Microsoft-AOL Truce Draws Mixed Reaction

By Peter Galli  |  Posted 2003-05-30

Microsoft-AOL Truce Draws Mixed Reaction

While many in the IT industry are welcoming yesterdays settlement news between Microsoft Corp. and AOL Time Warner Inc. as being good for innovation and a move away from litigation as a means of resolving differences, others fear it will strengthen Microsofts drive to control the distribution of digital and other multimedia content over the Internet.

AOL Time Warner Inc. on Thursday said it had settled the private antitrust lawsuit that its Netscape Communications unit brought against Microsoft last year, and Microsoft agreed to pay AOL Time Warner $750 million and help the content company combat online piracy.

Al Gillen, an analyst with International Data Corp. in Framingham, Mass., was not surprised by the news, saying it was "pretty much all over for Netscape except for coming to some kind of settlement with Microsoft." But the fact that the deal brought better interoperability between the AOL client and Microsofts Windows software would be good for consumers, he said.

"This has been necessary for some time, and greater cooperation between them should also be good for the development of Instant Messaging technologies going forward," he said.

But while Microsoft Chairman and Chief Software Architect Bill Gates on Thursday noted that the agreement with AOL Time Warner did not provide for interoperability between the companies Instant Messaging systems, it did create a framework for discussions about it, he said.

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The settlement news has also received a mixed response from technology industry and lobbying groups. Jim Prendergast, executive director of Americans for Technology Leadership (ATL), a Washington-based coalition of technology professionals, consumers and organizations that want to limit government regulation of technology, welcomed the settlement as "a significant step for the industry in moving away from the era of excessive litigation."

Members of the technology industry need to focus their time and resources on innovation and competition, not litigation, he said. "This will allow Microsoft, AOL and the entire industry to focus on creating better products and serving consumers … This settlement is good news for consumers, the industry and the entire economy," he said.

But a spokesman for the American Antitrust Institute (AAI), a Washington advocacy organization, said that while the settlement benefits both companies, it is likely to harm competition and consumer choice.

"Before this settlement Microsoft dominated the Web browser market, but it lacked control over the distribution of digital music and other multimedia content over the Internet. After this settlement Microsoft is well on its way to erecting a tollbooth on the Internet through which all multimedia content must pass. Consumers will be caught in a vice grip, both when they enter the Internet and when they try to download multimedia with content from it," he said.

AOL had also filed its antitrust suit because of Microsofts anticompetitive behavior in the market for Internet browsers, the AAI spokesman pointed out. This was the same activity that the Department of Justice challenged in its 1998 antitrust complaint. "A unanimous decision in 2001 by the U.S. Court of Appeals held that Microsoft had violated the antitrust laws by illegally attempting to maintain its Windows operating system monopoly by destroying Netscape as an effective browser perceived to be a potential competitor to Windows.

"The Department of Justice subsequently entered into a settlement with Microsoft that the American Antitrust Institute and many others have criticized for doing nothing to restore competition to the browser market," he said.

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The question from consumers perspective was whether AOL would succeed in restoring competition to the Internet browser market, he said, adding that nothing in the announced settlement did anything to lessen Microsofts monopoly grip on the browser market. Instead it "gives AOL Time Warner $750 million in cash and announces joint activity that was likely to cement Microsofts power over the Internet.

"Although it appears that AOL Time Warner is not required to use Microsoft technology exclusively, this signals to other media content providers that Microsofts technology is well on the road to being dominant, so they also should use Microsofts proprietary digital rights management software to ensure that AOL subscribers will be able to access their content. It also signals developers not to attempt to make competing encryption products—Microsoft already is in the process of locking up this market," he said.

Consumers will have little choice but to use Microsofts products, while Web site developers, music companies, and movie studios will be forced to use Microsofts proprietary standards, he said. "They will all be caught in the middle, at the mercy of a monopoly whose power is growing. We urge the Department of Justice Antitrust Division and the State Attorneys General to scrutinize it carefully to determine whether it is anticompetitive," he said.

While the future of AOL Time Warners Netscape group has been called into question by the deal, Richard Parsons, the chairman and CEO of AOL Time Warner, said in a conference call with reporters on Thursday that at this point the company did not intend to get rid of the Netscape unit, located in Mountain View, Calif. While Internet Explorer works very well, AOL Time Warner is still exploring other opportunities with Netscape, he said.

But some enterprises are not concerned about the potential demise of Netscape. Dave DeBona, a technical consultant for a retailer based in Columbus, Ohio, is confident that even if Netscape is eventually dropped there are other browsers available to provide competition for Internet Explorer.

"The settlement also certainly signals a significant about face by AOL, potentially relegating Netscape to the die-hard faithful. But, even though we install IE internally as the standard browser, our application architecture demands for browser agnostic applications," he told eWEEK on Friday.

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