Potential Rival Remains Wary of
Microsoft's Power
By JOEL BRINKLEY
ASHINGTON -- As Stephen M. Case, chief executive of
America Online, contemplated making the biggest deal of his
career -- the purchase of Netscape Communications -- he stopped for a
moment last fall to ponder whether his company could finally afford to
dump Microsoft.
Two years earlier, America Online executives were thinking they had no
choice but to use the Microsoft Corp.'s browser instead of Netscape's as
the default for their millions of customers. Microsoft had made an offer
they could not refuse -- a high-profile spot on the Windows desktop.
But by last fall, America Online, the world's largest Internet service
provider, was a powerful force with 16 million members. Soon it would
actually own Netscape. So Case, in an e-mail to other executives at his
company, suggested, "Maybe we can get comfortable with putting our
support behind Netscape so they really have browser share momentum."
"Specifically," he added, "if we push
share to Netscape, can Microsoft really
pull us out of Windows 98 (legally, as
well as would it be palatable given
current antitrust attention)."
The response was swift. Less than 20
minutes later, Robert W. Pittman, the
company's president, replied: "I do think
Microsoft is too strong to throw them out
of the tent. They can hurt us if they think
they have no other option."
Unquestionably, America Online is now
an industry powerhouse. But documents and testimony offered last week
at Microsoft's antitrust trial during an appearance of David M. Colburn,
an America Online senior vice president, disclosed that the company's
leaders still feel constrained, even threatened, by Microsoft -- chastened,
perhaps, by Netscape's experience. When Microsoft made Netscape an
enemy, it used every resource to turn the rest of the industry against the
company. The campaign was remarkably successful.
Now, as America Online prepares to branch out in new directions under
a campaign with the slogan "AOL Anywhere," the documents show that
the company is still looking over its shoulder, wary of stirring Microsoft's
wrath.
Most of the documents were brought to the trial by Microsoft. The
company was trying to show that America Online had the resources to
become a serious challenger, undercutting the government's contention
that Microsoft holds an unstoppable monopoly.
But many of the documents cut both ways, for they also showed that with
all its hard-won power, America Online repeatedly pulled back from any
new business venture that would upset Microsoft.
"To manage reality, we need to continue working with Microsoft
wherever we can," Kathy Bushkin, an America Online corporate
communications executive, wrote last November in an internal document
titled "Microsoft Relationship."
The documents describe a plan to work with Sun to build a personal
computer that used no Microsoft software, thus "breaking the deadly
embrace with Microsoft" in the words of a Sun executive. (On the stand,
Colburn pointedly disavowed the "deadly embrace" language, noting that
Sun holds a special animosity toward Microsoft.)
But America Online's intention was different. While the company was
working with Sun on that project, "we are also developing Apollo for the
desktop version NT," Ms. Bushkin wrote, using the company's code
name for itself. This, she explained, "shows our agnostic approach to
operating systems."
Similarly, her memo, like others, noted that as America Online ventured
into other new businesses with Sun -- designing telephones and television
set-top boxes to run the online service -- the company was also working
on other versions "for Windows CE, to insure that Apollo TV and Apollo
phone work on that platform as well."
In a note to Ms. Bushkin about a news release last November
announcing the Netscape deal, Case summarized America Online's
strategy this way: "The logical way to go is to assure Microsoft and
investors that we will continue to be bundled with Windows and continue
to attempt detente." While making the Netscape deal, Case said,
America Online ought to give Microsoft "a bearhug."
The investment bankers whom America Online hired to analyze the
acquisition and suggest future directions repeatedly urged moving
aggressively against Microsoft by using the Netscape browser. "Extend
the browser to be a more comprehensive desktop application, bundling
communications and productivity applications to absorb more share of
computing time, with the goal of becoming the users' de facto
environment," one analysis advised.
Microsoft executives predict that sooner or later, America Online really
will take them on. The online service is laying low now, the company
says, so as not to give Microsoft ammunition to use in the antitrust trial.
But in another memo, an America Online executive noted that no one
ever comes out ahead in a war with Microsoft.
So, as Pittman put it in his note to Case: "I think we need to stay in
business with them, create a need for them to need us. And then leave
ourselves the flexibility to always accommodate them to a certain extent."
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