M$ Monitor: Life & Death

[Audrie Krause <audrie@netaction.org>]

The Micro$oft Monitor
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Published by NetAction          Issue No. 37              December 3, 1998	
Repost where appropriate. Copyright and subscription info at end of message.
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In This Issue:
Netscape's Death ... and Java's Life
About the Micro$oft Monitor
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NETSCAPE'S DEATH ... AND JAVA'S LIFE

-- By Nathan Newman, Project Director
-- Email: nathan@netaction.org

NETSCAPE'S DEATH

It's an odd perverse world were Microsoft touts the death of its browser
rival Netscape as a reason to end the Microsoft antitrust investigation.
It's a bit like a dictatorial regime that shoots its opponents, then bills
the victims' families for the cost of the bullets.

With Microsoft's free giveaway of its Explorer browser (in order to
reinforce its Windows monopoly), Netscape had been forced to give away its
browser as well, thereby punching a gaping hole in its finances.  And even
Netscape's sales of server software to business had begun falling under
the Microsoft onslaught.   Let me repeat that: in the world of exponential
Internet growth, Netscape's core server sales had fallen 4% this summer
from the previous quarter.

Where Microsoft had revenues of over $4 billion last quarter, Netscape had
revenues of only $162 million - roughly 5% of its rival's revenues.  And
where Microsoft made $1.52 billion in profits (the highest profit margin
of any Fortune 500 company), Netscape eked out a microscopic $2.7 million
in profits - probably less than Bill Gates paid for the swimming pool at
his home.  The bottom-line is that Netscape has been dying a slow death
for the past year thanks to Microsoft.

So why would AOL exchange roughly $4 billion of its stock in exchange for
this dying dog?  A number of analysts have questioned AOL's judgement, but
the best answers are none too savory.  If Netscape was not that viable as
an independent company, such analysts note, maybe AOL can take a leaf
from Microsoft and use Netscape's operations as a loss leader to reinforce
its own anticompetitive advantages.

The most obvious attraction for AOL is Netscape's NetCenter web site.
Netscape's Navigator browser helps direct over 22 million people monthly
to the NetCenter web site, which would nicely supplement AOL's already
existing 14.6 million customers directed to its own online content and
services. AOL's customers use a modified browser that includes direct
links to many of AOL's most prominent advertising and commerce partners.

AOL intends to add similar links to Netscape Navigator to reinforce its
revenues from online "content" which is an increasing share of AOL's
revenue. AOL already receives over 16 percent of its revenue from such
online services and advertising, so controlling even a money-losing
browser is likely to give the company an anticompetitive advantage in
selling online content.  In this, AOL will begin to emulate the way
Microsoft's browser gives it a similar anticompetitive advantage in
keeping control of its core Windows monopoly.

Ironically, the one thing AOL's acquisition of Netscape will not do is
give AOL's own Internet service customers an alternative to using
Microsoft's browser.  As detailed in testimony in the Department of
Justice Microsoft antitrust case, AOL cut a long-term deal to use only
Microsoft's Explorer browser in exchange for AOL being included as an icon
on the Windows desktop.   Despite its acquisition of Netscape, AOL has
made clear it needs to be in Windows in order to reinforce AOL's dominance
as an Internet Service Provider, just as Microsoft needs AOL to distribute
Explorer in order to reinforce Microsoft's dominance of proprietary
Internet software standards.  So while Microsoft will hold onto its role
as browser for AOL's customers, AOL will poach online commerce from all
its Internet Service Provider (ISP) competitors whose customers use
Navigator - a truly byzantine division of the Internet spoils between
Microsoft and AOL.

This kind of collusion between what will be the two largest ISPs, the two
largest browser distributors, and the two largest online content providers
is the definition of what antitrust law is supposed to ban.

Microsoft has been hyping the "threat" of the AOL/Netscape combination,
but as outlined the merger is mostly a threat to the public interest and
every other ISP other than Microsoft.  Microsoft's argument seems to be
that antitrust does not apply as long as the Internet is divided between
two monopolistic companies.  The fact that some people are praising the
AOL/Netscape merger as a counterweight to Microsoft shows how much the
Microsoft threat has distorted the original ideal of the Internet as an
even playing field where the best innovation, rather than the biggest
company, would decide who would dominate.

If we want to return to that ideal, federal regulators should block the
AOL/Netscape merger and the DoJ should continue its lawsuit against
Microsoft until the latter agrees to end its monopolistic practices or,
alternatively, is broken up into separate competitive companies.  The
answer to Microsoft's monopoly is not more agglomeration of its opponents
but a breaking of its monopoly power.

... AND JAVA'S LIFE

If there is any unknown kicker to the proposed AOL/Netscape merger, it is
the role of Sun Microsystems and the Java language in this whole deal.
While the side deal involving Sun licensing Netscape software for its
enterprise computers creates additional worries of corporate collusion,
the one bright spot is the new emerging strength of the Java language,
both from this deal and from the courtroom loss by Microsoft earlier this
month over the Java issue.

While the Java language is not completely in the public domain, Sun has
been forced to work with a broad range of other corporations and
international regulatory agencies in order to build trust in the
language's standards.  The result is a language that is widely used by
thousands of developers and the promise of programs that will run on any
computer, regardless of operating system or hardware.  The key to this
promise is maintaining a uniform Java standard of which no company has
proprietary control.

Which is why the preliminary injunction issued on November 17 against
Microsoft is so important.  When Sun introduced Java, Microsoft licensed
use of the language for both its software developer tools and for its
Internet browser.  However, Microsoft soon began modifying the language in
proprietary ways in order to make programs written for Windows unusable on
other computer systems. This undermined the whole point of Java and Sun
sued Microsoft for violation of its licensing agreement.

Sun maintained that Microsoft was modifying the code for its own
monopolistic purposes, but Microsoft justified its modifications based on
the fact they would improve Java's speed on "Wintel" computers.   And the
reality was these modifications did speed up Java, since the cost of Java
running on any computer is that it does run slower on computers whose
hardware has not been designed specifically to accommodate Java.

But the question was why not modify the PC hardware rather than
undermining the Java software?

The answer came on November 9 when Intel Vice-President Steven D. McGeady
testified in the DoJ trial that Microsoft had since 1995 "repeatedly and
on multiple occasions" pushed Intel not to support Java with its hardware.
Microsoft backed up its threats on Java and a number of other issues of
dispute with Intel by threatening not to support future Intel processors
with its software, a "credible and fairly terrifying" threat in McGeady's
testimony.

For those who wonder what is lost from Microsoft's monopoly actions, this
was a clear answer.  Due to Microsoft threats, customers lost years of
innovations in computer hardware that were blocked to serve Microsoft's
monopoly interests in undermining Java.

And McGeady's testimony made clear that Microsoft's undermining of Java's
standards was not an incidental result of tailoring it to Intel machines,
but a deliberate strategy in defiance of its licensing agreements with
Sun.

All of this no doubt helped encourage Judge Ronald M. Whyte to issue the
November 17 injunction ordering Microsoft to begin shipping Sun's version
of Java within 90 days.  While Microsoft would not have to recall software
already shipped with its modifications, it would have to include Sun's
version of Java in the Windows "virtual machine" for reading Java programs
and its Visual J++ Java development tools that help programmers develop
software.

This ruling was enough to give Java a major boost. On top of that ruling,
one part of the proposed AOL-Netscape-Sun deal appears to be a boost for
Java by AOL in agreeing to produce stand-alone "appliances" to access the
Internet using hardware tailored for the Java language.

This latter fact is another reason many people have looked favorably on
the AOL takeover of Netscape.

However, NetAction agrees with other public advocates like the Consumer
Project on Technology that the AOL-Netscape conglomeration as a twisted
solution to the Microsoft problem.  A much better solution is the one
being pursued by the Department of Justice: forcing Microsoft to follow
the law.  In a world without monopolists like Microsoft, public-interested
innovations like Java or open source software will be able to succeed
without needing "counter-monopolies" to push them through.

The Internet was built in such an environment and we need to fight for a
technology environment dominated not by two or three monopolists but
instead dominated by the best ideas thousands of minds can conceive,
whether at a university workstation or in a garage startup.

-- Comments or questions about this article should be directed to:
   Nathan Newman <mailto:nathan@netaction.org>
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About The Micro$oft Monitor

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