It's not as though America Online chairman Steve
Case and Microsoft Corp. chairman Bill Gates are best friends far
They have competed in online services, Web browsing software and
instant messaging. Now, they and their partners could go
head-to-head in high-speed cable Internet access as well.
Last year, Microsoft poured $5 billion into AT&T; Corp. and an
additional $3 billion in other telecommunications companies as part
of a broad strategy to invest in high-speed Internet access.
It seemed Microsoft was positioned perfectly to offer software
and Internet content over cable Internet hookups until Monday,
when AOL announced its merger with Time Warner, the second-largest
cable provider in the United States.
Once again, AOL and Microsoft via their partners could be in
competition in a new area of technology, the next generation of
high-speed, or broadband, Internet services.
"This deal will certainly give Microsoft some pause," said
Andrew Bartells, senior research analyst with the Giga Information
Group. "Microsoft may have been thinking that AOL was being slow
with regard to broadband, but AOL just caught up in a hurry."
The vast majority of Internet users, whether they use AOL or
another dial-up service, access the Internet at a top speed of
56,000 bits per second about the time it takes to download a page
of text, but no pictures, from the World Wide Web. Internet access
through cable TV lines, already available in a number of U.S.
cities, is up to 53 times faster.
With faster access, Internet users could download TV shows and
movies in seconds instead of hours. Information could be presented
through complex graphics instead of simple text.
Both AOL and Microsoft will now compete to see how many homes
their high-speed partners can reach.
"With the way the cable industry is structured, you might see
cities that are primarily AT&T; customers, using Microsoft's
software, or Time Warner's customers, using America Online," said
Lisa Pierce, a broadband analyst with Giga.
The Time Warner acquisition also gives AOL a new way to deploy
its upcoming AOL-TV set-top boxes, introduced last week at the
Computer Electronics Show in Las Vegas. AOL-TV will compete
directly with Microsoft's WebTV, which, despite being the first
Internet set-top product, has yet to catch on in great numbers.
In fact, AOL's dominance in the consumer market may force
Microsoft and AT&T; to focus more on business customers, according
to Gartner Group analyst Brett Azuma.
"Microsoft and AT&T; have a great reputation in the business
space, and their software is designed for the kind of connectivity
that business users want," Azuma said. "AOL, on the other hand,
has a strong consumer following. They may end up in different areas
of the market."
Competition is nothing new to America Online and Microsoft.
Noting the growing popularity of AOL, Microsoft launched a
competing service, the Microsoft Network, in 1995. It failed to
catch on, and today has 3 million subscribers to AOL's 20 million.
The two companies offer competing e-mail services and competing
instant messaging software; Microsoft has the edge in free e-mail,
while AOL's instant messaging products are the de facto standard on
Microsoft also competed aggressively with AOL subsidiary
Netscape Communications Corp. over browser software used to view
pages on the World Wide Web. Netscape essentially lost the battle,
though it now forms the base of the U.S. Department of Justice's
antitrust suit against Microsoft.