The Microsoft files: Microsoft marketshare key, AOL says

The Microsoft files: Microsoft marketshare key, AOL says

Under intense cross-examination on Wednesday, an executive of America Online insisted that the key reason his company chose to incorporate Microsoft's Internet browser technology instead of Netscape's product was because Microsoft offered to place AOL on its market-dominant Windows operating system desktop screen.

The testimony of David Colburn, AOL's senior vice president of business affairs, may have helped substantiate the charge that Microsoft used its dominant position to gain advantage in other markets and knock out competitors.

"Microsoft used its monopoly control over who could get access to the desktop in order to require America Online to give exclusivity to its browser," David Boies, attorney for the US Department of Justice, said. "The critical item, as the witness said, was the fact that Microsoft and only Microsoft could control access to a monopoly desktop."

Mark Murray, Microsoft's spokesman, contended that AOL was already present with a more beneficial position for its desktop icon on over 90 per cent of home computers that were being sold as a result of contracts with computer makers. "Nothing in Microsoft's agreement with America Online stopped America Online from working with Netscape."

Colburn was AOL's chief negotiator during the company's talks with both Microsoft and the software giant's rival, Netscape, about licensing browser technology to distribute to subscribers starting in October 1995. The talks culminated in pacts with both companies in March 1996. He testified that a backdrop to those negotiations was AOL's concern about competition from the Microsoft Network online service, which was bundled with each copy of Windows 95 and promoted with an icon on the desktop.

Under cross-examination on Wednesday, Microsoft's hired counsel, John Warden, asked Colburn: "The most important factor in choosing between Microsoft and Netscape was getting software that worked with the client, wasn't it?"

Colburn remained firm. "No. We looked at five factors, the most important of which was securing relative parity with MSN as far as the desktop was concerned," he said. The other factors, he added, were how much AOL would have to pay, the browser's interoperability with Windows, flexibility to offer other browsers and whether the technology would work.

Despite Colburn's contention about achieving the Windows desktop positioning, Warden pointed out that AOL already had negotiated a desktop icon with most of the leading computer manufacturers, accounting for about 90 per cent of PCs sold. That icon, Colburn admitted, was far more important than the placement in the Online Services folder that the company won from Microsoft in the browser agreement.

Warden also entered into evidence several internal AOL memos that questioned the benefits of the Microsoft desktop, as opposed to AOL's practice of "carpet bombing" potential subscribers. In 1995, AOL distributed 175 million copies of its software, according to the memos.

While Netscape's Navigator browser is available to AOL subscribers, they have to go looking for it. AOL is not allowed to promote Netscape's browser in any prominent locations. Colburn said the agreement amounts to "virtual exclusivity". Under questioning, he explained the phrase.

"Because of the fact that Internet Explorer has to be the default browser, because there is relatively little place to promote Netscape, the vast, vast majority of our subscribers use IE," he said. "Customers use what we give them. They have virtual exclusivity."

Microsoft attempted to rebuke Colburn's testimony by introducing a number of internal AOL e-mails, documents and charts that indicated Microsoft's browser technology was at least a central part of the reason for AOL's decision to make Internet Explorer the default browser.

In one AOL memo from February 2, 1996, officials had created a chart pitting Netscape against Microsoft. Microsoft was named the preferred browser in the "winner" column in numerous categories, including architecture, embeddability, customisability of core features, culture fit and "hunger". Netscape won no categories.

"Isn't it true that AOL picked for its proprietary client the technology it thought best for subscribers?" Microsoft attorney Warden asked.

"Yes. In our assessment of the different technologies, it was clear to us that Microsoft would get an integrated browser for Windows 95 faster," Colburn said. But, he added, "At the end of the day, the telltale part was the value of placement on the desktop."

In memo after memo from AOL's own files, Microsoft showed the company officials cooing about "an amazing array of cool Internet-centric technology under development" at Microsoft. In others, AOL technologists complained that Netscape's browser had a "very monolithic architecture" and that the company was "not really showing any sort of technical leadership". AOL's CEO Steve Case complained to Netscape co-founder Marc Andreessen in a December 1995 e-mail about the "state of source code. Is it written modular, layered and well documented or is it monolithic/spaghetti code?"

Microsoft also introduced e-mails that document that AOL and Netscape were in talks about cooperating in the fourth quarter of 1995. Those talks included proposals to stay out of each others' markets, AOL's market being online services and Netscape's being Internet software. Each company had small investments in the other's market at the time of the talks, but would have agreed to stay out of competition in those markets if the agreement had been consummated.

"When you were in talks with the Department of Justice (over the MSN icon on the Windows desktop), did you tell them that you had made an illegal market division proposal?" Warden asked Colburn.

Colburn responded that it was a "strategic relationship." He added: "We were going to do certain services, they were going to do certain services."

Outside the courthouse, Microsoft spokesman Murray alleged that AOL and Netscape were teaming up at trial to defeat Microsoft and that accounted for Colburn's reluctance to admit that Microsoft technology was a great part of AOL's browser decision.

"There was startling new evidence that AOL and Netscape were working together to attack Microsoft," Murray said. He termed the AOL-Netscape deal that was never executed "far more explicit" than the alleged market division Microsoft proposed to Netscape and questioned why the Justice Department didn't investigate those other companies.

Justice Department lawyer Boies countered that neither AOL nor Netscape had a significant market share in each other's market -- even though both were considered market leaders in their own arenas.

AOL agreed to license Netscape's browser on March 11, 1996. But, on the very next day, AOL also agreed to license Microsoft's Internet Explorer and make that the default browser in the AOL software distributed to that company's 13 million subscribers worldwide.

The Microsoft pact also provided that AOL software would be distributed with Windows 95 and any subsequent Windows release and also ensured that AOL was promoted in a category on the desktop first screen called the Online Services folder.

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