Microsoft's Campaign to Thwart AOL-Netscape Partnership

Strategic Insights -

The Justice Department's antitrust case against Microsoft has yielded new evidence of the company's efforts to thwart a strategic alliance between America Online (AOL) and Netscape Communications. A senior executive at AOL testified that Microsoft's offer of a prime place on the Windows desktop was a key factor in AOL's decision to abandon the partnership and choose Internet Explorer as its main browser. The deal, which was proposed in 1995, would have allowed AOL and Netscape to jointly compete against Microsoft, which was seen as the "common enemy."

Key Takeaways:

  • Microsoft's campaign to thwart the AOL-Netscape partnership was led by its offer of a prime place on the Windows desktop, which was seen as a critically important competitive factor that Netscape could not match.
  • AOL executives testified that Microsoft's software was technically superior, but this was not the primary reason for choosing Internet Explorer as the main browser.
  • An internal email from AOL's chairman, Stephen M. Case, reveals that he was bargaining hard with Microsoft's chairman, Bill Gates, and that Microsoft's technology was neither inferior nor the only consideration.
  • A central allegation in the Government's case against Microsoft is that it illegally proposed dividing up the browser market with Netscape in June 1995.
  • Microsoft's position is that AOL "played Microsoft and Netscape off against each other, and in the end Microsoft won fair and square."
  • The lead trial lawyer for the Justice Department, David Boies, stated that the Microsoft defense team's focus on a proposed arrangement between Netscape and AOL was another attempt by Microsoft to "change the subject."

Statistics:

  • At the time the deal was being negotiated, AOL was four times as large as its nearest competitor.
  • Netscape had an estimated 84 percent of the browser market.
  • Over 90 percent of personal computers shipped today have Microsoft's Windows operating system loaded.
  • The proposed deal between AOL and Netscape would have allowed them to jointly compete against Microsoft, which was seen as the "common enemy."

Sources:

  • "Firsthand testimony from a senior executive at America Online and new documents introduced in court today" (New York Times, date not specified).
  • "Internal E-mail from Stephen M. Case, chairman of America Online" (quote in New York Times article).
  • "An internal E-mail message from William H. Gates, Microsoft's chairman" (quote in New York Times article).
  • "A central allegation in the Government's case against Microsoft" (quote in New York Times article).
  • David Boies, lead trial lawyer for the Justice Department, (statement in New York Times article).