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Microsoft is pushing instant messaging into an all out war

From Diana J. Choyce
June 25 - July 01, 2001

Instant messaging is enjoying a love affair with internet users the world over. The gratification of talking to anyone, anywhere, in real time without the telephone costs, is really catching on. Whether business or pleasure related, communication has never been easier. Aol, Microsoft, and Yahoo all have platforms with millions of users. But Microsoft, not surprising, is pushing instant messaging into an all out war. In its newest venture to provide messaging to its users, it again plans to integrate the programme into its new XP desktop operating system. Microsoft spokesman Jim Cullinan concedes that the integration of an instant messaging technology within Windows XP has some parallels to the company's approach in integrating Internet Explorer with Windows 95. But he offers no apologies. "It's about business decisions and technology," Cullinan said. "When Netscape was on top of its game, it tried to build a Java browser and 50 other things that didn't work. Those were business decisions that had nothing to do with Microsoft. In this case, AOL was the leader in instant messaging for years and did nothing with it."

The software giant announced Windows Messenger, a text, chat, video, audio and telephony service that will be integrated with Windows XP. The feature has until now been a relatively muted part of the roughly $200m marketing blitz for the new operating system. But its new multimedia features and its central role in the planned integration of Microsoft's Internet properties elevate the software well beyond a vehicle for text communication. Analysts said Microsoft views instant messaging, a key element of Windows Messenger, as glue for its new Internet services such as Passport and HailStorm. Such services promise to simplify Web surfing by giving people a single online identity and providing secure access to personal information such as credit card numbers with one click. "Instant messaging is a potential platform for advertising and for things to piggyback onto it," said Gartner analyst David Smith. "It's also a carrier of the screen name, and Microsoft wants people to use Passport and HailStorm." Microsoft has long used its Windows operating systems to distribute related products or effectively shut out competing technologies, thereby stifling innovation, in the view of opponents. In the case of instant messaging, Microsoft has embraced America Online's popular services for sending short text messages and extended the communications technology to work directly with its operating system. Microsoft is putting new pressure on AOL just as it is struggling to digest Time Warner. Windows Messenger, due out in October with the release of Windows XP, is threatening to force AOL to make its IM networks interoperable with competing instant messaging services, an outcome that could seriously erode its market leadership. "What Microsoft is doing here is leveraging its monopoly on the desktop and extending it onto the Internet," said Mark Cooper, research director for the Consumer Federation of America.

"It's 1996 all over again," said Ed Zander, president of Sun Microsystems, a longtime mortal enemy of Microsoft. His remarks, made at his company's annual JavaOne conference, were directed at parallels he sees between Microsoft's current strategies and the beginning of its assault on the Web browser market that eventually buried rival Netscape Communications. The resulting government lawsuit focused on the linking of Windows 95 to the Internet Explorer browser, but Microsoft has long used its operating systems to promote its products in many other areas, including word processing, desktop databases, multimedia streaming, music downloads, content and Internet access. Andy Gavil, a professor at Howard University School of Law, said Microsoft's integration of instant messaging with new features in Windows XP recalls the same well-worn practice. "I think it does have a deja vu quality to it based on Netscape and all the issues that are very alive in the government's appeal of Microsoft," he said. "The question is, if Microsoft folds these features into the operating system so we all get them like we got IE, will that destroy the separate marketplace for these small software programmes? Will it allow them to compete better with AOL, or to push AOL off the desktop?" Some consumers also expressed worries about Windows' growing footprint. "I know how aggressive they are. I'd like them to back off a bit," said Tom Wesson, a computer programmer in Schaumburg, Ill. "I think they'd be more successful if they showed a little more respect and didn't try to dominate everything."

Microsoft could be further emboldened by contract negotiations with AOL involving the new operating system. As it has with previous Windows versions, AOL would prefer its software to be packaged with XP. But in this tenuous relationship, it has always been suggested that Microsoft has the upper hand. An AOL spokesman downplayed the importance of the talks. "If we don't come to a deal, then that's fine," he said, adding that the company is confident it can compete on the merits of its products. Analysts were more skeptical. "Long term, these negotiations matter. Windows XP effectively embeds many components of the online service directly into the operating system," Internet analyst Henry Blodget wrote this in a report for Merrill Lynch. "It would obviously not help AOL over the long term if these features gained a significant amount of traction." "The trend is towards charging for services as opposed to giving consumers a free lunch," Gartner's Smith said. "HailStorm and Passport make that easier by offering a standard for enabling transactions. That will help accelerate the adoption of payment technologies such as single sign-on and micropayments." Talk like that is exactly what Microsoft wants to hear. After years of losing billions of dollars on various online services, executives at the company compound outside Seattle are more than ready to start making some money. And if that can be done at the expense of AOL, it will be that much sweeter.