MS: Netscape and AOL Tried To Divide Market
Rajiv Chandrasekaran, Special to Newsbytes
10/29/98
Newsbytes News Network
(c) Copyright 1998 Post-Newsweek Business Information, Inc. All rights reserved.
WASHINGTON, D.C., U.S.A., 1998 OCT 29 (NB). Microsoft Corp.'s [NASDAQ:MSFT] lead attorney took on the role of accuser in a Washington courtroom Wednesday, alleging that two of the company's most important rivals discussed a plan to divide the market to compete against the software giant.
The argument signals a new tactic in Microsoft's defense against the government's antitrust lawsuit: The company contends that its rivals have done the same kinds of things that the government calls illegal and abusive if Microsoft does them.
Thomas Penfield Jackson, the federal judge hearing the case, noticeably perked up on hearing Microsoft's statements. But later, outside the courtroom, government lawyers dismissed them, saying that discussions between the two Microsoft competitors, America Online Inc. [NYSE:AOL] and Netscape Communications Corp. [NASDAQ:NSCP], are not similar to Microsoft's alleged effort to carve up markets because the two companies lack the monopoly power that the government contends Microsoft wields.
Microsoft's lead attorney, John L. Warden, made the allegation while cross-examining David M. Colburn, senior vice president for business affairs at AOL. After sparring with Colburn for three hours about AOL's decision to choose Microsoft's browser software over one made by Netscape, Warden held up a printout of an electronic mail message that AOL's chief executive, Steve Case, sent to senior officials of the company.
The message detailed a December 1995 conversation Case had with two senior executives at Netscape, James Barksdale and Marc Andreessen. It said that if AOL agreed to use Netscape's browser, "Netscape... states unequivocally that there are no plans or interest in entering the online services business and/or related businesses such as Internet access. Netscape agrees that it will not enter these businesses for a minimum of three years following the completion of the licensing agreement with AOL."
In another e-mail displayed by Warden, AOL executive Barry Schuler proposes that the company could withdraw its Naviserver product from the market in return for favorable browser pricing from Netscape. Naviserver, a piece of software for presenting material on the Internet, competed against a similar product made by Netscape.
"In your various meetings with the Department of Justice to suggest that they go after the beast from Redmond, did you disclose to them that you had made an offer to divide the market to Netscape?" Warden asked Colburn. Microsoft is based in Redmond, Wash., and Case, in another document, referred to his desire to "kick the (expletive) out of the Beast From Redmond."
"Those are your words, not mine," replied Colburn, who appeared on the witness stand clad in a dark suit, cowboy boots and sporting a five o'clock shadow. A minute later, responding to a follow-up question, he said it was "clearly not something we pursued."
Speaking outside the courthouse, the government's lead attorney, David Boies, suggested there was nothing improper about the discussion between AOL and Netscape because it was part of a broader proposal to compete against Microsoft. "What you had here was clearly an effort by AOL and Netscape to do more than just talk about where they were going to compete and where they weren't going to compete."
Boies also maintained that Microsoft's action should be viewed differently because it has a monopoly power its Windows operating system runs on 90 percent of the world's personal computers. "Neither Netscape (nor) America Online approached the market share or the market dominance of Microsoft," he said.
Before the accusation about dividing markets, Warden and Colburn spent much of the day debating AOL's reasons for choosing Microsoft's browsing software over Netscape's. Colburn, the government's second witness in the antitrust trial, said AOL chose Microsoft's Internet Explorer browser because Microsoft was willing to place AOL's software in Windows, thereby promoting it to millions of Windows users.
Government lawyers contend that the deal is one of the most direct examples of Microsoft using the power of its Windows monopoly to dominate the browser market and crush rivals such as Netscape. "The value of distribution through and promotion on the Windows desktop was something Netscape could not provide," Colburn said in his written testimony.
Although AOL has an agreement with Netscape to distribute its browser as well, the Microsoft deal restricts AOL's ability to promote and distribute Netscape's product.
Warden argued that the placement of AOL in Windows was not very important to the online service because it already had agreements with most of the largest personal computer makers to have AOL software placed in machines sold to consumers. The Microsoft lawyer said AOL's deals covered about 90 percent of the PCs sold to home users.
Colburn refused to concede the point, arguing that AOL's contracts with PC makers "were fairly short-term and tenuous." He also testified that getting a guaranteed placement in Windows at the time also would help AOL compete with the Microsoft Network (MSN), whose access software would be included in Windows, giving Microsoft a leg up in signing new online service customers.
Warden also argued that AOL chose the Microsoft browser largely for technological reasons. Microsoft's Internet Explorer, he said, could be broken into components that could more easily fit into AOL software than Netscape's. To support that argument, Warden displayed almost a dozen internal AOL documents that criticized Netscape's software and the attitude of its employees.
In one, an AOL executive said he "was not very impressed with the Netscape crew and the technology pitch to us," and he opined that, in one approach, "the Netscape (product) architecture is worse than ours was a year ago." In another e-mail, an AOL official said, "It is very clear Microsoft has their long term act together in this space."
Warden also read Colburn a message he wrote in January 1996 that began: "From a pure technology standpoint, it does look like Microsoft may win this one." Colburn then urged Warden to read the next sentence: "Couple that with their distribution muscle, then Netscape clearly has an uphill battle."
"The way I look at this is that it was a close call on the technology, but what put it over the top was the distribution on the desktop," Colburn said. "It's hardly a ringing endorsement" of Microsoft.
Reported by Newsbytes News Network, newsbytes.com .
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