AOL, Microsoft prepare for a ‘fight to the death’

Associated Press

SEATTLE — For software giant Microsoft Corp. and media conglomerate AOL Time Warner, the years of detente are over.

Gone are the days when the software maker and the pre-merger Internet provider had separate goals — one to get people on the personal computer, the other to get them online.

Now, both are concentrating on the same corporate goal — making money off paid Internet services — and the kid gloves have come off. The two corporate giants will soon be slugging it out for control of everything from music sales to digital picture development and vacation planning.

"This is kind of a fight to the death between the two of them," says Rob Enderle, an analyst with Giga Information Systems. "To win, neither one of them wants the other one to be around."

In the East: AOL, valued at $226 billion.

Home to the nation’s most popular Internet service and some of the country’s best-known media holdings, the New York company is taunting Microsoft with a powerful weapon: Microsoft’s ongoing antitrust case. Painting Microsoft as often as possible a "desktop monopoly" and itself as a victim, AOL has said it will pay computer makers to feature its e-mail service rather than Microsoft’s and is lobbying lawmakers to legally force Microsoft to let that happen.

In the West: Microsoft, with a market value of $394 billion.

Maker of the dominant Windows desktop operating systems and the second-most popular e-mail service, the Redmond company also isn’t afraid to cry foul at AOL’s considerable strength.

Microsoft has long nagged AOL with repeated calls for the online company to make its dominant — and exclusive — instant messaging system compatible with Microsoft’s.

More recently, it has taken jabs at AOL’s customer base with an ad campaign aimed at getting Internet customers to switch — and get three months’ free service. Microsoft claims more than 1 million people have taken it up on the offer.

But the heart of the battlefield is the desktop computer, where Microsoft is poised to extend its software dominance with the forthcoming Windows XP.

With the new operating system, due out in October, Microsoft plans to add many of the features that ready the way for paid Internet services dubbed .NET. This includes the company’s instant-messaging system — Windows Messenger — and a vehicle for registering passwords and other personal data called Passport.

AOL, which already offers extensive electronic commerce and members-only services for tracking expenses and personal preferences, also has a Passportlike system designed to be a convenient conduit for all online transactions.

AOL is lobbying hard for lawmakers to block Windows XP’s release, saying the system unfairly favors Microsoft products with the same sort of built-in features that led the company to be found guilty of being an illegal monopoly.

It’s also offering computer makers monetary incentives for placing its products on the computer desktop — and removing Microsoft’s.

This week, Microsoft upped the ante.

It insisted that desktops that feature competitors’ icons also must feature links to Windows Media Player, which competes with AOL and RealNetwork products, as well as links to either the company’s Internet Explorer browser or its Movie Maker.

Neither side appears willing to back down.

Both companies do note that they are working together on some fronts, such as making Windows compatible with AOL’s Internet service. But that’s not enough to offset the bad blood, analysts say.

"When you see company strategies revolving very much around PR campaigns and legal strategies, it usually means things have gone pretty bad," says David Smith, vice president of Internet strategy for Gartner Group.

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