Concerned enough to complain to government trustbusters? Probably not yet, but much depends on how the competition shakes out. The stakes are huge. A billion-dollar industry is up for grabs; the Information Highway is coming. For tens of millions of Americans, going online will be the easiest way to ride. Today there are three big services: America On-line, Prodigy and CompuServe. Roughly 5 million households tap into their networks to swap e-mail, troll data banks and chat with members of their “digital communities.” But now comes Microsoft, the 800-pound gorilla, just as the online market looks set to explode. It plans to bundle its electronic network with Windows 95, the next generation of the operating software that drives 60 million of the world’s PCs. If even a slender fraction of those customers go online via the Microsoft Network, it will dominate the new market overnight. That raises troubling antitrust questions, as Berkov sees it. Will Microsoft use its commanding position to “drive out competition?” And isn’t this why Justice is poking into its $1.5 billion acquisition of Intuit, a leader in online personal finance?
Maybe it’s time for a reality check. Sure, Microsoft has always played hard-but the angst is premature. For one thing, Microsoft’s “challenge” doesn’t yet exist. Windows 95 won’t ship until spring, if then. Neither, therefore, will the Microsoft NetWork. For another, Microsoft’s foray into the online world differs significantly from its competitors’. For the most part, the Big Three are what techies call “content rich.” They offer a huge menu of choices and services, from news and reference works to bulletin boards where people electronically bruit about matters of common interest. Microsoft’s network, by contrast, will at least initially be deliberately “content poor.” Rather than create an electronic “mall” and stock it with all sorts of digital goodies, as existing services do, Microsoft will merely build the mall. Goods and services would come from independent “store owners,” who rent space and, over a period of years, gradually create the network. And instead of licensing products to the network, as with other services, Microsoft’s retailers keep title to their works – as well as the bulk of any revenues.
That scares rivals, because Microsoft for now appears to be concerned less with making money than with growing a potentially gangbuster business. The company isn’t disclosing fees, except to say that it will be “aggressive.” (By some reports, Microsoft will charge less than haft the going rate of its rivals.) The danger for Microsoft’s competitors is that they may have to follow with more price cuts of their own, possibly beyond the point of profitability. Economies of scale are key, because the race for dominance ultimately comes down to numbers: whoever builds the biggest subscription base, fastest, will win. In that, Microsoft’s huge Windows market almost ensures success. No wonder rivals are crying “unfair.” Their fondest hope is that Washington’s trustbusters will keep Microsoft from fully exploiting its advantage. For now, the Justice Department offers no sign of what it might think. “We don’t feel we’re doing anything wrong,” says Nathan Myhrvold, architect of the company’s on-line drive. If anything, Microsoft seems to be doing everything right.
