Brigham Young University
This article is the third in a three-part series that was published in the industry newsletter, the Multimedia Monitor, beginning with the November 1996 issue. Copyright 1996 and 1997, Phillips Business Information, Inc. For more information about the Monitor contact 1-301/424-3338 (Inside U.S. 1/800-777-5006) Fax 301/309-3847. EMAIL [email protected] Appears here by permission.
In this series of articles we look at the role of Microsoft Corporation [MSFT] and other "eagles of the Information Age" and how they have influenced the evolution of the microcomputer industry. Is Bill Gates the villain in this story -- or could he be a hero? Are there any heroes to be found? In part one, Mike Bush focused on the struggle between Microsoft and Apple Computer Inc. [AAPL] Part two examined the struggles between IBM [IBM] and WordPerfect and Microsoft. This third part analyzes the struggles exemplified by Microsoft vs. Netscape and America Online Inc., et al, vs. Microsoft.
The clashes we have examined thus far involve such pioneers as Apple, industry behemoth IBM, and upstart WordPerfect. In this third and final analysis, we continue our examination of the phenomenon of Fear and Loathing in Cyberspace, as we seek to understand how to recognize the heroes and villains of the Information Age.
This time we turn our attention to Microsoft's conflicts with the new guys on the block, companies such as Netscape and America Online. Both companies exemplify the terrain of the new battleground itself, a place where many inhabitants are commuters, transients who move between the old world defined and measured in terms of atoms and the new one existing merely as bits in the computers of Cyberspace. The newness of companies such as these has not lessened the intensity of the struggle. Netscape, for example, has already taken its complaints to the courtroom, one place where fear and loathing, although not usually overtly demonstrated, get played out to their fullest extent. For its part, America Online and its competitors were united in 1995 in their concern for Microsoft's impending arrival in the online world. But something happened on the way to the market…
And It was War!
It was December 7, but the year was not 1941. It was 1995. A giant had indeed been awakened, just as Japanese Admiral Isoroku Yamamoto had feared after he had carried out the attack on Pearl Harbor. But it was not a quasi-isolationist nation-state that had been moved to action. Instead, the world had witnessed an incredible change in course by a very large software company that had been traveling the road toward full commitment to the formation of an online information service.
These previously stated intentions had struck fear into the hearts of members of a group of existing services led by companies such as America Online and Compuserve [CSRV]. With the Microsoft Network icon to appear as a default presence on the Windows 95 desktop, these outfits were running to the Federal government for help, weeks before Windows 95 had been released.
They could not get action quickly enough! But Windows was released to great fanfare. And the MSN icon budded on desktops across the land, deletable by users, not by the usual click and drag to the Recycle Bin, but only by a visit to the Add/Remove Programs icon under Control Panel, a quirk that that has infuriated more than one denizen of Cyberspace.
But here was Gates and Company, on Pearl Harbor Day no less, announcing that Microsoft was changing its course. They were not setting up an Internet division, he said. In fact, looking at it one way, the whole company has become one giant Internet Division, for as Gates announced, Microsoft's complete product line would be affected by their change in direction. Today, evidence that this was to be the case abounds. Moreover, the way that this whole Internet scenario has unfolded has brought about the realization of one of the more interesting predictions of CyberWags everywhere. The respect held by this enlightened group of people for the Internet brought them years ago to predict that all applications eventually and automatically expand to do email.
America Online et al vs. Microsoft
So what of the conflict between America Online and friends with Microsoft? It seems that Microsoft has decided that the conflict was, in fact, elsewhere. Sure, the Microsoft Network exists but it has not come to the glory previously feared by AOL et al.
In fact, the group that is the most bent out of shape consists of those companies who were betting on Microsoft's previous online strategy, the one so feared by AOL. This group, let's call them the Blackbird Allies, was totally upset with Microsoft for abandoning their previous approach. They had sunk a great deal of money and effort into producing content and tools in accordance with Microsoft's proprietary strategy. Although angered, my sense is that they should have been grateful to Chairman Bill: "Thank you, sir, for not continuing to lead us into uncharted directions where we most certainly would have lost even more money than we have to date. We appreciate your teaching us that proprietary is not good, and that in the long run we will be better off with the course you have plotted." Although this sounds a bit tongue in cheek, I believe it. It is easy to whine!
What then of the AOL et al and Microsoft conflict? For their part, Microsoft's browser has been incorporated into AOL's browser. And AOL continues to Spam the world with diskettes and CD's. I have kept them all, waiting for the day when there will be no more floppies left in the stores, for AOL will have depleted the supply. Eventually I am sure I will need a diskette to send files to that one friend in the world who is not yet online, and for whom FTP will not work. My intention is to merely reformat a few of the diskettes from AOL as required. This will tide me over during the periods of shortage.
I actually used a couple of those diskettes to sign on to AOL over the past few months to check out what they were up to! And I am not the only one to sign up. The direct mailing and strategies for distribution through magazine apparently work, at least to some extent and at least for a while. AOL's flat-rate price with unlimited hours has supposedly attracted something like 7 million users.
But such success does not come without a price. Walter Mossberg reported on AOL's problems in his Personal Technology column of the November 14 issue of the Wall Street Journal. They are getting record number of subscribers but not without a price. It seems they have suffered of late from "embarrassing outages" and "major service slowdowns" as reported by Mossberg.
In a recent column in PC Magazine (September 24, 1996) John Dvorak has accused Microsoft of "dumping," a reprehensible marketing practice designed to drive out competitors who can't handle the low price. Well maybe they are pumping out a lot of free copies of Internet Explorer, but how about AOL, John? Not only are they sending free software around the world in great numbers, but their conspicuous consumption of diskettes certainly keeps prices artificially high worldwide!
Whatever Microsoft does, I am convinced that AOL and others will continue to play an important role. Even if their on-ramp facility to the Internet is overcome by cheaper and faster alternatives, I am convinced they will continue to serve a useful role. Primarily in serving as a gateway for services that have content for sell. It will be easier for them to negotiate prices for their subscribers than for every service in the world to handle an account for every potential subscriber in the world. Of course this will probably change for many people when ecash and micropayments take off. Many subscribers will still access their information through services like AOL.
Netscape vs. Microsoft
Of the various Microsoft conflicts we have examined, the one that is perhaps the most active is the competition between Netscape vs. Microsoft…. yet to be determined.
In an article entitled "Winner Take All" in TIME Magazine, September 16, 1996, Joshua Cooper Ramo documents the Netscape vs. Microsoft conflict:
Netscape's Department of Justice letter charged that a Microsoft executive told a gathering of developers this spring, "Our intent is to flood the market with free Internet software and squeeze Netscape until they run out of cash."
I have a really tough time believing that an executive could say anything so dumb, but such has been asserted by at least one attendee in a letter to the Deputy Assistant Attorney General.
In a recent issue of The Computer Lawyer, Samuel R. Miller, Special Trial Counsel in 1994 in the Antitrust Division of the United States Department of Justice explains the legal framework under which Netscape's accusations will be judged by antitrust enforcers and the courts:
Netscape has accused Microsoft of engaging in predatory pricing (by giving away its browser for free) and unfairly leveraging its monopoly in the operating system market (by bundling its Internet Explorer with Windows 95 and by providing discounts or financial inducements to computer manufacturers and Internet service providers who favor the Internet Explorer over Netscape's Navigator). Do these charges amount to illegal predatory pricing, tying, or monopoly leveraging? (The Computer Lawyer, November, 1996, Vol. 13, No. 11; Pg. 7)
While working for the government, Miller's primary responsibility was to act as lead trial counsel in the prosecution of United States v. Microsoft Corporation. He seems to know of what he speaks and points out that Netscape's case is not without merit. Nevertheless, on two key issues they will have a tough time getting the court to rule in their favor. One key issue for dumping is not only that Microsoft is engaged in predatory pricing, but that there is a dangerous probability that Microsoft can recoup its losses once Netscape is driven out of business by setting prices at that point above competitive levels. They will have a tough time proving this, given that the marginal cost of software is zero. Furthermore, Netscape itself has obtained market share by giving away its own software for free. Miller says that Netscape must either win in the courtroom or in the marketplace and that it should set its battleground.
Unfortunately for Netscape, the choice will not be simple. Initial reviews of Internet Explorer have been very positive. After stating in July that Internet Explorer had jumped ahead of Netscape Navigator, PC Magazine followed up in their October 22 issue with a very thorough review of both products. In that head to head comparison, Netscape Navigator came out as the Editors' Choice award winner, but the review points out that it is clear that Microsoft means business. They will not be content to sit around while Netscape continues out in front.
I have used both products and see many of the same strengths and weaknesses documented for each by PC Magazine.
Conclusion
To summarize this investigation into heroes and villains, I would like to offer a solution formulated by a colleague, Miles R. Fidelman, President of Network Technology Corporation, in Charlestown, Massachusetts. It is Fidelman's contention that the only way to solve the Microsoft problem is to form a new company consisting of IBM, Apple, Sun, and Netscape. Only then will these forces be able to compete. Of course the only person capable of running such a conglomeration would be Ross Perot, and besides solving the "Microsoft Problem" this would get Perot out of politics. He no longer would have the time!
On a more serious note, the Windows umbrella has been large enough for an incredible number of companies to make it big. The technical challenge to do this is itself mind-boggling! It was clear to many in the early 80s that the Motorola architecture had certain advantages over that in the Intel line, the ability to address a lot of contiguous memory easily being perhaps the most significant. Fortunately for Intel, IBM picked their solution. Unfortunately for the world, there was a huge downside to this selection with accompanying 64K segment memory addressing problem. This issue, combined with the limitations brought about by the way the PC architecture has evolved, are no longer a problem. Windows has successfully negotiated these difficulties.
For this Bill Gates and Microsoft have to be commended. In no small measure we have in the marketplace, a wide selection of affordable hardware and software as a result of their efforts. The fact that there have been over 2,000 millionaires created at Microsoft in their climb to success democratizes their success even further.
We have seen in this analysis how many people have tried to foil Gates and Microsoft. Despite these efforts, Gates and Microsoft continue to ride a huge wave of success, showing nimble reaction to competition on many fronts. The fact that I can today afford computers as well as interesting and powerful software makes Gates and his buddies heroes in my book. People who keep them on their toes with exciting competition can be heroes as well. People who stand around and snipe for sniping's sake are idiots and if their efforts are more verbal than productive, then they quickly pass into the category of the villains. There have been and continue to be ample numbers in this category.
We looked at one for whom the jury is still out, Gilbert Amelio, the new CEO at Apple. If he can help Apple through the tough times ahead, then he might well turn out to be a hero. In any case, the next few months will be fascinating to watch. Amelio has just led Apple to spend $400 million to buy out NeXT Software and to bring Steve Jobs back to Apple. I think I was very clear in the first installment that Jobs was the cause of many of the problems that Apple suffered. I did not put him in the hero category. True he was closely involved with a lot of the success, but the future will help us understand the balance. [See http://techweb1.web.cerf.net/wire/news/1220jobs.html]
One of the companies that lost out in Apple's quest to find solutions for its need for innovation in the operating system arena was Be, Inc., a new company started by Jean-Louis Gassée, one of Apple's saviors of the Macintosh. Apparently Gassée was asking more for his technology than Apple was prepared to pay. [See http://www.beeurope.com/mirror/aboutbe/pressreleases/95-10-03_Intro.html]
So no matter which company or individuals we discuss, there are trends to help identify the heroes and the villains. There has to be vision! There has to be the ability to get the work done. In short, heroes are able to discern the fine line between success and failure when considering the choice between innovation and the legacy of the past. No one has been more successful at this than Bill Gates.
Michael Bush is Associate Professor of French and Instructional Science at Brigham Young University. He is also a partner in Alpine Media of Orem, Utah, a company specializing in multimedia development for education, assessment, and foreign language training. In 1992 he retired from the Air Force as a Lieutenant Colonel at the US Air Force Academy, where he was principally involved in the design and implementation of the largest interactive videodisc language learning center of its kind on any college campus in the world. Bush may be reached at Department of French and Italian, 4013 JKHB Brigham Young University Provo, Utah 84602, 801/378-4515, fax 801/378-4649, e-mail: [email protected]. Or, contact Bush at Alpine Media, Suite G-1, 560 South State Street, Orem UT 84058, 801/226-4283, fax 801/223-9069.