Microsoft Takes on Online Community

As Microsoft gets ready to debut its online network, competitors are angry, regulators are racing the clock and potential customers want to know its Internet capabililities

As Aug. 24 quickly approaches, competitors are crying foul over Microsoft's plans to bundle its online network with the Windows 95 operating system, but others are wondering whether the Microsoft Network - or MSN - can compete with the mighty Internet.

"I think Microsoft is a great company, but the antitrust laws apply to them as well [as anyone else]," said James Love of the Consumer Project on Technology, an advocacy group. Love and Ralph Nader sent a letter July 31 to President Clinton protesting the bundling of the network with Windows 95.

Unlike America Online, CompuServe and Prodigy, which are not integrated into any operating system, MSN is a part of Windows 95. Rumors state that the MSN icon cannot be removed from the operating system, however Microsoft denies this. A right mouse click will delete either the MSN setup or sign-up icon, said a company spokeswoman.

Because MSN is part of the system, Microsoft will not have to expend much money or effort to attract customers, said Ken Lim, chairman of the CyberMedia Group, a Cupertino, Calif.-based consulting and market research firm. The combined various "costs per customer" for AOL, Prodigy, CompuServe, and so on will skyrocket, Lim said.

The Big Three commercial online providers expressed their displeasure with this arrangement July 21 when their CEOs wrote letters to Capitol Hill - and to Microsoft's Bill Gates - stating that the bundling of the network was an unfair business practice that would lead to loss of consumer choice and diminish competition.

A U.S. Department of Justice investigation trying to determine whether the arrangement violates antitrust laws is in a race against the Aug. 24 release date. The Department of Justice had ordered the company to turn over documents pertaining to the case, but when Microsoft balked and filed a protest, the Justice Department backed down, stating that because of the time issue, they would have to proceed on evidence gathered so far. Gina Talamona, a Justice Department spokeswoman, said the department had no comment on whether it would take action prior to the Windows 95 launch date.

Even if Microsoft unbundled MSN from its new operating system, which they won't do short of a last-minute Justice Department order, the company would still take over the commercial online market within nine months, Lim said. "There's no fighting that," he said. If 80- to 90 percent of the users who upgrade to Windows 95 try MSN and 10 percent decide to subscribe to the service, the number of users - conservatively - will be around 3 million, which is roughly the size of the largest online service now, he said.

And with those millions of MSN users will come millions of new Internet users. As the Justice Department rushes to determine whether it has a case, Microsoft is rushing to deliver full Internet access via MSN - four months ahead of schedule.

The online services also have been migrating to the Internet market. In the last year, the major commercial services have signed licensing or acquisition deals with manufacturers of Internet technology, including World Wide Web browsers and search engines.

The Internet is such a different animal from the online services that right now they can co-exist, said Lim. However, it will be co-opted by the commercial services, he predicted. Access to the Internet is still difficult to set up and use, but AOL and the other online services are making it easier and more reliable for the end user, he said. At the same time, they are enhancing the Internet content by wrapping their own editorial material around it, Lim said.

That editorial material can often be from the same content provider, but with a different focus that is appropriate for the target audience of each service. For example, Environmental Risk Information and Imaging Services, which will be a MSN content provider, has multiple online presences, including CompuServe. "ERIIS is interested in providing information electronically on as many networks as possible," said Glenn Hanna, vice president of sales and marketing for the company.

Some companies are more selective. MetaBridge Inc., a company that helps publishers develop electronic products, limited its services to MSN and the Internet, said Dianne Hofbeck, vice president of the Seattle-based company. "We wanted a platform we could add value to," Hofbeck said.

Some companies MetaBridge deals with have definite ideas about what network they want to be on, Hofbeck said. Some just want to be on the Internet because of its low cost and broad reach. The overriding factor is that many companies cannot afford to develop for multiple platforms, she said.

Yet the question that pops up is who will benefit more, MSN or companies providing access to and with a presence on the Internet.


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