From MSWord to MSWorld:
How Microsoft is Building a Global Monopoly


From Software to Hard Cash: Controlling Financial Transactions on the Internet

Having come to dominate software sales in the computing world, Microsoft is looking to use that control to move into other markets. With large areas of commercial activity moving onto the Internet, a prime Microsoft goal is to take substantial control of the standards governing financial transactions on the Internet and to use that position to leverage itself into an array of on-line commercial activities. While working to set the software standards for financial transactions on the Internet, Microsoft is rapidly moving from being a software supplier to being a major direct player in Internet commerce unto itself by using its dominance of software and its monopoly position in operating systems to reinforce its other businesses on-line.

Intuit Failure and Server Success

Microsoft had originally hoped to take a very direct route to dominating on-line commerce by cornering the market on all financial software sold to consumers. In 1995, it was ready to pay $1.5 billion to acquire Intuit, maker of the dominant financial software program Quicken. Microsoft had tried to make inroads with its own Money software, but Quicken had proven a harder challenger than any other software competitor (even with Money bundled with other software for free), so buying the company had become the next best option. However, under pressure from competitors and banks, the Justice Department intervened to pressure Microsoft to abandon the deal.

The result shows some of the benefits of blocking Microsoft from dominating a market, but subsequent events demonstrate that when one avenue of control is blocked, Microsoft will simply take another route. Consumers who purchase Intuit's Quicken 98 will have to install Microsoft's Explorer browser in order to use the software for online banking. In some respects, however, having been blocked from merger, Microsoft has been forced to compete hard with Intuit in improving its software. Most importantly, Microsoft has been forced to work with Intuit on open transaction standards, called Open Financial Exchange (OFX), acceptable to both companies along with an array of banks, including Bank of America, Chase Manhattan, Citibank, Wells Fargo along with many others.[56]

However, having been blocked in directly controlling the software and standards for financial transactions, Microsoft has rushed to dominate the tools and server software necessary for banks and other financial institutions to implement the standards. It has established alliances with Hewlett-Packard and Verifone (maker of most credit card "swipe" machines in retail stores) to promote Microsoft financial server software.[57] It also has established an alliance with Tandem and Compaq computers, dominant suppliers of hardware to banks, to promote an upgraded version of its SQL Server to act as a database for financial transactions through ATMs and home computers. Microsoft has supplemented its developer tools with a specific set of tools aimed at financial institutions working to build transaction-oriented Web sites.[58]

But the key to Microsoft's strategy is making its Merchant Server the dominant Internet server for on-line commerce. Lacking the technology inside Microsoft, the company in mid-1996 acquired eShop Inc., which had created key technology in running their own virtual shopping mall. Shutting down the mall, Microsoft made it clear that it was eShop technology they needed for incorporation into Merchant Server. Analysts described Microsoft's purchase as a major blow to competitors, especially Netscape. Measuring the importance of eShop, Microsoft itself stated it saved 12 to 24 months of development time and outside analysts argued that cornering the eShop technology was going to give Microsoft a three-year jump on the competition - a lifetime in the fast-moving computer world.[59]

Sealing its advantage, Microsoft quickly nailed down contracts with major financial institutions to use Merchant Server, including BankAmerica Corp, Wells Fargo, NOVUS Services and hundreds of others (including many of those who had worked with Microsoft and Intuit in establishing the OFX on-line transaction standards.) As part of the deal, Microsoft and its on-line partner VeriFone added secure Internet retailing and payment systems, further strengthening the package that Microsoft has been able to offer in selling not only its Merchant Server but its underlying NT computers as well.[60]

While Microsoft had not been able to dominate on-line financial transactions from the consumer software side, it rapidly proved that its already expanding dominance of server software could be leveraged for many of the same goals. It has opened its own financial Web site, Microsoft Investor, which already has 120,000 people a day--a number that Microsoft has generated by providing, in the words of Forbes magazine "tour de force software and financial analysis at no cost." Along with this has come lavish spending on free services to generate Web traffic, while generating commissions and fees for higher-level services.[61] Microsoft has already forged alliances with Charles Schwab and Fidelity Investments for their customers to trade stocks through the service, generating a share of the commissions for Microsoft. Since Schwab alone already has 908,000 active online customer accounts with holdings of more than $66 billion, even a piece of that and other financial allies' business promises large growth areas for Microsoft.[62]

Next: Taking On Internet Commerce Across Industries: Travel, Cars, Real Estate and Local Information

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