parsons of AOL Time Warner
in which Bill poured enough money ($750M) through the phone line to
make a settlement seem like a reasonable course of action. You have to
feel a bit sorry for Bill, considering that that only leaves Microsoft
sitting on about $46 Billion or so. But, he also sweetened the deal by
providing a free 7-year license to Microsoft Internet Explorer and an
option to license Microsoft's media and security software when it
Wait a minute here. I thought the whole problem was that Microsoft was
using its monopolistic position to get people to use Internet Explorer
and now part of the settlement is that AOL uses Internet Explorer?
Isn't that like suing your doctor for amputating the wrong leg and
then settling by letting him cut off your good arm too? Is AOL Time
Warner just trying to innovate, or has something else changed over the
past year and a half?
Yes, the correct answer is, something has changed. AOLTW is sitting on
$24 Billion of debt as a result of its mergers and acquisitions. It
seemed like such a good idea at the time -- you take AOL, the leading
online service provider and shove it together with Time Warner, the
leading content and media provider and, voila! -- instant market
channel. Its just too bad that no one at AOL was smart enough to figure
out how to make everyone's computer shout, "you've got movie!"
So, AOLTW needs cash, Steve Case is out of the picture, and Microsoft
benevolently steps in with a gracious offer to settle the lawsuit.
This "kick-them-with-your-gold-toed-boot-while-they're-down" strategy
has worked before for Microsoft. Remember Apple's "look and feel"
lawsuit against Microsoft claiming that Windows was just an expensive
imitation of Mac OS? Well, that was in the days when Apple was having
a bit of a cash flow problem itself. Microsoft graciously settled and
Apple got $150M and a Mac version of Internet Explorer as well as a
Mac version of Microsoft Office written programmers who actually knew
the Mac operating system (the funny thing is, in my experience, the
Mac OS version works better than the Windows version).
Now AOL Time Warner can go back the business of delivering content
("You've got Magazines!") and not have to worry about having to
innovate, but where does that leave Netscape? Should you download
version 7 and put it up on your knick-knack shelf next to the final
100 AOL diskettes you received in the mail? I doubt that Netscape will
too soon, which is a good thing because it would be difficult to dust
The Browser Business
Technology and technology companies have a way of hanging on and
reinventing themselves when the environment changes around them. IBM
still makes a ton of money licensing mainframe software, but their TV
ads portray them as web service integrators. Sun is still selling its
proprietary hardware as the market embraces open software standards to
go with an open hardware standard that's been around for years. ("Hey
Scott! If the network is the computer, why are you still selling
The other interesting development is that there seems to be more
browser software from which to choose. You've got Netscape's open
source counterpart, Mozilla .
Konqueror browser which is an outgrowth of the KDE open source
desktop environment. Konqueror also serves as the basis of Apples
Safari, an OS X native browser
which is currently under development and released as beta-test
software. Interestingly enough, Microsoft has
it will stop developing new versions of Internet Explorer citing
Safari as competition it can't overcome.
It seems that the marketplace is now free for Microsoft's "innovation"
of the beat-them-down, pay-them-off variety. The marketplace has
also decided that it likes a standard Internet which can be accessed
by a number of browsers. So, get yourself an HTML rendering engine,
slap on some Java and you too can be in the browser business. That is,
until someone decides that it's time to "innovate."