e.Digital Corporation (fka EDIG)

[Tinroad]

AOL, Microsoft Prepare For Net Battle

By Byron Acohido and Paul Davidson, USA TODAY
REDMOND, WASHINGTON, U.S.A., 19 Jun 2001, 11:48 AM CST
http://www.newsbytes.com/news/01/167004.html

With neither Microsoft nor AOL Time Warner willing to take a subordinate role in the drive to dominate the Internet, a clash of titans seems assured.

The No. 1 software maker plans to continue to extend its control of the personal computer to Internet services. Meanwhile, AOL Time Warner, the world's biggest media company, is sure to counter with innovative ways to deliver its huge cache of music, magazines and movies to Internet users.

AOL says talks broke down Saturday when it wouldn't agree to boot RealNetworks' media player from its service that would have been bundled with Microsoft's Windows XP, the operating system to be released this fall. Microsoft disputes that account.

In any case, the stage is set for open warfare on two key fronts: streaming media and instant messaging.

"It's about time," says Seamus McAteer of Jupiter Media Metrix. "You can't have two giant companies colluding. The consumer wants choice. Let the games begin."

AOL's refusal to drop RealNetworks' player sets up a tussle between Microsoft and the RealNetworks-AOL alliance in the market for online music.

"I expect the (battle) to continue for a number of years," says Mark Mooradian of Jupiter Media Metrix. "If AOL had shut out RealNetworks, that would have been the death knell for Real."

For now, RealNetworks has the upper hand. Its player is used for most Web audio and video streaming, though Microsoft's Windows Media Player has been gaining ground. Real is also bundled with AOL's service, giving it access to 29 million subscribers. And RealNetworks has teamed with three of the five major record labels to develop a licensed music-subscription service, called MusicNet, by early fall. Thus, at least initially, music from those firms will be available on AOL and RealPlayer but not on Windows Media Player.

Meanwhile, Microsoft has its own weapons. Its media player will be included with every copy of XP, potentially giving it wider reach. The failure of the talks will likely "increase Microsoft's vigor" to do a deal with Pressplay, a rival service led by music giants Universal and Sony, says Gartner analyst P.J. McNealy.

But some analysts expect MusicNet and Pressplay to cross-license each other's music. That would mean all music eventually could be played on RealPlayer or Windows Media Player. But such cross-licensing has raised antitrust concerns with European regulators. If Microsoft stays independent, it might be best positioned to do deals with all five major music firms, McNealy says.

Microsoft also covets access to AOL's large and loyal instant-messaging audience. MSN Messenger will be embedded in XP, enabling people to send rapid-fire messages and participate in audio and video conferencing. But Microsoft also wants MSN Messenger users to be able to talk to AOL's 25.5 million instant-messaging users in the USA. MSN Messenger has 18.3 million users, Jupiter Media Metrix says.

AOL cites privacy, security and reliability as reasons not to tie its messaging service into Microsoft's.

But experts say the real issue is Microsoft's barely disguised intent to use instant messaging to eventually lure AOL users to Microsoft's Internet services, such as identity authentication, online calendars and credit-card transactions.

"AOL needs to thwart Microsoft and keep Microsoft out of the pockets of its consumers," says Vern Keenan, industry analyst at Keenan Vision.

AOL is unlikely to suffer the same fate as companies steamrolled by Microsoft on its way to dominance of PCs.

AOL Time Warner on paper has the ability to amass 130 million magazine, cable TV and Internet subscribers. And it has yet to roll out its big gun — a multimedia mass-marketing campaign hawking Time Warner content on AOL.

"AOL is increasingly looking for ways to turn its vast trove of content into a revenue stream, and Microsoft owns the infrastructure and mechanisms to make money off that structure," says Dwight Davis at Summit Strategies.

Reported by USA Today, http://www.usatoday.com