Micro$oft Monitor

Published by NetAction Issue No. 37 December 3, 1998
Repost where appropriate. See copyright information at end of message.

IN THIS ISSUE:

Netscape's Death ... and Java's Life
About Micro$oft Monitor


Netscape's Death ... and Java's Life

By Nathan Newman, NetAction Project Director

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.

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About The Micro$oft Monitor

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