Microsoft move to take on AOL

Microsoft wants to narrow the wide gap with America Online Inc. in the Internet access market. AOL has nearly 18 million subscribers against the Microsoft MSN service8217;s approximately two million members.

But it will take more than price for Microsoft to effectively compete with AOL, according to Forrester Research analyst Mark Zohar. He doesn8217;t see a repeat of Microsoft8217;s browser wars with Netscape, now owned by AOL. quot;The notion that it could drive AOL out of the market and raise prices is ludicrous,quot; he said.

AOL has advantages over Microsoft in theconvenience and consumer appeal of its service, Zohar said. In contrast, the browser market was easier to compete in because there was not much difference between Microsoft8217;s and Netscape8217;s products, he said.

Furthermore, quot;it would be a stretchquot; to say that Microsoft8217;s access strategy is an attempt to protect its Windows franchise, Gray said.

The issue would be different if AOL were to suddenly announce plans to create an alternative software platform to Windows. However, AOL has publicly backed away from promoting such an alternative.

Meanwhile, Microsoft Chairman Bill Gates appears to have downplayed AOL as a competitor. During the anti-trust trial, evidence introduced by the government and based on notes taken by a Microsoft employee quoted Gates as saying AOL isn8217;t a threat to Windows. Microsoft frequently uses price as a competitive weapon a strategy played out in its browser wars with Netscape, where Microsoft distributed its browser for free. It has also done so in the business software areaagainst Lotus in spreadsheets and WordPerfect in word processing.

However, even if Microsoft prices its Internet service at a dramatic discount to AOL8217;s, or offers it for free, predatory-pricing claims are a notoriously difficult legal strategy. The Justice Department didn8217;t mention predatory pricing in its original complaint against Microsoft in the antitrust case and has sporadically mentioned it at trial.

It8217;s quot;far from clear that the government is going to ask the court to rely on the free distribution of the Internet browser as an illegal act,quot; said William Kovacic, an anti-trust law professor at George Washington University.Rather, the government8217;s focus on Microsoft8217;s browser distribution has hinged on how the company8217;s exclusive agreements with PC makers and others, as well as bundling the browser with Windows, were designed to damage Netscape. For predatory-pricing claims to stick, the alleged predator has to have a dominant position in the market or a quot;dangerous probabilityquot; of achieving sucha share, according to legal experts.