The latest controversy concerns Micro-soft Network, a new online service offering everything from NBC news and sports to e-mail and home shopping. Microsoft plans to introduce the product in August–and both the Feds and other on-liners are worried. The Justice Department is already investigating complaints the Microsoft Network will put the company in position to take over the emerging new markets in electronic commerce and communications–the fastest-growing segment of the computer industry. “What’s the more serious threat, the Intuit merger or the Microsoft Network?” asks Brian Ek of Prodigy. “The Microsoft Network by far. It has the potential to limit the online landscape to one.”
How so? By leveraging what critics contend is an unfair competitive advantage. To get its fledgling network into the hands of millions of consumers, Microsoft plans to “bundle” the network into Windows 95, the next generation of the Microsoft operating system that drives 85 percent of the world’s computers. Getting wired to the world at large will never have been easier; consumers need only click on a button for MICROSOFT NETWORK, emblazoned ubiquitously across their PC screens. Microsoft won’t comment, but some speculate the new network’s prices will be roughly half of the other services. Rob Enderle at Dataquest thinks Microsoft will sell between 50 million and 60 million copies of Windows 95 during its first year. If an estimated quarter of those buyers subscribe to Microsoft Network, overnight Microsoft will become the biggest online service around, dwarfing such established rivals as America Online,CompuServe and Prodigy. With consumers snapping up new computers and software, especially so-called multimedia systems for the home, those numbers could grow exponentially. Small wonder the Big Three are running scared.
Stephen Case, president of America On-line, contends that Microsoft’s strategy is blatantly unfair, if not illegal. Bundling the Microsoft Network with the company’s new operating system, he says, gives Microsoft a huge advantage over everyone else. The fact that it’s right there, packaged with Windows 95, in itself creates an incentive to buy. Other online services, by contrast, have to compete to get loaded onto retailers’ computers. “We fight like cats and dogs,” says Prodigy’s Ek. CompuServe, for instance, outbid rivals to get its software on computers sold by Gateway 2000, the big mail-order company. To get PC makers to carry their services, online providers routinely pay manufacturers a “bounty” for every customer that signs up. Microsoft, by contrast, gets a free ride.
Microsoft shrugs off the complaints. Windows 95 includes Microsoft Network merely as an optional feature, says general counsel William Neukom. “You don’t have to buy it.” Other executives note that Microsoft isn’t the only “bundler” out there. Apple Computer built its online service, eWorld, into the vaunted (if less visible) Macintosh operating system. Prodigy has an exclusive deal to be the sole online provider for Packard Bell–or at least it does until Microsoft Network comes along. “We’re increasing competition, not limiting it,” says Russell Siegelman, general manager of Microsoft Network. “We will offer better service, better products and, over time, lower prices.” Rivals who fear the competition, Microsofters say, hope the Feds can slow the company down.
Microsoft’s general counsel says the company has not been notified of any formal proceeding. The Justice Department refuses to comment. But according to executives at America Online, CompuServe and Prodigy, investigators have been gathering information for months, interviewing and asking for documents. Some of these sources also see a change in attitude at Justice. When they complained about Microsoft Network last summer, the department didn’t seem to take their concerns seriously. Now that’s changed, they say, partly because of the industry uproar over the Intuit merger and criticism over Justice’s settlement of the first antitrust clash with Microsoft.
Even if Justice were to conclude that Microsoft possesses an unfair advantage in marketing its network, it’s unclear what remedy it might propose. One possibility: to require Microsoft to strip the online service from Windows 95 and sell it separately, as other online providers must do. Another Option: to require Microsoft to build access to rival online services into its operating software, giving them equal standing with Microsoft Network. Rivals expect the Feds to act, possibly before August, when Windows 95 is scheduled to be released. But whatever the outcome round three of the Feds versus Microsoft, the consumer is going to win. Going online will become easier, prices will fall and services–from entertainment to shopping-will be richer and more varied. Justice or no justice.
